Assembly Biosciences, Inc.

2018ANNUAL REPORT

DEAR FELLOW SHAREHOLDERS

It is a privilege to report on the advancements our team at Assembly Biosciences (NASDAQ: ASMB) 
has made over the past year. Since 2014, we have transformed our platform programs into a product 
pipeline—consisting of a new class of oral therapeutic candidates for the treatment of hepatitis B 
virus (HBV) infection and a novel class of oral live biotherapeutic products (LBPs) rationally designed 
to treat disorders associated with the microbiome. This important work has resulted in a portfolio of 
clinical and preclinical compounds that aim to improve the health and well-being of patients with 
serious diseases—a central tenet of our mission as a company. 

“The promise of Assembly lies in our unique therapeutic development platforms and 
world class scientific leadership.”

 “Everything we do has a purpose—seeking the answers that will drive our programs
 forward with the goal of improving the lives of patients.”

During 2018, the Assembly organization continued on its growth trajectory, as we expanded the 
capabilities of our offices in Indianapolis, San Francisco, and Groton (Connecticut). Furthermore, 
we have grown our footprint in China—where HBV infection is considered the number one public 
health epidemic—to include a business office in Shanghai and a regulatory affairs office in Beijing 
in support of our development strategies there. 

All of these accomplishments have been made possible by the continued support of our shareholders, 
as evidenced by our successful offering of common stock in July, when we were able to raise an 
additional $165 million of capital. This offering provides the resources necessary for Assembly to 
advance our programs through multiple milestones and highlights the commitment that our long-term 
shareholders and new healthcare-focused institutional funds have made in support of our mission. 

HBV-CURE PROGRAM: ON THE PRECIPICE OF CHANGE
In recent years, the treatment approach for HBV has begun evolving from one of chronic suppression 
to a future where patients may be cured with a finite treatment. At our inaugural research and 
development day held in New York City in June, our leadership team, along with hepatology experts 
from the U.S. and Europe, provided a deep-dive into the scientific rationale for our core inhibitors to 
become a potential backbone to a curative regimen for patients with chronic HBV. 

Our portfolio of potent Core Inhibitors (CIs) has expanded to three chemically-distinct compounds, 
two of which are in human studies, with the third in IND-enabling studies. Each of our HBV 
candidates was selected for presentation at the 2019 European Association of the Study of Liver 
Disease (EASL), in Vienna, Austria.

With the combined efforts of the entire organization, we advanced our lead CI, ABI-H0731, or 731, 
into two Phase 2a studies during 2018, which are continuing at clinical study sites around the globe. 
Both of these studies are now fully enrolled, and we anticipate reporting results at medical meetings 
during 2019.  Initial interim data from these studies was selected as a late-breaker oral presentation 
at EASL 2019. 731 also was granted Fast Track Designation by the U.S. FDA for the treatment of 
hepatitis B viral infection, and in November was recognized as a “Best of AASLD” oral presentation 
by our peers, further highlighting the potential of our proprietary core inhibitors in the treatment of 
chronic HBV.

Our second product candidate in the HBV-cure program, ABI-H2158, or 2158, has been discovered 

and developed internally and is chemically distinct from 731. We began enrolling healthy volunteers 

in a Phase 1a dose-ranging clinical study during 2018 and look forward to establishing the safety, 

tolerability, and pharmacokinetics of this next-generation candidate in this study. We will report 

data from this study in a late-breaker poster at EASL 2019 and anticipate initiating a Phase 1b 

dose-ranging study in non-cirrhotic patients with chronic HBV infection in 2019.  Our goal is to 

establish safety and efficacy of 2158 in HBV patients this year. 

We also nominated a third product candidate to our HBV-cure program during 2018. ABI-H3733, or 

3733, is also an internally discovered CI designed to be chemically distinct from both 2158 and 731. 

We are currently conducting Investigational New Drug (IND)-enabling studies with 3733 with the 

goal of initiating a Phase 1a study by early 2020.  We were selected for an oral presentation on our 

preclinical profile with 3733 at EASL 2019.

MICROBIOME PROGRAM – A FULLY-INTEGRATED PLATFORM 

We have a unique organization at Assembly—in addition to our leading HBV-cure and virology 

R&D programs, we have also been developing a separate and robust program focused on the 

microbiome.  We have in-house, fully integrated capabilities to develop live biotherapeutics, from 

discovery of bacteria with specific pharmacologic functions to oral drug delivery. We utilize a 

rigorous process for discovery, preclinical testing, manufacturing and clinical development of 

rationally-designed live bacterial strains, allowing for a clear regulatory path, as defined by the 

U.S. FDA and other regulatory bodies around the globe. One of our key differentiators has been 

our in-house manufacturing that we have invested in from the beginning, which we believe is 

unparalleled industry-wide. We also utilize a patented delivery system, GEMICEL®, which is 

designed to allow for targeted oral delivery of live biologic and conventional therapies to the 

lower gastrointestinal (GI) tract. These aspects combine to make us one of the leading microbiome 

drug-developers in the industry. 

Thanks to our world-class microbiome team and program, I am pleased to report that we have 

initiated a Phase 1b study of ABI-M201, the first clinical candidate from our collaboration with 

Allergan in patients with mildly to moderately active ulcerative colitis. M201 is the first LBP 

containing a rationally derived consortium of bacteria to be evaluated in patients.

Assembly established the research, development, collaboration and license agreement with 

Allergan in January 2017 worth up to $2.8 Billion in upfront and milestone commitments, aimed 

at developing and commercializing microbiome GI programs. Assembly retains all rights to other 

indications outside of this GI focus for the Allergan collaboration.

“Since her appointment a year ago as the Chief Scientific Officer of our Microbiome program, 

Dr. Jackie Papkoff has had a major influence in shaping the strategy and progress of our 

program and has successfully transitioned our first LBP candidate into clinical studies.”

By leveraging the full potential of our microbiome platform, we are identifying additional novel, 

proprietary product candidates. These may allow us to address a broad range of disease indications 

that reach far beyond gastroenterology and could be developed either internally or in collaboration 

with strategic partners.

BUILDING ON THE SCAFFOLDS OF SUCCESS

Patients remain our first priority at Assembly; they are the reason we are here today. I am grateful 

to these patients and the clinicians who have taken part in our clinical studies because their 

participation is essential to advancing our research towards bringing new, innovative medicines to 

people in need. In addition, it is our shareholders who support our endeavors to improve overall 

health with an aim to cure diseases such as HBV, and to transform lives in a broad range of 

difficult-to-treat conditions around the world. We are grateful for your continued support. 

In summary, 2018 was a transformational year at Assembly, and 2019 promises to be data-rich with 

continued development across both of our therapeutic programs. I am honored to lead such a 

talented, hard-working team toward our shared mission. We are unified in our commitment to bring 

therapies to patients facing serious diseases. We have made important progress in advancing our 

strategy and are poised for significant progress as we transition our focus from early stage discovery 

to later stage clinical development throughout 2019 and beyond. 

Warmest regards, 

Derek A. Small 

President and CEO 

DEAR FELLOW SHAREHOLDERS

It is a privilege to report on the advancements our team at Assembly Biosciences (NASDAQ: ASMB) 

has made over the past year. Since 2014, we have transformed our platform programs into a product 

pipeline—consisting of a new class of oral therapeutic candidates for the treatment of hepatitis B 

virus (HBV) infection and a novel class of oral live biotherapeutic products (LBPs) rationally designed 

to treat disorders associated with the microbiome. This important work has resulted in a portfolio of 

clinical and preclinical compounds that aim to improve the health and well-being of patients with 

serious diseases—a central tenet of our mission as a company. 

“The promise of Assembly lies in our unique therapeutic development platforms and 

world class scientific leadership.”

 “Everything we do has a purpose—seeking the answers that will drive our programs

 forward with the goal of improving the lives of patients.”

During 2018, the Assembly organization continued on its growth trajectory, as we expanded the 

capabilities of our offices in Indianapolis, San Francisco, and Groton (Connecticut). Furthermore, 

we have grown our footprint in China—where HBV infection is considered the number one public 

health epidemic—to include a business office in Shanghai and a regulatory affairs office in Beijing 

in support of our development strategies there. 

All of these accomplishments have been made possible by the continued support of our shareholders, 

as evidenced by our successful offering of common stock in July, when we were able to raise an 

additional $165 million of capital. This offering provides the resources necessary for Assembly to 

advance our programs through multiple milestones and highlights the commitment that our long-term 

shareholders and new healthcare-focused institutional funds have made in support of our mission. 

HBV-CURE PROGRAM: ON THE PRECIPICE OF CHANGE

In recent years, the treatment approach for HBV has begun evolving from one of chronic suppression 

to a future where patients may be cured with a finite treatment. At our inaugural research and 

development day held in New York City in June, our leadership team, along with hepatology experts 

from the U.S. and Europe, provided a deep-dive into the scientific rationale for our core inhibitors to 

become a potential backbone to a curative regimen for patients with chronic HBV. 

Our portfolio of potent Core Inhibitors (CIs) has expanded to three chemically-distinct compounds, 

two of which are in human studies, with the third in IND-enabling studies. Each of our HBV 

candidates was selected for presentation at the 2019 European Association of the Study of Liver 

Disease (EASL), in Vienna, Austria.

With the combined efforts of the entire organization, we advanced our lead CI, ABI-H0731, or 731, 

into two Phase 2a studies during 2018, which are continuing at clinical study sites around the globe. 

Both of these studies are now fully enrolled, and we anticipate reporting results at medical meetings 

during 2019.  Initial interim data from these studies was selected as a late-breaker oral presentation 

at EASL 2019. 731 also was granted Fast Track Designation by the U.S. FDA for the treatment of 

hepatitis B viral infection, and in November was recognized as a “Best of AASLD” oral presentation 

by our peers, further highlighting the potential of our proprietary core inhibitors in the treatment of 

chronic HBV.

Our second product candidate in the HBV-cure program, ABI-H2158, or 2158, has been discovered 
and developed internally and is chemically distinct from 731. We began enrolling healthy volunteers 
in a Phase 1a dose-ranging clinical study during 2018 and look forward to establishing the safety, 
tolerability, and pharmacokinetics of this next-generation candidate in this study. We will report 
data from this study in a late-breaker poster at EASL 2019 and anticipate initiating a Phase 1b 
dose-ranging study in non-cirrhotic patients with chronic HBV infection in 2019.  Our goal is to 
establish safety and efficacy of 2158 in HBV patients this year. 

We also nominated a third product candidate to our HBV-cure program during 2018. ABI-H3733, or 
3733, is also an internally discovered CI designed to be chemically distinct from both 2158 and 731. 
We are currently conducting Investigational New Drug (IND)-enabling studies with 3733 with the 
goal of initiating a Phase 1a study by early 2020.  We were selected for an oral presentation on our 
preclinical profile with 3733 at EASL 2019.

MICROBIOME PROGRAM – A FULLY-INTEGRATED PLATFORM 
We have a unique organization at Assembly—in addition to our leading HBV-cure and virology 
R&D programs, we have also been developing a separate and robust program focused on the 
microbiome.  We have in-house, fully integrated capabilities to develop live biotherapeutics, from 
discovery of bacteria with specific pharmacologic functions to oral drug delivery. We utilize a 
rigorous process for discovery, preclinical testing, manufacturing and clinical development of 
rationally-designed live bacterial strains, allowing for a clear regulatory path, as defined by the 
U.S. FDA and other regulatory bodies around the globe. One of our key differentiators has been 
our in-house manufacturing that we have invested in from the beginning, which we believe is 
unparalleled industry-wide. We also utilize a patented delivery system, GEMICEL®, which is 
designed to allow for targeted oral delivery of live biologic and conventional therapies to the 
lower gastrointestinal (GI) tract. These aspects combine to make us one of the leading microbiome 
drug-developers in the industry. 

Thanks to our world-class microbiome team and program, I am pleased to report that we have 
initiated a Phase 1b study of ABI-M201, the first clinical candidate from our collaboration with 
Allergan in patients with mildly to moderately active ulcerative colitis. M201 is the first LBP 
containing a rationally derived consortium of bacteria to be evaluated in patients.

–  ABI-H0731, ASMB’s lead CI, designated a “Best of AASLD 2018” selection for  

our Phase 1b data presentation

–  Generated first data in patients with HBV for ABI-H0731 and advanced into   

Phase 2a clinical development

– 

Initiated Phase 1a study of second CI, ABI-H2158

–  Selection of third CI, ABI-H3733

KEY ACCOMPLISHMENTS

–  All ASMB HBV product candidates selected for presentations at EASL 2019

–  Advanced first microbiome clinical candidate, ABI-M201, into Phase 1b study 

for mildly to moderately active ulcerative colitis

–  Hosted inaugural research and development day highlighting our progress

Assembly established the research, development, collaboration and license agreement with 

Allergan in January 2017 worth up to $2.8 Billion in upfront and milestone commitments, aimed 

at developing and commercializing microbiome GI programs. Assembly retains all rights to other 

indications outside of this GI focus for the Allergan collaboration.

“Since her appointment a year ago as the Chief Scientific Officer of our Microbiome program, 

Dr. Jackie Papkoff has had a major influence in shaping the strategy and progress of our 

program and has successfully transitioned our first LBP candidate into clinical studies.”

By leveraging the full potential of our microbiome platform, we are identifying additional novel, 

proprietary product candidates. These may allow us to address a broad range of disease indications 

that reach far beyond gastroenterology and could be developed either internally or in collaboration 

with strategic partners.

BUILDING ON THE SCAFFOLDS OF SUCCESS

Patients remain our first priority at Assembly; they are the reason we are here today. I am grateful 

to these patients and the clinicians who have taken part in our clinical studies because their 

participation is essential to advancing our research towards bringing new, innovative medicines to 

people in need. In addition, it is our shareholders who support our endeavors to improve overall 

health with an aim to cure diseases such as HBV, and to transform lives in a broad range of 

difficult-to-treat conditions around the world. We are grateful for your continued support. 

In summary, 2018 was a transformational year at Assembly, and 2019 promises to be data-rich with 

continued development across both of our therapeutic programs. I am honored to lead such a 

talented, hard-working team toward our shared mission. We are unified in our commitment to bring 

therapies to patients facing serious diseases. We have made important progress in advancing our 

strategy and are poised for significant progress as we transition our focus from early stage discovery 

to later stage clinical development throughout 2019 and beyond. 

Warmest regards, 

Derek A. Small 

President and CEO 

 
 
 
DEAR FELLOW SHAREHOLDERS

It is a privilege to report on the advancements our team at Assembly Biosciences (NASDAQ: ASMB) 

has made over the past year. Since 2014, we have transformed our platform programs into a product 

pipeline—consisting of a new class of oral therapeutic candidates for the treatment of hepatitis B 

virus (HBV) infection and a novel class of oral live biotherapeutic products (LBPs) rationally designed 

to treat disorders associated with the microbiome. This important work has resulted in a portfolio of 

clinical and preclinical compounds that aim to improve the health and well-being of patients with 

serious diseases—a central tenet of our mission as a company. 

“The promise of Assembly lies in our unique therapeutic development platforms and 

world class scientific leadership.”

 “Everything we do has a purpose—seeking the answers that will drive our programs

 forward with the goal of improving the lives of patients.”

During 2018, the Assembly organization continued on its growth trajectory, as we expanded the 

capabilities of our offices in Indianapolis, San Francisco, and Groton (Connecticut). Furthermore, 

we have grown our footprint in China—where HBV infection is considered the number one public 

health epidemic—to include a business office in Shanghai and a regulatory affairs office in Beijing 

in support of our development strategies there. 

All of these accomplishments have been made possible by the continued support of our shareholders, 

as evidenced by our successful offering of common stock in July, when we were able to raise an 

additional $165 million of capital. This offering provides the resources necessary for Assembly to 

advance our programs through multiple milestones and highlights the commitment that our long-term 

shareholders and new healthcare-focused institutional funds have made in support of our mission. 

HBV-CURE PROGRAM: ON THE PRECIPICE OF CHANGE

In recent years, the treatment approach for HBV has begun evolving from one of chronic suppression 

to a future where patients may be cured with a finite treatment. At our inaugural research and 

development day held in New York City in June, our leadership team, along with hepatology experts 

from the U.S. and Europe, provided a deep-dive into the scientific rationale for our core inhibitors to 

become a potential backbone to a curative regimen for patients with chronic HBV. 

Our portfolio of potent Core Inhibitors (CIs) has expanded to three chemically-distinct compounds, 

two of which are in human studies, with the third in IND-enabling studies. Each of our HBV 

candidates was selected for presentation at the 2019 European Association of the Study of Liver 

Disease (EASL), in Vienna, Austria.

With the combined efforts of the entire organization, we advanced our lead CI, ABI-H0731, or 731, 

into two Phase 2a studies during 2018, which are continuing at clinical study sites around the globe. 

Both of these studies are now fully enrolled, and we anticipate reporting results at medical meetings 

during 2019.  Initial interim data from these studies was selected as a late-breaker oral presentation 

at EASL 2019. 731 also was granted Fast Track Designation by the U.S. FDA for the treatment of 

hepatitis B viral infection, and in November was recognized as a “Best of AASLD” oral presentation 

by our peers, further highlighting the potential of our proprietary core inhibitors in the treatment of 

chronic HBV.

Our second product candidate in the HBV-cure program, ABI-H2158, or 2158, has been discovered 

and developed internally and is chemically distinct from 731. We began enrolling healthy volunteers 

in a Phase 1a dose-ranging clinical study during 2018 and look forward to establishing the safety, 

tolerability, and pharmacokinetics of this next-generation candidate in this study. We will report 

data from this study in a late-breaker poster at EASL 2019 and anticipate initiating a Phase 1b 

dose-ranging study in non-cirrhotic patients with chronic HBV infection in 2019.  Our goal is to 

establish safety and efficacy of 2158 in HBV patients this year. 

We also nominated a third product candidate to our HBV-cure program during 2018. ABI-H3733, or 

3733, is also an internally discovered CI designed to be chemically distinct from both 2158 and 731. 

We are currently conducting Investigational New Drug (IND)-enabling studies with 3733 with the 

goal of initiating a Phase 1a study by early 2020.  We were selected for an oral presentation on our 

preclinical profile with 3733 at EASL 2019.

MICROBIOME PROGRAM – A FULLY-INTEGRATED PLATFORM 

We have a unique organization at Assembly—in addition to our leading HBV-cure and virology 

R&D programs, we have also been developing a separate and robust program focused on the 

microbiome.  We have in-house, fully integrated capabilities to develop live biotherapeutics, from 

discovery of bacteria with specific pharmacologic functions to oral drug delivery. We utilize a 

rigorous process for discovery, preclinical testing, manufacturing and clinical development of 

rationally-designed live bacterial strains, allowing for a clear regulatory path, as defined by the 

U.S. FDA and other regulatory bodies around the globe. One of our key differentiators has been 

our in-house manufacturing that we have invested in from the beginning, which we believe is 

unparalleled industry-wide. We also utilize a patented delivery system, GEMICEL®, which is 

designed to allow for targeted oral delivery of live biologic and conventional therapies to the 

lower gastrointestinal (GI) tract. These aspects combine to make us one of the leading microbiome 

drug-developers in the industry. 

Thanks to our world-class microbiome team and program, I am pleased to report that we have 

initiated a Phase 1b study of ABI-M201, the first clinical candidate from our collaboration with 

Allergan in patients with mildly to moderately active ulcerative colitis. M201 is the first LBP 

containing a rationally derived consortium of bacteria to be evaluated in patients.

Assembly established the research, development, collaboration and license agreement with 
Allergan in January 2017 worth up to $2.8 Billion in upfront and milestone commitments, aimed 
at developing and commercializing microbiome GI programs. Assembly retains all rights to other 
indications outside of this GI focus for the Allergan collaboration.

“Since her appointment a year ago as the Chief Scientific Officer of our Microbiome program, 
Dr. Jackie Papkoff has had a major influence in shaping the strategy and progress of our 
program and has successfully transitioned our first LBP candidate into clinical studies.”

By leveraging the full potential of our microbiome platform, we are identifying additional novel, 
proprietary product candidates. These may allow us to address a broad range of disease indications 
that reach far beyond gastroenterology and could be developed either internally or in collaboration 
with strategic partners.

EXPECTED MILESTONES

–  ABI-H0731: Report data from Phase 2a studies of ABI-H0731 at medical meetings 

•  201 “viral antigen” proof-of-concept study for HBeAg positive and negative  
  patients whose viral load is already suppressed on active nucleos(t)ide 

(‘Nuc’) therapy

•  202 “vial load” study for treatment-naïve HBeAg positive patients to evaluate  
  the de novo combination of ABI-H0731 and ‘Nuc’ therapy to ‘Nuc’ monotherapy

–  ABI-H2158: Report Phase 1a data and initiate Phase 1b dose-ranging study in  

patients with chronic HBV infection

–  Present preclinical profile of 3733 as an oral presentation at EASL 2019 in  

Vienna, Austria

–  ABI-M201: Progression of Phase 1b clinical study for patients with mildly to   
  moderately active ulcerative colitis 

BUILDING ON THE SCAFFOLDS OF SUCCESS
Patients remain our first priority at Assembly; they are the reason we are here today. I am grateful 
to these patients and the clinicians who have taken part in our clinical studies because their 
participation is essential to advancing our research towards bringing new, innovative medicines to 
people in need. In addition, it is our shareholders who support our endeavors to improve overall 
health with an aim to cure diseases such as HBV, and to transform lives in a broad range of 
difficult-to-treat conditions around the world. We are grateful for your continued support. 

In summary, 2018 was a transformational year at Assembly, and 2019 promises to be data-rich with 
continued development across both of our therapeutic programs. I am honored to lead such a 
talented, hard-working team toward our shared mission. We are unified in our commitment to bring 
therapies to patients facing serious diseases. We have made important progress in advancing our 
strategy and are poised for significant progress as we transition our focus from early stage discovery 
to later stage clinical development throughout 2019 and beyond. 

Warmest regards, 
Derek A. Small 
President and CEO 

 
 
 
 
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

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

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

or

For the Transition Period from

to

Commission File Number: 001-35005

ASSEMBLY BIOSCIENCES, INC.
(Exact name of registrant specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

2834
(Primary Standard Industrial
Classification Code Number)

20-8729264
(I.R.S. Employer
Identification No.)

11711 N. Meridian Street, Suite 310
Carmel, Indiana 46032
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (317) 210-9311

Securities Registered Pursuant to Section 12(b) of the Exchange Act:

Title of Each Class
Common Stock, $0.001 Par Value

Name of Exchange on which Registered
Nasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.45 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
Non-accelerated filer

☒
☐

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 voting stock held by non-affiliates of the registrant, as of June 30, 2018, was approximately $745.0 million.
Such aggregate market value was computed by reference to the closing price of the common stock as reported on the Nasdaq Capital Market on
June 30, 2018. For purposes of making this calculation only, the registrant has defined affiliates as including only (i) directors, (ii) executive officers,
and (iii) certain shareholders that hold greater than 10% of the voting stock of the registrant, in each case, as of June 30, 2018. Shares of common
stock held by other persons, including certain other holders of more than 10% of the registrant’s outstanding common stock, have not been excluded
from the above calculation in that such persons are not deemed to be affiliates. The determination of affiliate status is not necessarily a conclusive
determination for other purposes.

As of February 25, 2019, there were 25,540,757 shares of the registrant’s common stock, $0.001 par value per share, outstanding.

Part III of this Annual Report on Form 10-K incorporates information by reference to portions of the definitive proxy statement for the

Company’s Annual Meeting of Stockholders to be held in 2019, to be filed within 120 days of the registrant’s fiscal year ended December 31, 2018.

DOCUMENTS INCORPORATED BY REFERENCE

ASSEMBLY BIOSCIENCES, INC.

TABLE OF CONTENTS

PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B.

Unresolved Staff Comments

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Item 3.

Item 4.

Properties

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 5.

Item 6.

Item 7.

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
Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . .

Item 8.

Item 9.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A.

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B.

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Item 15.

Item 16.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . .

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Certain Relationships and Related Transactions, and Director Independence . . . . .

Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exhibits, Financial Statement Schedules

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-1

i

References to Assembly Biosciences, Inc.

Throughout this Annual Report on Form 10-K, the “Company,” “Assembly,” “we,” “us,” and “our,”
except where the context requires otherwise, refer to Assembly Biosciences, Inc. and its consolidated
subsidiaries, and “our board of directors” refers to the board of directors of Assembly Biosciences, Inc.

Forward Looking Information

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act). Such forward-looking statements involve
substantial risks and uncertainties. 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 revenues, projected costs, prospects, plans and objectives of management, are
forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,”
“plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and
similar expressions are intended to identify forward-looking statements, although not all forward-looking
statements contain these identifying words.

The forward-looking statements in this Annual Report on Form 10-K include, among other things,

statements about:

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

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

the clinical and therapeutic potential of our product candidates;

our unproven approaches to therapeutic intervention;

the potential benefits of our existing collaborations and our ability to establish and maintain
collaborations, including with Allergan Pharmaceuticals International Limited;

our ability to obtain additional funding;

the timing or likelihood of regulatory filings and approvals for our product candidates;

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

our commercialization, marketing and manufacturing capabilities and strategy;

the rate and degree of market acceptance for our product candidates, if approved, and their
clinical utility;

our plans to develop and commercialize our product candidates;

our ability to retain and recruit key personnel;

our ability to manage growth;

our competitive position;

our intellectual property position;

developments and projections relating to our competitors and our industry; and

our estimates regarding expenses, future revenue, capital requirements and needs for additional
financing.

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 that we make.

ii

You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to
this Annual Report on Form 10-K 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.

iii

PART I

Item 1. Business

Overview

We are a clinical-stage biotechnology company advancing two innovative platform programs: a new
class of oral therapeutic candidates for the treatment of hepatitis B virus (HBV) infection and a novel class
of oral synthetic live biotherapeutic candidates, which are designed to treat disorders associated with the
microbiome.

Over 250 million people worldwide are chronically infected with HBV. Our HBV-cure program is
pursuing multiple drug candidates that target the HBV core protein (“core inhibitors”) to inhibit the HBV
lifecycle and block the generation of covalently closed circular DNA (cccDNA), with the aim of increasing
the current low cure rate for patients with HBV. We have discovered multiple novel core inhibitors, which
are small molecules that directly target and allosterically modulate the HBV core (HBc) protein.

Our Microbiome program consists of a fully integrated platform that includes a disease-targeted strain
isolation, identification, characterization and selection process, methods for strain purification and growth
under current Good Manufacturing Practice (cGMP) conditions, and a licensed patented delivery system
that we call GEMICEL®, which is designed to allow for targeted oral delivery of live biologic and
conventional therapies to the lower gastrointestinal (GI) tract. In connection with our Microbiome
program, we filed an Investigational New Drug (IND) application in December 2018 for ABI-M201
(Ulcerative Colitis). In February 2019, we initiated a Phase 1b human clinical study of ABI-M201 in
patients with mildly to moderately active ulcerative colitis to evaluate safety, efficacy and exploratory
endpoints. Using our microbiome platform capabilities, we are exploring additional product candidates for
other disease indications, including Crohn’s disease, irritable bowel syndrome, non-alcoholic steatohepatitis
(NASH) and immuno-oncology, which indications we will pursue with Allergan Pharmaceuticals
International Limited (Allergan) to the extent covered by the Collaboration Agreement discussed below or
pursue either internally or in collaboration with other partners to the extent outside the scope of the
Collaboration Agreement.

Business Strategy

We are focused on enhancing the health and well-being of patients with hard-to-treat infectious
diseases, such as chronic HBV and illnesses associated with a dysbiotic microbiome. This commitment
drives our efforts to forge a new and differentiated path to treating these conditions, inspired by the needs of
millions of affected patients. We are pursuing a portfolio of novel core inhibitors with potential to
substantially increase the cure rates of treated HBV patients and a novel class of oral synthetic live
biotherapeutics designed to provide therapeutic benefit through local and systemic effects. We intend to
progress our HBV-cure and Microbiome programs internally or using a variety of strategic arrangements,
which may include collaborations, licenses, partnerships and other types of business arrangements. In
January 2017, we entered into a Research, Development, Collaboration and License Agreement (the
Collaboration Agreement) with Allergan to develop and commercialize select microbiome gastrointestinal
disease therapies. Pursuant to the terms of the Collaboration Agreement, in connection with the closing of
the transaction in February 2017, we received from Allergan an upfront payment of $50.0 million.
Additionally, we are eligible to receive up to approximately $631.0 million in development milestone
payments and up to approximately $2.14 billion in commercial development and sales milestone payments
contingent upon the successful development and commercialization of licensed compounds for up to six
different indications in the GI therapeutic field related to the GI tract. We are also eligible to receive tiered
royalties at rates ranging from the mid-single digits to the mid-teens based on net sales.

HBV-Cure Program

Background

The goal of our HBV-cure program is to substantially increase clinical cure rates for those chronically
infected with HBV. HBV is a leading global cause of chronic liver disease and liver transplants. As of 2018,
the WHO estimated that over 250 million people worldwide are infected with HBV. According to the WHO,

1

887,000 people died in 2015 as a result of HBV, mostly from complications, including cirrhosis and
hepatocellular carcinoma. HBV is a global epidemic infecting more people than hepatitis C virus and HIV
infections combined. A relatively small proportion of HBV patients currently receive treatment. According
to the WHO, in 2015, of the over 250 million people living with HBV infection, the global treatment
coverage only covered approximately 1.7 million. Further, less than 10% of treated patients exhibit a clinical
cure, defined as loss of the viral surface antigen (HBsAg) with sustained response off therapy. Despite the
low rates of treatment and clinical cure, the current market for nucleos(t)ide inhibitors (Nucs) to treat HBV
in the United States, Europe, China, Japan and South Korea was estimated to be $2.5 billion in 2017. If
new therapies can improve cure rates, we believe the market could grow substantially due to an increase in
the number of HBV patients expected to seek the new therapies.

Current Treatments

Current therapeutic options for HBV include:

•

•

Direct Acting Antiviral medications (Nucelos(t)ide analogs). Several antiviral medications —
including lamivudine (Epivir®), adefovir (Hepsera®), telbivudine (Tyzeka®), tenofovir alafenamide
(Vemlidy®),
fumarate and entecavir (Baraclude®) — effectively reduce
circulating virus levels by inhibiting reverse transcription. Chronic therapy with these agents can
result in reduced liver inflammation and fibrosis. Unfortunately, these are rarely curative, even
after years of therapy, and viral replication resumes when therapy is stopped.

tenofovir disoproxil

Pegylated Interferon alfa (PegIFN-a). This synthetic version of a substance produced by the
body to fight infection is used mainly for people infected with HBV who do not want to undergo
long-term treatment (e.g., patients who might want to become pregnant within a few years). It is
administered by injection. Cure rates are relatively low and side effects may be severe, including
flu-like symptoms and depression.

Our HBV-cure Program Focus: Leveraging HBV Core Protein to Achieve a Clinical Cure using Core
Inhibitors

Our HBV research team is working on discovering and developing core inhibitors with the potential to
inhibit the functional activities of HBV at multiple points in the viral lifecycle. Core protein is involved in
several steps of the HBV lifecycle and is essential for HBV’s continued regeneration and prolonged survival.
In addition to inhibiting viral replication in clinical studies, core inhibitors have been shown to inhibit the
generation of closed circular covalent DNA (cccDNA) in preclinical assays.

HBV is a DNA-virus that infects hepatocytes and establishes a reservoir of cccDNA, a unique DNA
moiety that resides in the cell nucleus of HBV-infected cells and is associated with viral persistence and
chronic infection. No current oral therapies target cccDNA activity directly, which makes molecules that
can modulate cccDNA generation highly sought in the HBV field. A key focus of our HBV-cure program is
targeting the core protein, a highly conserved viral structural protein that has no human homologue and is
involved in numerous aspects of the HBV lifecycle, including the generation of the viral cccDNA. We have
discovered several chemically-distinct series of core inhibitors, which are small molecules that directly target
and allosterically inhibit core protein functions. Our HBV pipeline therefore offers the potential for both
first in class and best in class opportunities for developing agents that target critical steps involved in
cccDNA generation and the viral lifecycle. We believe that our approach of targeting viral core protein and
its related functions provides a promising foundation for substantially improving clinical cure rates for HBV.

A benchmark for therapeutic agents aiming to decrease cccDNA levels is the use of several key viral
antigens as surrogate biomarkers of active cccDNA. The same biomarkers can be used in both primary
human hepatocyte cells and patients. On this basis, our core inhibitors have shown preclinical proof of
principle. In a variety of cell culture models, core inhibitors have demonstrated the ability to reduce
production of viral HBV DNA levels as well as the surrogate markers for cccDNA establishment: HBV
e-antigen (HBeAg), HBV S antigen (HBsAg) and viral pre-genomic RNA (pgRNA).

Our Product Candidates

Our clinical strategy encompasses testing core inhibitors first as a monotherapy, as required by
regulatory agencies, to demonstrate their intrinsic antiviral activity and subsequently in combination with
other classes of HBV therapies.

2

ABI-H0731

The lead product candidate from this program, ABI-H0731, has completed a Phase 1a/1b human
clinical study in countries outside the United States. We have also completed an additional Phase 1a
(ABI-H0731-102) pharmacokinetic (PK), safety and tolerability study of ABI-H0731 in healthy volunteers
in the United States. In 2018, the U.S. Food and Drug Administration (FDA) granted Fast Track
designation to ABI-H0731 for the treatment of patients with chronic HBV infection.

Final data from our completed Phase 1a (ABI-H0731-102) PK, safety and tolerability study and
Phase 1b (ABI-H0731-101b) study of antiviral effects was presented at the American Association for the
Study of Liver Diseases (AASLD) Annual Meeting (The Liver Meeting®) in November 2018. Antiviral
activity was observed across patient cohorts. In the 300 mg dose cohort, the mean maximal declines from
baseline were reported as ≥2.8* log 10 IU/mL after 28 days, with ≥2.9 and 2.5* log 10 IU/mL mean declines
in HBeAg positive and negative patients, respectively. Maximal viral load declines of 3.6 to 4.0 log 10 IU/
mL were observed in HBeAg negative patients treated at all dose levels (100 mg to 400 mg). Mean RNA
reductions observed in the 300 mg dose cohort were 2.3 log 10 IU/mL over 28 days. The observed
reductions in viral RNA levels are a distinguishing feature of this class of inhibitors compared to standard
of care Nuc therapy.

Across all cohorts in the Phase 1a and Phase 1b studies, ABI-H0731 was generally well-tolerated. No
serious adverse effects or dose-limiting toxicities were identified, and there was no pattern of treatment
emergent clinical or laboratory abnormalities observed. With the exception of an isolated Grade 3 rash at
the 400 mg dose that resolved with no intervention required other than treatment discontinuation, there
were no other Grade 3 or Grade 4 adverse events, and no other drug discontinuations have occurred in
these studies.

In July 2018, we commenced two Phase 2a combination studies for ABI-H0731 at sites in the United
States, Canada, Hong Kong, New Zealand and the United Kingdom. The first Phase 2a trial,
ABI-H0731-201 (the 201 Study), enrolled HBV patients whose viral load had already been suppressed on a
standard of care Nuc therapy. Seventy-three patients were randomized 3:2 to receive either 300 mg of
ABI-H0731 daily or placebo in addition to their continued Nuc therapy for six months. The 201 Study
compares the safety and tolerability of combination therapy with ABI-H0731, as well as declines in HBV S
antigen (HBsAg) and HBV E antigen (HBeAg), to those seen in patients on Nuc monotherapy. In this
study, blood levels of HBsAg and HBeAg will serve as surrogate biomarkers of cccDNA levels.

The second Phase 2a trial, ABI-H0731-202 (the 202 Study), enrolled 25 HBeAg positive HBV patients
who are naïve to Nuc treatment, and randomized 1:1 to receive either 300 mg of ABI-H0731 daily or
placebo in combination with standard of care entecavir (0.5 mg) for six months. The 202 Study assesses the
relative antiviral potency of combination therapy compared with entecavir alone. Endpoints include the
speed and depth of viral suppression, as well as changes in biomarkers (HBsAg and HBeAg), and the safety
and tolerability of ABI-H0731. Initial data from both the 201 Study and the 202 Study is expected in the
second quarter of 2019, and final six-month data from both the 201 Study and the 202 Study is expected in
the second half of 2019.

All subjects who complete treatment in either the 201 Study or 202 Study have the option to roll over
into a long-term open label study of ABI-H0731 (the 211 Study) and receive a combination of ABI-H0731
with ongoing standard of care Nuc therapy. Subjects on the 211 Study will be treated for up to an
additional year from the time of completion of their participation in the 201 Study or the 202 Study, as
applicable. Subjects in the 211 Study who achieve a complete response, defined as HBsAg <100 IU, loss of
HBeAg and viral load below limits of detection, will have the opportunity to stop all treatment (ABI-H0731
and standard of care Nuc therapy) and be monitored for six months off therapy to assess whether
combination therapy improves the rate of sustained viral responses.

ABI-H2158

ABI-H2158, our second product candidate in the HBV-cure program, is an internally discovered and
developed drug product candidate that is chemically distinct from ABI-H0731. In November 2018, we

*

Excludes one subject found to have resistance at baseline.

3

initiated a Phase 1a/1b dose-ranging clinical study of ABI-H2158 in New Zealand, to assess the safety,
tolerability and PK of ABI-H2158 in healthy volunteers and then subsequently assess the safety,
tolerability, PK and initial antiviral potency in non-cirrhotic patients with chronic HBV infection. We
expect to advance ABI-H2158 into the Phase 1b portion of this study in the second quarter of 2019. Initial
data from the healthy volunteer cohort of this study is expected in mid-2019.

ABI-H3733
We also recently selected a third clinical product candidate for the treatment of HBV, ABI-H3733, a
is currently undergoing

novel chemical scaffold separate from ABI-H0731 and ABI-H2158,
IND-enabling studies.

that

Other Product Candidates
We plan to conduct additional research and development to identify additional product candidates for

our HBV-cure program.

License Agreement and Intellectual Property

Indiana University Research and Technology Corporation
In September 2013, we entered into an exclusive license agreement (the IURTC License Agreement)
with Indiana University Research and Technology Corporation (IURTC) pursuant to which we acquired,
with rights to sublicense, the rights to develop and commercialize products associated with multiple patents
and patent applications covering aspects of our HBV program held by IURTC. As part of this agreement,
we are obligated to make milestone payments based upon the successful accomplishment of clinical and
regulatory milestones. The aggregate amount of all performance milestone payments under the IURTC
License Agreement, should all performance milestones through development be met, is $825,000, with a
portion related to the first performance milestone having been paid. Under the IURTC License Agreement,
we are also obligated to pay IURTC royalties based on net sales of the licensed technology ranging from
0.5% to 1.75%. In addition, under the IURTC License Agreement, we pay annual diligence maintenance
fees of $75,000, which increase to $100,000 in the year following the sale of our first licensed commercial
product. Milestone payments received by IURTC are fully creditable against the annual diligence
maintenance fee for the year in which the milestone payments are received.

The IURTC License Agreement may be terminated by us, with or without cause, upon 90 days advance
written notice, by IURTC upon our material breach with 60 days advance written notice or by IURTC, in
certain cases, upon our insolvency or bankruptcy immediately upon written notice.

Intellectual Property
In regard to our HBV patent estate, we co-own with and exclusively license from Indiana University
one issued U.S. patent, two pending U.S. patent applications, and related foreign patent applications that
relate to compositions of matter and methods of using ABI-H0731. The issued U.S. patent is expected to
expire in 2035. The pending U.S. patent applications, if issued, are expected to expire between 2035 and
2036. In addition, we own one pending PCT application with claims directed to a process for preparing
ABI-H0731; any patents issuing therefrom are expected to expire in 2038. We also co-own and exclusively
license additional pending U.S. patent applications and related foreign patent applications related to analogs
of ABI-H0731.

We also own one pending PCT application that relates to composition of matter and method of use
claims relating to ABI-H2158; any patents issuing therefrom are expected to expire in 2038. We also own
two additional U.S. provisional patent applications directed to analogs of ABI-H2158. In addition, we own
one pending U.S. provisional patent application that relates to composition of matter and method of use
claims relating to ABI-H3733.

Microbiome Program

Background

Our Microbiome program is based on the targeted delivery of novel microbiome-based therapies in a
licensed patented oral formulation, called GEMICEL®, which applies our novel coating and encapsulation

4

technology allowing for targeted delivery of complex agents to select regions of the gastrointestinal (GI)
tract. Using this proprietary delivery platform, we aim to deliver selected combinations of monoculture
strains of beneficial bacteria in novel “synthetic formats” to the GI tract. In connection with our
Microbiome program, we filed an IND application in December 2018 for ABI-M201 (Ulcerative Colitis). In
February 2019, we initiated a Phase 1b human clinical study of ABI-M201 in patients with mildly to
moderately active ulcerative colitis to evaluate safety, efficacy and exploratory endpoints. Using our
microbiome platform capabilities, we are exploring additional product candidates for other disease
indications, including Crohn’s disease, irritable bowel syndrome, non-alcoholic steatohepatitis (NASH) and
immuno-oncology, which indications we will pursue with Allergan to the extent covered by the
Collaboration Agreement or pursue either internally or in collaboration with other partners to the extent
outside the scope of the Collaboration Agreement.

In recent years, there has been increasing scientific evidence suggesting the therapeutic potential of the
human microbiome — the billions of microbes living in and on people — to impact health and disease. Our
approach builds upon experience reported in the literature of successfully treating various disease
indications with fecal material transplants (FMT) and seeks to provide a pharmacologically relevant
therapy using a “drug like” approach that delivers targeted and specific microbiome therapies in an oral
capsule.

Collaboration Agreement, License Agreement and Intellectual Property

Allergan

On January 6, 2017, we entered into the Collaboration Agreement to develop and commercialize select
microbiome gastrointestinal programs. Pursuant to the Collaboration Agreement, we granted Allergan an
exclusive worldwide license for rights to preclinical compounds ABI-M201 and ABI-M301, targeting
ulcerative colitis (UC) and Crohn’s disease (CD), respectively, as well as two additional compounds to be
identified by us for irritable bowel syndromes (IBS).

Under the Collaboration Agreement, we and Allergan will collaborate on research and development
activities with respect to the licensed compounds in accordance with a mutually agreed upon research and
development plan.

Pursuant to the terms of the Collaboration Agreement,

in connection with the closing of the
transaction in February 2017, we received from Allergan an upfront payment of $50.0 million. Additionally,
we are eligible to receive up to approximately $631.0 million in development milestone payments and up to
approximately $2.14 billion in commercial milestone payments contingent upon the successful development
and commercialization of licensed compounds for up to six different indications. We are also eligible to
receive tiered royalties at rates ranging from the mid-single digits to the mid-teens based on net sales. We
and Allergan have agreed to share development costs up to an aggregate of $75.0 million through
proof-of-concept (POC) studies on a 1∕3, 2∕3 basis, respectively, and Allergan has agreed to assume all
post-POC development costs. In the event any pre-POC development costs exceed $75.0 million in the
aggregate, we may elect either (a) to fund 1∕3 of such costs in excess of $75.0 million or (b) to allow Allergan
to deduct from future development milestone payments 1∕3 of the development costs funded by Allergan in
excess of $75.0 million plus a premium of 25%. We have an option to co-promote the licensed programs in
the United States and China, subject to certain conditions set forth in the Collaboration Agreement.

Allergan may terminate the Collaboration Agreement at any time upon either 90 days’ (prior to the
initiation of the first POC trial of a licensed product) or 120 days’ (after the initiation of the first POC trial
of a licensed product), as applicable, advance written notice to us. The Collaboration Agreement also
contains customary provisions for termination by either party, including in the event of breach of the
Collaboration Agreement, subject to cure.

Therabiome

In November 2013, we entered into a License and Collaboration Agreement with Therabiome, LLC
(Therabiome) for all intellectual property and know-how owned or controlled by Therabiome relating to the
oral delivery of pharmaceutical drugs to specific sites in the intestine, using a pH-sensitive controlled release

5

capsule-in-capsule technology. Under the agreement, Therabiome granted us the exclusive worldwide
license, with rights to sublicense, to develop the intellectual property for commercialization of the use of
bacteria, viruses, proteins, and small molecules by oral delivery using the licensed intellectual property in
(i) gastrointestinal dysbiosis, including but not limited to irritable bowel syndrome-constipation, irritable
bowel syndrome-diarrhea, inflammatory bowel disease, metabolic syndrome, type 2 diabetes, obesity and
hypertension, (ii) auto-immune disorders and autism, including but not limited to as controlled by bacteria
or virus, and (iii) orally delivered vaccines, including viral and bacterial, and (b) any oral delivery of small
molecules using the licensed intellectual property. We are solely responsible for all research and development
activities with respect to any product we develop under the license.

In connection with the filing of an IND in December 2018 and the initiation of a Phase 1b clinical
study in February 2019, we expect aggregate milestone payments of up to $350,000 will become due and
payable in 2019. For each product or therapy utilizing the licensed technology for which we file a new drug
application (NDA), we would be obligated to pay Therabiome aggregate clinical and U.S. regulatory
milestone payments ranging from $2.6 million to $3.4 million, depending on whether the milestone occurs
before we file our first NDA for a product or after our first, second or third NDA filings. Additional
milestone payments of $3.0 million and $1.0 million would be due upon receipt of marketing approval by
the FDA and upon approval of a supplemental NDA for a new indication in the United States, respectively.

We also must pay Therabiome lesser amounts for certain foreign regulatory milestones, which vary by
country and region. We also must pay Therabiome royalties on annual net product sales in the low to
mid-single digit percentages plus, once annual net sales exceed two specified thresholds, a one-time cash
payment upon reaching each threshold.

This agreement may be terminated by us, with or without cause, upon 90 days prior written notice, by
either party upon the other party’s material breach with 180 days prior written notice or by either party
upon the other party’s challenge of the validity or enforceability or any issued patent within the licensed
intellectual property with 90 days prior written notice. Additionally, either party may terminate the
agreement upon an event of bankruptcy with respect to the other party.

Intellectual Property

In regard to our microbiome patent estate, we exclusively license from Therabiome one issued
U.S. patent, two pending U.S. patent applications, over five foreign patents granted in Europe, China,
Japan, Australia, and Canada, and related foreign patent applications that relate to a lower gastrointestinal
tract-targeted oral delivery system. The issued U.S. patent is expected to expire in 2034. The pending
U.S. patent applications if issued are expected to expire between 2033 and 2034. The foreign patents and
any patents issuing from the foreign patent applications are expected to expire between 2033 and 2034. In
addition, we own one pending U.S. provisional patent application that relates to ABI-M201.

In addition, we own the GEMICEL® trademark used in conjunction with our licensed targeted oral

delivery system.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries
extensively regulate, among other things, the research, development, testing, manufacture, including any
manufacturing changes, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution,
marketing, post-approval monitoring and reporting, import and export of pharmaceutical and biological
products, such as those we are developing.

U.S. drug approval process

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act
(FDCA) and implementing regulations, and biological products under both the FDCA and the Public
Health Service Act (PHSA) and implementing regulations. The process of obtaining regulatory approvals
and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations
requires the expenditure of substantial time and financial resources. Failure to comply with the applicable
U.S. requirements at any time during the product development process, approval process or after approval

6

may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to
approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning
letters and untitled letters, product recalls, product seizures, total or partial suspension of production or
distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits or civil
or criminal penalties.

The process required by the FDA before a drug or biological product may be marketed in the United

States generally involves the following:

•

•

•

•

•

•

completion of nonclinical laboratory tests and animal studies in compliance with the FDA’s good
laboratory practice (GLP) regulations, as required;

submission to the FDA of an IND which must become effective before human clinical studies may
begin;

approval by an independent institutional review board (IRB) at each clinical site before each trial
may be initiated;

performance of adequate and well-controlled human clinical studies in accordance with good
clinical practices (GCP) to establish the safety and efficacy of the proposed drug or biological
product for each indication;

submission to the FDA of a new drug application (NDA) or a biologics license application (BLA);

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

•

FDA review and approval of the NDA or BLA.

Nonclinical Studies and IND

Nonclinical studies include laboratory evaluation of product chemistry and formulation, as well as in
vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale
for therapeutic use. The conduct of nonclinical studies is subject to federal regulations and requirements,
including GLP regulations for safety/toxicology studies. An IND sponsor must submit the results of the
nonclinical tests, together with manufacturing information, analytical data, any available clinical data or
literature and plans for clinical studies, among other things, to the FDA as part of an IND. Some long-term
nonclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue
after the IND is submitted. For some products, the FDA may waive the need for certain nonclinical tests.
An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA
raises concerns or questions related to one or more proposed clinical studies and places the trial on clinical
hold. If an IND or clinical study is placed on clinical hold, the IND sponsor and the FDA must resolve any
outstanding concerns before the clinical study can begin. As a result, submission of an IND may not result
in the FDA allowing clinical studies to commence.

Clinical studies

Clinical studies involve the administration of the investigational new drug or biological product to
human subjects under the supervision of qualified investigators in accordance with GCP requirements,
which include, among other things, the requirement that all research subjects provide their informed consent
in writing before their participation in any clinical trial. Clinical studies are conducted under written study
protocols detailing, among other things, the objectives of
the study, the parameters to be used in
monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical study and any
subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB
at each institution participating in the clinical study must review and approve the plan for any clinical study
before it commences at that institution, and the IRB must conduct continuing review. The IRB must review

7

and approve, among other things, the study protocol and informed consent information to be provided to
study subjects. An IRB must operate in compliance with FDA regulations. Information about certain
clinical studies must be submitted within specific timeframes to the National Institutes of Health for public
dissemination at www.clinicaltrials.gov.

Human clinical studies are typically conducted in three sequential phases, which may overlap or be

combined:

•

•

•

Phase 1: The drug or biological product is initially introduced into healthy human subjects or
patients with the target disease or condition and tested for safety, dosage tolerance, absorption,
metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness.

Phase 2: The drug or biological product is administered to a limited patient population to
identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the
product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

Phase 3: The drug or biological product is administered to an expanded patient population in
adequate and well-controlled clinical studies to generate sufficient data to statistically confirm the
efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the
product and to provide adequate information for the labeling of the product.

Progress reports detailing the results of the clinical studies must be submitted at least annually to the
FDA. Additionally, IND safety reports must be submitted to the FDA and the investigators within
15 calendar days after determining that the information qualifies for reporting, IND safety reports are
required for serious and unexpected suspected adverse reactions, findings from animal or in vitro testing or
other studies that suggest a significant risk to humans, and any clinically important increase in the rate of a
serious suspected adverse reaction over that listed in the protocol or investigator brochure. In addition, a
sponser must notify the FDA within seven calendar days after receiving information concerning any
unexpected fatal or Life-threatening suspected adverse reaction. Phase 1, Phase 2 and Phase 3 clinical
studies may not be completed successfully within any specified period, or at all. Furthermore, the FDA or
the sponsor may suspend or terminate a clinical study at any time on various grounds, including a finding
that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend
or terminate approval of a clinical study at its institution if the clinical study is not being conducted in
accordance with the IRB’s requirements or if the drug or biological product has been associated with
unexpected serious harm to patients.

Marketing approval

Assuming successful completion of the required clinical testing, the results of the nonclinical studies
and clinical studies, together with detailed information relating to the product’s chemistry, manufacture,
controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA or BLA
requesting approval to market the product for one or more indications. Under federal law, the submission of
most NDAs and BLAs is additionally subject to a substantial application user fee, currently approximately
$2.6 million and the sponsor of an approved NDA or BLA is also subject to an annual program fee
currently set at approximately $310,000 through September 30, 2019. These fees are typically adjusted on
October 1 each year.

The FDA conducts a preliminary review of all NDAs and BLAs within the first 60 days after
submission before accepting them for filing to determine whether they are sufficiently complete to permit
substantive review. The FDA may request additional information rather than accept an NDA or BLA for
filing. In this event, the application must be resubmitted with the additional information. The resubmitted
application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for
filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals
in the review of NDAs and BLAs. Under these goals, the FDA has committed to review most original
applications for non-priority products within ten months, and most original applications for priority review
products, that is, drugs and biological products that the FDA determines represent a significant
improvement over existing therapy, within six months. For NDAs for novel products and all BLAs, the ten
and six-month time periods runs from the filing date; for all other original applications, the ten and
six-month time periods run from the submission date. The review process may be extended by the FDA for

8

three additional months to consider certain information or clarification regarding information already
provided in the submission. Despite these review goals, it is not uncommon for FDA review of an NDA or
BLA to extend beyond the goal date. The FDA may also refer applications for novel drugs or products that
present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes
clinicians and other experts, for review, evaluation and a recommendation as to whether the application
should be approved. The FDA is not bound by the recommendations of an advisory committee, but it
considers such recommendations carefully when making decisions.

Before approving an NDA or BLA, the FDA typically will inspect the facility or facilities where the
product is manufactured. The FDA will not approve an application 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. In addition, before approving an NDA
or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP and
integrity of the clinical data submitted.

The testing and approval process requires substantial time, effort and financial resources, and some
trials may take many years to complete. Data obtained from clinical activities are not always conclusive and
may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The
FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated
costs in our efforts to develop our product candidates and secure necessary governmental approvals, which
could delay or preclude us from marketing our products.

After the FDA’s evaluation of the NDA or BLA and inspection of the manufacturing facilities, the
FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial
marketing of the drug or biological product with specific prescribing information for specific indications. A
complete response letter generally outlines the deficiencies in the submission and may require substantial
additional testing or information in order for the FDA to reconsider the application. If and when those
deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA or BLA, the FDA
will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months
depending on the type of information included. Even with submission of this additional information, the
FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval and
refuse to approve the NDA or BLA. Even if the FDA approves a product, it may limit the approved
indications for use for the product, require that contraindications, warnings or precautions be included in
the product labeling, require that post-approval studies, including Phase 4 clinical studies, be conducted to
further assess a drug’s safety after approval, require testing and surveillance programs to monitor the
product after commercialization, or impose other conditions, including distribution and use restrictions or
other risk management mechanisms, including Risk Evaluation and Mitigation Strategies (REMs), which
can materially affect the potential market and profitability of the product or impose new labeling, testing or
distribution and use requirements. The FDA may prevent or limit further marketing of a product based on
the results of post-market studies or surveillance programs. After approval, some types of changes to the
approved product, such as adding new indications, manufacturing changes and additional labeling claims,
are subject to further testing requirements and FDA review and approval.

Fast track designation

The FDA is required to facilitate and expedite the development and review of drugs and biological
products that are intended for the treatment of a serious or life-threatening disease or condition for which
there is no effective treatment and which demonstrate the potential to address unmet medical needs for the
disease or condition. Under the fast track program, the sponsor of a new product candidate may request
the FDA to designate the product for a specific indication as a fast track product concurrent with or after
the filing of the IND for the product candidate. The FDA must determine if the product candidate qualifies
for fast track designation within 60 calendar days after receipt of the sponsor’s request.

In addition to other benefits, such as the ability to use surrogate endpoints and have greater
interactions with the FDA, the FDA may initiate review of sections of a fast track product’s NDA or BLA
before the application is complete. This rolling review is available if the applicant provides and the FDA
approves a schedule for the submission of the remaining information and the applicant pays applicable user

9

fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last
section of the NDA or BLA is submitted. In addition, the fast track designation may be withdrawn by the
FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical study
process.

Priority review

Under FDA policies, a product candidate may be eligible for priority review, a review generally within
a six-month time frame from the time a complete application is received or filed. Products generally are
eligible for priority review if they are intended for treatment of a serious or life-threatening disease or
condition and provide a significant improvement in safety or effectiveness compared to marketed products
in the treatment, diagnosis or prevention of a serious disease or condition. A fast track designated product
candidate would ordinarily meet the FDA’s criteria for priority review.

Accelerated approval

Under the FDA’s accelerated approval regulations, the FDA may approve a drug or biological product
for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing
treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit or on a
clinical endpoint that can be measured earlier than irreversible morbidity or mortality (IMM). In clinical
studies, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that
substitutes for a direct measurement of how a patient feels, functions or survives. Surrogate endpoints can
often be measured more easily or more rapidly than clinical endpoints. A product candidate approved on
this basis is subject to rigorous post-marketing compliance requirements, including the completion of
Phase 4 or post-approval clinical studies to confirm the effect on the clinical endpoint. Failure to conduct
required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the
FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug
candidates approved under accelerated regulations are subject to prior review by the FDA.

Breakthrough therapy designation

A sponsor can request designation of a product candidate as a “breakthrough therapy.” A
breakthrough therapy is defined as a drug or biological product that is intended, alone or in combination
with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary
clinical evidence indicates that the drug or biological product may demonstrate substantial improvement
over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects
observed early in clinical development. Drugs and biological products designated as breakthrough therapies
also may be eligible for priority review. The FDA must take certain actions, such as holding timely meetings
and providing advice, intended to expedite the development and review of an application for approval of a
breakthrough therapy. Even if a product qualifies for one or more of these programs, the FDA may later
decide that the product no longer meets the conditions for qualification or decide that the time period for
FDA review or approval will not be shortened.

Qualified Infectious Disease Products

A sponsor can request designation of a product candidate as a qualified infectious disease product
(QIDP). A QIDP is an antibacterial or antifungal drug for human use intended to treat serious or life
threatening infections, including those caused by (i) an antibacterial or antifungal resistant pathogen,
including novel or emerging infectious pathogens; or (ii) qualifying pathogens listed by the FDA. Examples
including methicillin-resistant Staphylococcus aureus,
include (a) resistant gram positive pathogens,
vancomycin-resistant Staphylococcus aureus, and vancomycin-resistant enterococcus;
(b) multi-drug
resistant gram negative bacteria, including Acinetobacter, Klebsiella, Pseudomonas, and E. coli species;
(c) multi-drug resistant tuberculosis; and (d) Clostridium difficile. A drug that receives QIDP designation is
eligible under the statute for fast track designation and priority review and an additional five years of
market exclusivity added to certain existing exclusivity periods. The FDA must determine if the product
candidate qualifies as a QIDP within 60 calendar days after receipt of the sponsor’s request.

10

Orphan drugs

Under the Orphan Drug Act, as amended, the FDA may grant orphan drug designation to drugs or
biological products intended to treat a rare disease or condition, which is generally defined as a disease or
condition that affects fewer than 200,000 individuals in the United States or that affects more than 200,000
individuals in the United States and for which there is no reasonable expectation that the cost of developing
and making available the biologic for the disease or condition will be recovered from sales of the product in
the United States. Orphan drug designation must be requested before submitting an NDA or BLA. After
the FDA grants orphan drug designation, the identity of the product and its potential orphan use are
disclosed publicly by the FDA. Orphan drug designation does not shorten the duration of the regulatory
review and approval process. The first NDA or BLA applicant to receive FDA approval for a particular
active moiety to treat a particular disease with FDA orphan drug designation is entitled to a seven-year
exclusive marketing period in the United States for that product and indication. During the seven-year
exclusivity period, the FDA may not approve any other applications to market the same drug or biological
product for the same orphan indication, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan drug exclusivity. A drug or biological product will be considered
clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care.
Orphan drug exclusivity does not prevent the FDA from approving a different drug or biological product
for the same orphan disease or condition, or the same drug or biological product for a different disease or
condition. Among the other benefits of orphan drug designation are tax credits for certain research and a
waiver of the NDA/BLA application user fee.

Pediatric information

Under the Pediatric Research Equity Act of 2003, as amended, an NDA, BLA or supplement to an
NDA or BLA for drug or biological products with certain novel features (e.g., new active ingredient new
indication) must contain data that are adequate to assess the safety and effectiveness of the drug or
biological product 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, on its own initiative or at the request of the applicant, grant deferrals for submission of some or
all pediatric data until after approval of the product for use in adults, or full or partial waivers from the
pediatric data requirements. A sponsor of a new drug or biological product subject to the above pediatric
testing requirements also is required to submit to the FDA a pediatric study plan generally 60 days after an
end-of-Phase 2 meeting with the agency. Unless otherwise required by regulation, the pediatric data
requirements do not apply to products with orphan drug designation.

Combination products

The FDA regulates combinations of products that cross FDA centers, such as drug, biologic or
medical device components that are physically, chemically or otherwise combined into a single entity, as a
combination product. The FDA center with primary jurisdiction for the combination product will take the
lead in the premarket review of the product, with the other center consulting or collaborating with the lead
center.

The FDA’s Office of Combination Products (OCP) determines which center will have primary
jurisdiction for the combination product based on the combination product’s “primary mode of action.” A
mode of action is the means by which a product achieves an intended therapeutic effect or action. The
primary mode of action is the mode of action that provides the most important therapeutic action of the
combination product, or the mode of action expected to make the greatest contribution to the overall
intended therapeutic effects of the combination product.

Often it is difficult for the OCP to determine with reasonable certainty the most important therapeutic
action of the combination product. In those difficult cases, the OCP will consider consistency with other
combination products raising similar types of safety and effectiveness questions, or which center has the
most expertise to evaluate the most significant safety and effectiveness questions raised by the combination
product.

A sponsor may use a voluntary formal process, known as a Request for Designation, when the product
classification is unclear or in dispute, to obtain a binding decision as to which center will regulate the
combination product. If the sponsor objects to that decision, it may request that the agency reconsider that
decision.

11

Other regulatory requirements

Any drug or biological product manufactured or distributed by us pursuant to FDA approvals will be
subject to pervasive and continuing regulation by the FDA, including, among other things, requirements
relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and
promotion and reporting of adverse experiences with 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.

The FDA may impose a number of post-approval requirements, including REMs, as a condition of
approval of an NDA or BLA. For example, the FDA may require post-marketing testing, including Phase 4
clinical studies, and surveillance to further assess and monitor the product’s safety and effectiveness after
commercialization.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of
approved drugs are required to register their establishments with the FDA and state agencies and are
subject to periodic unannounced inspections by the FDA and these state agencies for compliance with
cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior
FDA approval before being implemented. FDA regulations also require investigation and correction of any
deviations from cGMP and impose reporting and documentation 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 areas of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the 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 or other restrictions under
a REM program. Other potential consequences include, among other things:

•

•

•

•

•

restrictions on the marketing or manufacturing of the product, complete withdrawal of the
product from the market or product recalls;

fines, warning letters or holds on post-approval clinical studies;

refusal of the FDA to approve pending applications or supplements to approved applications, or
suspension or revocation of product approvals;

product seizure or detention, or refusal to permit the import or export of products; or

consent decrees, injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed
on the market. Drugs and biological products generally may be promoted only for the approved indications
and in accordance with the provisions of the approved labeling. The FDA and other agencies actively
enforce the laws and regulations prohibiting the promotion of off label uses, and a company that is found to
have improperly promoted off label uses may be subject to significant liability.

Additional provisions

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state
and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in
recent years. These laws include anti-kickback statutes and false claims statutes. The federal anti-kickback
statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or
order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed
healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical
manufacturers on the one hand and prescribers, purchasers and formulary managers on the other.
Violations of the anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary
penalties and exclusion from participation in federal healthcare programs. In addition, the Affordable Care

12

Act provides that a claim including items or services resulting from a violation of the federal anti-kickback
statute constitutes a false or fraudulent claim for purpose of the federal False Claims Act. Although there
are a number of statutory exemptions and regulatory safe harbors protecting certain common activities
from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and
practices that involve remuneration intended to induce prescribing, purchases or recommendations may be
subject to scrutiny if they do not qualify for an exemption or safe harbor.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a
false claim for payment to the federal government, or knowingly making, or causing to be made, a false
statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have
been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in
turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly
providing free product to customers with the expectation that the customers would bill federal programs for
the product. In addition, certain marketing practices, including off-label promotion, may also violate false
claims laws. The majority of states also have statutes or regulations similar to the federal anti-kickback law
and false claims laws, which apply to items and services reimbursed under Medicaid and other state
programs, or, in several states, apply regardless of the payor.

Physician Drug Samples

As part of the sales and marketing process, pharmaceutical companies frequently provide samples of
approved drugs to physicians. The Prescription Drug Marketing Act (PDMA) imposes requirements and
limitations upon the provision of drug samples to physicians, as well as prohibits states from licensing
distributors of prescription drugs unless the state licensing program meets certain federal guidelines that
include minimum standards for storage, handling and record keeping. In addition, the PDMA sets forth
civil and criminal penalties for violations.

Foreign Regulation

In order to market any product outside of the United States, we would need to comply with numerous
and varying regulatory requirements of other countries regarding safety and efficacy and governing, among
other things, clinical studies, marketing authorization, commercial sales and distribution of our products.
Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by
the comparable regulatory authorities of foreign countries before we can commence clinical studies or
marketing of the product in those countries. The approval process varies from country to country and can
involve additional product testing and additional administrative review periods. The time required to obtain
approval in other countries might differ from and be longer than that required to obtain FDA approval.
Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in
obtaining regulatory approval in one country may negatively impact the regulatory process in others.

New Legislation and Regulations

From time to time, legislation is drafted, introduced and passed in Congress that could significantly
change the statutory provisions governing the testing, approval, manufacturing and marketing of products
regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or
interpreted by the agency in ways that may significantly affect our business and our products. It is
impossible to predict whether further legislative changes will be enacted or whether FDA regulations,
guidance, policies or interpretations changed or what the effect of such changes, if any, may be.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any drug products for
which we may obtain regulatory approval. Sales of any of our product candidates, if approved, will depend,
in part, on the extent to which the costs of the products will be covered by third-party payors, including
government health programs such as Medicare and Medicaid, commercial health insurers and managed
care organizations. The process for determining whether a payor will provide coverage for a drug product

13

may be separate from the process for setting the price or reimbursement rate that the payor will pay for the
drug product once coverage is approved. Third-party payors may limit coverage to specific drug products
on an approved list, or formulary, which might not include all of the approved drugs for a particular
indication.

In order to secure coverage and reimbursement for any product that might be approved for sale, we
may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity
and cost-effectiveness of the product, in addition to the trials required to obtain FDA or other comparable
regulatory approvals. Our product candidates may not be considered medically necessary or cost-effective.
A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement
rate will be approved. Third-party reimbursement may not be sufficient to enable us to maintain price levels
high enough to realize an appropriate return on our investment in product development.

The containment of healthcare costs has become a priority of federal, state and foreign governments,
and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the
prices charged for medical products and services and examining the medical necessity and cost-effectiveness
of medical products and services, in addition to their safety and efficacy. If these third-party payors do not
consider our products to be cost-effective compared to other available therapies, they may not cover our
products after approval as a benefit under their plans or, if they do, the level of payment may not be
sufficient to allow us to sell our products at a profit. The U.S. government, state legislatures and foreign
governments have shown significant interest in implementing cost containment programs to limit the
growth of government-paid health care costs, including price controls, restrictions on reimbursement and
requirements for substitution of generic products for branded prescription drugs. Adoption of such
controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and
measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing and
could adversely affect our net revenue and results.

Pricing and reimbursement schemes vary widely from country to country. Some countries provide that
drug products may be marketed only after a reimbursement price has been agreed. Some countries may
require the completion of additional studies that compare the cost-effectiveness of a particular product
candidate to currently available therapies. For example, the European Union provides options for its
member states to restrict the range of drug products for which their national health insurance systems
provide reimbursement and to control the prices of medicinal products for human use. European Union
member states may approve a specific price for a drug product or may instead adopt a system of direct or
indirect controls on the profitability of us placing the drug product on the market. Other member states
allow companies to fix their own prices for drug products, but monitor and control company profits. The
downward pressure on health care costs in general, particularly prescription drugs, has become very intense.
As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some
countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing
within a country. There can be no assurance that any country that has price controls or reimbursement
limitations for drug products will allow favorable reimbursement and pricing arrangements for any of our
products.

The marketability of any products for which we may receive regulatory approval for commercial sale
may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement.
In addition, an increasing emphasis on managed care in the United States has increased and we expect will
continue to increase the pressure on drug pricing. Coverage policies, third-party reimbursement rates and
drug pricing regulation may change at any time. In particular, the Affordable Care Act was enacted in the
United States in March 2010 and contains provisions that may reduce the profitability of drug products,
including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid
rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries
and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. 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.

14

Competition

The pharmaceutical and biotechnology industry is very competitive, and the development and
commercialization of new drugs and biologics is influenced by rapid technological developments and
innovation. We face competition from several companies developing and commercializing products that will
be competitive with our drug candidates,
including large pharmaceutical and smaller biotechnology
companies. Additionally, new entrants may potentially enter the market. For our HBV-cure program,
potential competitors include Johnson & Johnson, Roche, Gilead Sciences Inc., Enanta Pharmaceuticals,
Inc., HEC Pharma and Arbutus Biopharma Corp., among others. Additionally, we may face competition
from currently available treatments for HBV. For our Microbiome program, our competitors include
Johnson & Johnson, Takeda Pharmaceutical Company Ltd, Bristol Myers Squibb Co., Seres Therapeutics,
Inc., Vedanta Biosciences, Inc., Finch Therapeutics, Inc., Enterome Bioscience S.A. and Second Genome,
Inc. Some of the competitive development programs from these companies may be based on scientific
approaches that are similar to our approach, and others may be based on entirely different approaches.
Potential competitors also include academic institutions, government agencies and other public and private
research organizations
seek patent protection and establish collaborative
arrangements for research, development, manufacturing and commercialization of products similar to ours
or that otherwise target indications that we are pursuing.

that conduct

research,

Manufacturing

We currently rely on third-party manufacturers to supply the quantities of ABI-H0731, ABI-H2158
and ABI-H3733 used in our clinical and nonclinical studies. We currently have no plans to establish any
manufacturing facilities for products for our HBV-cure program. In our Microbiome program, we currently
utilize internal and third-party manufacturing to supply quantities of drug substance and drug product for
use in ongoing and planned nonclinical studies. Third-party manufacturers are used to supply drug
substance for early-stage clinical studies in our Microbiome program. We have transitioned third-party
manufacturing of drug product to a small-scale internal manufacturing facility for early-stage clinical
studies. As we advance these programs through clinical development and potential commercialization, we
expect to expand our internal manufacturing capabilities for drug substance and drug product for our
Microbiome program.

Employees

As of December 31, 2018, we had 95 employees and contracts with a number of

temporary

contractors, consultants and contract research organizations.

Corporate History

We were incorporated in Delaware in October 2005 under the name South Island Biosciences, Inc.
(which was changed to Ventrus Biosciences, Inc. in April 2007). On July 11, 2014, we acquired Assembly
Pharmaceuticals, Inc., a private company, through a merger with our wholly owned subsidiary (the
Merger). In connection with the Merger, we changed our name from Ventrus Biosciences, Inc. to Assembly
Biosciences, Inc.

Corporate Information

Our principal executive office is at 11711 N. Meridian Street, Suite 310, Carmel, Indiana 46032. Our

telephone number is (317) 210-9311.

Available Information

Our website address is www.assemblybio.com. We routinely post, or have posted, important information
for investors on our website in the “Investors” section. We use this website as a means of disclosing material
information in compliance with our disclosure obligations under Regulation FD. Accordingly, investors
should monitor the “Investors” section of our website, in addition to following our press releases, Securities
and Exchange Commission (SEC) filings, presentations and webcasts. We make available free of charge
through our website our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after
electronically filed with or furnished to the SEC.

15

The information contained on our website is not a part of, and should not be construed as being

incorporated by reference, into this report.

The reports filed with the SEC by us and by our officers, directors and significant shareholders are

available for review on the SEC’s website at www.sec.gov.

16

Item 1A. Risk Factors

This report contains forward-looking statements that involve risks and uncertainties. Our actual results
could differ materially from those discussed in this report. Factors that could cause or contribute to these
differences include, but are not limited to, those discussed below and elsewhere in this report and in any
documents incorporated in this report by reference.

You should carefully consider the following risk factors, together with all other information in this report,
including our financial statements and notes thereto, and in our other filings with the Securities and Exchange
Commission. If any of the following risks, or other risks not presently known to us or that we currently believe
to not be significant, develop into actual events, then our business, financial condition, results of operations or
prospects could be materially adversely affected. If that happens, the market price of our common stock could
decline, and stockholders may lose all or part of their investment.

Risks Related to Our Business

We have no approved products and currently are dependent on the future success of our HBV-cure and
Microbiome programs.

To date, we have no approved products on the market and have generated no product revenues. Our
prospects are substantially dependent on our ability to develop and commercialize our HBV and
microbiome product candidates. Unless and until we receive approval from the FDA or other regulatory
authorities for our product candidates, we cannot sell our product candidates and will not have product
revenues. We will have to fund all of our operations and capital expenditures from cash on hand, any future
securities offerings or debt financings and any fees we may generate from out-licensing, collaborations or
other strategic arrangements. If we are unable to develop and commercialize any product candidates from
our HBV-cure and Microbiome programs, we will be unable to generate revenues from the sale of products
or build a sustainable or profitable business.

In addition, all of our product candidates are currently in early clinical development or in varying
stages of nonclinical development and their risk of failure is high. The data supporting our drug discovery
and nonclinical and clinical development programs are derived from either laboratory, nonclinical studies,
Phase 1a/1b and initial Phase 2a clinical data. We cannot predict when or if any one of our product
candidates will prove safe and effective in humans or will receive regulatory approval. The scientific
evidence to support the feasibility of our product candidates and therapeutic approaches is limited, and
many companies, some with more resources than we have, are and may be developing competitive product
candidates. For these and other reasons, our drug discovery and development may not be successful, and we
may not generate viable products or revenue.

We depend entirely on the success of product candidates from our HBV-cure program and our Microbiome
program. We cannot be certain that we or our collaborators will be able to obtain regulatory approval for, or
successfully commercialize, product candidates from either of our current programs or any other product
candidates we may subsequently identify.

We and our collaborators are not permitted to market or promote any product candidates in the
United States, Europe or other countries before we receive regulatory approval from the FDA or
comparable foreign regulatory authorities, and we may never receive such regulatory approval for our
current product candidates. We have not submitted a biologics license application (BLA) or new drug
application (NDA) to the FDA or comparable applications to other regulatory authorities and do not
expect to be in a position to do so in the foreseeable future.

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All of our product candidates are currently in early clinical development or in varying stages of
nonclinical development. It may be years before the larger, pivotal trials necessary to support regulatory
approval of our product candidates are initiated, if ever. The clinical studies of our product candidates are,
and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous
review and regulation by numerous government authorities in the United States and in other countries
where we intend to test and, if approved, market any product candidate. Before obtaining regulatory
approvals for the commercial sale of any product candidate, we must successfully meet a number of critical
developmental milestones, including:

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•

•

•

•

developing dosages that will be tolerated, safe and effective;

reaching agreement with the FDA or comparable foreign regulatory authorities regarding the
scope, design and data necessary to support regulatory approval for the product candidate;

demonstrating through clinical studies that the product candidate is safe and effective in patients
for the intended indication;

determining the appropriate delivery mechanism;

demonstrating that the product candidate formulation will be stable for commercially reasonable
time periods; and

completing the development and scale-up to permit manufacture of our product candidates in
quantities sufficient to execute on our clinical development plans and, eventually, in commercial
quantities and at acceptable prices.

The time necessary to achieve these developmental milestones for any individual product candidate is
long and uncertain, and we may not successfully complete these milestones for our HBV and microbiome
therapies or any other product candidates that we may develop. We have not yet completed and may never
complete the development of any products. If we are unable to complete clinical development of our HBV
or microbiome therapies, or any other product candidates that we may identify, we will be unable to
generate revenue from the sale of products or build a sustainable or profitable business.

Nonclinical studies may not be representative of disease behavior in clinical studies. The outcomes of
nonclinical testing and clinical studies are uncertain, and results of earlier nonclinical studies and clinical
studies may not be predictive of future clinical study results.

The results of nonclinical studies may not be representative of disease behavior in a clinical setting and
thus may not be predictive of the outcomes of our clinical studies. In addition, the results of nonclinical
studies and early clinical studies of product candidates may not be predictive of the results of later-stage
clinical studies, and the results of any study or trial for any of our product candidates may not be as
positive as the results for any prior studies or trials, if at all.

Nonclinical studies and clinical testing are expensive, can take many years to complete and their
outcomes are highly uncertain. Failure can occur at any time during the nonclinical study and clinical study
processes due to inadequate performance of a drug candidate or inadequate adherence by patients or
investigators to clinical study protocols. Further, clinical studies might not provide statistically significant
data supporting a product candidate’s safety and effectiveness to obtain the requisite regulatory approvals.
In addition, there is a high failure rate for drugs and biologics proceeding through clinical studies. Our
failure to replicate earlier positive results in later-stage clinical studies or otherwise demonstrate the required
characteristics to support marketing approval for any of our product candidates would substantially harm
our business, prospects, financial condition and results of operations.

Top-line or initial data may not accurately reflect the complete results of a particular study or trial.

We may publicly disclose top-line or initial data from time to time, which is based on a preliminary
analysis of then-available efficacy, tolerability, PK and safety data, and the results and related findings and
conclusions are subject to change following a more comprehensive review of the data related to the
particular study or trial. We also make assumptions, estimates, calculations and conclusions as part of our
analyses of data, and we may not have received or had the opportunity to evaluate fully and carefully all

18

data. As a result, the top-line or initial results that we report may differ from future results of the same
studies, or different conclusions or considerations may qualify such results, once additional data have been
received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may
result in the final data being materially different from the initial or preliminary data we previously
published. As a result, top-line and initial data should be viewed with caution until the final data are
available.

Further, others,

including regulatory agencies, may not accept or agree with our assumptions,
estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently,
which could impact the value of the particular program, the approvability or commercialization of the
particular drug candidate or biotherapeutic and our company in general. In addition, the information we
may publicly disclose regarding a particular nonclinical or clinical study is based on what is typically
extensive information, and you or others may not agree with what we determine is the material or otherwise
appropriate information to include in our disclosure, and any information we determine not to disclose may
ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise
regarding a particular drug, drug candidate or our business. If the top-line or initial data that we report
differ from actual results, or if others, including regulatory authorities, disagree with the conclusions
reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed or
delayed, which could harm our business, financial condition, operating results or prospects.

Nonclinical and clinical testing required for our product candidates is expensive and time-consuming and may
result in delays or may fail to demonstrate safety and efficacy for desired indications. Such delays or failures
could delay or prevent our receipt of licensing, sales and/or milestone revenue.

Before we or any commercial partners can obtain FDA approval (or other foreign approvals) necessary
to sell any of our product candidates, we must show through nonclinical studies and human testing in
clinical studies that each potential product is safe and effective in humans. To meet these requirements, we
must conduct extensive nonclinical testing and sufficient adequate and well-controlled clinical studies.
Conducting clinical studies is a lengthy, time consuming, and expensive process. The length of time might
vary substantially according to the type, complexity, novelty, and intended use of the product candidate,
and often can be several years or more per trial. Delays associated with product candidates for which we are
directly conducting nonclinical studies or clinical studies might cause us to incur additional operating
expenses. The commencement and rate of completion of clinical studies might be delayed by many factors,
including, for example:

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•

•

•

delays in reaching agreement with regulatory authorities on trial design;

delays in reaching agreement on acceptable terms with prospective contract research organizations
(CROs) and clinical study sites;

failure to demonstrate efficacy during clinical studies;

the emergence of unforeseen safety issues;

inability to manufacture sufficient quantities of qualified materials under cGMP for use in clinical
studies;

slower than expected rates of patient recruitment;

failure to recruit a sufficient number of eligible patients, which may be due to a number of
reasons, including the size of the patient population, the proximity of patients to clinical sites, the
eligibility criteria for the study, the design of the clinical study, and other potential drug candidates
being studied;

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

delays caused by patients dropping out of a trial due to product side effects, disease progression or
other reasons;

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

modification of clinical study protocols;

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•

•

•

•

•

delays by our contract manufacturers to produce and deliver sufficient supply of clinical study
materials;

occurrence of adverse events associated with the product candidate that are viewed to outweigh its
potential benefits;

changes in regulatory requirements for clinical studies;

delays, suspension, or termination of clinical studies by the institutional review board or ethics
committee responsible for overseeing the study at a particular study site; and

government, institutional review board, ethics committee, or other regulatory delays or clinical
holds requiring suspension or termination of the trials.

We have used and intend to continue to rely on one or more CROs to conduct our nonclinical studies
and clinical studies. We are highly dependent on these CROs to conduct our studies and trials in accordance
with the requirements of the FDA, applicable local laws and good clinical and scientific practice. In the
event the CROs fail to perform their duties in such a fashion, we may not be able to complete our clinical
studies and may fail to obtain regulatory approval for any of our product candidates.

The failure of nonclinical studies and clinical studies to demonstrate safety and effectiveness of a
product candidate for the desired indications could harm the development of that product candidate or
other product candidates. This failure could cause us to abandon a product candidate and could delay
development of other product candidates. Any delay in, or termination of, our nonclinical studies or clinical
studies would delay the filing of our NDAs or BLAs with the FDA and, ultimately, our ability to
commercialize our product candidates and generate product revenues. Any change in, or termination of, our
clinical studies could materially harm our business, financial condition, and results of operation.

Any product candidates that we may discover and develop may cause undesirable side effects or have other
properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved
label, or result in significant negative consequences following marketing approval, if any.

Many product candidates that initially showed promise in early stage testing have later been found to
cause side effects that prevented their further development. Undesirable side effects caused by any product
candidates that we may discover or develop, or safety, tolerability or toxicity issues that may occur in our
nonclinical studies, clinical studies or in the future, could cause us or regulatory authorities to interrupt,
restrict, delay, or halt clinical studies. Such results could also cause us to, or regulatory authorities to require
us to, cease further development of our product candidates for any or all targeted indications. The
drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the
trial or result in potential product liability claims and could result in a more restrictive label or the delay or
denial of regulatory approval by the FDA or other comparable foreign authorities. Any of these events
could prevent us from achieving or maintaining market acceptance of the particular product candidate, if
approved, and could significantly harm our business, prospects, financial condition and results of
operations. The most common treatment-emergent adverse events that we observed in our completed
Phase 1a (ABI-H0731-102) safety and PK study and Phase 1b (ABI-H0731-101b) study of antiviral effects
were headaches and rashes, which were among the only adverse events deemed by clinical investigators to be
probably or possibly related to the study drug, with the exception of a single isolated Grade 3 rash that
resolved rapidly without intervention other than treatment discontinuation, which was the only treatment
discontinuation in those completed studies.

Additionally, if any of our product candidates receives marketing approval and we or others later
identify undesirable or unacceptable side effects caused by these product candidates, a number of
potentially significant negative consequences could result, including:

•

•

regulatory authorities may withdraw approvals of such product and require us to take them off
the market;

regulatory authorities may require the addition of labeling statements, specific warnings, a
contraindication or field alerts to physicians and pharmacies;

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•

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•

regulatory authorities may require a medication guide outlining the risks of such side effects for
distribution to patients, or that we implement a Risk Evaluation Mitigation Strategies (REMS)
plan to ensure that the benefits of the product outweigh its risks;

we may be required to change the way a product is administered, conduct additional clinical
studies or change the labeling of a product;

we may be subject to limitations on how we may promote the product;

sales of the product may decrease significantly;

we may be subject to litigation or product liability claims; and

our reputation may suffer.

Any of these events could prevent us or any collaborators from achieving or maintaining market
acceptance of our product candidates or could substantially increase commercialization costs and expenses,
which in turn could delay or prevent us from generating significant revenue from the sale of our product
candidates.

We have a limited operating history and a history of operating losses and expect to incur significant additional
operating losses.

We merged with Assembly Pharmaceuticals, Inc. (Assembly Pharmaceuticals), a private company, in
July 2014. We have only a limited operating history since the merger. Therefore, there is limited historical
financial information upon which to base an evaluation of our performance. Our prospects must be
considered in light of
the uncertainties, risks, expenses, and difficulties frequently encountered by
companies in their early stages of operations. We, and Assembly Pharmaceuticals prior to our merger, have
generated losses since we began operations and as of December 31, 2018 and December 31, 2017, the
combined company had an accumulated deficit of approximately $341.8 million and $251.0 million,
respectively, and net losses of approximately $90.8 million, $42.8 million, and $44.3 million for the years
ended December 31, 2018, 2017 and 2016, respectively. These net losses have had, and will continue to have,
an adverse effect on our stockholders’ equity and working capital. We expect to incur substantial additional
losses over the next several years as we continue to pursue our research, development, nonclinical studies
and clinical study activities. Further, since our initial public offering, we have incurred and will continue to
incur as a public company significant additional legal, accounting and other expenses to which we were not
including expenses related to our efforts in complying with the
subject to as a private company,
requirements of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 and other public company disclosure and corporate
governance requirements and responding to requests of government regulators. The amount of future
losses and when, if ever, we will achieve profitability are uncertain and will depend, in part, on the rate of
increase in our expenses, our ability to generate revenues from the sale of products and our ability to raise
additional capital. We have no products that have generated any commercial revenue, do not expect to
generate revenues from the commercial sale of products unless and until our HBV or microbiome therapies
or any other product candidate is approved by the FDA for sale, and we might never generate revenues from
the sale of products.

We are not currently profitable and might never become profitable.

We have a history of losses and expect to incur significant operating and capital expenditures and
resultant substantial losses and negative operating cash flow for the next several years and beyond if we do
not successfully launch and commercialize any product candidates from our HBV or Microbiome
programs. We might never achieve or maintain profitability. We anticipate that our expenses will continue to
be substantial in the foreseeable future as we:

•

advance ABI-H0731, our first HBV-cure candidate, through clinical development and conduct
nonclinical studies and clinical studies with ABI-H2158 and ABI-H3733, our second and third
HBV-cure product candidates, respectively;

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•

advance ABI-M201 (Ulcerative Colitis), our first candidate from our Microbiome program,
through clinical development;

continue to undertake research and development
candidates in both our HBV-cure and Microbiome programs;

to identify potential additional product

seek regulatory approvals for our product candidates; and

pursue our intellectual property strategy.

Because of the numerous risks and uncertainties associated with pharmaceutical product development,
we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be
able to achieve profitability. In addition, our expenses could increase if we are required by the FDA or
comparable foreign regulatory authorities to perform studies or trials in addition to those currently
expected, or if there are any delays in completing our clinical studies or the development of any of our
product candidates.

As a result, we will need to generate significant revenues in order to achieve and maintain profitability.
Our ability to generate revenue from the sale of products and achieve profitability will depend on, among
other things:

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•

•

•

•

successful completion of research, nonclinical studies and clinical studies for our product
candidates;

obtaining necessary regulatory approvals from the FDA and comparable foreign regulatory
authorities for our product candidates;

maintaining patent protection for our products, methods, processes and technologies and/or
obtaining regulatory exclusivity;

establishing manufacturing, sales, and marketing arrangements internally and/or with third parties
for any approved products; and

raising sufficient funds to finance our activities, if and when needed.

We might not succeed at any of these undertakings. If we are unsuccessful at some or all of these

undertakings, our business, prospects, and results of operations might be materially adversely affected.

We are an early stage company and might not be able to commercialize any product candidates.

We are an early stage company and have not demonstrated our ability to perform the functions
necessary for the successful commercialization of any product candidates. The successful commercialization
of any product candidates will require us to perform a variety of functions, including:

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•

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•

continuing to undertake research and development and nonclinical studies and clinical studies;

participating in regulatory approval processes;

formulating and manufacturing products; and

conducting sales, marketing and distribution activities.

We currently do not have the infrastructure to manufacture, market and sell our product candidates. If
we partner with one or more third-party entities, those commercial partners may demand and receive rights
to control product development and commercialization. As a result, these commercial partners may conduct
these programs and activities more slowly or in a different manner than expected. If any of these events
were to occur, the development of any product candidate could be significantly delayed, more expensive or
less lucrative to us than anticipated, any of which would have a significant adverse effect on our business.

Our failure to commercialize successfully our product candidates would negatively impact the value of
our company and could impair our ability to raise capital, expand our business, diversify our research and
development pipeline, market our product candidates, if approved, or continue our operations.

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Our development of product candidates is subject to risks and delays.

Our development of our product candidates is subject to the risks of failure and delay inherent in the

development of new pharmaceutical products and products based on new technologies, including:

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delays in product development, nonclinical and clinical testing;

unplanned expenditures in product development, nonclinical and clinical testing;

failure of a product candidate to demonstrate acceptable safety and efficacy;

failure to receive regulatory approvals;

emergence of superior or equivalent products;

inability to manufacture and sell on our own, or through others, product candidates on a
commercial scale or at a financially viable cost; and

failure to achieve market acceptance.

Because of these risks, our research and development efforts might not result in any commercially
viable products. If we do not successfully complete a significant portion of these development efforts,
obtain required regulatory approvals, and have commercial success with any approved products, our
business, financial condition and results of operations will be materially harmed.

There are substantial risks inherent in attempting to commercialize new drugs and biologics, and, as a result,
we may not be able to develop successfully products for commercial use.

Scientific research and development require significant amounts of capital and takes a long time to
reach commercial viability, if it can be achieved at all. To date, our research and development projects have
not produced commercially viable drugs or biologics and may never do so. During the research and
development process, we may experience technological barriers that we may be unable to overcome. Further,
certain underlying premises in our development programs are not fully proven.

Our HBV therapy research and development efforts involve therapeutics based on modulating forms of
HBV core proteins with core inhibitors. The development of our core inhibitor technology is in early stages,
and the commercial feasibility and acceptance of our core inhibitor technology is unknown. More
specifically, the theory that treatment with core inhibitors may result in the loss of covalently closed circular
DNA (cccDNA) compared to conventional (standard of care) therapies is unproven. It is also unknown if
the biomarkers assumed to be indicators of active cccDNA (serum viral antigen levels in HBV patients) will
be meaningfully altered in patients on treatment with core inhibitors. Additionally, even if core inhibitor
technology is successful at targeting the HBV core protein and treatment is successful at reducing cccDNA
levels in HBV patients, it may not result in a commercially viable drug if there is not a corresponding
medical benefit related to the underlying HBV infection.

Similarly, our Microbiome program is based on a novel therapeutic approach designed to treat
disorders associated with the microbiome. To our knowledge, no companies have received regulatory
approval for, or manufactured on a commercial scale, any microbiome-based therapeutics. Our microbiome
therapy candidates are in nonclinical and early clinical development, and our GEMICEL® dual-targeted
release capsule formulation is novel and has not yet shown to deliver successfully live bacteria in patients.
The ability to deliver bacteria effectively and reliably to the GI tract is unproven, and, even if it can be
proven,
these
it may be difficult or impossible to provide the treatment economically. Because of
uncertainties, it is possible that no commercial products will be successfully developed. If we are unable to
develop successfully commercial products, we will be unable to generate revenue from the sale of products
or build a sustainable or profitable business.

We will need additional financing to complete the development of any product candidate and fund our activities
in the future.

We anticipate that we will incur operating losses for the next several years as we continue to develop
our HBV product candidates and our microbiome platform as well as initiate development of any other
product candidates and will require substantial funds during that time to support our operations. We expect

23

that our current resources will provide us with sufficient capital to fund our operations for at least the next
twelve months. However, we might consume our available capital before that time if, for example, we are not
efficient in managing our resources or if we encounter unforeseen costs, delays or other issues or if
regulatory requirements change or if clinical study timelines are accelerated. If that happens, we may need
additional financing to continue the development of our HBV and Microbiome product candidates, which
we might seek and receive from the public financial markets or from third-party commercial partners. There
is no assurance that we will be able to generate sufficient revenue from our Collaboration Agreement with
Allergan or that we will be successful in raising any necessary additional capital on terms that are acceptable
to us, or at all. If such events or other unforeseen circumstances occurred and we were unable to generate
sufficient revenue or raise capital, we could be forced to delay, scale back or discontinue product
development, sacrifice attractive business opportunities, cease operations entirely and sell or otherwise
transfer all or substantially all of our remaining assets.

Inadequate 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 products and services from being developed or
commercialized in a timely manner or otherwise prevent those agencies from performing normal business
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 the
payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have
fluctuated in recent years as a result. 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. 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.

In addition, over the last several years, including most recently from December 22, 2018 to January 25,
2019, 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 another prolonged government shutdown occurs, it could significantly impact the ability of the
FDA to timely review and process our regulatory submissions or our ability to raise capital through the
public financial markets, either of which could have a material adverse effect on our business.

We are substantially dependent on our Collaboration Agreement with Allergan, which may be terminated or
may not be successful due to a number of factors, which could have a material adverse effect on our business
and operating results.

for

In January 2017, we entered into the Collaboration Agreement

the development and
commercialization of select microbiome gastrointestinal programs in ulcerative colitis, Crohn’s disease and
irritable bowel syndromes. Our collaboration with Allergan may be terminated, or may not be successful,
due to a number of factors. In particular, Allergan may terminate the Collaboration Agreement for
convenience at any time upon either 90 days’ (prior to the initiation of the first proof of concept (POC) trial
of a licensed product) or 120 days’ (after the initiation of the first POC trial of a licensed product), as
applicable, advance written notice to us. The Collaboration Agreement also contains customary provisions
for termination by either party, including in the event of breach of the Collaboration Agreement, subject to
cure. In addition, if we are unable to identify product candidates for the licensed indications or we are
unable to protect our products by obtaining and defending patents, the collaboration could fail. If the
collaboration is unsuccessful for these or other reasons, or is otherwise terminated for any reason, we may
not receive all or any of the research program funding, milestone payments or royalties under the
agreement. Any of the foregoing could result in a material adverse effect on our business, results of
operations and prospects and would likely cause our stock price to decline.

We are dependent on a license relationship for each of our HBV-cure program and our Microbiome program.

Our license agreement with Indiana University Research and Technology Corporation (IURTC) from
whom we have licensed ABI-H0731 and certain other HBV therapies, requires us to make milestone
payments based upon the successful accomplishment of clinical and regulatory milestones related to

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ABI-H0731 and certain other HBV therapies. The aggregate amount of all performance milestone
payments under the IURTC License Agreement, should all performance milestones through development
be met, is $825,000, with a portion related to the first performance milestone having been paid. We also are
obligated to pay IURTC royalty payments based on net sales of the licensed technology. We are also
obligated to pay diligence maintenance fees ($75,000 to $100,000) each year to the extent that the royalty,
sublicensing, and milestone payments to IURTC are less than the diligence maintenance fee for that year.
Our license with Therabiome, LLC (Therabiome), from whom we have licensed our delivery platform of
our Microbiome program, also requires us to pay regulatory and clinical milestones as well as royalty
payments to Therabiome. If we breach any of these obligations, we could lose our rights to the targeted
delivery mechanism of our Microbiome program. If we fail to comply with similar obligations to any other
licensor, then that licensor would have the right to terminate the license, in which event we would not be
able to commercialize drug candidates or technologies that were covered by the license. In addition, the
milestone and other payments associated with licenses will make it less profitable for us to develop our drug
candidates than if we owned the technology ourselves.

Corporate and academic collaborators might take actions to delay, prevent, or undermine the success of our
product candidates.

licensors,

Our operating and financial strategy for the development, nonclinical and clinical testing, manufacture,
and commercialization of drug candidates heavily depends on collaborating with corporations, academic
institutions,
licensees, and other parties. However, there can be no assurance that we will
successfully establish or maintain these collaborations. In addition, should a collaboration be terminated,
replacement collaborators might not be available on attractive terms, or at all. The activities of any
collaborator will not be within our control and might not be within our power to influence. There can be no
assurance that any collaborator will perform its obligations to our satisfaction or at all, that we will derive
any revenue or profits from these collaborations, or that any collaborator will not compete with us. If any
collaboration is not successful, we might require substantially greater capital to undertake development and
marketing of our proposed products and might not be able to develop and market these products
effectively, if at all. In addition, a lack of development and marketing collaborations might lead to
significant delays in introducing proposed products into certain markets and/or reduced sales of proposed
products in such markets.

We rely on data provided by our collaborators and others that has not been independently verified and could
prove to be false, misleading, or incomplete.

We rely on third-party vendors, scientists, investigators and collaborators to provide us with significant
data and other information related to our projects, nonclinical studies and clinical studies, and our business.
If these third parties provide inaccurate, misleading, or incomplete data, our business, prospects, and results
of operations could be materially adversely affected.

Research, development and commercialization goals may not be achieved in the timeframes that we publicly
estimate, which could have an adverse impact on our business and could cause our stock price to decline.

We set goals, and make public statements regarding our expectations, regarding the timing of certain
accomplishments, developments and milestones under our research and development programs. The actual
timing of these events can vary significantly due to a number of factors, including, without limitation, the
amount of time, effort and resources committed to our programs by us and any collaborators and the
uncertainties inherent in the clinical development and regulatory approval process. As a result, there can be
no assurance that we or any collaborators will initiate or complete clinical development activities, make
regulatory submissions or receive regulatory approvals as planned or that we or any collaborators will be
able to adhere to our current schedule for the achievement of key milestones under any of our programs. If
we or any collaborators fail to achieve one or more of the milestones as planned, our business could be
materially adversely affected, and the price of our common stock could decline.

We lack suitable facilities for certain nonclinical and clinical testing and expect to rely on third parties to
conduct some of our research and nonclinical testing and our clinical studies, and those third parties may not
perform satisfactorily, including failing to meet deadlines for the completion of such research, testing or trials.
We do not have sufficient facilities to conduct all of our anticipated nonclinical and clinical testing. As
a result, we expect to contract with third parties to conduct a significant portion of our nonclinical and

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clinical testing required for regulatory approval for our product candidates. We will be reliant on the services
of third parties to conduct studies on our behalf. If we are unable to retain or continue with third parties for
these purposes on acceptable terms, we may be unable to develop successfully our product candidates. In
addition, any failures by third parties to perform adequately their responsibilities may delay the submission
of our product candidates for regulatory approval, which would impair our financial condition and business
prospects.

Our reliance on these third parties for research and development activities also reduces our control over
these activities but will not relieve us of our responsibilities. For example, we are responsible for ensuring
that each of our studies is conducted in accordance with the applicable protocol, legal and regulatory
requirements and scientific standards, including, in the case of clinical studies, good clinical practices, and
our reliance on third parties does not relieve us of our regulatory responsibilities. Furthermore, these third
parties may also have relationships with other entities, some of which may be our competitors. In addition,
these third parties are not our employees, and except for remedies available to us under our agreements with
such third parties, we cannot control whether or not they devote sufficient time and resources to our clinical
and nonclinical programs. 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, regulatory
requirements or for other reasons, our research, nonclinical studies or clinical studies may be extended,
delayed or terminated and we may not be able to obtain, or may be delayed in obtaining, regulatory
approvals for our product candidates. As a result, our results of operations and business prospects would be
harmed, our costs could increase and our ability to generate revenues from the sale of products could be
delayed.

We will need to either establish our own clinical and commercial manufacturing capabilities or rely on third
parties to formulate and manufacture our product candidates, and we rely on third parties to manufacture
products that we study in combination with our product candidates. Our use of third parties to manufacture
these materials may increase the risk that we will not have sufficient quantities of our product candidates or
other products, or necessary quantities of such materials on time or at an acceptable cost.

We currently rely on third-party manufacturers to supply the quantities of ABI-H0731, ABI-H2158
and ABI-H3733 used in our clinical and nonclinical studies and the drug substance for our Microbiome
program. We currently manufacture our microbiome drug product for use in our planned nonclinical
studies and early-stage clinical studies; however, we may require third-party manufacturers for subsequent
clinical studies or other microbiome drug products. In addition, if any product candidate we might develop
or acquire in the future receives FDA or other regulatory approval, we will need to either manufacture
commercial quantities of the product on our own or rely on one or more third-party contractors to
manufacture our products. The establishment of internal manufacturing capabilities is difficult and costly,
and we may not be successful in doing so. If, for any reason, we are unable to establish our own
manufacturing capabilities and we are unable to rely on any third-party sources we have identified to
manufacture our product candidates, either for clinical studies or, at some future date, for commercial
quantities, then we would need to identify and contract with additional or replacement third-party
manufacturers to manufacture compounds, drug substance and drug products for nonclinical, clinical and
commercial purposes. We might not be successful in identifying additional or replacement third-party
manufacturers, or in negotiating acceptable terms with any that we do identify. If we are unable to establish
and maintain manufacturing capacity either on our own or through third parties, the development and sales
of our products and our financial performance will be materially and adversely affected.

In addition, before we or any of our collaborators can begin to commercially manufacture our product
candidates, each manufacturing facility and process is subject to regulatory review. Manufacturing of drugs
for clinical and commercial purposes must comply with the FDA’s cGMPs and applicable non-U.S.
regulatory requirements. The cGMP requirements govern compliance and documentation policies and
procedures. Complying with cGMP and non-U.S. regulatory requirements will require that we expend time,
money, and effort in production, recordkeeping, and compliance to assure that the product meets applicable
specifications and other requirements. Any manufacturing facility must also pass a pre-approval inspection
prior to FDA approval. Failure to pass a pre-approval inspection might significantly delay FDA approval of
our product candidates. If we or any of our future collaborators fails to comply with these requirements

26

with respect to the manufacture of any of our product candidates, regulatory action could limit the
jurisdictions in which we are permitted to sell our products, if approved. As a result, our business, financial
condition, and results of operations might be materially harmed.

We are exposed to the following risks with respect to the manufacture of our product candidates:

•

If we are unable to establish our own manufacturing capabilities, we will need to identify
manufacturers for commercial supply on acceptable terms, which we may not be able to do
because the number of potential manufacturers is limited, and the FDA must approve any new or
replacement contractor. This approval would generally require compliance inspections. In
addition, a new manufacturer would have to be educated in, or develop substantially equivalent
processes for, production of our products after receipt of FDA approval, if any.

• We or any third-party manufacturers with whom we contract might be unable to formulate and
manufacture our product candidates in the volume and of the quality required to meet our clinical
and, if approved, commercial needs in a timely manner.

•

•

•

Any third-party manufacturers with whom we contract might not perform as agreed or might not
remain in the contract manufacturing business for the time required to supply our clinical studies
or to produce, store and successfully distribute our products.

One or more of any third-party manufacturers with whom we contract could be foreign, which
increases the risk of shipping delays and adds the risk of import restrictions.

Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA and
corresponding state agencies to ensure strict compliance with cGMP and other government
regulations and corresponding foreign requirements. Any internal manufacturing facilities we
establish may fail to comply, and we would not have complete control over any third-party
manufacturers’ compliance, with these regulations and requirements.

• We may be required to obtain additional intellectual property rights from third parties in order to
manufacture our product candidates, and if any third-party manufacturer makes improvements in
the manufacturing process for our product candidates, we might not own, or might have to share,
the intellectual property rights to the innovation with our licensors.

• We may be required to share our trade secrets and know-how with third parties, thereby risking

the misappropriation or disclosure of our intellectual property by or to third parties.

•

If we contract with third-party manufacturers, we might compete with other companies for access
to these manufacturers’
the
manufacturers give other clients higher priority than us.

facilities and might be subject

to manufacturing delays if

Each of these risks could delay our development efforts, nonclinical studies and clinical studies or the
approval, if any, of our product candidates by the FDA or applicable non-U.S. regulatory authorities or the
commercialization of our product candidates and could result in higher costs or deprive us of potential
product revenues. As a result, our business, financial condition, and results of operations might be
materially harmed.

If we or our collaborators cannot compete successfully for market share against other companies, we might not
achieve sufficient product revenues and our business will suffer.

If our product candidates receive approval

from the FDA or applicable non-U.S. regulatory
authorities, they will compete with a number of existing and future drugs and biologics developed,
manufactured and marketed by others. Existing or future competing drugs might provide greater
therapeutic convenience or clinical or other benefits for a specific indication than our product candidates or
might offer comparable performance at a lower cost. If our product candidates fail to capture and maintain
market share, we might not achieve sufficient product revenues and our business will suffer.

27

We might compete against fully integrated pharmaceutical or biotechnology companies and smaller
companies that are collaborating with larger pharmaceutical companies, academic institutions, government
agencies and other public and private research organizations. Many of these competitors, either alone or
together with their collaborative partners, operate larger research and development programs or have
substantially greater financial resources than we do, as well as significantly greater experience in:

•

•

•

•

•

developing drugs;

undertaking nonclinical testing and human clinical studies;

obtaining FDA and other regulatory approvals of drugs;

formulating and manufacturing drugs; and

launching, marketing and selling drugs.

We may not have or be able to obtain the same resources and experience as our competitors. If we are
unable to perform these tasks effectively and efficiently, our results of operations might be materially
adversely affected.

Developments by competitors might render our product candidates or technologies obsolete or non-competitive.

The pharmaceutical and biotechnology industries are intensely competitive. In addition, the clinical
and commercial landscape for HBV, ulcerative colitis (UC), inflammatory bowel disease (IBD), including
Crohn’s disease,
irritable bowel syndrome (IBS), nonalcoholic steatohepatitis disease (NASH) and
immuno-oncology is rapidly changing; we expect new data from commercial and clinical-stage products to
continue to emerge. We will compete with organizations that have existing treatments and that are or will be
developing treatments for the indications that our product candidates target. If our competitors develop
effective treatments for HBV, UC, IBD, IBS, NASH and immuno-oncology or any other indication or field
we might pursue, and successfully commercialize those treatments, our business and prospects might be
materially harmed, due to intense competition in these markets.

Our product candidates under development in our Microbiome program will be subject to regulation as
biologics. These candidates, and any other future product candidates for which we or our collaborators intend
to seek approval as biologic products, may face competition sooner than anticipated.

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

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

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If we or our collaborators are not able to develop collaborative marketing relationships with licensees or
partners, or create effective internal sales, marketing, and distribution capability, we might be unable to market
our products successfully.

To market our product candidates, if approved, we will have to establish our own marketing and sales
force or out-license our product candidates to, or collaborate with,
larger firms with experience in
marketing and selling pharmaceutical products. There can be no assurance that we will be able to
successfully establish our own marketing capabilities or establish marketing, sales, or distribution
relationships with third parties; that such relationships, if established, will be successful; or that we will be
successful in gaining market acceptance for our product candidates. To the extent that we enter into any
marketing, sales, or distribution arrangements with third parties, our product revenues will be lower than if
we marketed and sold our products directly, and any revenues we receive will depend upon the efforts of
such third parties. If we are unable to establish such third-party sales and marketing relationships, or choose
not to do so, we will have to establish our own in-house capabilities. We, as a company, have no experience
in marketing or selling pharmaceutical products and currently have no sales, marketing, or distribution
infrastructure. To market any of our products directly, we would need to develop a marketing, sales, and
distribution force that both has technical expertise and the ability to support a distribution capability. To
establish our own marketing, sales, and distribution capacity would significantly increase our costs, and
require substantial additional capital. In addition, there is intense competition for proficient sales and
marketing personnel, and we might not be able to attract individuals who have the qualifications necessary
to market, sell, and distribute our products. There can be no assurance that we will be able to establish
internal marketing, sales, or distribution capabilities.

The commercial success of our product candidates will depend upon the degree of market acceptance by
physicians, patients, third-party payors and others in the medical community.

The commercial success of our products, if approved for marketing, will depend in part on the medical
community, patients and third-party payors accepting our product candidates as effective and safe. If these
products do not achieve an adequate level of acceptance, we may not generate significant product revenue
and may not become profitable. The degree of market acceptance of our products, if approved for
marketing, will depend on a number of factors, including:

•

•

•

•

•

•

•

the actual or perceived safety and efficacy of the products, and advantages over alternative
treatments;

the pricing and cost-effectiveness of our products relative to competing products or therapies,
including generic drugs or biosimilars, if available;

the labeling of any approved product;

the prevalence and severity of any side effects, including any limitations or warnings contained in
a product’s approved labeling;

the emergence, and timing of market introduction, of competitive products;

the effectiveness of marketing and distribution efforts by us and our licensees and distributors, if
any; and

the availability of third-party insurance coverage or governmental reimbursement.

Even if a potential product displays a favorable efficacy and safety profile in nonclinical studies and
clinical studies, market acceptance of the product will not be known until after it is launched. Any failure to
achieve market acceptance for our product candidates will harm our business, results and financial
condition.

If we lose key management or scientific personnel, cannot recruit qualified employees, directors, officers, or
other significant personnel or experience increases in our compensation costs, our business might materially
suffer.

We are highly dependent on the services of our executive officers and senior management team. Our
employment agreements with our executive officers and senior management team members do not ensure
their retention.

29

Furthermore, our future success also depends, in part, on our ability to identify, hire, and retain
additional management team members as our operations grow and our ability to replace our management
team members in the event any leave us for any reason. We expect to experience intense competition for
qualified personnel and might be unable to attract and retain the personnel necessary for the development
of our business. Finally, we do not currently maintain, nor do we intend to obtain in the future, “key man”
life insurance that would compensate us in the event of the death or disability of any of the members of our
management team.

The failure by us to retain, attract and motivate executives and other key employees could have a

material adverse impact on our business, financial condition and results of operations.

If we are unable to hire additional qualified personnel, our ability to grow our business might be harmed.

As of December 31, 2018, we had 95 employees and contracts with a number of

temporary
contractors, consultants and contract research organizations. We will need to hire or contract with
formulation and
additional qualified personnel with expertise in clinical
manufacturing and sales and marketing to commercialize our HBV drug candidates and our microbiome
biotherapeutic candidates or any other product candidate we may seek to develop. We compete for qualified
individuals with numerous biopharmaceutical companies, universities and other research institutions.
Competition for these individuals is intense, and we cannot be certain that our search for such personnel
will be successful. Attracting and retaining qualified personnel will be critical to our success.

research and testing,

Significant disruptions of information technology systems or breaches of data security could materially
adversely affect our business, results of operations and financial condition.

We collect and maintain information in digital form that is necessary to conduct our business, and we
are increasingly dependent on information technology systems and infrastructure to operate our business.
In the ordinary course of our business, we collect, store and transmit large amounts of confidential
information, including intellectual property, proprietary business information and personal information. It
is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential
information. We have established physical, electronic and organizational measures to safeguard and secure
our systems to prevent this data from being compromised, and we rely on commercially available systems,
software, tools, and monitoring to provide security for our information technology systems and the
processing, transmission and storage of digital information. We have also outsourced elements of our
information technology infrastructure, and as a result, a number of third-party vendors may or could have
access to our confidential information. Our internal information technology systems and infrastructure, and
those of our current and any future collaborators, contractors and consultants and other third parties on
which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war,
telecommunication and electrical failures, cyberattacks or cyber intrusions over the Internet, attachments to
emails, persons inside our organization, or persons with access to systems inside our organization.

The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusion,
including by computer hackers, foreign governments and cyberterrorists, has generally increased as the
number, intensity and sophistication of attempted attacks and intrusions from around the world have
increased. In addition, the prevalent use of mobile devices that access confidential information increases the
risk of data security breaches, which could lead to the loss of confidential information or other intellectual
property. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software
programs and security vulnerabilities could be significant, and while we have implemented security
measures to protect our data and information technology systems, our efforts to address these problems
may not be successful, and these problems could result in unexpected interruptions, delays, cessation of
service and other harm to our business and our competitive position. If such an event were to occur and
cause interruptions in our operations, it could result in a material disruption of our product development
programs. For example, the loss of clinical study data from completed or ongoing or planned clinical studies
could result in delays in our regulatory approval efforts and significantly increase our costs to recover or
reproduce the data.

Moreover, if a computer security breach affects our systems or results in the unauthorized release of
personally identifiable information, our reputation could be materially damaged. In addition, such a breach
may require notification to governmental agencies, the media or individuals pursuant to various federal,

30

state and non-U.S. privacy and security laws, if applicable, including the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Clinical
Health Act of 2009 (HITECH), and its implementing rules and regulations, as well as regulations
promulgated by the Federal Trade Commission, state breach notification law and the European Union’s
General Data Protection Regulation (GDPR). We would also be exposed to a risk of loss or litigation and
potential liability, which could materially adversely affect our business, results of operations and financial
condition.

We might not successfully manage our growth.

Our success will depend upon the expansion of our operations and the effective management of our
growth, which will place a significant strain on our current and future management and other
administrative and operational resources. To manage this growth, we may need to expand our facilities,
augment our operational, financial and management systems and hire and train additional qualified
personnel. If we are unable to manage our growth effectively, our business would be harmed.

We might seek to develop our business through acquisitions of or investment in new or complementary
businesses, products or technologies, and the failure to manage these acquisitions or investments, or the failure
to integrate them with our existing business, could have a material adverse effect on us.

We might consider opportunities to acquire or invest in other technologies, products and businesses
that might enhance our capabilities or complement our current product candidates. Potential and completed
acquisitions and strategic investments involve numerous risks,
including potential problems or issues
associated with the following:

•

•

•

•

•

•

assimilating the purchased technologies, products or business operations;

maintaining uniform standards, procedures, controls and policies;

unanticipated costs associated with the acquisition or investment;

diversion of our management’s attention from our preexisting business;

maintaining or obtaining the necessary regulatory approvals or complying with regulatory
requirements; and

adverse effects on existing business operations.

We have no current commitments with respect to any acquisition or investment in other technologies
or businesses. We do not know if we will identify suitable acquisitions, whether we will be able to
successfully complete any acquisitions, or whether we will be able to successfully integrate any acquired
product, technology or business into our business or retain key personnel, suppliers or collaborators.

Our ability to develop successfully our business through acquisitions would depend on our ability to
identify, negotiate, complete and integrate suitable target businesses or technologies and obtain any
necessary financing. These efforts could be expensive and time consuming and might disrupt our ongoing
operations. If we are unable to integrate efficiently any acquired business, technology or product into our
business, our business and financial condition might be adversely affected.

Risks Related to Our Regulatory and Legal Environment

We are and will be subject to extensive and costly government regulation and the failure to comply with these
regulations may have a material adverse effect on our operations and business.

Product candidates employing our technology are subject to extensive and rigorous domestic
government regulation including regulation by the FDA, the Centers for Medicare and Medicaid Services,
other divisions of the U.S. Department of Health and Human Services, the U.S. Department of Justice,
state and local governments, and their respective foreign equivalents. Both before and after approval of any
product, we and our collaborators, suppliers, contract manufacturers and clinical investigators are subject
to extensive regulation by governmental authorities in the United States and other countries, covering,
among other things, testing, manufacturing, quality control, clinical studies, post-marketing studies,

31

labeling, advertising, promotion, distribution, import and export, governmental pricing, price reporting and
rebate requirements. Failure to comply with applicable requirements could result in one or more of the
following actions: warning or untitled letters; unanticipated expenditures; delays in approval or refusal to
approve a product candidate; voluntary product recall; product seizure; interruption of manufacturing or
clinical studies; operating or marketing restrictions; injunctions; criminal prosecution and civil or criminal
penalties including fines and other monetary penalties; exclusion from federal health care programs such as
Medicare and Medicaid; adverse publicity; and disruptions to our business. Further, government
investigations into potential violations of these laws would require us to expend considerable resources and
face adverse publicity and the potential disruption of our business even if we are ultimately found not to
have committed a violation. If products employing our technologies are marketed abroad, they will also be
subject to extensive regulation by foreign governments, whether or not they have obtained FDA approval
for a given product and its uses. Such foreign regulation might be equally or more demanding than
corresponding U.S. regulation.

Government regulation substantially increases the cost and risk of

researching, developing,
manufacturing, and selling our product candidates. The regulatory review and approval process, which
includes nonclinical testing and clinical studies of each product candidate, is lengthy, expensive, and
uncertain. We or our collaborators must obtain and maintain regulatory authorization to conduct clinical
studies and approval for each product we intend to market, and the manufacturing facilities used for the
products must be inspected and meet legal requirements. Securing regulatory approval requires submitting
extensive nonclinical and clinical data and other supporting information for each proposed therapeutic
indication in order to establish the product’s safety and efficacy for each intended use. The development and
approval process might take many years, requires substantial resources, and might never lead to the
approval of a product.

Even if we or our collaborators are able to obtain regulatory approval for a particular product, the
approval might limit the intended medical uses for the product, limit our ability to promote, sell, and
distribute the product, require that we conduct costly post-marketing surveillance, and/or require that we
conduct ongoing post-marketing studies. Material changes to an approved product, such as, for example,
manufacturing changes or revised labeling, might require further regulatory review and approval. Once
obtained, any approvals might be withdrawn, including, for example, if there is a later discovery of
previously unknown problems with the product, such as a previously unknown safety issue.

If we, our collaborators, or our contract manufacturers fail to comply with applicable regulatory
requirements at any stage during the regulatory process, such noncompliance could result in, among other
things, delays in the approval of applications or supplements to approved applications; refusal by a
regulatory authority, including the FDA, to review pending market approval applications or supplements to
approved applications; untitled letters or warning letters; fines; import and export restrictions; product
recalls or seizures; injunctions; total or partial suspension of production; civil penalties; withdrawals of
previously approved marketing applications; recommendations by the FDA or other regulatory authorities
against governmental contracts; and/or criminal prosecutions.

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

We, or any current or future collaborators, cannot assure you that we will receive the approvals
necessary to commercialize for sale any of our product candidates, or any product candidate we acquire or
develop in the future. We will need FDA approval to commercialize our product candidates in the United
States and approvals from the applicable regulatory authorities in foreign jurisdictions to commercialize our
product candidates in those jurisdictions. In order to obtain FDA approval of any product candidate, we
must submit to the FDA an NDA, in the case of our HBV-cure program, or a BLA, in the case of our
product candidates in our Microbiome program, demonstrating that the product candidate is safe for
humans and effective for its intended use (for biological products, this standard is referred to as safe, pure
and potent). This demonstration requires significant research, nonclinical studies, and clinical studies.
Satisfaction of the FDA’s regulatory requirements typically takes many years, depends upon the type,
the product candidate and requires substantial resources for research,
complexity and novelty of

32

development and testing. We cannot predict whether our research and clinical approaches will result in
drugs or biological products that the FDA considers safe for humans and effective for their indicated uses.
The FDA has substantial discretion in the approval process and might require us to conduct additional
nonclinical and clinical testing, perform post-marketing studies or otherwise limit or impose conditions on
any approval we obtain.

The approval process might also be delayed by changes in government regulation, future legislation or
administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays
in obtaining regulatory approvals might:

•

•

•

delay commercialization of, and our ability to derive product revenues from, our product
candidates;

impose costly procedures on us; and

diminish any competitive advantages that we might otherwise enjoy.

Even if we comply with all FDA requests, the FDA might ultimately reject one or more of our NDAs
or BLAs. We cannot be sure that we will ever obtain regulatory approval for our product candidates. Failure
to obtain FDA approval of our product candidates will severely undermine our business by leaving us
without a saleable product, and therefore without any source of revenues, until another product candidate
could be developed or obtained. There is no guarantee that we will ever be able to develop an existing, or
acquire another, product candidate.

In foreign jurisdictions, we must receive approval from the appropriate regulatory authorities before we
can commercialize any product candidates. The risks associated with foreign regulatory approval processes
are similar to the risks associated with the FDA approval procedures described above. We cannot assure you
that we will receive the approvals necessary to commercialize our product candidates for sale outside the
United States.

Even if our product candidates are approved, we and our collaborators will be subject to extensive
post-approval regulation, including ongoing obligations and continued regulatory review, which may result in
significant additional expense. If approved, our product candidates could be subject to post-marketing
restrictions or withdrawal from the market and we, or any collaborators, may be subject to substantial penalties
if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems
with our products following approval.

Once a product candidate is approved, numerous post-approval requirements apply. Among other
things, we and our collaborators will be subject to requirements regarding testing, manufacturing, quality
control, clinical studies, post-marketing studies, labeling, advertising, promotion, distribution, import and
export, governmental pricing, price reporting and rebate requirements. The holder of an approved NDA or
BLA is subject to ongoing FDA oversight, monitoring and reporting obligations, including obligations to
monitor and report adverse events and instances of the failure of a product to meet the specifications in the
NDA or BLA. Application holders must submit new or supplemental applications and obtain FDA
approval for changes to the approved product, product labeling, or manufacturing process, depending on
the nature of the change. Application holders also must submit advertising and other promotional material
to the FDA and report on ongoing clinical studies. The FDA also has the authority to require changes in
the labeling of approved drug products and to require post-marketing studies. The FDA can also impose
distribution and use restrictions under a REMS.

Advertising and promotional materials must comply with FDA rules in addition to other applicable
federal and state laws. The distribution of product samples to physicians must comply with the
requirements of the Prescription Drug Marketing Act. Manufacturing facilities remain subject to FDA
inspection and must continue to adhere to the FDA’s cGMP requirements. Sales, marketing, and scientific/
educational grant programs, among other activities, must comply with the anti-fraud and abuse provisions
of the Social Security Act, the False Claims Act, and similar state laws, each as amended. Pricing and rebate
programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act
of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to
authorized users of the Federal Supply Schedule of the General Services Administration, additional laws
and requirements apply. All of these activities are also potentially subject to federal and state consumer
protection and unfair competition laws.

33

Depending on the circumstances, failure to meet these post-approval requirements can result in
injunctions, recall or seizure of products, total or partial suspension of
criminal prosecution, fines,
production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter into
supply contracts, including government contracts. In addition, even if we comply with FDA and other
requirements, new information regarding the safety or effectiveness of a product could lead the FDA to
modify or withdraw product approval.

The policies of the FDA and of other regulatory authorities may change and additional government
regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative or executive action, either in the United States or abroad. For example, certain
policies of
the current administration may impact our business and industry. Namely, the current
administration has taken several executive actions, including the issuance of a number of Executive Orders,
that could impose significant burdens on, or otherwise materially delay, FDA’s ability to engage in routine
oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review
and approval of marketing applications. Notably, on January 30, 2017, an Executive Order was issued
directing all executive agencies, including the FDA, that, for each notice of proposed rulemaking or final
regulation to be issued in fiscal years 2018 and beyond, the agencies must identify regulations to offset any
incremental cost of a new regulation. On September 8, 2017, the FDA published notices in the Federal
Register soliciting broad public comment to identify regulations that could be modified in compliance with
these Executive Orders. It is difficult to predict how these requirements will be implemented, and the extent
to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions
impose restrictions on FDA’s ability to engage in oversight and implementation activities in the normal
course, our business may be negatively impacted. In addition, if we are slow or unable to adapt to changes
in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain
regulatory compliance, we may lose any marketing approval that we may have obtained and we may not
achieve or sustain profitability.

Even if we or our collaborators are able to commercialize any product candidates, those products may become
subject to unfavorable pricing regulations, third-party coverage and reimbursement practices or healthcare
reform initiatives, which would harm our business.

The regulations that govern marketing approvals, pricing and reimbursement for new medicines vary
widely from country to country. In the United States, recently enacted 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 medicine 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 medicine
in a particular country, but then be subject to price regulations that delay our commercial launch of the
medicine, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from
the sale of the medicine in that country. Adverse pricing limitations may hinder our ability to recoup our
investment in one or more product candidates, even if our product candidates obtain marketing approval.

Our ability to commercialize any medicines successfully also will depend in part on the extent to which
reimbursement for these medicines and related treatments will be available from government health
administration authorities, private health insurers and other organizations. Government authorities and
third-party payors, such as private health insurers and health maintenance organizations, decide which
medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare
industry and elsewhere is cost containment. Government authorities and 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 reimbursement will be available for any product candidate that we commercialize and,
if
reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the
price of, any product candidate for which we obtain marketing approval. If reimbursement is not available
or is available only to limited levels, we may not be able to commercialize successfully any product candidate
for which we obtain marketing approval.

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There may be significant delays in obtaining reimbursement for newly approved medicines, and
coverage may be more limited than the purposes for which the medicine is approved by the FDA or similar
regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that
any medicine 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 medicines, if applicable, may also
not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary
according to the use of the medicine and the clinical setting in which it is used, may be based on
reimbursement levels already set for lower cost medicines and may be incorporated into existing payments
for other services. Net prices for medicines 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 medicines from countries where they may be sold at lower prices than in the United
States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting
their own reimbursement policies. Our inability to obtain promptly coverage and profitable payment rates
from both government-funded and private payors for any approved product candidates that we develop
could have a material adverse effect on our operating results, our ability to raise capital needed to
commercialize product candidates and our overall financial condition.

In the United States and in other countries, there have been, and we expect there will continue to be, a
number of legislative and regulatory proposals to change the healthcare system in ways that could
significantly affect our business. International, federal and state lawmakers regularly propose and, at times,
enact legislation that would result in significant changes to the healthcare system, some of which are
intended to contain or reduce the costs of medical products and services. The U.S. government and other
governments have shown significant interest in pursuing healthcare reform, as evidenced by the Affordable
Care Act and its amendment, the Health Care and Education Reconciliation Act (the ACA).

Among the provisions of the ACA of importance to our potential drug candidates are the following:

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an annual, nondeductible fee on any entity that manufactures or imports specified branded
prescription drugs and biologics;

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug
Rebate Program;

expansion of healthcare fraud and abuse laws,
Anti-Kickback Statute, new government
noncompliance;

including the False Claims Act and the
investigative powers, and enhanced penalties for

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to
offer 50% point-of-sale discounts off negotiated prices (which was increased to 70% as of
January 1, 2019 under the Bipartisan Budget Act of 2018 (BBA));

extension of manufacturers’ Medicaid rebate liability;

expansion of eligibility criteria for Medicaid programs;

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

new requirements to report financial arrangements with physicians and teaching hospitals;

a new requirement to annually report drug samples that manufacturers and distributors provide to
physicians; and

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

Since its enactment, there have been many judicial, Presidential, and Congressional challenges to
numerous aspects of the ACA. In 2012, the U.S. Supreme Court heard challenges to the constitutionality of
the individual mandate and the viability of certain provisions of the Healthcare Reform Act. The Supreme
Court’s decision upheld most of the Healthcare Reform Act and determined that requiring individuals to
maintain “minimum essential” health insurance coverage or pay a penalty to the Internal Revenue Service

35

was within Congress’s constitutional taxing authority. However, as a result of tax reform legislation passed
in late December 2017, the individual mandate has been eliminated. The long ranging effects of the
elimination of the individual mandate on the viability of the ACA are unknown at this time.

On January 20, 2017, President Trump signed an Executive Order directing federal agencies with
authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the
implementation of any provision of the ACA 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. On October 13, 2017, President Trump signed an Executive Order
terminating the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys
General filed suit to stop the administration from terminating the subsidies, but their request for a
restraining order was denied by a federal judge in California on October 25, 2017. In addition, Centers for
Medicare & Medicaid Services has recently proposed regulations that would give states greater flexibility in
setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect
of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.
The Tax Cuts and Jobs Act of 2017 (the Tax Act) includes a provision repealing, effective January 1, 2019,
the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to
maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual
mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the
Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the
Affordable Care Act, and therefore, because it was repealed as part of the Tax Act, the remaining provisions
of the ACA are invalid as well. The Texas District Court Judge, as well as the Trump Administration and
the Centers for Medicare & Medicaid Services (CMS), have stated that the ruling will have no immediate
effect, and on December 30, 2018, the Texas District Court Judge issued an order staying the judgment
pending appeal. It is unclear what effects this decision, subsequent appeals of this decision, and other
efforts to repeal and replace the ACA will have. Additionally, on January 22, 2018, President Trump signed
a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain
ACA mandated fees, including the so called “Cadillac” tax on certain high cost employer-sponsored
insurance plans, the annual fee imposed on certain high cost employer-sponsored insurance plans, the
annual fee imposed on certain health insurance providers based on market share, and the medical device
exercise tax on nonexempt medical devices. Further, the BBA, among other things, amends the ACA,
effective January 1, 2019, to reduce the coverage gap in most Medicare drug plans, commonly referred to as
the “donut hole.” In July 2018, CMS announced that it is suspending further collections and payments to
and from certain ACA-qualified health plans and health insurance issuers under the ACA risk adjustment
program pending the outcome of federal district court litigation regarding the method CMS uses to
determine this risk adjustment. The full impact of the ACA, any law repealing and/or replacing elements of
it, and the political uncertainty surrounding any repeal or replacement legislation on our business remains
unclear.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted.
These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year,
starting in 2013. In January 2013, then President Obama signed into law the American Taxpayer Relief Act
of 2012, which, among other things, reduced Medicare payments to several providers, and increased the
statute of limitations period for the government to recover overpayments to providers from three to
five years. These laws may result in additional reductions in Medicare and other healthcare funding.
Further, in some foreign jurisdictions, there have been a number of legislative and regulatory proposals to
change the healthcare system in ways that could affect our ability to sell our products profitably. The
continuing efforts of U.S. and other governments, insurance companies, managed care organizations and
other payors of healthcare services to contain or reduce healthcare costs may adversely affect our ability to
set satisfactory prices for our products, to generate revenues from the sale of products, and to achieve and
maintain profitability.

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We and our collaborators may be subject, directly or indirectly, to applicable U.S. federal and state
anti-kickback, false claims laws, physician payment transparency laws, fraud and abuse laws or similar
healthcare and security laws and regulations, and health information privacy and security laws, which could
expose us or them to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished
profits and future earnings.

Healthcare providers, physicians and others play a primary role in the recommendation and
prescription of any products for which we obtain regulatory approval. If we obtain FDA approval for any
of our drug candidates and begin commercializing those drugs in the United States, our operations may be
subject to various federal and state fraud and abuse laws,
including, without limitation, the federal
Anti-Kickback Statute, the federal False Claims Act, and physician payment sunshine laws and regulations.
These laws may impact, among other things, our proposed sales, marketing and education programs. In
addition, we may be subject to patient privacy regulation by both the federal government and the states and
foreign jurisdictions in which we conduct our business. The laws that may affect our ability to operate
include:

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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully
soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for,
either the referral of an individual, or the purchase, lease, order or recommendation of any good,
facility, item or service for which payment may be made, in whole or in part, under a federal
healthcare program, such as the Medicare and Medicaid programs;

federal civil and criminal false claims laws and civil monetary penalty laws, such as the federal
False Claims Act, which impose criminal and civil penalties and authorize civil whistleblower or
qui tam actions, against individuals or entities for, among other things: knowingly presenting, or
causing to be presented, to the federal government, claims for payment that are false or
fraudulent; making a false statement or record material to a false or fraudulent claim or obligation
to pay or transmit money or property to the federal government; or knowingly concealing or
knowingly and improperly avoiding or decreasing an obligation to pay money to the federal
government. In addition, the government may assert that a claim including items and services
resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the False Claims Act;

HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully
executing, or attempting to execute, a scheme to defraud any healthcare benefit program or
obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money
or property owned by, or under the custody or control of, any healthcare benefit program,
regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing
or covering up by any trick or device a material fact or making any materially false statements in
connection with the delivery of, or payment for, healthcare benefits, items or services relating to
healthcare matters;

HIPAA, as amended by HITECH, and their respective implementing regulations, which impose
requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses
as well as their respective business associates that perform services for them that involve the use, or
disclosure of, individually identifiable health information, relating to the privacy, security and
transmission of individually identifiable health information;

the federal false statements statute prohibits knowingly and willfully falsifying, concealing or
covering up a material fact or making any materially false statement in connection with the
delivery of or payment for healthcare benefits, items or services;

the U.S. federal Food, Drug and Cosmetic Act (FDCA), which prohibits, among other things, the
adulteration or misbranding of drugs, biologics and medical devices, and the Public Health
Service Act (PHSA), which prohibits, among other things, the introduction into interstate
commerce of a biological product unless a biologics license is in effect for that product;

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the federal transparency requirements under the ACA, including the provision commonly referred
to as the Physician Payments Sunshine Act, which requires manufacturers of drugs, devices,
biologics and medical supplies for which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program to report annually to the U.S. Department of Health and
Human Services information related to payments or other transfers of value made to physicians
and teaching hospitals, as well as ownership and investment interests held by physicians and their
immediate family members; and

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

Additionally, we are subject to state and non-U.S. equivalents of each of the healthcare laws described
above, among others, some of which may be broader in scope and may apply regardless of the payor. Many
U.S. states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the
referral of patients for healthcare services reimbursed by any source, not just governmental payors,
including private insurers. In addition, some states have passed laws that require pharmaceutical companies
to comply with the April 2003 Office of
Inspector General Compliance Program Guidance for
Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s Code
on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or
require pharmaceutical companies to make marketing or price disclosures to the state. There are
ambiguities as to what is required to comply with these state requirements and if we fail to comply with an
applicable state law requirement we could be subject to penalties.

In addition, regulators globally are also imposing greater monetary fines for privacy violations. The
GDPR, which went into effect on May 25, 2018, applies to any company established in the European Union
(EU) as well as to those outside the EU if they collect and use personal data in connection with the offering
goods or services to individuals in the EU or the monitoring of their behavior. The GDPR enhances data
protection obligations for processors and controllers of personal data, including, for example, expanded
disclosures about how personal
information,
mandatory data breach notification requirements and onerous new obligations on services providers.
Noncompliance with the GDPR may result in monetary penalties of up to €20 million or 4% of worldwide
revenue, whichever is higher. Compliance with the GDPR and other changes in laws or regulations
associated with the enhanced protection of certain types of personal data, such as healthcare data or other
sensitive information, could greatly increase our cost of developing our products and services or even
prevent us from offering certain products in jurisdictions that we may operate in.

information is to be used,

limitations on retention of

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors
available, it is possible that some of our business activities could be subject to challenge under one or more
of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the
ACA, among other things, amends the intent requirement of the federal Anti-Kickback and criminal
healthcare fraud statutes. As a result of such amendment, a person or entity no longer needs to have actual
knowledge of these statutes or specific intent to violate them in order to have committed a violation.
Moreover, the ACA provides that the government may assert 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 False Claims Act.

Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including
penalties, fines and/or exclusion or suspension from federal and state healthcare programs such as Medicare
and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals
have the ability to bring actions on behalf of the U.S. government under the federal False Claims Act as well
as under the false claims laws of several states.

Law enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is
possible that some of our practices may be challenged under these laws. Efforts to ensure that our business
arrangements with third parties will 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 involving applicable fraud and abuse or
other healthcare laws and regulations. If any such actions are instituted against us, and we are not

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including the imposition of

successful in defending ourselves or asserting our rights, those actions could have a significant impact on
civil, criminal and administrative penalties, damages,
our business,
disgorgement, 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. In addition, the approval and commercialization of any of our drug
candidates outside the United States will also likely subject us to non-U.S. equivalents of the healthcare laws
mentioned above, among other non-U.S. laws.

If any of the physicians or other providers or entities with whom we expect to do business with are
found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative
sanctions, including exclusions from government funded healthcare programs, which may also adversely
affect our business.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting,
our ability to produce timely and accurate financial statements or comply with applicable regulations could be
impaired.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls
and procedures and internal control over financial reporting. We are continuing to refine our disclosure
controls and other procedures that are designed to ensure that the information that we are required to
disclose in the reports that we will file with the SEC is properly recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms. We are also continuing to improve our
internal control over financial reporting. We have expended, and anticipate that we will continue to expend,
significant resources in order to maintain and improve the effectiveness of our disclosure controls and
procedures and internal control over financial reporting.

Our current controls and any new controls that we develop in the future may become inadequate
because of changes in conditions in our business. Further, weaknesses in our disclosure controls or our
internal control over financial reporting may be discovered in the future. Any failure to develop or maintain
effective controls, or any difficulties encountered in their implementation or improvement, could harm our
operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our
financial statements for prior periods. Any failure to implement and maintain effective internal control over
financial reporting could also adversely affect the results of management reports and independent registered
public accounting firm audits of our internal control over financial reporting that we will be required to
include in our periodic reports that will be filed with the SEC. If we were to have ineffective disclosure
controls and procedures or internal control over financial reporting, our investors could lose confidence in
our reported financial and other information, which would likely have a negative effect on the market price
of our common stock.

We face the risk of product liability claims and might not be able to obtain insurance.

Our business exposes us to the risk of product liability claims that are inherent in the development of
drugs and biotherapeutics. If the use of one or more of our product candidates or approved drugs, if any,
harms people, we might be subject to costly and damaging product liability claims brought against us by
clinical study participants, consumers, health care providers, pharmaceutical companies or others selling our
products. Our inability to obtain sufficient product liability/clinical study insurance at an acceptable cost to
protect against potential product liability claims could prevent or inhibit the commercialization of
pharmaceutical products we develop. We cannot predict all of the possible harms or side effects that might
result and, therefore, the amount of insurance coverage we maintain might not be adequate to cover all
liabilities we might incur. We intend to expand our insurance coverage to include product liability insurance
covering the sale of commercial products if we obtain marketing approval for our drug candidates in
development, but we might be unable to obtain commercially reasonable product liability insurance for any
products approved for marketing. If we are unable to obtain insurance at an acceptable cost or otherwise
protect against potential product liability claims, we will be exposed to significant liabilities, which might
materially and adversely affect our business and financial position. If we are sued for any injury allegedly
caused by our products, our liability could exceed our total assets and our ability to pay the liability. Any
successful product liability claims or series of claims brought against us would decrease our cash and could
cause the value of our common stock to decrease.

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We might be exposed to liability claims associated with the use of hazardous materials and chemicals.

Our research, development and manufacturing activities and/or those of our third-party contractors
might involve the controlled use of hazardous materials and chemicals. Although we will strive to have our
safety procedures, and those of our contractors, for using, storing, handling and disposing of these
materials comply with federal, state and local laws and regulations, we cannot completely eliminate the risk
of accidental injury or contamination from these materials. In the event of such an accident, we could be
held liable for any resulting damages, and any liability could materially adversely affect our business,
financial condition and results of operations. In addition, the federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and
waste products might require us to incur substantial compliance costs that could materially adversely affect
our business, financial condition and results of operations. We currently do not carry hazardous materials
liability insurance. We intend to obtain such insurance in the future, if necessary, but cannot give assurance
that we could obtain such coverage.

Our employees, independent contractors, consultants, collaborators and contract research organizations may
engage in misconduct or other improper activities, including noncompliance with regulatory standards and
requirements, which could result in significant liability for us and harm our reputation.

We are exposed to the risk of fraud or other misconduct, including intentional failure to:

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comply with FDA regulations or similar regulations of comparable foreign regulatory authorities;

provide accurate information to the FDA or comparable foreign regulatory authorities;

comply with federal and state healthcare fraud and abuse laws and regulations and similar laws
and regulations established and enforced by comparable foreign regulatory authorities;

comply with the United States Foreign Corrupt Practices Act (the FCPA), the U.K. Bribery Act
2010, the PRC Criminal Law, the PRC Anti-unfair Competition Law and other anti-bribery laws;

report financial information or data accurately; or

disclose unauthorized activities to us.

Misconduct could also involve the improper use or misrepresentation of information obtained in the
course of clinical studies, creating fraudulent data in our nonclinical studies or clinical studies or illegal
misappropriation of product materials, which could result in regulatory sanctions, delays in clinical studies,
or serious harm to our reputation. We have adopted a code of conduct for our directors, officers and
employees (the Code of Conduct), but it is not always possible to identify and deter employee misconduct.
The precautions we take to detect and prevent this activity may not be effective in controlling unknown or
unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to
the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If
any such actions are instituted against us and we are not successful in defending ourselves or asserting our
rights, those actions could harm our business, results of operations, financial condition and cash flows,
including through the imposition of significant fines or other sanctions.

We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions,
and other trade laws and regulations (collectively, Trade Laws). We can face serious consequences for
violations.

Among other matters, Trade Laws prohibit companies and their employees, agents, clinical research
organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing,
promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments
or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can
result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment,
tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We
have direct or
interactions with officials and employees of government agencies or
government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities,

indirect

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particularly in China, to increase in time. We engage third parties for clinical studies and/or to obtain
necessary permits, licenses, patent registrations, and other regulatory approvals. We can be held liable for
the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly
authorize or have prior knowledge of such activities.

We have international operations, including in China, and conduct clinical studies outside of the United States.
A number of risks associated with international operations could materially and adversely affect our business.

We expect to be subject to a number of risks related with our international operations, many of which

may be beyond our control. These risks include:

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different regulatory requirements for drug approvals in foreign countries;

different standards of care in various countries that could complicate the evaluation of our
product candidates;

different U.S. and foreign drug import and export rules;

different reimbursement systems and different competitive drugs indicated to treat the indication
for which our product candidates are being developed;

reduced protection for intellectual property rights in certain countries;

unexpected changes in tariffs, trade barriers and regulatory requirements;

compliance with the FCPA and other anti-corruption and anti-bribery laws;

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

foreign taxes, including withholding of payroll taxes;

foreign currency fluctuations and compliance with foreign currency exchange rules, which could
result in increased operating expenses and reduced revenues, and other obligations incident to
doing business in another country; and

business interruptions resulting from geopolitical actions, including tariffs, war and terrorism, or
natural disasters.

The results of the United Kingdom’s referendum on withdrawal from the EU may have a negative effect on
global economic conditions, financial markets and our business.

In June 2016, the United Kingdom (UK) held a referendum in which voters approved an exit from the
EU, commonly referred to as “Brexit.” This referendum has created political and economic uncertainty,
particularly in the UK and the EU, and this uncertainty may persist for years. A withdrawal could, among
other outcomes, disrupt the free movement of goods, services and people between the UK and the EU, and
result in increased legal and regulatory complexities, as well as potential higher costs of conducting business
in Europe. The UK’s vote to exit the EU could also result in similar referendums or votes in other European
countries in which we do business. Given the lack of comparable precedent, it is unclear what financial,
trade and legal implications the withdrawal of the UK from the EU would have and how such withdrawal
would affect us.

For example, Brexit could result in the UK or the EU significantly altering its regulations affecting the
clearance or approval of our product candidates that are developed in the UK. Any new regulations could
add time and expense to the conduct of our business, as well as the process by which our products receive
regulatory approval in the UK, the EU and elsewhere. In addition, the announcement of Brexit and the
withdrawal of the UK from the EU have had and may continue to have a material adverse effect on global
economic conditions and the stability of global financial markets and may significantly reduce global
market liquidity and restrict the ability of key market participants to operate in certain financial markets.
Any of these effects of Brexit, among others, could adversely affect our business, our results of operations,
liquidity and financial condition.

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Risks Related to Our Intellectual Property

Our business depends on protecting our intellectual property.

If we and our licensors, IURTC and Therabiome, do not obtain protection for our respective
intellectual property rights, our competitors might be able to take advantage of our research and
development efforts to develop competing drugs. Our success, competitive position and future revenues, if
any, depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection
for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third
parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of
third parties.

We seek to protect our proprietary position by filing patent applications in the United States and
abroad related to our novel technologies and chemical and biological compositions that are important to
our business. To date, our licensors and the Company have filed patent applications intended to cover our
products and, their methods of use. Although we have an issued patent in the U.S. directed to compositions
of matter that includes ABI-H0731, which is expected to expire in 2035, and we have an in-licensed issued
U.S. patent related to delivery technology for our Microbiome program, which is expected to expire in 2034,
we do not own or have any rights to any issued patents that cover any of our other product candidates, and
we cannot be certain that we will secure any rights to any issued patents with claims that cover any of our
proprietary product candidates and technologies. The patent prosecution process is expensive and
time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications
at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects
of our research and development output before it is too late to obtain patent protection.

The patent process also is subject to numerous risks and uncertainties, and there can be no assurance
that we will be successful in protecting our products by obtaining and defending patents. These risks and
uncertainties include the following:

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Any patent rights, if obtained, might be challenged, invalidated, or circumvented, or otherwise
might not provide any competitive advantage;

Our competitors, many of which have substantially greater resources than we do and many of
which might make significant investments in competing technologies, might seek, or might already
have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell
our potential products either in the United States or in international markets;

As a matter of public policy regarding worldwide health concerns, there might be significant
pressure on the U.S. government and other international governmental bodies to limit the scope of
patent protection both inside and outside the United States for disease treatments that prove
successful; and

Countries other than the United States might have patent laws that provide less protection than
those governing U.S. courts, allowing foreign competitors the ability to exploit these laws to create,
develop, and market competing products.

In addition, the U.S. Patent and Trademark Office (the USPTO) and patent offices in other
jurisdictions have often required that patent
and/or
biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations
exemplified in the patent application, thereby limiting the scope of protection against competitive
challenges. Thus, even if we or our licensors are able to obtain patents, the patents might be substantially
narrower than anticipated.

concerning pharmaceutical

applications

Patent and other intellectual property protection is crucial to the success of our business and prospects,
and there is a substantial risk that such protections, if obtained, will prove inadequate. Our business and
prospects will be harmed if we fail to obtain these protections or they prove insufficient.

If we fail to comply with our obligations under our license agreements, we could lose rights to our product
candidates or key technologies.

We have obtained rights to develop, market and sell some of our product candidates and technologies
through intellectual property license agreements with third parties, including IURTC and Therabiome.

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These license agreements impose various diligence, milestone payment, royalty and other obligations on us.
If we fail to comply with our obligations under our license agreements, we could lose some or all of our
rights to develop, market and sell products covered by these licenses, and our ability to form collaborations
or partnerships may be impaired. In addition, disputes may arise under our license agreements with third
parties, which could prevent or impair our ability to maintain our current licensing arrangements on
acceptable terms and to develop and commercialize the affected product candidates.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other
intellectual property rights.

If we choose to go to court to stop another party from using the inventions claimed in any patents we
obtain, that individual or company has the right to ask the court to rule that such patents are invalid or
should not be enforced against that third party. These lawsuits are expensive and would consume time and
resources and divert the attention of managerial and scientific personnel even if we were successful in
stopping the infringement of such patents. There is a risk that the court will decide that such patents are not
valid and that we do not have the right to stop the other party from using the inventions. There is also the
risk that, even if the validity of such patents is upheld, the court will refuse to stop the other party on the
ground that such other party’s activities do not infringe our rights to such patents. If we were not successful
in defending our intellectual property, our competitors could develop and market products based on our
discoveries, which may reduce demand for our products.

We rely on trade secret protections through confidentiality agreements with our employees, collaborators and
other parties, and the breach of these agreements could adversely affect our business and prospects.

invention, and nondisclosure agreements with our employees,

We rely on trade secrets and proprietary know-how, which we seek to protect, in part, through
confidentiality,
scientific advisors,
consultants, collaborators, suppliers, and other parties. There can be no assurance that these agreements
will not be breached, that we would have adequate remedies for any such breach or that our trade secrets
will not otherwise become known to or independently developed by our competitors. If any of these events
occurs, or we otherwise lose protection for our trade secrets or proprietary know-how, the value of this
information may be greatly reduced.

If our employees or consultants breach their confidentiality obligations, to be able to enforce these
confidentiality provisions, we would need to know of the breach and have sufficient funds to enforce the
provisions. We cannot assure you that we would know of or be able to afford enforcement of any breach. In
addition, such provisions are subject to state law and interpretation by courts, which could limit the scope
and duration of these provisions. Any limitation on or non-enforcement of these confidentiality provisions
could have an adverse effect on our business.

We may infringe the intellectual property rights of others, which may prevent or delay our product development
efforts and stop us from commercializing or increase the costs of commercializing our product candidates.

Our success will depend in part on our ability to operate without infringing the proprietary rights of
third parties. Our competitors may have filed, and may in the future file, patent applications covering
products and technologies similar to ours. Any such patent application may have priority over our patent
applications, which could further require us to obtain rights from third parties to issued patents covering
such products and technologies. We cannot guarantee that the manufacture, use or marketing of any
product candidates that we develop will not infringe third-party patents.

A third party may claim that we are using inventions covered by the third party’s patent rights and may
go to court to stop us from engaging in our normal operations and activities, including making or selling
our product candidates. Patent litigation is costly and time consuming. We may not have sufficient resources
to address these actions, and such actions could affect our results of operations and divert the attention of
managerial and scientific personnel.

If a patent infringement suit were brought against us, we may be forced to stop or delay developing,
manufacturing, or selling potential products that are claimed to infringe a third party’s intellectual property,
unless that third party grants us rights to use its intellectual property. In such cases, we may be required to

43

obtain licenses to patents or proprietary rights of others in order to continue development, manufacture or
sale of our products. If we are unable to obtain a license or develop or obtain non-infringing technology, or
if we fail to defend an infringement action successfully, or if we are found to have infringed a valid patent,
we may incur substantial monetary damages, encounter significant delays in bringing our product
candidates to market and be precluded from manufacturing or selling our product candidates, any of which
could harm our business significantly.

If our efforts to protect our proprietary technologies are not adequate, we may not be able to compete
effectively in our market.

We rely upon a combination of patents, trade secret protection and contractual arrangements to
protect the intellectual property related to our technologies. We will only be able to protect our products
and proprietary information and technology by preventing unauthorized use by third parties to the extent
that our patents, trade secrets, and contractual position allow us to do so. Any disclosure to or
misappropriation by third parties of our trade secrets or confidential information could compromise our
competitive position. Moreover, we may in the future be involved in legal or administrative proceedings
involving our intellectual property initiated by third parties, and which proceedings can result in significant
costs and commitment of management time and attention. As our product candidates continue in
development, third parties may attempt to challenge the validity and enforceability of our patents and
proprietary information and technologies.

We may in the future be involved in initiating legal or administrative proceedings involving the product
candidates and intellectual property of our competitors. These proceedings can result in significant costs
and commitment of management time and attention, and there can be no assurance that our efforts would
be successful in preventing or limiting the ability of our competitors to market competing products.

Composition-of-matter patents relating to the active pharmaceutical ingredient (API) are generally
considered to be the strongest form of intellectual property protection for pharmaceutical products. Such
patents provide protection not limited to any one method of use. Method-of-use patents protect the use of a
product for the specified method(s), and do not prevent a competitor from making and marketing a product
that is identical to our product for an indication that is outside the scope of the patented method. We rely
on a combination of these and other types of patents to protect our product candidates, and there can be
no assurance that our intellectual property will create and sustain the competitive position of our product
candidates.

in such patents being narrowed,

Biotechnology and pharmaceutical product patents involve highly complex legal and scientific
questions and can be uncertain. Any patent applications that we own or license may fail to result in issued
patents. Even if patents do successfully issue from our applications, third parties may challenge their
validity or enforceability, which may result
invalidated, or held
unenforceable. Even if our patents and patent applications are not challenged by third parties, those patents
and patent applications may not prevent others from designing around our claims and may not otherwise
adequately protect our product candidates. If the breadth or strength of protection provided by the patents
and patent applications we hold with respect to our product candidates is threatened, competitors with
significantly greater resources could threaten our ability to commercialize our product candidates.
Discoveries are generally published in the scientific literature well after their actual development, and patent
applications in the United States and other countries are typically not published until 18 months after filing,
and in some cases are never published. Therefore, we cannot be certain that we or our licensors were the
first to make the inventions claimed in our owned and licensed patents or patent applications, or that we or
our licensors were the first to file for patent protection covering such inventions. Subject to meeting other
requirements for patentability, for U.S. patent applications filed prior to March 16, 2013, the first to invent
the claimed invention is entitled to receive patent protection for that invention while, outside the United
States, the first to file a patent application encompassing the invention is entitled to patent protection for
the invention. The United States moved to a “first to file” system under the Leahy-Smith America Invents
Act (AIA), effective March 16, 2013. The effects of this change and other elements of the AIA are currently
unclear, as the USPTO is still implementing associated regulations, and the applicability of the AIA and
associated regulations to our patents and patent applications have not been fully determined. This new
system also includes new procedures for challenging issued patents and pending patent applications, which

44

creates additional uncertainty. We may become involved in any variety of proceedings challenging our
patents and patent applications or the patents and patent applications of others, and the outcome of any
such proceedings are highly uncertain. An unfavorable outcome in any such proceedings could reduce the
scope of, invalidate, and/or find our patent rights unenforceable, allowing third parties to commercialize our
technology and compete directly with us, or result in our inability to manufacture, develop or commercialize
our product candidates without infringing the patent rights of others. In addition to ongoing changes with
the AIA and USPTO regulations, recent decisions of the Supreme Court of the United States, and the
possibility of statutory change to patent subject matter eligibility law advocated by such groups as the
Intellectual Property Owners Association and the American Intellectual Property Law Association, provide
additional uncertainty.

In addition to the protection afforded by patents, we seek to rely on trade secret protection and
confidentiality agreements to protect proprietary know-how, information, or technology that is not covered
by our patents. Although our agreements require all of our employees to assign their inventions to us, and
we require all of our employees, consultants, advisors and any third parties who have access to our trade
secrets, proprietary know-how and other confidential information and technology to enter into appropriate
confidentiality agreements, we cannot be certain that our trade secrets, proprietary know-how and other
confidential
information and technology will not be subject to unauthorized disclosure or that our
competitors will not otherwise gain access to or independently develop substantially equivalent trade
secrets, proprietary know-how and other information and technology. Furthermore, the laws of some
foreign countries, in particular China, where we anticipate increasing our activity and commercializing our
product candidates, do not protect proprietary rights to the same extent or in the same manner as the laws
of the United States. As a result, we may encounter significant problems in protecting and defending our
intellectual property globally. If we are unable to prevent unauthorized disclosure of our intellectual
property related to our product candidates and technology to third parties, we may not be able to establish
or maintain a competitive advantage in our market, which could materially adversely affect our business
and operations.

Our reliance on third parties and agreements with collaboration partners requires us to share our trade secrets,
which increases the possibility that a competitor may discover them or that our trade secrets will be
misappropriated or disclosed.

Our reliance on third-party contractors to develop and manufacture our product candidates is based
upon agreements that limit the rights of the third parties to use or disclose our confidential information,
including our trade secrets and know-how. Despite the contractual provisions, the need to share trade
secrets and other confidential information increases the risk that such trade secrets and information are
disclosed or used, even if unintentionally, in violation of these agreements. In the highly competitive
markets in which our product candidates are expected to compete, protecting our trade secrets, including
our strategies for addressing competing products, is imperative, and any unauthorized use or disclosure
could impair our competitive position and may have a material adverse effect on our business and
operations.

In addition, some of our collaboration partners are larger, more complex organizations than ours, and
the risk of inadvertent disclosure of our proprietary information may be increased despite their internal
procedures and contractual obligations in place with our collaboration partners. Despite our efforts to
protect our trade secrets and other confidential information, a competitor’s discovery of such trade secrets
and information could impair our competitive position and have an adverse impact on our business.

We are developing an extensive worldwide patent portfolio. The cost of maintaining our patent protection is
high and maintaining our patent protection requires continuous review and compliance in order to maintain
worldwide patent protection. We may not be able to maintain effectively our intellectual property position
throughout the major markets of the world.

The USPTO and foreign patent authorities require maintenance fees and payments as well as
continued compliance with a number of procedural and documentary requirements. Noncompliance may
result in abandonment or lapse of the subject patent or patent application, resulting in partial or complete
loss of patent rights in the relevant jurisdiction. Noncompliance may result in reduced royalty payments for
lack of patent coverage in a particular jurisdiction from our collaboration partners or may result in
competition, either of which could have a material adverse effect on our business.

45

We have made, and will continue to make, certain strategic decisions in balancing costs and the
potential protection afforded by the patent laws of certain countries. As a result, we may not be able to
prevent third parties from practicing our inventions in all countries throughout the world, or from selling or
importing products made using our inventions in and into the United States or other countries. Third
parties may use our technologies in territories in which we have not obtained patent protection to develop
their own products and, further, may infringe our patents in territories which provide inadequate
enforcement mechanisms, even if we have patent protection. Such third-party products may compete with
our product candidates, and our patents or other intellectual property rights may not be effective or
sufficient to prevent them from competing.

The laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the
United States, and we may encounter significant problems in securing and defending our intellectual property
rights outside the United States

Many companies have encountered significant problems in protecting and defending intellectual
property rights in certain countries. The legal systems of certain countries, particularly countries such as
China, do not always favor the enforcement of patents, trade secrets, and other intellectual property rights,
particularly those relating to pharmaceutical and biotechnology products, which could make it difficult for
us to stop infringement of our patents, misappropriation of our trade secrets, or marketing of competing
products in violation of our proprietary rights. In China, our intended establishment of significant
operations will depend in substantial part on our ability to enforce effectively our intellectual property
rights in that country. Proceedings to enforce our intellectual property rights in foreign countries could
result in substantial costs and divert our efforts and attention from other aspects of our business and could
put our patents in these territories at risk of being invalidated or interpreted narrowly, or our patent
applications at risk of not being granted and could provoke third parties to assert claims against us. We may
not prevail in all legal or other proceedings that we may initiate and, if we were to prevail, the damages or
other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate to obtain a significant commercial
advantage from the intellectual property that we develop or license.

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

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

•

Others may be able to make compounds that are the same as or similar to our current or future
product candidates but that are not covered by the claims of the patents that we own or have
exclusively licensed.

• We or any of our licensors or strategic partners might not have been the first to make the
inventions covered by the issued patents or pending patent applications that we own or have
exclusively licensed.

• We or any of our licensors or strategic partners might not have been the first to file patent

applications covering certain of our inventions.

•

•

•

•

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

The prosecution of our pending patent applications may not result in granted patents.

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

Patent protection on our product candidates may expire before we are able to develop and
commercialize the product, or before we are able to recover our investment in the product.

46

•

Our competitors might conduct research and development activities in the United States and
other countries that provide a safe harbor from patent infringement claims for such activities, as
well as in countries in which we do not have patent rights and may then use the information
learned from such activities to develop competitive products for sale in markets where we intend to
market our product candidates.

The existence of counterfeit pharmaceutical products in pharmaceutical markets may damage our brand and
reputation and have a material adverse effect on our business, operations and prospects.

Counterfeit products,

including counterfeit pharmaceutical products, are a significant problem,
particularly in China. Counterfeit pharmaceuticals are products sold or used for research under the same or
similar names, or similar mechanism of action or product class, but which are sold without proper licenses
or approvals. The proliferation of counterfeit pharmaceuticals has grown in recent years and may continue
to grow in the future. Such products may be used for indications or purposes that are not recommended or
approved or for which there is no data or inadequate data with regard to safety or efficacy. Such products
divert sales from genuine products, often are of lower cost, often are of lower quality (having different
ingredients or formulations, for example), and have the potential to damage the reputation for quality and
effectiveness of the genuine product. If counterfeit pharmaceuticals illegally sold or used for research result
in adverse events or side effects to consumers, we may be associated with any negative publicity resulting
from such incidents. Consumers may buy counterfeit pharmaceuticals that are in direct competition with
our pharmaceuticals, which could have an adverse impact on our revenues, business and results of
operations. In addition, counterfeit products could be used in nonclinical studies or clinical studies or could
otherwise produce undesirable side effects or adverse events that may be attributed to our products as well,
which could cause us or regulatory authorities to interrupt, delay or halt clinical studies and could result in
the delay or denial of regulatory approval by the FDA or other regulatory authorities and potential product
liability claims. With respect to China, although the government has recently been increasingly active in
policing counterfeit pharmaceuticals, there is not yet an effective counterfeit pharmaceutical regulation
control and enforcement system in China. As a result, we may not be able to prevent third parties from
selling or purporting to sell our products in China. The existence of and any increase in the sales and
production of counterfeit pharmaceuticals, or the technological capabilities of counterfeiters, could
negatively impact our revenues, brand reputation, business and results of operations.

Risks Related to Our Common Stock

We might not be able to maintain the listing of our common stock on the Nasdaq Global Select Market.

Our common stock is listed on the Nasdaq Global Select Market under the symbol “ASMB.” We
might not be able to maintain the listing standards of that exchange. If we fail to maintain the listing
requirements, our common stock might trade on the OTC Bulletin Board or in the “pink sheets”
maintained by OTC Markets Group Inc. These alternative markets are generally considered to be markets
that are less efficient and less broad than the Nasdaq Global Select Market. A delisting of our common
stock from the Nasdaq Global Select Market and our inability to list the stock on another national
securities exchange could negatively impact us by: (i) reducing the liquidity and market price of our
common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which
could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration
statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital
markets and (iv) impairing our ability to provide equity incentives to our employees.

47

The price of our common stock might fluctuate significantly, and you could lose all or part of your investment.

Since our merger with Assembly Pharmaceuticals on July 11, 2014 through December 31, 2018, the
closing price of our common stock has fluctuated between $4.54 and $64.16. Continued volatility in the
market price of our common stock might prevent a stockholder from being able to sell shares of our
common stock at or above the price paid for such shares. The trading price of our common stock might be
volatile and subject to wide price fluctuations in response to various factors, including:

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

the progress, results and timing of our clinical studies and nonclinical studies and other studies
involving our product candidates;

success or failure of our product candidates;

the receipt or loss of required regulatory approvals for our product candidates;

availability of capital;

future issuances by us of our common stock or securities exercisable for or convertible into
common stock;

sale of shares of our common stock by our significant stockholders or members of our
management;

additions or departures of key personnel;

investor perceptions of us and the pharmaceutical industry;

issuance of new or changed securities analysts’ reports or recommendations, or the announcement
of any changes to our credit rating;

introduction of new products or announcements of significant contracts, acquisitions or capital
commitments by us or our competitors;

threatened or actual litigation and government investigations;

legislative, political or regulatory developments;

the overall performance of the equity markets;

actual or anticipated fluctuations in our quarterly financial and operating results;

general economic conditions;

changes in interest rates; and

changes in accounting standards, policies, guidance, interpretations or principles.

These and other factors might cause the market price of our common stock to fluctuate substantially,
which might limit or prevent investors from readily selling their shares of our common stock and might
otherwise negatively affect the liquidity of our common stock. In addition, in recent years, the stock market
has experienced significant price and volume fluctuations. This volatility has had a significant impact on the
market price of securities issued by many companies across many industries. The changes frequently appear
to occur without regard to the operating performance of the affected companies. Accordingly, the price of
our common stock could fluctuate based upon factors that have little or nothing to do with our company,
and these fluctuations could materially reduce our share price.

We may be subject to securities litigation, which is expensive and could divert management attention.

The market price of our common stock may be volatile, and in the past, companies that have
experienced volatility in the market price of their stock have been subject to securities class action litigation.
We may be the target of this type of litigation in the future. 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.

48

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

At December 31, 2018, our executive officers and directors owned approximately 6.3% of our
outstanding voting common stock, and this group together with other stockholders holding beneficially 5%
of more of our outstanding voting common stock, owned approximately 42.0% of our outstanding voting
common stock. Therefore, these stockholders, if acting together, have the ability to influence us through
their ownership position. These stockholders may be able to determine the outcome of certain significant
matters requiring stockholder approval. For example, these stockholders may be able to control elections of
directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other
major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for
our common stock that you may feel are in your best interest as one of our stockholders.

Our ability to use our net operating loss and credit carryforwards to offset future taxable income may be
subject to certain limitations.

At December 31, 2018, we had potentially utilizable gross Federal net operating loss carryforwards of
approximately $209.2 million, State net operating loss carry-forwards of approximately $209.0 million,
Federal and California research and development credit carry forwards of approximately $3.6 million and
$2.4 million, respectively, all of which expire between 2027 and 2038. Our ability to utilize our net operating
loss and credit carryforwards is dependent upon our ability to generate taxable income in future periods
and may be limited due to restrictions imposed on utilization of net operating loss and credit carryforwards
under federal and state laws upon a change in ownership.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, a corporation that
undergoes an “ownership change,” is subject to annual limitations on its ability to use its pre-change net
operating loss carryforwards (NOLs) and other pre-change tax attributes (such as research tax credits) to
offset its post-change income or taxes. For these purposes, an ownership change generally occurs where the
equity ownership of one or more stockholders or groups of stockholders who owns at least 5% of a
corporation’s stock increases its ownership by more than 50 percentage points over its lowest
ownership percentage within a three-year period (calculated on a rolling basis). We have determined that an
ownership change occurred in each of December 2010, January 2013 and October 2014. The result of these
ownership changes is that approximately $40.0 million of our approximately $153.2 million of net operating
losses will not be available to us to offset future taxable income. In addition, we may experience ownership
changes in the future, some of which are outside our control. Accordingly, we may not be able to utilize a
material portion of our net operating losses or credits. Limitations on our ability to utilize our net operating
losses to offset U.S. federal taxable income could potentially result in increased future tax liability to us. In
addition, at the state level, there may be periods during which the use of net operating losses is suspended
or otherwise limited, which could accelerate or permanently increase state taxes owed.

Because U.S. federal net operating losses incurred in taxable periods beginning before January 1, 2018
generally may be carried forward for up to 20 years, the annual limitation may effectively provide a cap on
the cumulative amount of pre-ownership change losses, including certain recognized built-in losses that may
be utilized. Such pre-ownership change losses in excess of the cap may be lost. In addition, if an ownership
change were to occur, it is possible that the limitations imposed on our ability to use pre-ownership change
losses and certain recognized built-in losses could cause a net increase in our U.S. federal income tax
liability and require U.S. federal income taxes to be paid earlier than otherwise would be paid if such
limitations were not in effect. Further, if for financial reporting purposes the amount or value of these
deferred tax assets is reduced, such reduction would have a negative impact on the book value of our
common stock.

In addition, under the Tax Act, the amount of U.S. federal net operating losses generated in taxable
periods beginning after December 31, 2017 that we are permitted to deduct in any taxable year is limited to
80% of our taxable income in such year, where taxable income is determined without regard to the NOL
deduction itself. The Tax Act generally eliminates the ability to carry back any post-2017 NOL to prior
taxable years, while allowing unused post-2017 NOLs to be carried forward indefinitely. There is a risk that
due to ownership changes, changes in law or other unforeseen reasons, our existing NOLs could expire or
otherwise be unavailable to offset future income tax liabilities.

49

We do not intend to pay dividends for the foreseeable future and our stock may not appreciate in value.

We currently intend to retain our future earnings, if any, to finance the operation and growth of our
business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of an
investment in shares of our common stock will depend upon any future appreciation in its value. There is
no guarantee that shares of our common stock will appreciate in value or that the price at which our
stockholders have purchased their shares will be able to be maintained.

The requirements of being a public company add to our operating costs and might strain our resources and
distract our management.

As a public company, we face increased legal, accounting, administrative and other costs and expenses
not faced by private companies. We are subject to the reporting requirements of the Exchange Act, which
requires that we file annual, quarterly and current reports with respect to our business and financial
condition, and the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, and the listing
standards of the Nasdaq Global Select Market, each of which imposes additional reporting and other
obligations on public companies. Although we are currently unable to estimate these costs with any degree
of certainty, we expect that the requirements of these rules and regulations will continue to increase our
legal, accounting and financial compliance costs, make some activities more difficult, time consuming and
costly and place significant strain on our personnel, systems and resources. These increased costs will
require us to divert a significant amount of money that we could otherwise use to develop our product
candidates or otherwise expand our business. Complying with these requirements might divert
management’s attention from other business concerns, which could have a material adverse effect on our
prospects, business, and financial condition. If we are unable to satisfy our obligations as a public company,
we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and
potentially civil litigation.

Several provisions of the Delaware General Corporation Law and our charter documents could discourage,
delay or prevent a merger or acquisition, which could adversely affect the market price of our securities.

Several provisions of the Delaware General Corporation Law and our charter documents could
discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, and the
market price of our securities could be reduced as a result. These provisions may include:

•

•

•

•

•

•

authorizing the issuance of “blank check” preferred stock, the terms of which we may establish
and shares of which we may issue without stockholders’ approval;

prohibiting us from engaging in a “business combination” with an “interested stockholder” for a
period of three years after the date of the transaction in which the person became an interested
stockholder unless certain provisions are met;

prohibiting cumulative voting in the election of directors;

prohibiting shareholder action by written consent;

limiting the persons who may call special meetings of stockholders; and

establishing advance notice requirements for nominations for election to our board of directors or
for proposing matters that can be acted on by stockholders at stockholder meetings.

If securities analysts downgrade our stock or cease coverage of us, the price of our stock could decline.

The trading market for our common stock relies in part on the research and reports that industry or
financial analysts publish about us or our business. Currently, a limited number of financial analysts publish
reports about us and our business. We do not control these analysts or any other analysts. Furthermore,
there are many large, well-established, publicly traded companies active in our industry and market, which
may mean that it is less likely that we will receive widespread analyst coverage. If any analyst who covers us
downgrades our stock, our stock price would likely decline rapidly. If one or more analysts cease coverage
of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

50

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We lease office space for corporate and administrative functions in Carmel, Indiana under a lease
agreement that expires in August 2023. The leased location in Carmel, Indiana supports both the HBV-cure
and Microbiome programs. We lease office and laboratory space in South San Francisco, California under a
sub-sublease that expires in December 2023. The leased location in South San Francisco supports both the
HBV-cure and Microbiome programs. Prior to moving into the South San Francisco office and laboratory
space in February 2019, we leased office and laboratory space in San Francisco, California under a sublease
that expired on February 28, 2019. The leased location in San Francisco, California supported both the
HBV-cure and Microbiome programs. We also conduct
research, development and small-scale
manufacturing activities for the Microbiome program at office and laboratory space in Groton,
Connecticut under a lease that expires in March 2020.

We believe these leased facilities are adequate for our current needs and that additional space will be

available in the future on commercially reasonable terms as needed.

Item 3. Legal Proceedings

We are not a party to any material legal proceedings at this time. From time to time, we may be subject
to various legal proceedings and claims that arise in the ordinary course of our business activities. Although
the results of litigation and claims cannot be predicted with certainty, we do not believe we are party to any
claim or litigation the outcome of which, if determined adversely to us, would individually or in the
aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the
outcome, litigation can have an adverse effect on us because of defense and settlement costs, diversion of
management resources and other factors.

Item 4. Mine Safety Disclosures

Not applicable.

51

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Market Information for Common Stock

Our common stock is traded under the symbol “ASMB” and is quoted on the Nasdaq Global Select

Market.

Holders of Record

As of February 25, 2019, there were 81 stockholders of record, which excludes stockholders whose

shares were held in nominee or street name by brokers.

Comparative Stock Performance Graph

The information included under the heading “Comparative Stock Performance Graph” in this Item 5
of Part II of this Form 10-K shall not be deemed to be “soliciting material” or subject to Regulation 14A or
14C, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to
the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the
Securities Act or the Exchange Act.

Set forth below is a graph comparing the total cumulative returns of our common stock, the Nasdaq
Composite Index and the Nasdaq Biotechnology Index. The graph assumes $100 was invested in our
common stock and each of the indices on December 31, 2013 and that all dividends, if any, are reinvested.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Assembly Biosciences, Inc., the NASDAQ Composite Index, and the NASDAQ Biotechnology Index

$250

$200

$150

$100

$50

$0

12/31/2013

12/31/2014

12/31/2015

12/31/2016

12/31/2017

12/31/2018

NASDAQ COMPOSITE

ASSEMBLY BIOSCIENCES, INC.

NASDAQ BIOTECHNOLOGY

*

$100 invested on December 31, 2013 in stock or index, including reinvestment of dividends.

12/31/2013

12/31/2014

12/31/2015

12/31/2016

12/31/2017

12/31/2018

. . . . . . . .
Assembly Biosciences, Inc.
Nasdaq Composite . . . . . . . . . . . . .

Nasdaq Biotechnology . . . . . . . . . . .

100.00
100.00

100.00

41.15
113.40

133.83

39.32
119.89

149.27

63.61
128.89

117.31

236.91
165.29

142.03

118.43
158.87

128.49

52

Equity Compensation Plans

The following table sets forth the indicated information as of December 31, 2018 with respect to our

equity compensation plans.

Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
(c)

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)

Weighted average
exercise price of
outstanding options,
warrants and rights(1)
(b)

Plan Category

Equity compensation plans approved by

securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,668,900(2)

$13.57

1,874,064(3)

Equity compensation plans not approved by

securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .

551,546(4)

$44.69

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,205,446

259,228

2,133,292

(1) The weighted average exercise price is calculated solely on the exercise prices of the outstanding stock
options and does not reflect the shares that will be issued upon the vesting of outstanding awards of
RSUs, which have no exercise price.

(2) This number includes the following: 531,461 shares subject to stock options granted under the 2010
Equity Incentive Plan (2010 Plan); 3,166,852 shares subject to outstanding awards granted under the
Assembly Biosciences, Inc. Amended and Restated 2014 Stock Incentive Plan (2014 Plan), of which
2,823,847 were subject to outstanding stock options and 343,005 were subject to outstanding restricted
stock unit (RSU) awards; 519,349 shares subject to outstanding awards granted under the Assembly
Biosciences, Inc. 2018 Stock Incentive Plan (2018 Plan), of which 279,349 were subject to outstanding
stock options, 225,000 were subject to outstanding RSU awards and 15,000 are underlying stock
appreciation rights (which are not included in column (a) but are reflected in column (c)); and 466,238
options assumed by us in connection with our merger with Assembly Pharmaceuticals. This number
excludes purchase rights currently accruing under the 2018 ESPP. Eligible employees may purchase
shares of common stock at a price equal to 85% of the lower of the fair market value of our common
stock at the beginning or end of the offering period. No participant in the 2018 ESPP may purchase
more than 1,000 shares of common stock in an offering period or shares of common stock valued at
more than $25,000 in a calendar year as determined under the 2018 ESPP.

(3) This number includes: no shares under the 2010 Plan, which has been frozen; 114,896 shares available
for issuance under the 2014 Plan; 259,228 shares available for issuance under the Inducement Plan;
1,380,651 shares available for issuance under the 2018 Plan and; 378,517 shares reserved for issuance
under the Assembly Biosciences, Inc. 2018 Employee Stock Purchase Plan (2018 ESPP). As of
February 25, 2019, assuming each participant purchases the maximum number of shares in the current
offering period, no more than 63,000 shares are subject to purchase in the current offering, which ends
on May 14, 2019.

(4) This number includes 536,250 shares subject to stock options granted under the 2017 Inducement
Award Plan (Inducement Plan) and 15,296 shares subject to warrants granted to one consultant.

Our stockholder-approved equity compensation plans consist of the 2018 Plan, 2014 Plan, the 2010
Plan, stock options assumed in our merger with Assembly Pharmaceuticals and the 2018 ESPP. Effective on
June 2, 2016, the 2010 Plan was frozen, and no further grants will be made under the 2010 Plan. Shares that
are forfeited under the 2010 Plan on or after June 2, 2016 will become available for issuance under the 2014
Plan. Shares that are forfeited under the 2014 Plan on or after May 30, 2018 will become available for
issuance under the 2018 Plan. An “Award” under the 2018 Plan, 2014 Plan or 2010 Plan is any right to
receive our common stock consisting of non-statutory stock options,
incentive stock options, stock
appreciation rights, RSUs, or any other stock award.

53

In May 2018, our stockholders approved the 2018 ESPP. The 2018 ESPP provides for the purchase by
employees of up to an aggregate of 400,000 shares of the Company’s common stock. Eligible employees
can purchase shares of our common stock at the end of a predetermined offering period at 85% of the
lower of the fair market value at the beginning or end of the offering period.

Our outstanding equity compensation arrangements that have not been approved by our stockholders
consist of the Inducement Plan and warrants to purchase shares of our common stock issued to one
consultant. In April 2017, our board of directors adopted the Inducement Plan and reserved 800,000 shares
of our common stock for issuance under the Inducement Plan. The only persons eligible to receive grants of
awards under the Inducement Plan are individuals who satisfy the standards for inducement grants under
Nasdaq Marketplace Rule 5635(c)(4) and the related guidance under Nasdaq IM 5635-1-that is, generally, a
person not previously an employee or director of the Company, or following a bona fide period of
non-employment, as an inducement material to the individual’s entering into employment with the
Company. An “Award” is any right to receive our common stock pursuant to the Inducement Plan,
consisting of nonstatutory stock options, stock appreciation rights, restricted stock awards, RSUs, or any
other stock award.

Shelf Registrations

On December 30, 2015, we filed a registration statement on Form S-3 with the SEC using a “shelf ”
registration process, file number 333-208806, which became effective January 19, 2016 (2016 Registration
Statement). Under this shelf registration process, we may from time to time sell any combination of the
securities described in the 2016 Registration Statement in one or more offerings for an aggregate offering
price of up to $150,000,000. The amount to be registered under the shelf registration consisted of up to
$150,000,000 of an indeterminate amount of common stock, preferred stock, debt securities, warrants and/
or units. There was also registered under the shelf registration an indeterminate number of (i) shares of
common stock or other securities of ours as may be issued upon conversion of, or in exchange for,
convertible or exchangeable debt securities and/or preferred stock registered under the registration
statement, or (ii) shares of preferred stock, common stock, debt securities or units as may be issued upon
exercise of warrants registered by the 2016 Registration Statement, as the case may be.

On December 29, 2017, we filed a registration statement on Form S-3 with the SEC using a “shelf ”
registration process, file number 333-222366, which became effective January 10, 2018 (2018 Registration
Statement). Under this shelf registration process, we could from time to time sell any combination of the
securities described in the registration statement in one or more offerings for an aggregate offering price of
up to $250,000,000. The amount to be registered under the shelf registration consists of up to $250,000,000
of an indeterminate amount of common stock, preferred stock, debt securities, warrants and/or units.
There is also being registered under the shelf registration a currently indeterminate number of (i) shares of
common stock or other securities of ours as may be issued upon conversion of, or in exchange for,
convertible or exchangeable debt securities and/or preferred stock registered under the registration
statement, or (ii) shares of preferred stock, common stock, debt securities or units as may be issued upon
exercise of warrants registered by the 2018 Registration Statement, as the case may be. In connection with
the filing of the 2018 Registration Statement, we entered into a sales agreement under which we may offer
and sell shares of our common stock having an aggregate offering price of up to $75.0 million under this
registration statement through “at the market offerings.”

On November 6, 2017, we closed an offering of an aggregate offering price of approximately
$69.3 million of common stock under the 2016 Registration Statement. On July 13, 2018, we closed an
offering of an aggregate offering price of $165.6 million of common stock under both the 2016 Registration
Statement and the 2018 Registration Statement. As a result, no securities remain available under the 2016
Registration Statement and securities with an aggregate offering price of approximately $165.1 million
remain available under the 2018 Registration Statement.

Recent Sales of Unregistered Securities

There were no unregistered sales of equity securities in 2018.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We did not purchase any of our registered equity securities during the period covered by this Annual

Report on Form 10-K.

54

Item 6. Selected Financial Data

The following selected balance sheet data for the years ended December 31, 2018 and 2017 and the
statement of operations data for the years ended December 31, 2018, 2017 and 2016 should be read in
conjunction with Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and in conjunction with the consolidated financial statements, related notes and
other financial information included elsewhere in this Annual Report. The selected consolidated results of
operation data for the years ended December 31, 2015 and 2014 and the balance sheet data for the years
ended December 31, 2016, 2015 and 2014 have been derived from audited consolidated financial statements
not included herein. Our historical results are not necessarily indicative of the results to be expected in the
future.

($ in thousands except for per share amounts)

2018

2017

2016

2015

2014

December 31,

Balance Sheet Data:

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

$268,045

$169,303

$ 98,119

$133,744

$ 71,225

Total stockholders’ equity . . . . . . . . . . . . . . . . .

210,653

113,120

79,878

118,742

58,571

Statement of Operations Data:
Collaboration revenue . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . .
Realized loss from marketable securities . . . . . . .

Loss before income taxes . . . . . . . . . . . . . . . . .
Income tax (expenses) benefit . . . . . . . . . . . . . .

$ 14,804
107,539
(92,735)
3,083
—

(89,652)
(1,099)

$

9,019
61,246
(52,227)
983
(615)

(51,859)
9,050

$

— $

— $

45,278
(45,278)
1,539
(1,140)

(44,879)
618

29,656
(29,656)
1,229
(27)

(28,454)
—

—
23,956
(23,956)
167
—

(23,789)
—

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (90,751) $ (42,809) $(44,261) $ (28,454) $(23,789)

Unrealized gain/loss on marketable securities, net
of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss per Shares Data:

45

209

221

(822)

—

Basic and dilutive loss per share data . . . . . . .

$

(3.98) $

(2.41) $

(2.57) $

(1.81) $

(3.40)

The increase in total assets from approximately $71.2 million as of December 31, 2014 to
approximately $133.7 million as of December 31, 2015 was primarily due to a capital raise of approximately
$81.0 million in net proceeds to us. We did not engage in any financing activities in 2016; accordingly, total
assets as of December 31, 2016 declined to approximately $98.0 million. The increase in total assets from
approximately $98.1 million as of December 31, 2016 to approximately $169.3 million as of December 31,
2017 was primarily due to a capital raise of $64.8 million in net proceeds in November 2017 and receipt
from Allergan of an upfront payment of $50.0 million in February 2017. The increase in total assets from
approximately $169.3 million as of December 31, 2017 to approximately $268.0 million as of December 31,
2018 was primarily due to a capital raise of approximately $155.4 million in net proceeds to us in July 2018.
Since 2014, our operating expenses have increased primarily due to increases in research and development
activities. See, Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” for a discussion on results of operations and financing activities since 2014.

55

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion of our financial condition and results of operations should be read in conjunction
with our consolidated financial statements and the related notes thereto and other financial information
appearing elsewhere in this Form 10-K. The following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those expressed or implied in any
forward-looking statements as a result of various factors, including those set forth in this Form 10-K under
“Item 1A. Risk Factors.”

Overview

We are a clinical stage biotechnology company advancing two innovative platform programs: a new
class of oral therapeutic candidates for the treatment of hepatitis B virus (HBV) infection and a novel class
of oral synthetic live biotherapeutic candidates, which are designed to treat disorders associated with the
microbiome.

HBV-cure Program

Over 250 million people worldwide are chronically infected with HBV. Our HBV-cure program is
pursuing multiple drug candidates that inhibit the HBV lifecycle and block the generation of covalently
closed circular DNA (cccDNA), with the aim of increasing the current low cure rate for patients with HBV.
We have discovered multiple novel core inhibitors, which are small molecules that directly target and
allosterically modulate the HBV core (HBc) protein.

ABI-H0731

The lead product candidate from this program, ABI-H0731, has completed a Phase 1a/1b human
clinical study countries outside the United States. We have also completed an additional Phase 1a
(ABI-H0731-102) pharmacokinetic (PK), safety and tolerability study of ABI-H0731 in healthy volunteers
in the United States. In 2018, the U.S. Food and Drug Administration (FDA) granted Fast Track
designation to ABI-H0731 for the treatment of patients with chronic HBV infection.

Final data from our completed Phase 1a (ABI-H0731-102) PK, safety and tolerability study and
Phase 1b (ABI-H0731-101b) study of antiviral effects was presented at the American Association for the
Study of Liver Diseases (AASLD) Annual Meeting (The Liver Meeting®) in November 2018. Antiviral
activity was observed across patient cohorts. In the 300 mg dose cohort, the mean maximal declines from
baseline were reported as ≥2.8* log 10 IU/mL after 28 days, with ≥2.9 and 2.5* log 10 IU/mL mean declines
in HBeAg positive and negative patients, respectively. Maximal viral load declines of 3.6 to 4.0 log 10 IU/
mL were observed in HBeAg negative patients treated at all dose levels (100 mg to 400 mg). Mean RNA
reductions observed in the 300 mg dose cohort were 2.3 log 10 IU/mL over 28 days. The observed
reductions in viral RNA levels are a distinguishing feature of this class of inhibitors compared to standard
of care Nuc therapy.

Across all cohorts in the Phase 1a and Phase 1b studies, ABI-H0731 was generally well-tolerated. No
serious adverse effects or dose-limiting toxicities were identified, and there was no pattern of treatment
emergent clinical or laboratory abnormalities observed. With the exception of an isolated Grade 3 rash at
the 400 mg dose that resolved with no intervention required other than treatment discontinuation, there
were no other Grade 3 or Grade 4 adverse events, and no other drug discontinuations have occurred in
these studies.

In July 2018, we commenced two Phase 2a combination studies for ABI-H0731 at sites in the United
States, Canada, Hong Kong, New Zealand and the United Kingdom. The first Phase 2a trial,
ABI-H0731-201 (the 201 Study), enrolled HBV patients whose viral load had already been suppressed on a
standard of care Nuc therapy. Seventy-three patients were randomized 3:2 to receive either 300 mg of
ABI-H0731 daily or placebo in addition to their continued Nuc therapy for six months. The 201 Study

*

Excludes one subject found to have resistance at baseline.

56

compares the safety and tolerability of combination therapy with ABI-H0731, as well as declines in HBV S
antigen (HBsAg) and HBV E antigen (HBeAg), to those seen in patients on Nuc monotherapy. In this
study, blood levels of HBsAg and HBeAg will serve as surrogate biomarkers of cccDNA levels.

The second Phase 2a trial, ABI-H0731-202 (the 202 Study), enrolled 25 HBeAg positive HBV patients
who are naïve to Nuc treatment and randomized 1:1 to receive either 300 mg of ABI-H0731 daily or
placebo in combination with standard of care entecavir (0.5 mg) for six months. The 202 Study assesses the
relative antiviral potency of combination therapy compared with entecavir alone. Endpoints include the
speed and depth of viral suppression, as well as changes in biomarkers (HBsAg and HBeAg), and the safety
and tolerability of ABI-H0731. Initial data from both the 201 Study and the 202 Study is expected in the
second quarter of 2019, and final six-month data from both the 201 Study and the 202 Study is expected in
the second half of 2019.

All subjects who complete treatment in either the 201 Study or 202 Study have the option to roll over
into a long-term open label study of ABI-H0731 (the 211 Study) and receive a combination of ABI-H0731
with ongoing standard of care Nuc therapy. Subjects on the 211 Study will be treated for up to an
additional year from the time of completion of their participation in the 201 Study or the 202 Study, as
applicable. Subject in the 211 Study who achieve a complete response, defined as HBsAg <100 IU, loss of
HBeAg and viral load below limits of detection, will have the opportunity to stop all treatment (ABI-H0731
and standard of care Nuc therapy) and be monitored for six months off therapy to assess whether
combination therapy improves the rate of sustained viral responses.

ABI-H2158

ABI-H2158, our second product candidate in the HBV-cure program, is an internally discovered and
developed drug product candidate that is chemically distinct from ABI-H0731. In November 2018, we
initiated a Phase 1a/1b dose-ranging clinical study of ABI-H2158 in New Zealand, to assess the safety,
tolerability and PK of ABI-H2158 in healthy volunteers and then subsequently assess the safety,
tolerability, PK and initial antiviral potency in non-cirrhotic patients with chronic HBV infection. We
expect to advance ABI-H2158 into the Phase 1b portion of this study in the second quarter of 2019. Initial
data from the healthy volunteer cohort of this study is expected in mid-2019.

ABI-H3733

We also recently selected a third clinical product candidate, ABI-H3733 for the treatment of HBV, a
is currently undergoing

novel chemical scaffold separate from ABI-H0731 and ABI-H2158,
IND-enabling studies.

that

Other Product Candidates

We plan to conduct additional research and development to identify additional product candidates for

our HBV-cure program.

Microbiome Program

Our Microbiome program consists of a fully integrated platform that includes a disease-targeted strain
isolation, identification, characterization and selection process, methods for strain purification and growth
under current Good Manufacturing Practice (cGMP) conditions, and a licensed patented delivery system
that we call GEMICEL®, which is designed to allow for targeted oral delivery of live biologic and
conventional therapies to the lower gastrointestinal (GI) tract. In connection with our Microbiome
program, we filed an Investigational New Drug (IND) application in December 2018 for ABI-M201
(Ulcerative Colitis). In February 2019, initiated a Phase 1b human clinical study for ABI-M201 in patients
with mildly to moderately active ulcerative colitis to evaluate safety, efficacy and exploratory endponits.
Using our microbiome platform capabilities, we are exploring additional product candidates for other
disease indications,
irritable bowel syndrome, non-alcoholic steatohepatitis
(NASH) and immuno-oncology, which indications we will pursue with Allergan Pharmaceuticals
International Limited (Allergan) to the extent covered by the Collaboration Agreement discussed below or
pursue either internally or in collaboration with other partners to the extent outside the scope of the
Collaboration Agreement.

including Crohn’s disease,

57

On January 6, 2017, we entered into the Research, Development, Collaboration and License
Agreement (the Collaboration Agreement) with Allergan to develop and commercialize select microbiome
gastrointestinal programs. Pursuant to the terms of the Collaboration Agreement, in connection with the
closing of the transaction in February 2017, Allergan paid us an upfront payment of $50.0 million.
Additionally, we are eligible to receive up to approximately $631.0 million in payments related to seven
development milestones and up to approximately $2.14 billion in payments related to 12 commercial
development and sales milestones in connection with the successful development and commercialization of
licensed compounds for up to six different indications. We have agreed with Allergan to share development
costs up to an aggregate of $75.0 million through proof-of-concept (POC) studies on a 2∕3, 1∕3 basis,
respectively, and Allergan has agreed to assume all post-POC development costs. Additionally, we have an
option to co-promote the licensed programs in the United States and China, subject to certain conditions
set forth in the Collaboration Agreement.

Operations

We currently have corporate and administrative offices in Carmel, Indiana, administrative offices and
research laboratory space in South San Francisco, California and research, development and small-scale
manufacturing activities in Groton, Connecticut.

Since our inception, we have had no revenue from product sales and have funded our operations
principally through debt financings prior to our initial public offering in 2010 and through equity
financings and collaborations. Our operations to date have been primarily limited to organizing and staffing
our company,
licensing our product candidates, discovering and developing our product candidates,
establishing initial manufacturing capabilities for our product candidates, maintaining and improving our
patent portfolio and raising capital. We have generated significant losses to date, and we expect to continue
to generate losses as we continue to develop our product candidates. As of December 31, 2018, we had an
accumulated deficit of approximately $341.8 million. Because we do not generate revenue from any of our
product candidates, our losses will continue as we further develop and seek regulatory approval for, and
commercialize, our product candidates. As a result, our operating losses are likely to be substantial over the
next several years as we continue the development of our product candidates and thereafter if none is
approved or successfully launched. We are unable to predict the extent of any future losses or when we will
become profitable, if at all.

Financial Operations Overview

Research and Development Expense

Research and development expenses consist primarily of costs incurred for our research activities,
including our drug discovery efforts, target validation, lead optimization and the development of our
product candidates, which include:

•

•

•

•

•

employee-related expenses including salaries, benefits, and stock-based compensation expense;

expenses incurred under agreements with third parties, including contract research organizations
(CROs) that conduct research and development, nonclinical and clinical activities on our behalf
and the cost of consultants, and contract manufacturing organizations (CMOs) that manufacture
all of our drug substance and the drug product used in our HBV-cure program;

the cost of lab supplies and acquiring, developing, and manufacturing nonclinical and, in the case
of our Microbiome program, early stage clinical study materials;

fees related to our license agreements; and

facilities, depreciation, and other expenses, which include direct and allocated expenses for rent
and maintenance of facilities, insurance, and other operating costs.

Research and development costs are expensed as incurred. Nonrefundable advance payments for goods
or services to be received in the future for use in research and development activities are deferred and
capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are
rendered.

58

We use our employee and infrastructure resources across multiple research and development programs,
and we allocate internal employee-related and infrastructure costs, as well as certain third-party costs, to
each of our programs based on the personnel resources allocated to such program. Our research and
development expenses, by major program, are outlined in the table below:

($ in thousands)

Year Ended December 31,

2018

2017

2016

HBV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$41,486

$23,221

$20,025

Microbiome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,435

15,581

10,015

Other

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

28

Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,820

5,423

3,025

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$72,741

$44,225

$33,093

The successful discovery and development of our product candidates is highly uncertain. As such, at
this time, we cannot reasonably estimate, or know the nature, timing and estimated costs, of the efforts that
will be necessary to complete the remainder of their development. We are also unable to predict when, if
ever, material net cash inflows will commence from our product candidates. This is due to the numerous
risks and uncertainties associated with developing medicines, including the uncertainty of:

•

•

•

•

•

•

•

•

the timing, progress and success of our Phase 2 clinical development of ABI-H0731, our Phase 1
clinical development of ABI-H2158 and ABI-M201, and our nonclinical and planned clinical
development activities for ABI-H3733 and other product candidates we may identify in each of
the HBV-cure and Microbiome programs;

establishing an appropriate safety profile with IND-enabling toxicology studies sufficient to
advance additional product candidates into clinical development;

successful enrollment in, and completion of, clinical studies;

receipt of marketing approvals from applicable regulatory authorities;

establishing internal commercial manufacturing capabilities or making arrangements with
third-party manufacturers;

obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our
product candidates;

launching commercial sales of
collaboration with others; and

the products,

if and when approved, whether alone or in

maintaining a continued acceptable safety profile of the products following approval and wide use.

A change in the outcome of any of these variables or variables discussed in “Item 1A. Risk Factors”
with respect to the development of any of our product candidates would significantly change the costs and
timing associated with the development of that product candidate.

Research and development activities are central to our business model. Product candidates in later
stages of clinical development generally have higher development costs than those in earlier stages of
clinical development, primarily due to the increased size and duration of later-stage clinical studies. We
expect research and development costs to increase significantly for the foreseeable future as our product
candidate development programs progress. However, we do not believe that it is possible at this time to
accurately project total program-specific expenses through commercialization. There are numerous factors
associated with the successful commercialization of any of our product candidates, including future trial
design and various regulatory requirements, many of which cannot be determined with accuracy at this
time based on our stage of development. Additionally, future commercial and regulatory factors beyond
our control will impact our clinical development programs and plans.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including
stock-based compensation, for personnel in executive, finance, accounting, business development, legal and

59

human resources functions. Other significant costs include facility costs not otherwise included in research
and development expenses, insurance costs, legal fees relating to patents and corporate matters and fees for
accounting and consulting services.

We anticipate that our general and administrative expenses will increase in the future to support
continued research and development activities, potential commercialization of our product candidates and
increased costs of operating as a public company. These increases will likely include increased costs related
to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other
expenses. Additionally, we anticipate increased costs associated with being a public company, including
expenses related to services associated with maintaining compliance with exchange listing and SEC
requirements, insurance, and investor relations costs.

Interest income

Interest income consists of interest earned on our cash and cash equivalents and available-for-sale

securities.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements, which we have prepared in accordance with accounting
principles generally accepted in the United States. The preparation of
these consolidated financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting periods. We evaluate our
estimates and judgments, including those described in greater detail below; on an ongoing basis. We base
our estimates on historical experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following
accounting policies are the most critical to aid you in fully understanding and evaluating our financial
condition and results of operations.

Revenue Recognition

Effective January 1, 2018, we adopted Accounting Standards Codification, Revenue from Contracts
with Customers (ASC 606) using the modified retrospective method for all contracts that had not been
completed as of that date. As of the adoption date, we had only entered into one contract with a customer,
the Collaboration Agreement with Allergan, that was within the scope of ASC 606, under which we
provided an exclusive worldwide license to certain of our intellectual property to develop and commercialize
licensed microbiome compounds for ulcerative colitis, Crohn’s disease, and irritable bowel syndrome. The
term of
this arrangement included the following: a nonrefundable, upfront fee, development and
commercial milestone payments, and royalties on net sales of licensed products. Allergan paid the Company
an upfront non-refundable payment of $50.0 million which was received in 2017. Additionally, the
Company is eligible to receive variable consideration in the form of research and development cost
reimbursements, up to approximately $631.0 million in related to seven development milestones and up to
approximately $2.14 billion in related to 12 commercial development and sales milestones in connection
with the successful development and commercialization of licensed compounds. We have agreed to share
development costs up to an aggregate of $75.0 million through proof-of-concept (POC) studies with
Allergan on a 2∕3, 1∕3 basis, respectively, and Allergan has agreed to assume all post-POC development costs.
In the event any pre-POC development costs exceed $75.0 million in the aggregate, we may elect either (a) to
fund 1∕3 of such costs in excess of $75.0 million or (b) to allow Allergan to deduct from future development
milestone payments 1∕3 of the development costs funded by Allergan in excess of $75.0 million plus a
premium of 25%. Each of these payments results in collaboration revenue, except for revenues from
royalties on net sales of licensed products, which will be classified as royalty revenues.

60

At the inception of an arrangement, we evaluate if a counterparty to a contract is a customer, if the
arrangement is within the scope of revenue from contracts with customers guidance, and the term of the
contract. We recognize revenue when the customer obtains control of promised goods or services in a
contract for an amount that reflects the consideration we expect to receive in exchange for those goods or
services. For contracts with customers, we apply the following five-step model in order to determine this
amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether
the promised goods or services are performance obligations, including whether they are distinct in the
context of the contract; (iii) measurement of the transaction price, including the constraint on variable
consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of
revenue when (or as) we satisfy each performance obligation. Our performance obligations under these
intellectual
arrangements may include licenses of
property, research and development services, delivery of manufactured product, and/or participation on
joint steering committees. Allergan can select backups and additional target indications to add to the
licenses granted and also has the ability to enter into a contract manufacturing agreement with us for
compound supply, and we have concluded that these rights are options. We evaluated whether such options
contained material rights and concluded they were not offered at a discount that exceeds discounts available
to other customers, and therefore were not material rights. The grant of additional licensing rights upon
option exercises and contract manufacturing agreements will be accounted for as separate contracts when
they occur.

intellectual property, options to license additional

We provide standard indemnification and protection of licensed intellectual property for our customer.
These provisions are part of assurance that the licenses meet the agreement’s, representations and are not
obligations to provide goods or services.

We only apply the five-step model to contracts when it is probable that we will collect the consideration
to which we are entitled in exchange for the goods or services we transfer to the customer. As part of the
accounting for contracts with customers, we must develop assumptions that require judgment to determine
the standalone selling price of each performance obligation identified in the contract. We then allocate the
total transaction price to each performance obligation based on the estimated standalone selling prices of
each performance obligation. For the Collaboration Agreement, we estimated standalone selling prices of
our performance obligations using income-based valuation approach for the estimated value a licensor of
the compounds would receive. We recognize as revenue the amount of the transaction price that is allocated
to the respective performance obligation when the performance obligation is satisfied or as it is satisfied.
For the Collaboration Agreement, we recognize revenues for each of our distinct performance obligations
as the related research and development services are performed because Allergan consumes the benefit of
research and development work simultaneously as we perform these services.

Upfront License Fees:

If a license to our intellectual property is determined to be distinct from the
other performance obligations identified in the arrangement, we recognize revenues from nonrefundable,
upfront license fees based on the relative value prescribed to the license compared to the total value of the
arrangement. The revenue is recognized when the license is transferred to the collaborator and the
collaborator is able to use and benefit from the license. For licenses that are not distinct from other
obligations identified in the arrangement, we utilize judgment to assess the nature of the combined
performance obligation to determine whether the combined performance obligation is satisfied over time or
at a point in time. If the combined performance obligation is satisfied over time, we apply an appropriate
method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license
fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of
performance and related revenue recognition.

Development and Regulatory Milestone Payments: Depending on facts and circumstances, we may
record revenues from certain milestones in a reporting period before the milestone is achieved if we
conclude that achievement of the milestone is probable and that recognition of revenue related to the
milestone will not result in a significant reversal in amounts recognized in future periods. We record a
corresponding contract asset when this conclusion is reached. Milestone payments that have not been
included in the transaction price to date are fully constrained. We re-evaluate the probability of
achievement of such milestones and any related constraint each reporting period. We adjust our estimate of
the overall transaction price, including the amount of collaborative revenue that was recorded, if necessary.

61

Research and Development Service Payments: We are reimbursed at a certain percentage for
performing research and development services based on hours worked by our employees at a fixed
contractual rate per hour and third-party pass-through costs we incur on a quarterly basis. Research and
development service payments are included in the transaction price in the reporting period that we conclude
that it is probable that recording revenue in the period will not result in a significant reversal in amounts
recognized in future periods. Accounts receivable are recorded when the right to the research and
development service payment consideration becomes unconditional. We record the full reimbursed portion
of these expenses as collaboration revenue in our consolidated statements of operations as we consider
performing research and development services to be a part of our ongoing and central operations.

Sales-based Milestone and Royalty Payments: Our customers may be required to pay us sales-based
milestone payments or royalties on future sales of commercial products. We recognize revenues related to
sales-based milestone and royalty payments upon the later to occur of (i) achievement of the collaborator’s
underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case
assuming our licensed intellectual property is deemed to be the predominant item to which the sales-based
milestones and/or royalties relate.

We receive payments from our customers based on billing schedules established in each contract.
Upfront payments and fees are recorded as deferred revenue upon receipt or when due until we perform our
obligations under these arrangements. If the related performance obligation is expected to be satisfied
within the next twelve months, these amounts will be classified in current liabilities. We recognize a contract
asset relating to our conditional right to consideration that is not subject to a constraint. Amounts are
recorded as accounts receivable when our right to consideration is unconditional. A net contract asset or
liability is presented for each contract with a customer. We do not assess whether a contract has a
significant financing component if the expectation at contract inception is such that the period between
payment by the customer and the transfer of the promised goods or services to the customer will be one
year or less.

Management may be required to exercise considerable judgment in estimating revenue to be
recognized. Judgment is required in identifying performance obligations, estimating the transaction price,
estimating the standalone selling prices of identified performance obligations, which may include forecasted
revenue, development timelines, reimbursement rates for personnel and other research and development
costs, discount rates and probabilities of technical and regulatory success, and estimating the progress
towards satisfaction of performance obligations.

As of the adoption date of ASC 606, we had only one contract with a customer, Allergan, that had not
been completed. Based on our analysis, we concluded there was no significant change in applying ASC 606
to the Collaboration Agreement with Allergan and no amounts have been recognized within “accumulated
deficit” in the consolidated balance sheet related to the adoption of the new standard.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually each year
on October 1 and more frequently if events or other changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Impairment of goodwill and indefinite-lived intangibles is
determined to exist when the fair value is less than the carrying value of the net assets being tested.

Goodwill

impairment

indicators is performed at

We determined that we have only one operating segment and reporting unit. Accordingly, our review of
the entity-wide level. In performing each annual
goodwill
impairment assessment and any interim impairment assessment, we determine if we should qualitatively
assess whether it is more likely than not that the fair value of goodwill is less than its carrying amount (the
qualitative impairment
include general
macroeconomic conditions, conditions specific to the industry and market, cost factors, the overall financial
performance and whether there have been sustained declines in our share price. If we conclude it is more
likely than not that the fair value of the reporting unit is less than its carrying amount, or elect not to use
the qualitative impairment test, a quantitative impairment test is performed using a two-step process. The

the factors considered in the assessment

test). Some of

62

first step of the goodwill qualitative impairment assessment compares the fair value of the reporting unit to
its carrying value. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired, and the second step of the impairment test is not required. We
use our market capitalization as an indicator of fair value. We believe that since our reporting unit is
publicly traded, the ability of a controlling shareholder to benefit from synergies and other intangible assets
that arise from control might cause the fair value of our reporting unit as a whole to exceed our market
capitalization. However, we believe that the fair value measurement need not be based solely on the quoted
market price of an individual share of our common stock, but also can consider the impact of a control
premium in measuring the fair value of its reporting unit. Should our market capitalization be less than our
total stockholders’ equity as of our annual test date or as of any interim impairment testing date, we would
also consider market comparables, recent trends in our stock price over a reasonable period and, if
appropriate, use an income approach (discounted cash flow) to determine whether the fair value of our
reporting unit is greater than our carrying amount. If we were to use an income approach, we would
establish a fair value by estimating the present value of our projected future cash flows expected to be
generated from our business. The discount rate applied to the projected future cash flows to arrive at the
present value would be intended to reflect all risks of ownership and the associated risks of realizing the
stream of projected future cash flows. Our discounted cash flow methodology would consider projections of
financial performance for a period of several years combined with an estimated residual value. The most
significant assumptions we would use in a discounted cash flow methodology are the discount rate, the
residual value and expected future revenues, gross margins and operating costs, along with considering any
implied control premium. The second step, if required, compares the implied fair value of the reporting unit
goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill
exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. Implied
fair value is the excess of the fair value of the reporting unit over the fair value of all identified assets and
liabilities. In 2018, we elected to bypass the qualitative goodwill impairment assessment. As of October 1,
2018, we have determined through a quantitative impairment test that the fair value significantly exceeded
the carrying value of our single reporting unit, and concluded that goodwill was not impaired. We did not
recognize any goodwill impairment in any of the years presented.

Indefinite-Lived Intangible Asset
Our indefinite-lived intangible asset consists of in-process research and development (IPR&D) projects
acquired in a business combination that are used in research and development activities but have not yet
reached technological feasibility, regardless of whether they have alternative future use. The primary basis
for determining the technological feasibility or completion of these projects is obtaining regulatory approval
to market the underlying products in an applicable geographic region. We classify in-process research and
development acquired in a business combination as an indefinite-lived intangible asset until the completion
or abandonment of the associated research and development efforts. Upon completion of the associated
research and development efforts, we perform a final test for impairment and will determine the useful life
of the technology and begin amortizing the assets to reflect their use over their remaining lives. Upon
permanent abandonment, we would write off the remaining carrying amount of the associated IPR&D
intangible asset.

In performing each annual

impairment assessment and any interim impairment assessment, we
determine if we should qualitatively assess whether it is more likely than not that the fair value of our
IPR&D asset is less than its carrying amount (the qualitative impairment test). If we conclude that is the
case, or elect not to use qualitative impairment test, we would proceed with quantitatively determining the
fair value of the IPR&D asset and comparing its fair value to its carrying value to determine the amount of
impairment, if any (the quantitative impairment test).

In performing the qualitative impairment test, we consider the results of the most recent quantitative
impairment test and identifies the most relevant divers of the fair value for the IPR&D asset. The most
relevant drivers of fair value we have identified are consistent with the assumptions used in the quantitative
estimate of the IPR&D asset discussed below. Using these drivers, we identify events and circumstances that
may have an effect on the fair value of the IPR&D asset since the last time the IPR&D’s fair value was
quantitatively determined. We then weigh these factors to determine and conclude if it is not more likely
than not that the IPR&D asset is impaired. If it is more likely than not that the IPR&D asset is impaired we
proceed with quantitatively determining the fair value of the IPR&D asset.

63

We use the income approach to determine the fair value of our IPR&D asset. This approach calculates
fair value by estimating the after-tax cash flows attributable to an in-process project over its useful life and
then discounting these after-tax cash flows back to a present value. This estimate includes significant
assumptions regarding the estimates that market participants would make in evaluating the IPR&D asset,
including the probability of successfully completing clinical trials and obtaining regulatory approval to
market the IPR&D asset, the timing of and the expected costs to complete IPR&D projects, future net cash
flows from potential drug sales, which are based on estimates of the sales price of the drug, the number of
patients who will be diagnosed and treated and our competitive position in the marketplace, and
appropriate discount and tax rates. Any impairment to be recorded is calculated as the difference between
the fair value of the IPR&D asset as of the date of the assessment with the carrying value of the IPR&D
asset on our consolidated balance sheet.

For 2018, we elected to bypass the quantitative assessment and performed a qualitative impairment test
and concluded that it is more likely than not that the fair value of our IPR&D asset exceeded the carrying
value and no further testing was required. We did not recognize any IPR&D impairment in any of the years
presented.

For asset purchases outside of business combinations, we expense any purchased research and

development assets as of the acquisition date if they have no alternative future uses.

Research and Development Expense and Accruals

Research and development costs include personnel-related costs, outside contracted services including
clinical study costs, facilities costs, fees paid to consultants, milestone payments prior to FDA approval,
license fees prior to FDA approval, professional services, travel costs, dues and subscriptions, depreciation
and materials used in clinical trials and research and development and costs incurred under the
Collaboration Agreement. Research and development costs are expensed as incurred unless there is an
alternative future use in other research and development projects. We expense costs relating to the purchase
and production of pre-approval inventories as research and development expense in the period incurred
until FDA approval is received.

Costs related to our collaboration agreement are included in research and development expense.

As part of the process of preparing our consolidated financial statements, we are required to estimate
certain research and development expenses. This process involves reviewing quotations and contracts,
reviewing the terms of our license agreements, communicating with our vendors and 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
the actual cost. The majority of our service providers invoice us monthly in arrears for services performed
or when contractual milestones are met. Payments made prior to the receipt of goods or services to be used
in research and development are capitalized until the goods or services are received. Such payments are
evaluated for current or long-term classification based on when they will be realized. Examples of estimated
amortized or accrued research and development expenses include fees to:

•

•

•

contract research organizations and other service providers in connection with clinical studies;

contract manufacturers in connection with the production of clinical trial materials; and

vendors in connection with preclinical development activities.

We base our expenses related to clinical studies on our estimates of the services received and efforts
expended pursuant to contracts with multiple research institutions and contract research organizations that
conduct and manage clinical studies 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 and expense
recognition. Payments under some of these contracts depend on factors such as the successful enrollment of
patients and the completion of clinical trial milestones. In either amortizing or 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 our estimate, we
adjust the related prepayment or accrual accordingly. Our understanding of the status and timing of

64

services performed relative to the actual status and timing of services performed may vary and may result in
our reporting changes in estimates in any particular period. Adjustments to prior period estimates have not
been material for the years ended December 31, 2018, and 2017.

Stock-Based Compensation

For equity awards that vest subject to the satisfaction of service requirements, compensation expense is
measured based on the fair value of the award on the date of grant and is recognized as expense on a
straight-line basis over the requisite service period. For stock awards which have a performance condition,
compensation cost is measured based on the fair value on the grant date (the date performance targets are
established) and is expensed over the requisite service period for each separately vesting tranche when
achievement of the performance objective becomes probable. We assess the probability of the performance
conditions being met on a continuous basis. Forfeitures are recognized when incurred.

The fair value of RSUs is determined based on the number of shares granted and the quoted market
price of our common stock on the date of grant. The fair value of stock options is estimated on the date of
grant using the Black-Scholes option pricing model (Black-Scholes Model). The fair value of stock-based
payment awards as determined by the Black-Scholes Model are affected by our stock price as well as other
assumptions. These assumptions include, but are not limited to, the expected term, the expected stock price
volatility, the risk-free interest rate and the expected dividend yield. We have, due to insufficient historical
data, used the “simplified method” to determine the expected term of stock options granted with a service
condition. If any of the assumptions used in the Black-Scholes Model change significantly, stock-based
compensation expense may differ materially in the future from that recorded in the current period.

We account for stock-based compensation arrangements with non-employees, which primarily consist
of consultants, using a fair value approach. The fair value of these options is measured using the
Black-Scholes Model reflecting the same assumptions as applied to employee options in each of the
reported periods, other than the expected life, which is assumed to be the remaining contractual life of the
option. The compensation costs of these arrangements are subject to remeasurement over the vesting terms
as earned.

We expect to continue to grant stock options and awards in the future, and to the extent that we do,

our actual stock-based compensation expense recognized in future periods will likely increase.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of

structured finance, special purpose entities or variable interest entities.

Contractual Obligations

We have contractual and commercial obligations under our operating leases and other obligations
related to research and development activities, purchase commitments and licenses. The following table
summarizes our future contractual obligations and commercial commitments at December 31, 2018.

Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . .
License obligations . . . . . . . . . . . . . . . . . . . . . . . .

Less than
1 year

$5,032
115

Total contractual obligations . . . . . . . . . . . . . . .

$5,147

$13,092

Payments Due By Period

1 – 3 years

3 – 5 years

More than
5 years

$12,667
425

$4,095
75

$4,170

$—
—

$—

Total

$21,794
615

$22,409

In general, milestone and royalty payments associated with certain license agreements (other than
contingent performance milestone payments anticipated to be paid in 2019) have not been included in the
above table of contractual obligations, because as we cannot reasonably estimate if or when they will occur.
The milestone payments included in the table of contractual obligations above are payments we believe are
reasonably likely to occur during the indicated time periods. Excluded from future R&D and purchase

65

commitments is our portion of the potential future shared research and development expenses under the
Collaboration Agreement of up to $25 million. Further, we anticipate that our operating lease obligations
will be higher than projected as we renew existing real estate leases that expire in 2019 and enter into new or
expanded real estate leases.

Results of Operations

General

During the year ended December 31, 2018, we generated approximately $14.8 million of collaboration
revenue, which included the amortization of deferred revenue and reimbursement revenue in each case
incurred under the Collaboration Agreement. At December 31, 2018, we had an accumulated deficit of
approximately $341.8 million primarily as a result of research and development expenses, purchases of
in-process research and development and general and administrative expenses. While we may in the future
including license fees, milestone payments, research and
generate revenue from a variety of sources,
development payments in connection with strategic partnerships and/or product sales, our product
candidates are at an early stage of development and may never be successfully developed or
commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the
foreseeable future and there can be no assurance that we will ever generate significant revenues.

Comparison of the Years Ended December 31, 2018 and December 31, 2017

Research and Development Expense

Research and development expense, excluding stock-based compensation expense, was approximately
$60.9 million for the year ended December 31, 2018, an increase of approximately $22.1 million from
approximately $38.8 million for the same period in 2017. The increase in research and development
expenses was primarily due to an increase of approximately $18.3 million in research expenses for our
HBV-cure program and an increase of approximately $3.9 million for nonclinical development of our
Microbiome program.

Stock-based compensation expense was approximately $11.8 million for the year ended December 31,
2018, an increase of approximately $6.4 million from approximately $5.4 million for the year ended
December 31, 2017.

General and Administrative Expense

General and administrative expense, excluding stock-based compensation expense, was approximately
$18.1 million for the year ended December 31, 2018, an increase of approximately $4.3 million from
approximately $13.8 million for the same period in 2017. The increase in general and administrative
expenses was primarily due to an increase of approximately $2.1 million in salary and benefits expenses due
to additional employees in information technology, human resources and finance, $0.6 million in office and
equipment rent expenses, $0.4 million in professional expenses, $0.4 million in recruitment expenses,
$0.3 million in tax expenses, $0.2 million in insurance expenses and $0.2 million in legal expenses.

Stock-based compensation expense was approximately $16.7 million for the year ended December 31,
2018, an increase of approximately $13.5 million from approximately $3.2 million for the year ended
December 31, 2017. The increase was due, in part, to a $4.3 million onetime expense related to the
departure and transition to consultant of one of our former executive officers and an incremental expense
of approximately $5.0 million was recognized due to the addition of a new executive officer in 2018.

Interest and Other Income

Interest and other income was approximately $3.1 million for the year ended December 31, 2018
compared to approximately $1.0 million for the same period in 2017. Interest income for the years ended
December 31, 2018 and 2017 was primarily related to interest income on marketable securities, corporate
bonds and money market fund.

66

Income Tax (Expense) Benefit

Income tax expense for the year ended December 31, 2018 was approximately $1.1 million compared to
an income tax benefit for year ended December 31, 2017 of $9.1 million. The income tax expense in the
current year is primarily due to change in the Company’s realizability of its state and local effective tax rate.
The income tax benefit recognized in the prior year is primarily due to the Tax Cuts and Jobs Act of 2017
(the Tax Act) enacted on December 22, 2017, which reduced the U.S. federal corporate tax rate to 21%. The
changes effected by the Tax Act resulted in tax benefit of $9.1 million of which, $8.6 relates to the Tax Act.

Comparison of the Years Ended December 31, 2017 and December 31, 2016

Research and Development Expense

Research and development expense, excluding stock-based compensation expense, was approximately
$38.8 million for the year ended December 31, 2017, an increase of approximately $8.7 million from
approximately $30.1 million for the same period in 2016. The increase in research and development
expenses was primarily due to an increase of $3.2 million in research expenses for our HBV-cure program
and an increase of approximately $5.6 million for nonclinical development of our Microbiome program.

Stock-based compensation expense was approximately $5.4 million for the year ended December 31,
2017, an increase of approximately $2.4 million from approximately $3.0 million for the year ended
December 31, 2016.

General and Administrative Expense

General and administrative expense, excluding stock-based compensation expense, was approximately
$13.8 million for the year ended December 31, 2017, an increase of approximately $3.6 million from
approximately $10.2 million for the same period in 2016. The increase in general and administrative
expenses was primarily due to an increase of approximately $2.5 million of compensation and bonus
expenses, $0.4 million in professional expenses and $0.3 million in legal expenses.

Stock-based compensation expense was approximately $3.2 million for the year ended December 31,
2017, an increase of approximately $1.2 million from approximately $2.0 million for the year ended
December 31, 2016.

Interest and Other Income

Interest and other income was approximately $1.0 million for the year ended December 31, 2017
compared to approximately $1.5 million for the same period in 2016. Interest income for the years ended
December 31, 2017 and 2016 was primarily related to interest income on marketable securities, corporate
bonds and money market fund.

Income Tax Benefit

Income tax benefit for the year ended December 31, 2017 was approximately $9.1 million compared to
$0.6 million for year ended December 31, 2016. The income tax benefit increased from the prior year
primarily due to the Tax Act, which reduced the U.S. federal corporate tax rate to 21%. The changes
effected by the Tax Act resulted in tax benefit of $9.1 million of which, $8.6 relates to the Tax Act.

Liquidity and Capital Resources

As a result of our significant research and development expenditures and the lack of any
FDA-approved products to generate product sales revenue, we have not been profitable and have generated
operating losses since we were incorporated in October 2005. We have funded our operations through
December 31, 2018 principally with debt prior to our initial public offering, and thereafter with equity
financing, raising an aggregate of approximately $412.8 million in net proceeds from public offerings and
private placements from inception to December 31, 2018. Additionally, in February 2017, we received a
$50.0 million upfront payment in connection with the execution of the Collaboration Agreement.

67

On November 6, 2017, we sold to various investors an aggregate of 2,541,000 shares of common stock
in a public offering at $27.25 per share, which includes the exercise in full by the underwriters of their
option to purchase 331,500 additional shares of common stock, which occurred on November 2, 2017. We
received aggregate net proceeds of approximately $64.8 million from the offering and option exercise, after
deducting underwriting discounts and commissions and offering expenses.

On July 16, 2018, we sold to various investors an aggregate of 4,600,000 shares of common stock in a
public offering at $36.00 per share, which included the exercise in full by the underwriters of their option to
purchase 600,000 additional shares of common stock, which occurred on July 12, 2018. We received
aggregate net proceeds of approximately $155.4 million from the offering and the option exercise, after
deducting underwriting discounts and commissions and offering expenses payable.

Cash Flows for the Three Years Ended December 31, 2018, 2017 and 2016

($ in thousands)

Year Ended December 31,

2018

2017

2016

Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (64,958) $ 1,860

$(34,882)

Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(135,397)

(15,642)

36,196

Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

159,793

67,240

153

Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . .

$ (40,562) $ 53,458

$ 1,467

Net Cash (Used in) Provided by Operating Activities

Net cash used in operating activities was approximately $65.0 million for the year ended December 31,
2018. This was primarily due to approximately $90.8 million of net loss, a decrease of $4.2 million of
operating assets and liabilities and $0.2 million of amortization of discount on marketable securities, which
were offset by a $28.5 million non-cash expense recorded for stock-based compensation, $0.6 million of
depreciation and amortization expense and approximately $1.1 million of deferred income tax expenses.

Net cash provided by operating activities was approximately $1.9 million for the year ended
December 31, 2017 and funded our research and development program build out and general and
administrative expenses. Net cash provided by continuing operations for the year ended December 31, 2017
was primarily driven by approximately $8.6 million non-cash expenses recorded for the stock-based
compensation, an approximately $44.3 million increase in cash from changes in operating assets and
liabilities (primarily due to an increase in deferred revenue of $45.8 million related to the Collaboration
Agreement) and $0.6 million realized loss from marketable securities, and offset by an approximately
$42.8 million net loss and $9.1 million deferred income tax benefit.

Net cash used in operating activities was approximately $34.9 million for the year ended December 31,
2016 and funded our research and development program build out and general and administrative expenses.
Net cash used in continuing operations for the year ended December 31, 2016 was primarily driven by an
approximately $44.3 million net loss and $0.6 million deferred income tax benefit, and offset by
approximately $5.0 million non-cash expense recorded for the stock-based compensation, an approximately
$3.8 million increase in cash from changes in operating assets and liabilities and $1.1 million realized loss
from marketable securities.

Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities from continuing operations for the year ended December 31, 2018
was approximately $135.4 million primarily due to a purchase of approximately $183.9 million marketable
securities and $0.3 million of fixed assets and construction in progress, which were offset by approximately
$48.9 million for the redemption of marketable securities.

Net cash used in investing activities from continuing operations for the year ended December 31, 2017
was approximately $15.6 million primarily due to the purchase of approximately $48.2 million of
marketable securities and $0.9 million of fixed assets, and offset by a $33.5 million redemption of
marketable securities during the year.

68

Net cash provided by investing activities from continuing operations for the year ended December 31,
2016 was approximately $36.2 million primarily due to the purchase of approximately $8.0 million of
marketable securities and offset by a $44.3 million redemption of marketable securities during the year.

Net Cash Provided by Financing Activities

Net cash provided by financing activities from continuing operations for the year ended December 31,
2018 was approximately $159.8 million, resulting from the net proceeds of approximately $155.4 million
from our public offering of 4,600,000 shares of common stock, including 600,000 shares of common stock
purchased by the underwriters pursuant to their 30-day option to purchase additional shares, and
approximately $4.0 million from the exercise of stock options to purchase 775,224 shares of common stock
resulting in 735,030 shares issued due to utilization of net exercise provisions by one option holder.

Net cash provided by financing activities from continuing operations in the year ended December 31,
2017 was approximately $67.2 million, resulting from the net proceeds of approximately $64.8 million from
our public offering of 2,541,500 shares of common stock, including 331,500 shares of common stock
purchased by the underwriters pursuant to their 30-day option to purchase additional shares, and
approximately $2.4 million from the exercise of stock options to purchase 353,612 shares of common stock
resulting in 349,720 shares issued due to utilization of net exercise provisions by some option holders.

Net cash provided by financing activities from continuing operations in the year ended December 31,
2016 was approximately $153,000 resulting from the exercise of stock options to purchase 21,200 shares of
common stock.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we
continue the research, development and clinical studies of our product candidates and pursue our
intellectual property strategy. Furthermore, we expect to continue to incur additional costs associated with
operating as a public company. Accordingly, we will need to obtain substantial additional funding in
connection with our continuing operations. If we are unable to raise capital when needed or on attractive
terms, we would be forced to delay, reduce or eliminate our research and development programs or future
commercialization efforts.

We monitor our cash needs and the status of the capital markets on a continuous basis. From time to
time, we opportunistically raise capital and have done so numerous times since our initial public offering by
issuing equity securities, most recently in July 2018. We expect to continue to raise capital when and as
needed and at the time and in the manner most advantageous to us.

We expect that our existing cash, cash equivalents and marketable securities, will enable us to fund our
operating expenses and capital expenditure requirements for at least the next twelve months. Our future
capital requirements will depend on many factors, including:

•

•

•

•

•

•

the scope, progress, results and costs of our ongoing drug discovery, nonclinical development,
laboratory testing and clinical studies of our product candidates and any additional clinical studies
we may conduct in the future;

the extent to which we further acquire or in-license other product candidates and technologies;

our ability to manufacture, and to contract with third parties to manufacture, adequate supplies of
our product candidates for our clinical studies and any eventual commercialization;

the costs, timing and outcome of regulatory review of our product candidates;

the costs of preparing, filing and prosecuting patent applications in the United States and abroad,
intellectual property rights and defending intellectual
maintaining and enforcing our
property-related claims; and

our ability to establish and maintain collaborations on favorable terms, if at all.

69

Identifying potential product candidates and conducting nonclinical testing and clinical studies is a
time-consuming, expensive and uncertain process that takes years to complete, and we may never generate
the necessary data or results required to obtain marketing approval and achieve product sales. In addition,
our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any,
will be derived from sales of medicines that we do not expect to be commercially available for many years, if
at all. Accordingly, we will need to continue to rely on additional financings to achieve our business
objectives. Adequate additional financings may not be available to us on acceptable terms, or at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash
needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and
licensing arrangements. We do not have any committed external source of funds. To the extent that we raise
additional capital through the sale of equity or convertible debt securities, the ownership interest of our
stockholders will be diluted, and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of our common stockholders. Debt financing, if available, may involve
agreements that include covenants limiting or restricting our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends.

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

Recent Accounting Pronouncements

See Note 2 of notes to the consolidated financial statements for a discussion of recent accounting

standards and pronouncements.

Cautionary Statement

We operate in a highly competitive environment that involves a number of risks, some of which are
beyond our control. The following statement highlights some of these risks. For more detail, see “Item 1A.
Risk Factors.”

Statements contained in this Form 10-K that are not historical facts, are or might constitute
forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. Although we believe the expectations reflected in such forward-looking statements are based
on reasonable assumptions, our expectations might not be attained. Forward-looking statements involve
known and unknown risks that could cause actual results to differ materially from expected results. Factors
that could cause actual results to differ materially from our expectations expressed in the report include,
among others: risks related to the costs, timing, regulatory review and results of our nonclinical studies and
clinical studies; our ability to obtain FDA approval of our product candidates; our anticipated capital
expenditures, our estimates regarding our capital requirements, and our need for future capital; our liquidity
and working capital requirements; our expectations regarding our revenues, expenses and other results of
operations; the unpredictability of the size of the markets for, and market acceptance of, any of our
products; our ability to sell any approved products and the price we are able realize; our ability to establish
and maintain collaborations on favorable terms; our ability to obtain future funding on acceptable terms;
our ability to hire and retain necessary employees and to staff our operations appropriately; our ability to
compete in our industry and innovation by our competitors; our ability to stay abreast of and comply with
new or modified laws and regulations that currently apply or become applicable to our business; estimates
and estimate methodologies used in preparing our financial statements; the future trading prices of our
common stock and the impact of securities analysts’ reports on these prices; and the risks set out in our
filings with the SEC.

70

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the

general level of U.S. interest rates.

We do not believe that our cash and equivalents have significant risk of default or illiquidity. Under
our current investment policies, we invest our cash and cash equivalents in money market funds which
invest in short-term U.S. Treasury securities with insignificant rates of return. We also invest our cash and
cash equivalents in readily marketable, high-quality securities that are diversified and structured to
minimize market risks. Our exposure to market risk for changes in interest rates relates primarily to our
investments in marketable securities. Marketable securities held in our investment portfolio are subject to
changes in market value in response to changes in interest rates and liquidity. A significant change in
market interest rates could have a material impact on interest income earned from our investment portfolio.
Changes in interest rates may affect the fair value of our investment portfolio; however, we will not
recognize such gains or losses in our statement of operations and comprehensive income (loss) unless the
investments are sold.

While we believe our cash and equivalents do not contain excessive risk, we cannot provide absolute
assurance that in the future our investments will not be subject to adverse changes in market value. In
addition, we maintain significant amounts of cash and equivalents at one or more financial institutions that
are in excess of federally insured limits.

Inflation generally affects us by increasing our cost of labor and clinical study costs. We do not believe

that inflation has had a material effect on our results of operations during 2018, 2017 or 2016.

Item 8. Financial Statements and Supplementary Data

The financial statements required to be filed pursuant to this Item 8 are appended to this report. An

index of those financial statements is found on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated
under the Securities and Exchange Act of 1934, as amended (the Exchange Act), which is designed to
provide reasonable assurance that information, which is required to be disclosed in our reports filed
pursuant to the Exchange Act, is accumulated and communicated to management in a timely manner. At
the end of fiscal year ending December 31, 2018, we carried out an evaluation, under the supervision, and
with the participation of, our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures for the fiscal year ending as of
December 31, 2018 were effective at reasonable assurance levels.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over
financial reporting is designed to provide reasonable assurance to our management and Board of Directors
regarding the preparation and fair presentation of published financial statements. A control system, no
matter how well designed and operated, can only provide reasonable, not absolute, assurance that the
objectives of the control system are met. Because of these inherent limitations, management does not expect
that our internal controls over financial reporting will prevent all error and all fraud. Under the supervision
and with the participation of our management, including our Chief Executive Officer and our Chief

71

Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control-Integrated Framework issued in 2013 by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control-Integrated Framework, our management concluded that our internal control
over financial reporting was effective as of December 31, 2018.

Our independent registered public accounting firm, Ernst & Young LLP has issued an opinion on the
effectiveness of our internal control over financial reporting as of December 31, 2018. The report of Ernst
& Young LLP is included with the financial statements appended to this Form 10-K pursuant to Item 8.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting in the fourth quarter of 2018
that materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.

Item 9B. Other Information

Not applicable.

72

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Except as set forth below, the information required by this item will be contained in our definitive
proxy statement to be filed with the SEC in connection with the Annual Meeting of Stockholders (Proxy
Statement) within 120 days after the conclusion of our fiscal year ended December 31, 2018 and is
incorporated in this Annual Report on Form 10-K by reference.

Code of Ethics

Our Board has adopted a Code of Ethics for our principal executive officer and all senior financial
officers and a Code of Conduct applicable to all of our employees and our directors. Both Codes are
available under the “Investors — Corporate Governance” section of our website at www.assemblybio.com. If
we make any substantive amendments to, or grant any waivers from, the Code of Ethics for our principal
executive officer, principal financial officer, principal accounting officer, controller or persons performing
similar functions, or any officer or director, we will disclose the nature of such amendment or waiver on our
website or in a current report on Form 8-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16(a) of the Securities Exchange Act, our directors and executive officers are
required to file reports with the SEC indicating their holdings of and transactions in our equity securities.
To our knowledge, based solely on our review of the copies of such reports furnished to us and written
representations that our officers, directors and holders of more than 10% of our common stock complied
with all applicable filing requirements during the fiscal year ended December 31, 2018.

Item 11. Executive Compensation

The information required by this item will be contained in the Proxy Statement and is incorporated

into this Annual Report on Form 10-K by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

Except for the table regarding equity compensation plans, which is included in Part II Item 5 of this
Annual Report on Form 10-K, the information required by this item will be contained in the Proxy
Statement and is incorporated into this Annual Report on Form 10-K by reference.

Item 13. Certain Relationships and Related Party Transactions, and Director Independence

The information required by this item will be contained in the Proxy Statement and is incorporated

into this Annual Report on Form 10-K by reference.

Item 14. Principal Accounting Fees and Services

The information required by this item will be contained in the Proxy Statement and is incorporated

into this Annual Report on Form 10-K by reference.

73

Item 15. Exhibits, Financial Statement Schedules

(a) Exhibits. The following exhibits are filed as part of this registration statement:

Description of Document

Registrant’s
Form

Dated

Exhibit
No.

Filed
Herewith

Fourth Amended and Restated Certificate of
Incorporation dated May 31, 2018.

8-K

6/1/2018

dated

8-K

1/24/2018

3.1

3.1

Exhibit
Number

3.1

3.2

4.1

10.1

10.2*

10.3*

10.4*

10.5#

10.6#

10.7#

10.8#

10.9#

10.10#

Amended
January 24, 2018.

and Restated Bylaws

Specimen of Common Stock Certificate.

Sub-Sublease, dated as of July 18, 2018,
between Prothena Biosciences,
as
Sub-Sublandlord, and Assembly Biosciences,
Inc., as Sub-Subtenant.

Inc.,

License

Agreement

Exclusive
dated
September 3, 2013 by and between The
Indiana University Research and Technology
Corporation and Assembly Pharmaceuticals,
Inc.

License and Collaboration Agreement dated
November 8, 2013, by and between Ventrus
Biosciences, Inc. and Therabiome, LLC.

Research, Development, Collaboration and
License Agreement dated January 6, 2017
Inc. and
between Assembly Biosciences,
Allergan
International
Limited.

Pharmaceuticals

Employment Agreement, dated July 11, 2014,
between Ventrus Biosciences, Inc. and Derek
A. Small.

Amendment No.
Employment
1
Agreement, dated October 10, 2018, between
Assembly Biosciences, Inc. and Derek A.
Small.

to

Employment Agreement, dated March 8,
2018, between Assembly Biosciences, Inc. and
Graham Cooper.

Employment Agreement, dated December 17,
2015 and effective January 5, 2016, between
Inc. and Richard
Assembly Biosciences,
Colonno, Ph.D.

Amendment No.
Employment
1
Agreement, dated October 10, 2018, between
Inc. and Richard
Assembly Biosciences,
Colonno, Ph.D.

to

and

Restated

Amended
Employment
Agreement, dated October 10, 2018, by and
Inc. and
between Assembly Biosciences,
Uri A. Lopatin M.D.

74

S-3

10-Q

12/30/2015

11/8/2018

4.1

10.1

10-Q

11/17/2014

10.29

10-K

3/31/2014

10.22

10-Q

5/8/2017

10.1

8-K

07/14/2014

10.24

8-K

10/12/2018

10.1

10-Q

5/7/2018

10.1

10-Q

11/9/2016

10.1

8-K

10/12/2018

10.2

8-K

10/12/2018

10.3

Exhibit
Number

10.11#

10.12#

10.13#

10.14#

10.15#

10.16#

10.17#

10.18#

10.19#

10.20#

10.21#

10.22#

10.23#

10.24#

10.25#

10.26#

Description of Document

Registrant’s
Form

Dated

Exhibit
No.

Filed
Herewith

and

Restated

Amended
Employment
Agreement, dated October 10, 2018, between
Assembly Biosciences, Inc. and Jackie Papkoff,
Ph.D.

X

2010 Equity Incentive Plan

Assembly Biosciences,
Restated 2014 Stock Incentive Plan.

Inc. Amended and

Form of Notice of Stock Option Grant and
Stock Option Agreement under Amended and
Restated 2014 Stock Incentive Plan.

Form of Restricted Stock Unit Award Notice
and Restricted Stock Unit Award Agreement
under the Amended and Restated 2014 Stock
Incentive Plan.

Assembly Biosciences, Inc. 2017 Inducement
Award Plan (the 2017 Inducement Award
Plan).

Form of Notice of Stock Option Grant and
the 2017
Stock Option Agreement under
Inducement Award Plan.

Form of Restricted Stock Unit Award Notice
and Restricted Stock Unit Award Agreement
under the 2017 Inducement Award Plan.

S-1/A

8-K

10/4/2010

10.14

6/6/2016

10.1

S-8

9/17/2014

10.28

10-Q

11/01/2017

10.1

10-Q

08/09/2017

10.1

10-Q

08/09/2017

10.2

10-Q

08/09/2017

10.3

Assembly Biosciences,
Incentive Plan.

Inc.

2018

Stock

8-K

6/1/2018

10.1

8-K

6/1/2018

10.2

8-K

6/1/2018

10.3

8-K

10/12/2018

10.4

8-K

6/1/2018

10.4

8-K

12/12/2017

10.1

10-Q

8/8/2018

10.1

10-Q

8/8/2018

10.2

Form of Notice of Stock Option Grant and
Stock Option Agreement under
the 2018
Stock Incentive Plan.

Form of Restricted Stock Unit Award Notice
and Restricted Stock Unit Award Agreement
under the 2018 Stock Incentive Plan.

Form of Stock Appreciation Right Award
Agreement for Non-U.S. Grantees under the
Stock
Assembly Biosciences,
Incentive Plan.

2018

Inc.

Assembly Biosciences, Inc. 2018 Employee
Stock Purchase Plan.

Assembly Biosciences, Inc. 2018 Discretionary
Bonus Plan.

Separation Agreement, dated May 31, 2018,
Inc. and
between Assembly Biosciences,
David J. Barrett

Consulting Agreement, effective June 1, 2018,
between Assembly Biosciences,
Inc. and
David J. Barrett.

75

Exhibit
Number

Description of Document

10.27# Restricted Stock Unit Award Notice and
Restricted Stock Unit Award Agreement
between Assembly Biosciences,
Inc. and
David J. Barrett.

Registrant’s
Form

Dated

Exhibit
No.

Filed
Herewith

10-Q

8/8/2018

10.3

21.1

23.1

24.1

31.1

31.2

32.1

32.2

List of Subsidiaries of Assembly Biosciences,
Inc.

Consent of
Accounting Firm.

Independent Registered Public

Power of Attorney (included on signature
page)

Certification of the Chief Executive Officer
Pursuant
the
Section
to
Sarbanes-Oxley Act of 2002.

302

of

Certification of the Chief Financial Officer
the
Section
to
Pursuant
Sarbanes-Oxley Act of 2002.

302

of

Certification of the Chief Executive Officer
to 18 U.S.C. Section 1350 as
Pursuant
the
Adopted Pursuant
Sarbanes-Oxley Act of 2002.

to Section 906 of

Certification of the Chief Financial Officer
to 18 U.S.C. Section 1350 as
Pursuant
the
Adopted Pursuant
Sarbanes-Oxley Act of 2002.

to Section 906 of

X

X

X

X

X

X

X

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 Definitions

Linkbase Document.

101.LAB XBRL Taxonomy Extension Label Linkbase

Document.

101.PRE XBRL Taxonomy Extension Presentation

Linkbase Document.

*

Certain information in this exhibit has been omitted and filed separately with the Securities and
Exchange Commission pursuant to a confidential treatment request.

# Represents management contracts or compensatory plans or arrangements.

Item 16. Form 10-K Summary.

None

76

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the Registrant caused this

report to be signed on its behalf by the undersigned, thereunto duly authorized.

ASSEMBLY BIOSCIENCES, INC.

Date: February 28, 2019

By:

/s/ Derek A. Small
Name: Derek A. Small
Title:

President and Chief Executive Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Derek A. Small, Graham Cooper and Elizabeth H. Lacy, jointly and severally, his
or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign
any amendments to this report, and to file the same, with exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his or her substitute or substitutes may do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by

the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature

Title

Date

President, Chief Executive Officer and Director
(Principal Executive Officer)

February 28, 2019

Chief Financial Officer and Chief Operating
Officer (Principal Financial and Principal
Accounting Officer)

February 28, 2019

Chairman of the Board

February 28, 2019

/s/ Derek A. Small
Derek A. Small

/s/ Graham Cooper
Graham Cooper

/s/ William R. Ringo, Jr.
William R. Ringo, Jr.

/s/ Anthony E. Altig
Anthony E. Altig

/s/ Mark Auerbach
Mark Auerbach

Director

Director

/s/ Richard D. DiMarchi, Ph.D.
Richard D. DiMarchi, Ph.D.

Director

/s/ Myron Z. Holubiak
Myron Z. Holubiak

/s/ Helen S. Kim
Helen S. Kim

/s/ Alan J. Lewis, Ph.D.
Alan J. Lewis, Ph.D.

/s/ Susan Mahony, Ph.D.
Susan Mahony, Ph.D.

Director

Director

Director

Director

77

February 28, 2019

February 28, 2019

February 28, 2019

February 28, 2019

February 28, 2019

February 28, 2019

February 28, 2019

ASSEMBLY BIOSCIENCES, INC.
FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets as of December 31, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . .

Page

F-2

F-5

Consolidated Statements of Operations and Comprehensive Loss for the Years Ended

December 31, 2018, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-6

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended

December 31, 2018, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-7

Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-8

F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Assembly Biosciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Assembly Biosciences, Inc. and
subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of
operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2018, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the
results of its operations and its cash flows for each of the three years in the period ended December 31,
2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report
dated February 28, 2019 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of
accounting for revenue in 2018 due to the adoption of Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers (Topic 606), and the related amendments.

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 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. 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 / Ernst & Young LLP

We have served as the Company’s auditor since 2015.

Redwood City, California
February 28, 2019

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Assembly Biosciences, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Assembly Biosciences, Inc. and subsidiaries’ internal control over financial reporting
as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“the
COSO criteria”). In our opinion, Assembly Biosciences, Inc. and subsidiaries (“the Company”) maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2018, based on
the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31,
2018 and 2017, the related consolidated statements of operations and comprehensive loss, changes in
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, and
the related notes and our report dated February 28, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting included in
the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.

F-3

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Redwood City, California
February 28, 2019

F-4

ASSEMBLY BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
($ in thousands except for share amounts)

As of December 31,

2018

2017

ASSETS
Current assets

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable from collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 41,471
176,609
2,430
1,992
222,502

$ 82,033
37,914
2,274
898
123,119

Long-term assets

Marketable securities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite-lived intangible asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term assets
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
557
3,348
29,000
12,638
45,543
$ 268,045

3,347
860
340
29,000
12,638
46,185
$ 169,304

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue – short-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

3,693
9,679
5,100
18,472

$

2,124
6,139
5,229
13,492

Long-term liabilities

Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue – long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

108
3,252
35,560
38,920
57,392

—
2,136
40,556
42,692
56,184

Commitments and contingencies

Stockholders’ equity

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued

and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.001 par value; 100,000,000 and 50,000,000 shares authorized
as of December 31, 2018 and December 31, 2017; 25,495,425 and 20,137,974
shares issued and outstanding as of December 31, 2018 and December 31,
2017, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

25
552,762
(347)
(341,787)
210,653
$ 268,045

20
364,528
(392)
(251,036)
113,120
$ 169,304

See accompanying notes to the consolidated financial statements
F-5

ASSEMBLY BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($ in thousands except for share and per share amounts)

Year Ended December 31,

2018

2017

2016

Collaboration revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

14,804

$

9,019

$

—

Operating expenses:

Research and development . . . . . . . . . . . . . . . . . . . . . . . .

General and administrative . . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other income (expenses)

Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . .

Loss on sale of marketable securities . . . . . . . . . . . . . . . . .

Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expenses) benefit . . . . . . . . . . . . . . . . . . . . . . . .

72,741

34,798

107,539

(92,735)

3,083

—

3,083

(89,652)
(1,099)

44,225

17,021

61,246

33,093

12,185

45,278

(52,227)

(45,278)

983

(615)

368

(51,859)
9,050

1,539

(1,140)

399

(44,879)
618

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(90,751) $

(42,809) $

(44,261)

Other comprehensive (loss) income

Unrealized gain (loss) on marketable securities, net of tax . .

45

209

221

Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net loss per share, basic and diluted . . . . . . . . . . . . . . . . . . .

$

$

(90,706) $

(42,600) $

(44,040)

(3.98) $

(2.41) $

(2.57)

Weighted average common shares outstanding, basic and

diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,801,644

17,750,380

17,226,245

See accompanying notes to the consolidated financial statements
F-6

ASSEMBLY BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in thousands)

Common Stock

Shares

Amount

Additional
Paid-in
Capital

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total
Stockholders’
Equity

Balance as of December 31, 2015 . . . . . . . 17,225,662

$17

$283,512

$(822)

$(163,966)

$118,741

Exercise of stock options . . . . . . . . . . . .

21,200 —

Change in unrealized loss on marketable

securities, net of tax . . . . . . . . . . . . .

— —

Cancellation of common stock . . . . . . . .

(108) —

Stock-based compensation . . . . . . . . . . .

Net loss . . . . . . . . . . . . . . . . . . . . . . .

— —

— —

153

—

—

5,024

—

—

221

—

—

—

—

—

—

—

153

221

—

5,024

(44,261)

(44,261)

Balance as of December 31, 2016 . . . . . . . 17,246,754

$17

$288,689

$(601)

$(208,227)

$ 79,878

Proceeds from common stock sold, net of

underwriters’ discounts and cost

. . . . .

2,541,500

3

64,845

Proceeds from the exercise of stock

options . . . . . . . . . . . . . . . . . . . . .

349,720 —

2,393

Change in unrealized loss on marketable

securities, net of tax . . . . . . . . . . . . .

Stock-based compensation . . . . . . . . . . .

Net loss . . . . . . . . . . . . . . . . . . . . . . .

— —

— —

— —

—

8,601

—

—

—

209

—

—

—

—

—

—

64,848

2,393

209

8,601

(42,809)

(42,809)

Balance as of December 31, 2017 . . . . . . . 20,137,974

$20

$364,528

$(392)

$(251,036)

$113,120

Proceeds from common stock sold, net of

underwriters’ discounts and cost

. . . . .

4,600,000

Proceeds from the exercise of stock

options . . . . . . . . . . . . . . . . . . . . .

735,030

4

1

155,421

3,959

Issuance of common stock under Employee
Stock Purchase Plan (ESPP) . . . . . . . .

Settlement of restricted stock units into

common stock . . . . . . . . . . . . . . . . .

Change in unrealized loss on marketable

securities, net of tax . . . . . . . . . . . . .

Stock-based compensation . . . . . . . . . . .

Net loss . . . . . . . . . . . . . . . . . . . . . . .

21,483 —

408

938 —

— —

— —

— —

—

—

28,446

—

—

—

—

—

45

—

—

—

—

—

—

—

—

(90,751)

155,425

3,960

408

—

45

28,446

(90,751)

Balance as of December 31, 2018 . . . . . . . 25,495,425

$25

$552,762

$(347)

$(341,787)

$210,653

See accompanying notes to the consolidated financial statements
F-7

ASSEMBLY BIOSCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)

Cash flows from operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (90,751) $(42,809) $(44,261)

Year Ended December 31,

2018

2017

2016

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of discount on marketable securities, net . . . . . . . . . . .
Realized loss from marketable securities . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expenses (benefit) . . . . . . . . . . . . . . . . . . . . . .

Changes in operating assets and liabilities:

Accounts receivable from collaboration . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .

Net cash (used in) provided by operating activities

Cash flows from investing activities

643
28,485
(229)
—
1,099

(156)
(1,094)
(3,008)
1,569
3,501
(5,125)
108
(64,958)

219
8,601
—
615
(9,050)

(2,273)
(286)
(84)
(244)
1,386
45,785
—
1,860

80
5,024
—
1,140
(618)

—
93
(58)
1,004
2,714
—
—
(34,882)

Purchases of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions of marketable securities . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . .

(340)
(183,941)
48,884
(135,397)

(865)
(48,234)
33,457
(15,642)

(147)
(7,951)
44,294
36,196

Cash flows from financing activities

Proceeds from common stock sold, net of underwriters’ discounts and
cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock under ESPP . . . . . . . . . . .
Proceeds from the exercise of stock options . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . .
Cash and cash equivalents at the beginning of the period . . . . . . . . . . .
Cash and cash equivalents at the end of the period . . . . . . . . . . . . . . . . .

155,425
408
3,960
159,793
(40,562)
82,033
$ 41,471

64,847
—
2,393
67,240
53,458
28,575
$ 82,033

—
—
153
153
1,467
27,108
$ 28,575

See accompanying notes to the consolidated financial statements
F-8

ASSEMBLY BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1 — Nature of Business

Overview

Assembly Biosciences, Inc., together with its subsidiaries (Assembly or the Company), incorporated in
Delaware in October 2005, is a clinical-stage biotechnology company advancing two innovative platform
programs: a new class of oral therapeutic candidates for the treatment of hepatitis B virus (HBV) infection
and a novel class of oral synthetic live biotherapeutic candidates, which are designed to treat disorders
associated with the microbiome. The Company operates in one segment and is headquartered in Carmel,
Indiana with operations in South San Francisco, California and Groton, Connecticut.

The Company’s HBV-cure program is pursuing multiple drug candidates that inhibit the HBV lifecycle
and block the generation of covalently closed circular DNA (cccDNA), with the aim of increasing the
current low cure rates for patients with HBV. Assembly has discovered multiple novel core inhibitors, which
are small molecules that directly target and allosterically modify the HBV core (HBc) protein.

The Company’s Microbiome program consists of a fully integrated platform that

includes a
disease-targeted strain isolation, identification, characterization and selection process, methods for strain
purification and growth under current Good Manufacturing Practice (cGMP) conditions, and a licensed
patented delivery system that the Company calls GEMICEL®, which is designed to allow for targeted oral
delivery of live biologic and conventional therapies to the lower gastrointestinal (GI) tract. Using the
Company’s microbiome platform capabilities, the Company is exploring additional product candidates for
other disease indications, including Crohn’s disease, irritable bowel syndrome, non-alcoholic steatohepatitis
(NASH) and immuno-oncology, which indications the Company will pursue with Allergan Pharmaceuticals
International Limited (Allergan) described herein to the extent covered by the Research, Development,
Collaboration, and License Agreement (the Collaboration Agreement) or pursue either internally or in
collaboration with other partners to the extent outside the scope of the Collaboration Agreement (Note 8).

Liquidity

The Company has not derived any revenue from product sales to date and currently has no approved
products. Once a product has been developed, it will need to be approved for sale by the U.S. Food and
Drug Administration (FDA) or an applicable foreign regulatory agency. Since inception, the Company’s
operations have been financed primarily through the sale of equity securities, the proceeds from the exercise
of warrants and stock options, the issuance of debt and an upfront payment related to the Collaboration
Agreement. The Company has incurred losses from operations since inception and expects to continue to
incur substantial
losses for the next several years as it continues its product development efforts.
Management believes the Company currently has sufficient funds to meet its operating requirements for at
least the next twelve months following the date that these consolidated financial statements are issued. If
the Company cannot generate significant cash from its operations, it intends to obtain any additional
funding it requires through strategic relationships, public or private equity or debt financings, grants or
other arrangements (see Note 7 for recent sales of common stock). The Company cannot assure such
funding will be available on reasonable terms, if at all.

If the Company is unable to generate enough revenue from the Collaboration Agreement when needed
or to secure additional sources of funding and receive related full and timely collections of amounts due, it
may be necessary to significantly reduce the current rate of spending through reductions in staff and
delaying, scaling back, or stopping certain research and development programs, including more costly
clinical studies.

Note 2 — Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Basis of Presentation

These consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (U.S. GAAP) and include the accounts of the Company and its
wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in
consolidation.

F-9

Use of Estimates

The preparation of consolidated financial statements in conformity with the accounting principles
generally accepted in the United States of America (U.S. GAAP) requires management to make estimates
and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.

Significant estimates inherent

the accompanying consolidated financial
statements include recoverability and useful lives (indefinite or finite) of intangible assets, assessment of
impairment of goodwill, provisions for income taxes, amounts receivable under the collaboration
agreement, and the fair value of stock options, stock appreciation rights, and restricted stock units (RSUs)
granted to employees, directors, and consultants.

in the preparation of

The Company’s estimates could be affected by external conditions, including those unique to the
Company and general economic conditions. It is reasonably possible that these external factors could have
an effect on the Company’s estimates and could cause actual results to differ from those estimates and
assumptions.

Cash and cash equivalents

All highly liquid investments with maturities of three months or less at the time of purchase are
considered to be cash equivalents. All of the Company’s cash equivalents have liquid markets and high
credit ratings. The Company maintains its cash in bank deposits and other accounts, the balances of which,
at times and at December 31, 2018 and 2017, exceed federally insured limits.

Investments in Marketable Securities

The Company has designated marketable securities as of December 31, 2018 and 2017 as
available-for-sale securities and measures these securities at their respective fair values. Marketable securities
are classified as short-term or long-term based on the maturity date and their availability to meet current
operating requirements. Marketable securities that mature in one year or less are classified as short-term
available-for-sale securities and are reported as a component of current assets.

Securities that are classified as available-for-sale are measured at fair value with temporary unrealized
gains and losses reported in other comprehensive loss, and as a component of stockholders’ equity until
their disposition. The Company reviews all available-for-sale securities at each period end to determine if
they remain available-for-sale based on their current intent and ability to sell the security if it is required to
do so. Declines in value judged to be other-than-temporary are included in interest income or expense in the
Company’s statements of operations and comprehensive loss. Realized gains and losses from the sale of
marketable securities, if any, are calculated using the specific-identification method.

Marketable securities are subject to a periodic impairment review. The Company may recognize an
impairment charge when a decline in the fair value of investments below the cost basis is determined to be
other-than-temporary. In determining whether a decline in market value is other-than-temporary, various
factors are considered, including the cause, duration of time and severity of the impairment, any adverse
changes in the investees’ financial condition, and the Company’s intent and ability to hold the security for a
period of time sufficient to allow for an anticipated recovery in market value. There were no marketable
securities deemed to be impaired as of December 31, 2018 or 2017.

Goodwill and Indefinite-Lived Other Intangible Assets

Goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually in the
fourth quarter, and more frequently if events or other changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Impairment of goodwill and indefinite-lived intangibles is
determined to exist when the fair value is less than the carrying value of the net assets being tested.

Goodwill

The difference between the purchase price and the fair value of assets acquired and liabilities assumed
in a business combination is allocated to goodwill. Goodwill is evaluated for impairment on an annual basis
as of October 1, and more frequently if indicators are present or changes in circumstances suggest that
impairment may exist.

F-10

As of October 1, 2018, the Company has determined through its quantitative impairment test that the
fair value of its goodwill significantly exceeded the carrying value of its single reporting unit, and concluded
that goodwill was not impaired. The Company has not recognized any goodwill impairment in any of the
periods presented.

Indefinite-Lived Intangible Asset

The Company’s indefinite-lived intangible asset consists of IPR&D acquired in a business combination
that are used in research and development activities but have not yet reached technological feasibility,
regardless of whether they have alternative future use. The primary basis for determining the technological
feasibility or completion of these projects is obtaining regulatory approval to market the underlying
products in an applicable geographic region. The Company classifies IPR&D acquired in a business
combination as an indefinite-lived intangible asset until the completion or abandonment of the associated
research and development efforts. Upon completion of the associated research and development efforts, the
Company performed a final test for impairment and will determine the useful life of the technology and
begin amortizing the assets to reflect their use over their remaining lives. Upon permanent abandonment,
the Company would write-off the remaining carrying amount of the associated IPR&D intangible asset.

In performing each annual

impairment assessment and any interim impairment assessment, the
Company determines if it should qualitatively assess whether it is more likely than not that the fair value of
its IPR&D asset is less than its carrying amount (the qualitative impairment test). If the Company
concludes that is the case, or elect not to use qualitative impairment test, the Company would proceed with
quantitatively determining the fair value of the IPR&D asset and comparing its fair value to its carrying
value to determine the amount of impairment, if any (the quantitative impairment test).

When performing the quantitative impairment assessment, the Company uses the income approach to
determine the fair value of its IPR&D asset. This approach calculates fair value by estimating the after-tax
cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash
flows back to a present value. This estimate includes significant assumptions regarding the estimates that
market participants would make in evaluating the IPR&D asset, including the probability of successfully
completing clinical trials and obtaining regulatory approval to market the IPR&D asset, the timing of and
the expected costs to complete IPR&D projects, future net cash flows from potential drug sales, which are
based on estimates of the sales price of the drug, the size of the patient population and cure rate, our
competitive position in the marketplace, and appropriate discount and tax rates. Any impairment to be
recorded is calculated as the difference between the fair value of the IPR&D asset as of the date of the
assessment with the carrying value of the IPR&D asset on its consolidated balance sheet.

In performing the qualitative impairment test, the Company considers the results of the most recent
quantitative impairment test and identifies the most relevant drivers of the fair value for the IPR&D asset.
The most relevant drivers of
fair value identified are consistent with the assumptions used in the
quantitative estimate of the IPR&D asset discussed below. Using these drivers of fair value, the Company
identifies events and circumstances that may have an effect on the fair value of the IPR&D asset since the
last time the IPR&D’s fair value was quantitatively determined. The Company then weighs these factors to
determine and conclude if it is not more likely than not that the IPR&D asset is impaired. If it is more
likely than not that the IPR&D asset is impaired, the Company proceeds with quantitatively determining
the fair value of the IPR&D asset.

For 2018, the Company elected to bypass the quantitative assessment and performed a qualitative
impairment on October 1 and concluded that it is more likely than not that the fair value of its IPR&D
asset exceeded its carrying value and no further testing was required. The Company did not recognize any
IPR&D impairment in any of the periods presented.

Leases

The Company leases office space facilities under non-cancelable operating lease agreements and
recognizes related rent expense on a straight-line basis over the term of the lease. Landlord allowances and
incentives received, including allowances for leasehold improvements and rent holidays, are recognized as
reductions to rent expense on a straight-line basis over the term of the lease. The Company does not assume

F-11

renewals in its determination of the lease term unless they are deemed to be reasonably assured at the
inception of the lease. The Company begins recognizing rent expense on the date it obtains the legal right to
use and control the leased space. Deferred rent consists of the difference between cash payments and the
rent expense recognized.

Impairment of Long-lived Assets

The Company monitors the carrying value of long-lived assets for potential impairment and tests the
recoverability of such assets whenever events or changes in circumstances indicate that the carrying
amounts may not be recoverable. If a change in circumstance occurs, the Company performs a test of
recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected
future cash flows. If cash flows cannot be separately and independently identified for a single asset, the
Company will determine whether impairment has occurred for the group of assets for which the Company
can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future
cash flows, the Company measures any impairment by comparing the fair value of the asset or asset group
to its carrying value. There were no indicators of impairment of long-lived assets during the years ended
December 31, 2018 and 2017.

Property and Equipment, Net

Property and equipment are stated at cost and consist of lab equipment and computer hardware and
software. The Company computes depreciation under the straight-line method over the estimated useful
lives of its property and equipment ranging from three to seven years.

Leasehold improvements are amortized over the remaining terms of the respective leases or the
estimated useful life of the leasehold improvements, whichever is less. Maintenance and repair costs are
expensed as incurred.

Fair Value Measurements

The Company follows accounting guidance on fair value measurements for financial instruments
measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their
estimated fair values. Fair value is defined as the exit price, or the amount that would be received from
selling an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The Company uses the following three-level hierarchy that maximizes the use of
observable inputs and minimizes the use of unobservable inputs to value its financial instruments:

Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical
instruments.

Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the
marketplace.

Level 3: Significant unobservable inputs which are supported by little or no market activity and that
are financial instruments whose values are determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the determination of fair value
requires significant judgment or estimation.

Financial instruments measured at fair value are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement. The assessment of the significance of a particular
input to the fair value measurement in its entirety requires us to make judgments and consider factors
specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have
a material effect on estimated fair values. Accordingly, the fair value estimates disclosed or initial amounts
recorded may not be indicative of the amount that the Company or holders of the instruments could realize
in a current market exchange.

The carrying amounts of cash equivalents and marketable securities approximate their fair value based
upon quoted market prices. Certain of the Company’s financial instruments are not measured at fair value
on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or
short-term nature, such as cash, accounts receivable, accounts payable and accrued expenses.

F-12

The following tables present the fair value of the Company’s financial assets measured at fair value on

a recurring basis using the above input categories (in thousands):

As of December 31, 2018

Level 1

Level 2

Level 3

Fair Value

Cash equivalents:

Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$39,345

$

— $— $ 39,345

U.S. and foreign commercial paper . . . . . . . . . . . . . . . . . . . .

—

—

—

Total cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39,345

Short-term investments:

U.S. and foreign commercial paper . . . . . . . . . . . . . . . . . . . .

U.S. and foreign corporate debt securities . . . . . . . . . . . . . . .

Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

—

—

55,136

73,159

28,419

19,895

Total short-term investments . . . . . . . . . . . . . . . . . . . . . . . .

— 176,609

—

—

—

—

—

39,345

55,136

73,159

28,419

19,895

176,609

Total assets measured at fair value . . . . . . . . . . . . . . . . . . . . . .

$39,345

$176,609

$— $215,954

As of December 31, 2017

Level 1

Level 2

Level 3

Fair Value

Cash equivalents:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds
U.S. commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,663

$ — $— $ 1,663

Total cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,663

—

—

1,663

Short-term investments:

U.S. and foreign corporate debt securities . . . . . . . . . . . . . . . . .

— 37,914

Total short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . .

— 37,914

Long-term investments:

U.S. and foreign corporate debt securities . . . . . . . . . . . . . . . . .

Total long-term investments

. . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets measured at fair value . . . . . . . . . . . . . . . . . . . . . . . .

—

—
1,663

3,347

3,347
41,261

—

—

—

—
—

37,914

37,914

3,347

3,347
42,924

The Company estimates the fair value of its corporate debt, asset backed securities, and U.S. treasury
securities by taking into consideration valuations obtained from third-party pricing services. The pricing
services utilize industry standard valuation models, including both income and market-based approaches,
for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These
inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit
spreads; benchmark securities; prepayment/default projections based on historical data; and other
observable inputs.

There were no transfers between Level 1, Level 2 or Level 3 during the periods presented.

Revenue Recognition and Accounts Receivable

At the inception of an arrangement, we evaluate if a counterparty to a contract is a customer, if the
arrangement is within the scope of revenue from contracts with customers guidance, and the term of the
contract. We recognize revenue when the customer obtains control of promised goods or services in a
contract for an amount that reflects the consideration we expect to receive in exchange for those goods or
services. For contracts with customers, we apply the following five-step model in order to determine this
amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether

F-13

the promised goods or services are performance obligations, including whether they are distinct in the
context of the contract; (iii) measurement of the transaction price, including the constraint on variable
consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of
revenue when (or as) we satisfy each performance obligation. Our performance obligations under these
arrangements may include licenses of
intellectual
property, research and development services, delivery of manufactured product, and/or participation on
joint steering committees. Allergan can select additional and/or back-up target indications to add to the
licenses granted and also has the ability to enter into a contract manufacturing agreement with us for
compound supply, and we have concluded that these rights are options. We evaluated whether such options
contained material rights and concluded they were not offered at a discount that exceeds discounts available
to other customers, and therefore were not material rights. The grant of additional licensing rights upon
option exercises and contract manufacturing agreements will be accounted for as separate contracts when
they occur.

intellectual property, options to license additional

We have provided standard indemnification and protection of licensed intellectual property for our
customer. These provisions are part of assurance that the licenses meet the agreements, representations and
are not obligations to provide goods or services.

We only apply the five-step model to contracts when it is probable that we will collect the consideration
we are entitled to in exchange for the goods or services we transfer to the customer. As part of the
accounting for contracts with customers, we must develop assumptions that require judgment to determine
the standalone selling price of each performance obligation identified in the contract. We then allocate the
total transaction price to each performance obligation based on the estimated standalone selling prices of
each performance obligation. For the Allergan agreement, we estimated standalone selling prices of our
performance obligations using income-based valuation approach for the estimated value a licensor of the
compounds would receive. We recognize as revenue the amount of the transaction price that is allocated to
the respective performance obligation when the performance obligation is satisfied or as it is satisfied. For
our contract with Allergan, we recognize revenues for each of our distinct performance obligations as the
related research and development services are performed because Allergan consumes the benefit of research
and development work simultaneously as we perform these services.

Upfront License Fees:

If a license to our intellectual property is determined to be distinct from the
other performance obligations identified in the arrangement, we recognize revenues from nonrefundable,
upfront license fees based on the relative value prescribed to the license compared to the total value of the
arrangement. The revenue is recognized when the license is transferred to the collaborator and the
collaborator is able to use and benefit from the license. For licenses that are not distinct from other
obligations identified in the arrangement, we utilize judgment to assess the nature of the combined
performance obligation to determine whether the combined performance obligation is satisfied over time or
at a point in time. If the combined performance obligation is satisfied over time, we apply an appropriate
method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license
fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of
performance and related revenue recognition.

Development and Regulatory Milestone Payments: Depending on facts and circumstances, we may
record revenues from certain milestones in a reporting period before the milestone is achieved if we
conclude that achievement of the milestone is probable and that recognition of revenue related to the
milestone will not result in a significant reversal in amounts recognized in future periods. We record a
corresponding contract asset when this conclusion is reached. Milestone payments that have not been
included in the transaction price to date are fully constrained. We re-evaluate the probability of
achievement of such milestones and any related constraint each reporting period. We adjust our estimate of
the overall transaction price, including the amount of collaborative revenue that was recorded, if necessary.

Research and Development Service Payments: We are reimbursed at a certain percentage for
performing research and development services based on hours worked by our employees, at a fixed
contractual rate per hour, and third-party pass-through costs we incur on a quarterly basis. Research and
development service payments are included in the transaction price in the reporting period that we conclude
that it is probable that recording revenue in the period will not result in a significant reversal in amounts

F-14

recognized in future periods. Accounts receivable are recorded when the right to the research and
development service payment consideration becomes unconditional. We record the full reimbursed portion
of these expenses as collaboration revenue in our consolidated statements of operations as we consider
performing research and development services to be a part of our ongoing and central operations.

Sales-based Milestone and Royalty Payments: Our customers may be required to pay us sales-based
milestone payments or royalties on future sales of commercial products. We recognize revenues related to
sales-based milestone and royalty payments upon the later to occur of (i) achievement of the collaborator’s
underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case
assuming our licensed intellectual property is deemed to be the predominant item to which the sales-based
milestones and/or royalties relate.

We receive payments from our customers based on billing schedules established in each contract.
Upfront payments and fees are recorded as deferred revenue upon receipt or when due until we perform our
obligations under these arrangements. If the related performance obligation is expected to be satisfied
within the next twelve months, these amounts will be classified in current liabilities. We recognize a contract
asset relating to our conditional right to consideration that is not subject to a constraint. Amounts are
recorded as accounts receivable when our right to consideration is unconditional. At December 31, 2018
and 2017, the accounts receivable recorded on the consolidated balance sheet relates to the Collaboration
Agreement. All accounts receivables are deemed collectible. A net contract asset or liability is presented for
each contract with a customer. We do not assess whether a contract has a significant financing component
if the expectation at contract inception is such that the period between payment by the customer and the
transfer of the promised goods or services to the customer will be one year or less.

Stock-Based Compensation

The Company measures stock-based compensation to employees, consultants, and Board members at
fair value on the grant date of the award. The fair value of restricted stock units (RSUs) is determined
based on the number of shares granted and the quoted market price of the Company’s common stock on
the date of grant. Compensation cost is recognized as expense on a straight-line basis over the requisite
service period of the award. Stock-based awards with graded vesting schedules are recognized on a
straight-line basis over the requisite service period for each separately vesting tranche of the award. For
awards that have a performance condition, compensation cost is measured based on the fair value on the
grant date (the date performance targets are established) and is expensed over the requisite service period
for each separately vesting tranche when achievement of the performance objective becomes probable. We
assess the probability of the performance conditions being met on a continuous basis. Forfeitures are
recognized when incurred.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing
model and the assumptions used in estimating the fair value of stock-based awards, such as expected term,
dividends, volatility and risk-free interest rate, represent management’s best estimates and involve inherent
uncertainties and the application of management’s judgment. The Company is also required to make
estimates as to the probability of achieving the specific performance conditions. If actual results are not
consistent with the Company’s assumptions and judgments used in making these estimates, the Company
may be required to increase or decrease compensation expense, which could be material to the Company’s
consolidated results of operations.

We account for stock-based compensation arrangements with non-employees, which primarily consist
of consultants, using a fair value approach. The fair value of these options is measured using the
Black-Scholes Model reflecting the same assumptions as applied to employee options in each of the
reported periods, other than the expected life, which is assumed to be the remaining contractual life of the
option. The compensation costs of these arrangements are subject to remeasurement over the vesting terms
as earned.

Research and Development Expense and Accruals

Research and development costs are expensed as incurred unless there is an alternative future use in
other
include salaries and
personnel-related costs, consulting fees, fees paid for contract research services, fees paid to clinical research

research and development projects. Research and development costs

F-15

organizations, contract manufacturing organizations, license fees prior to FDA approval and other third
parties associated with clinical studies, the costs of laboratory equipment and facilities, and other external
costs. Payments made prior to the receipt of goods or services to be used in research and development are
capitalized until the goods or services are received. Such payments are evaluated for current or long-term
classification based on when they will be realized.

The Company records expenses related to clinical studies and manufacturing development activities
based on its estimates of the services received and efforts expended pursuant to contracts with multiple
contract research organizations (CROs) and manufacturing vendors that conduct and manage these
activities on its 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 the Company’s vendors will exceed the level of services provided and result in a prepayment of the
expense. Payments under some of these contracts depend on factors such as the successful enrollment of
subjects and the completion of clinical study milestones. In amortizing or accruing service fees, the
Company estimates the time period over which services will be performed, enrollment of subjects, number
of sites activated 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 Company’s estimate, the Company will adjust
the accrued or prepaid expense balance accordingly. To date, there have been no material differences from
the Company’s estimates to the amounts actually incurred.

Costs related to our collaboration agreement are included in the research and development expense.

For asset purchases outside of business combinations, the Company expenses any purchased research

and development assets as of the acquisition date if they have no alternative future uses.

Tax Assets and Liabilities and Income Taxes

The Company records income taxes using the asset and liability method. Deferred income tax assets
and liabilities are recognized for the future tax effects attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and their respective income tax bases,
and operating loss and tax credit carryforwards. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the enactment date. The Company
establishes a valuation allowance if it is more likely than not that the deferred tax assets will not be realized
based on an evaluation of objective verifiable evidence. For tax positions that are more likely than not of
being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than
50% likely of being realized. For tax positions that are not more likely than not of being sustained upon
audit, the Company does not recognize any portion of the benefit.

The Company recognizes and measures uncertain tax positions using a two-step approach set forth in
authoritative guidance. The first step is to evaluate the tax position taken or expected to be taken by
determining whether the weight of available evidence indicates that it is more likely than not that the tax
position will be sustained in an audit, including resolution of any related appeals or litigation processes. The
second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized
upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The
Company evaluates uncertain tax positions on a regular basis. The evaluations are based on a number of
factors,
including changes in facts and circumstances, changes in tax law, correspondence with tax
authorities during the course of the audit, and effective settlement of audit issues. The provision for income
taxes includes the effects of any accruals that the Company believes are appropriate. It is the Company’s
policy to recognize interest and penalties related to income tax matters in income tax expense. Through
December 31, 2018, the Company had not accrued interest or penalties related to uncertain tax positions.

On December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting
Bulletin No. 118 (SAB 118) to address the accounting implications of U.S. federal tax reform enacted on
December 22, 2017. SAB 118 allows a company to record provisional amounts during a measurement
period not to extend beyond one year from the enactment date (see Note 10).

Net Loss per Share of Common Stock

Basic net loss per common share excludes dilution and is computed by dividing net loss by the
weighted average number of common shares outstanding during the period. Diluted net loss per common

F-16

share reflects the potential dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. Since the
Company has only incurred losses, basic and diluted net loss per share is the same. Securities that could
potentially dilute loss per share in the future that were not included in the computation of diluted loss per
share as follows:

Year Ended December 31,

2018

2017

2016

Warrants to purchase common stock . . . . . . . . . . . . . . . . . . . . . . .

15,296

15,296

16,909

Options to purchase common stock . . . . . . . . . . . . . . . . . . . . . . . .

4,637,145

4,551,819

4,457,251

ESPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21,483

—

RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

568,005

120,000

—

—

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,241,929

4,687,115

4,474,160

Comprehensive Loss

Comprehensive loss is comprised of net loss and adjustments for the change in unrealized gains and
losses on investments in available-for-sale marketable securities. The Company displays comprehensive loss
and its components in the consolidated statements of operations and comprehensive loss, net of tax effects
if any.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to credit risk consist primarily of cash,
cash equivalents and marketable securities. The Company holds these investments in highly rated financial
institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. These
amounts at times may exceed federally insured limits. The Company has not experienced any credit losses in
such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company
has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option
contracts or other hedging arrangements.

Adoption of Recent Accounting Pronouncements

On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers,
as amended (Accounting Standards Codification Topic 606) (ASC 606) using the modified retrospective
method applied to those contracts which were not completed as of January 1, 2018. The Company also
elected to use the practical expedient that allows an entity to expense the incremental cost of obtaining a
contract as an expense when incurred if the amortization period of the asset that an entity otherwise would
have recognized is less than one year. Results for the year ended December 31, 2018 are presented under
ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with
historic accounting under previous revenue recognition guidance. As of the adoption date of ASC 606, we
had only one contract with a customer, Allergan, that had not been completed. Based on our analysis, we
concluded there was no significant change in applying ASC 606 to the Collaboration Agreement and no
amounts have been recognized within “accumulated deficit” in the consolidated balance sheet related to the
adoption of the new standard.

In January 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-01, Recognition
and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). ASU 2016-01 requires equity
investments to be measured at fair value with changes in fair value recognized in net income; simplifies the
impairment assessment of equity investments without readily determinable fair values by requiring a
qualitative assessment to identify impairment; eliminates the requirement for public business entities to
disclose the method(s) and significant assumptions used to estimate the fair value that is required to be
disclosed for financial instruments measured at amortized cost on the balance sheet; requires public
business entities to use the exit price notion when measuring the fair value of financial instruments for
disclosure purposes; requires an entity to present separately in other comprehensive income the portion of

F-17

instruments; requires separate presentation of

the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk
when the entity has elected to measure the liability at fair value in accordance with the fair value option for
financial
liabilities by
measurement category and form of financial assets on the balance sheet or the accompanying notes to the
financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a
deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax
assets. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15,
2017 and interim periods within those fiscal years. On January 1, 2018, the Company implemented ASU
2016-01 without any impact on the Company’s consolidated financial statements and related disclosures.

financial assets and financial

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows — Classification of Certain
Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of
reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and
classified in the statement of cash flows. On January 1, 2018, the Company implemented ASU 2016-15
impact on the Company’s consolidated statement of cash flows and related
without any material
disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope
of Modification Accounting (ASU 2017-09). ASU 2017-09 provides clarity and reduces both (1) diversity in
practice and (2) cost and complexity when applying the guidance in Topic 718, to a change to the terms or
conditions of a share-based payment award. The amendments in ASU 2017-09 should be applied
prospectively to an award modified on or after the adoption date. On January 1, 2018, the Company
implemented ASU 2017-09 without any material
impact on the Company’s consolidated financial
statements and related disclosures.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update
and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping,
outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis
of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in
each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate
statement. The analysis should present a reconciliation of the beginning balance to the ending balance of
each period for which a statement of comprehensive income is required to be filed. This final rule became
effective on November 5, 2018. The Company implemented the final rule under SEC Release No. 33-10532
as of December 31, 2018. The Company had evaluated the impact of the amendments and determined the
effect of the adoption of the simplification rules on financial statements will be limited to the modification
and removal of certain disclosures.

Accounting Pronouncements to Be Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes FASB Topic
840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and
disclosure of leases for both 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,
respectively. 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 classification. Leases with a term of 12 months or less will be
accounted for similar to existing guidance for operating leases. In January 2018, the FASB issued ASU
2018-01, Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842, which amends
ASU 2016-02 to provide entities an optional transition practical expedient to not evaluate under Topic 842
existing or expired land easements that were not previously accounted for as leases under the current leases
guidance in Topic 842. An entity that elects this practical expedient should evaluate new or modified land
easements under Topic 842 beginning at the date that the entity adopts Topic 842. In July 2018, the FASB
also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional
transition method that allows entities to elect to apply the standard prospectively at its effective date, versus
recasting the prior periods presented. The standard will be effective for annual and interim periods
beginning after December 15, 2018, with early adoption permitted upon issuance. The Company plans to

F-18

implement Topic 842, using the optional transition method to apply the new guidance as of January 1,
2019, rather than as of the earliest period presented, and elected the package of practical expedients
described above. The Company is still finalizing its analysis, but expects to recognize additional operating
liabilities with corresponding right of use (ROU) assets of approximately the same amount as of January 1,
2019 based on the present value of the remaining lease payments.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808):
Clarifying the Interaction between Topic 808 and Topic 606 (ASU 2018-18), which clarifies that certain
transactions between collaborative arrangement participants should be accounted for as revenue under
Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account.
In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement,
presentation, and disclosure requirements. The standard adds unit-of-account guidance in Topic 808 to
align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether
the collaborative arrangement or a part of the arrangement is within the scope of Topic 606, and requires
that in a transaction with a collaborative arrangement participant that is not directly related to sales to third
parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the
collaborative arrangement participant is not a customer. The standard is effective for interim and annual
periods beginning after December 15, 2019, with early adoption permitted, including adoption in any
interim period for public business entities for periods in which financial statements have not been issued.
Amendments in the standard should be applied retrospectively to the date of initial application of Topic
606, but entities may elect to apply the amendments in Topic 808 retrospectively either to all contracts or
only to contracts that are not completed at the date of initial application of Topic 606, and should disclose
the election. An entity may also elect to apply the practical expedient for contract modifications that is
permitted for entities using the modified retrospective transition method in Topic 606. The Company is
currently assessing the impact of this standard on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses: Measurement of
Credit Losses on Financial Instruments (ASU 2016-13), which requires that expected credit losses relating to
financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded
through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for
available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires
the reversal of previously recognized credit losses if fair value increases. The new standard will be effective
on January 1, 2020. Early adoption will be available on January 1, 2019. The Company is currently
evaluating the effect that the updated standard will have on its consolidated financial statements and related
disclosures.

In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive
Income, (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(ASU 2018-12), which allows a reclassification from accumulated other comprehensive income to retained
earnings for stranded tax effects resulting from the federal corporate income tax rate enacted under the Tax
Cuts and Jobs Act (the Tax Act). The amount of the reclassification would be the difference between the
historical corporate income tax rate and the Tax Act’s 21% corporate income tax rate. The new standard is
effective for fiscal years and interim periods beginning after December 15, 2018 with early adoption
permitted in any interim period. The Company plans to adopt the new standard effective January 1, 2019.
The adoption of ASU 2018-02 will not have a material impact on its consolidated financial statements and
related disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU
2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting
arrangement that is a service contract with the requirements for capitalizing implementation costs incurred
to develop or obtain internal-use software. This new standard also requires customers to expense the
capitalized implementation costs of a hosting arrangement that is a service contract over the term of the
hosting arrangement. ASU 2018-15 is effective for public companies for fiscal years beginning after
December 15, 2019. This new standard can be applied either retrospectively or prospectively to all
implementation costs incurred after the date of adoption. The Company plans to adopt this standard
effective January 1, 2019 and does not expect it will have a material impact on the Company is currently
evaluating the impact of adoption on its consolidated financial statements.

F-19

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07). ASU 2018-07 simplifies
several aspects of
the accounting for nonemployee share-based payment transactions resulting from
expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and
services from nonemployees. ASU 2018-07 is effective for public business entities for fiscal years and interim
periods beginning after December 15, 2018. The Company plans to adopt the new standard effective
January 1, 2019. Upon adoption of ASU 2018-07, the grant date fair value of non-employee awards will be
fixed as of December 31, 2018, rather than the prior methodology that recognizes a variable cost based on
the fair value of such shares as of their vesting dates. The Company will record non-employees’ awards as of
January 1, 2019 prospectively. The Company does not expect this ASU will have a material impact on its
consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number
of changes meant to add, modify or remove certain disclosure requirements associated with the movement
amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
Early adoption is permitted upon issuance of the update. The Company does not expect the adoption of
this guidance to have a material impact on its consolidated financial statements and related disclosures.

ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test

for Goodwill
Impairment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from
the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair
value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the amendments in
ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying
amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total
amount of goodwill allocated to that reporting unit. The updated guidance requires a prospective adoption.
ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing
dates after January 1, 2017. The Company is currently evaluating the timing and impact of adopting this
new accounting standard on its consolidated financial statements and related disclosures.

Note 3 — Investments in Marketable Securities

Investments in marketable available-for-sale securities consisted of the following:

($ in thousands)

Short-term available-for-sale securities
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortized
Cost

$101,701
19,898
55,136

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$176,735

December 31, 2018

Gross
Unrealized
Gain(1)

Gross
Unrealized
Loss(1)

Fair
Value

$—
—
—

$—

$(122)
(4)
—

$(126)

$101,579
19,894
55,136

$176,609

F-20

($ in thousands)

Short-term available-for-sale securities

December 31, 2017

Gross
Unrealized
Gain(1)

Gross
Unrealized
Loss(1)

Fair
Value

Amortized
Cost

Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$38,092

$6

$(184)

$37,914

Long-term available-for-sale securities

Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,357

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$41,449

$6

$ (10)

$(194)

$ 3,347

$41,261

(1) Gross unrealized gain (loss) is pre-tax.

The contractual term to maturity of short-term marketable securities held by the Company as of
December 31, 2018 is less than one year. There were no long-term marketable securities held by the
Company as of December 31, 2018.

Realized gains and losses for the years ended December 31, 2018, 2017 and 2016 were not significant.
The unrealized losses for the Company’s investments that have been in a continuous unrealized loss position
for more than 12 months as of December 31, 2018 and 2017 was also not significant.

Note 4 — Property, Plant and Equipment, Net

Property, plant and equipment, consists of the following:

($ in thousands)

Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lab equipment
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvement

As of December 31,

2018

2017

$

194
407
70
153
790

$ 105
370
25
—
774

Total property, plant and equipment

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,614

1,274

Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,057)

(414)

Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

557

$ 860

Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was approximately
$0.6 million, $0.2 million and $0.1 million, respectively, and was recorded in both research and development
expense and general and administrative expense in the consolidated statements of operations and
comprehensive loss.

Note 5 — Accrued Expenses

Accrued expenses consist of the following:

($ in thousands)

Accrued expenses:

As of December 31,

2018

2017

Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,011

$4,518

Accrued clinical trial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accrued professional fees and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,561

1,107

442

1,179

Total accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$9,679

$6,139

F-21

Note 6 — Stockholders’ Equity

The Company is authorized to issue 5,000,000 shares of preferred stock as of December 31, 2018 and
2017, respectively. The Company was authorized to issue 50,000,000 shares of common stock as of
December 31, 2017. In May 2018, the Company’s stockholders approved the adoption of the Fourth
Amended and Restated Certificate of Incorporation, which amended and restated the Company’s Third
Amended and Restated Certificate of Incorporation, as amended, to, among other things, increase the
authorized number of shares of common stock, par value $0.001 per share, from 50,000,000 shares to
100,000,000 shares.

In January 2018, the Board of Directors authorized the filing of a Certificate of Elimination with the
Secretary of State of the State of Delaware to remove the Certificate of Designation of Series A
Non-Voting Convertible Preferred Stock (the Series A Preferred Stock) from the Company’s Third
Amended and Restated Certificate of Incorporation, as amended (which was amended and restated in
May 2018), because no shares of the Series A Preferred Stock were outstanding and no shares were
available to be issued.

Sale of Common Stock

On November 6, 2017, the Company sold to various investors an aggregate of 2,541,000 shares of
common stock in a public offering at $27.25 per share, which included the exercise in full by the
underwriters of their option to purchase 331,500 additional shares of common stock, which occurred on
November 2, 2017. The Company received aggregate net proceeds of $64.8 million from the offering and
option exercise, after deducting underwriting discounts and commissions and offering expenses.

On December 29, 2017, the Company filed a registration statement on Form S-3 with the SEC using a
“shelf ” registration statement, file number 333-222366, which became effective January 10, 2018. Under this
shelf registration process, the Company may from time to time sell any combination of the securities
described in the registration statement in one or more offerings up to an aggregate offering price of
$250.0 million. In connection with the filing of this registration statement, the Company entered into a sales
agreement under which the Company may offer and sell shares of its common stock having an aggregate
offering price of up to $75.0 million through “at the market offerings” (ATM). To date, the Company has
not sold any shares pursuant to the ATM.

On July 16, 2018, the Company sold to various investors an aggregate of 4,600,000 shares of common
stock in a public offering at $36.00 per share, which included the exercise in full by the underwriters of their
option to purchase 600,000 additional shares of common stock, which occurred on July 12, 2018. The
Company received aggregate net proceeds of approximately $155.4 million from the offering and the option
exercise, after deducting underwriting discounts and commissions and offering expenses payable by the
Company.

Note 7 — Stock-Based Compensation

Equity Incentive Plans

On May 30, 2018, the Company’s stockholders approved the Assembly Biosciences, Inc. 2018 Stock
Incentive Plan (the 2018 Plan) pursuant to which the Company reserved 1,900,000 shares of its common
stock for issuance in connection with equity incentive awards and the Assembly Biosciences, Inc. Employee
Stock Purchase Plan (the 2018 ESPP).

As of December 31, 2018, the Company had awards outstanding under the following shareholder
approved plans: 2010 Equity Incentive Plan (the 2010 Plan), which has been frozen; the Amended and
Restated 2014 Stock Incentive Plan (the 2014 Plan); and the 2018 Stock Incentive Plan (the 2018 Plan).
Shares of common stock underlying awards that are forfeited under the 2010 Plan on or after June 2, 2016
will become available for issuance under the 2014 Plan. Shares underlying awards that are forfeited under
the 2014 Plan on or after May 30, 2018 will also become available for issuance under the 2018 Plan. As of
December 31, 2018, the Company also had awards outstanding under the Assembly Biosciences, Inc. 2017
Inducement Award Plan.

F-22

The Company issues new shares of common stock to settle options exercised or vested restricted

stock units.

Stock Plan Activity

Stock Options

The following table summarizes the stock option activity and related information:

Number of
Shares

Weighted Average
Exercise Price

Total Intrinsic
Value

Outstanding as of December 31, 2016 . . . . . . . . . . . .

4,457,251

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

706,800

Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(353,612)

Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(258,620)

Outstanding as of December 31, 2017 . . . . . . . . . . . .

4,551,819

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

998,603

Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(775,224)
(138,053)

Outstanding as of December 31, 2018 . . . . . . . . . . . .

4,637,145

Options vested and exercisable . . . . . . . . . . . . . . . . .

3,077,195

$ 7.14

$24.16

$ 7.03

$ 9.51

$ 9.66

44.19

7.34
18.71

$17.21

$ 9.21

(in thousands)

$ 23,258

$ 15,792

—

—

$162,002

—

31,134
3,195

$ 48,179

$ 42,503

The Company expects that all outstanding unvested options will vest. The weighted average remaining
contractual term of exercisable options and awards outstanding is approximately 6.2 and 7.1 years,
respectively, at December 31, 2018. As of December 31, 2018 estimated future stock-based compensation
expense relating to unvested stock options was $19.4 million.

RSUs

A summary of the Company’s RSUs and related information is as follows:

Number of
units

Weighted
average
grant price

Unvested as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— $ —
44.28

120,000

Unvested as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and Settled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unvested as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

120,000
456,559
(938)
(7,616)
568,005(1)

$44.28
35.54
49.14
49.14

$37.18

(1)

Includes 128,332 RSUs that have vested but are subject to deferred settlement.

As of December 31, 2018, RSUs outstanding include 145,000 RSUs granted in December 2017 and
2018 with performance-based conditions to executives of the Company. Of these awards, 100,000 RSUs
with a grant date fair value of $2.4 million vest over time but will be accelerated upon the achievement of
certain performance conditions. The Company is recognizing expense for this award over the vesting period
as it does not believe that any of the performance conditions are probable of being met. The remaining
45,000 RSUs with a grant date fair value of $1.9 million vest upon the performance conditions not yet
deemed probable and accordingly no compensation expense has been recognized as of December 31, 2018
for these awards.

F-23

As of December 31, 2018, the Company had unrecognized stock-based compensation expense related
to all unvested RSUs of $10.4 million, which is expected to be recognized over the remaining
weighted-average contractual term is 9.2 years.

Common Stock Warrants

There was no warrant activity during the year ended December 31, 2018. During the year ended
December 31, 2017, 1,613 warrants to purchase common stock expired unexercised. At December 31, 2018
and 2017 there were 15,296 warrants outstanding with a weighted average exercise price of $30.00 per share.
The weighted average remaining contractual
life of outstanding warrants at December 31, 2018 is
approximately 1.7 years.

Employee Stock Purchase Plan

The 2018 ESPP provides for the purchase by employees of up to an aggregate of 400,000 shares of the
Company’s common stock at a discount to the market price. Subject to the annual statutory limits and the
2018 ESPP’s limit of 1,000 shares of common stock per offering, an eligible employee may participate
through payroll deductions of up to 15% of such employee’s compensation for each pay period.

Eligible employees can purchase the Company’s common stock at the end of a predetermined offering
period at 85% of the lower of the fair market value at the beginning or end of the offering period. Under
the 2018 ESPP, the offering periods end on the last business day occurring on or before May 14 or
November 14. The ESPP is compensatory and results in stock-based compensation expense.

In November 2018, employees purchased 21,483 shares of common stock under the 2018 ESPP. As of
December 31,2018, 378,517 shares of common stock are available for future sale under the Company’s 2018
ESPP. Stock-based compensation expense recorded in connection with the 2018 ESPP was approximately
$0.2 million for the year December 31, 2018.

Valuation Assumptions

The Company used the Black-Scholes option-pricing model for determining the estimated fair value
and stock-based compensation for stock-based awards to employees and the board of directors. The
assumptions used in the Black-Scholes option-pricing model were as follows:

Year Ended December 31,

2018

2017

2016

Exercise price . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Risk-free rate of interest
Expected term (years) . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . .

$5.84 – $13.21
$12.81 – $44.28
$23.78 – $57.53
75.6% – 86.1% 81.2% – 87.0% 85.8% – 91.8%
2.56% – 3.04% 2.02% – 2.29% 1.36% – 2.18%
5.5 – 7.0
—

5.3 – 7.0
—

5.5 – 7.0
—

The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with
maturities similar to those of the expected term of the stock option or purchase right being valued. The
assumed dividend yield was zero as the Company currently does not intend to pay dividends in the
foreseeable future. The weighted average expected term of options was calculated using the simplified
method as prescribed by accounting guidance for stock-based compensation due to the Company’s limited
history of relevant stock option exercise activity. The expected volatility was calculated based on the
Company’s historical stock prices, supplemented as necessary with historical volatility of the common stock
of several peer companies with characteristics similar to those of the Company.

F-24

Stock-Based Compensation Expense

The Company recognized stock-based compensation expense in continuing operations as follows:

($ in thousands)

Year Ended December 31,

2018

2017

2016

Research and development

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$11,820

$5,423

$3,025

General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,665

3,178

1,999

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$28,485

$8,601

$5,024

Note 8 — Collaboration Agreement

Allergan

In January 2017, the Company entered into and a Research, Development, Collaboration and License
Agreement (the Collaboration Agreement) with Allergan Pharmaceuticals International Limited (Allergan)
to develop and commercialize select microbiome gastrointestinal disease therapies. Pursuant to the
Collaboration Agreement, the Company granted Allergan an exclusive worldwide license to certain of its
intellectual property, including its intellectual property arising under the Collaboration Agreement, to
develop and commercialize licensed compounds for ulcerative colitis (UC), Crohn’s disease, and two
compounds for irritable bowel syndrome (IBS). Allergan and the Company also agreed to collaborate on
research and development activities with respect to the licensed compounds in accordance with a mutually
agreed upon research and development plan. Per the terms of the Collaboration Agreement, Allergan can
select backups and additional target indications to add to the licenses granted for additional consideration
and also have the ability to enter into a contract manufacturing agreement with the Company for
compound supply at cost plus an agreed upon margin. In addition, the Company will participate on a Joint
Development Committee (JDC) and Joint Patent Committee (JPC). The Company provided to Allegan
standard indemnification and protection of licensed intellectual property, which is part of assurance that
the license meets the contract’s specifications and is not an obligation to provide goods or services.

Allergan paid the Company an upfront non-refundable payment of $50.0 million which was received in
2017. Additionally, the Company is eligible to receive variable consideration in the form of research and
development cost reimbursements, up to approximately $631.0 million related to seven development
milestones and up to approximately $2.14 billion related to 12 commercial development and sales milestones
in connection with the successful development and commercialization of licensed compounds. In addition,
the Company is eligible to receive tiered royalties at rates ranging from the mid-single digits to the mid-teens
based on net sales.

Allergan and the Company have agreed to share research and development costs up to an aggregate of
$75.0 million through proof-of-concept (POC) studies on a 2∕3, 1∕3 basis, respectively, and Allergan has
agreed to assume all post-POC development costs. In the event any pre-POC development costs exceed
$75.0 million in the aggregate, the Company may elect either (a) to fund 1∕3 of such costs in excess of
$75.0 million or (b) to allow Allergan to deduct from future development milestone payments 1∕3 of the
development costs funded by Allergan in excess of $75.0 million plus a premium of 25%. The Company has
an option to co-promote the licensed programs in the U.S. and China, subject to certain conditions set forth
in the Collaboration Agreement.

Allergan may terminate the Collaboration Agreement at any time upon either 90 days’ (prior to the
initiation of the first POC trial of a licensed product) or 120 days’ (after the initiation of the first POC trial
of a licensed product), as applicable, advance written notice to the Company. Unless terminated early, the
Collaboration Agreement has a term that ends on the earlier of the (i) the period when POC studies have
been completed and no further licensed compounds are in development (ii) expiration of the last to exist
the licensed compounds. The Collaboration
valid claim covering the manufacture, use and sale of
Agreement also contains customary provisions for termination by either party, including in the event of
breach of the Collaboration Agreement, subject to cure. Upon termination for convenience, the license and
know how all revert to the Company.

F-25

The Company concluded that Allegan is a customer, and the contract is not subject to accounting
literature on collaborative arrangements. This is because the Company granted to Allergan licenses to its
intellectual property, and research and development services, all of which are outputs of the Company’s
ongoing activities, in exchange for consideration. The Company identified the following material promises
under the license agreement: 1) transfer of a licenses to intellectual property for the four initial indications,
inclusive of the related technology know-how (Licenses); 2) the obligation to perform research development
services through POC (Development Services). The Company’s participation on the JDC and JPC were
considered to be immaterial in the context of the contract. The Company’s co-promotion option was not
considered to be a performance obligation. Allergan’s selection of backups or additional target indications
to add to the licenses granted for additional consideration and ability to enter into a contract
manufacturing agreement with the Company for compound supply at cost plus an agreed upon margin were
not considered to be performance obligations as the Company concluded the options were not offered at a
discount that exceeds discounts available to other customers, and therefore were not material rights. The
grant of additional licensing rights upon option exercises and contract manufacturing agreements will be
accounted for as separate contracts when they occur.

The Company concluded the Licenses each were considered to be functional as they have significant
standalone functionality and were capable of being distinct. However, the Company determined that each
of the Licenses individually were not distinct from the Development Services within the context of the
agreement. This is because Allergan is dependent on the Company to execute the Development Services,
that it is only uniquely able to perform, in order for Allergan to benefit from the Licenses. As such, The
Company determined that it has four performance obligations under the Collaboration Agreement
associated with the transfer of the four compound Licenses combined with the performance of the
Development Services for each of the four compound indications. The Company determined that the four
performance obligations will be performed over the duration of the contract, which began in February 2017
and ends upon completion of the Development Services which is currently estimated to occur in 2027. The
Company is using a cost-based input method to measure proportional performance and to calculate the
corresponding amount of revenue to recognize. The Company believes this is the best measure of progress
because other measures do not reflect how the Company transfers its performance obligation to Allegan. In
applying the cost-based input method of revenue recognition, the Company measures costs incurred relative
to budgeted costs to fulfill the four performance obligations. These costs consist primarily of third-party
contract costs and internal labor costs. Revenue will be recognized based on actual costs incurred as
a percentage of total budgeted costs as the Company completes its performance obligations.

To allocate transaction price among the four performance obligations, the Company estimated their
standalone selling price (SSP) using income-based valuation approach for the estimated value a licensor of
the compounds would receive considering the stage of the compounds development. The Company believes
that a change in the assumptions used to determine its best estimate of selling price for the four
performance obligations would not have a significant effect on the allocation of consideration received to
the four performance obligations.

The transaction price at the inception of the agreement and upon adoption of ASC 606, was limited to
$50.0 million upfront payment. Of this amount, the Company allocated $12.5 million to each of the four
performance obligations. Research and development cost reimbursement payments are included in the
transaction price in the reporting period that we conclude that it is probable that recording revenue in the
period will not result in a significant reversal in amounts recognized in future periods. The variable
consideration related to the remaining development and commercialization milestone payments has not
been included in the transaction price as these were fully constrained at December 31, 2018. As part of the
Company’s evaluation of the development and commercialization milestones constraint, the Company
determined that the achievement of such milestones are contingent upon success in future clinical trials and
regulatory approvals which are not within its control and uncertain at this stage. Any variable consideration
related to sales-based milestones (including royalties) will be recognized when the related sales occur as they
were determined to relate predominantly to the license granted to Allergan. The Company will re-evaluate
the transaction price in each reporting period and as uncertain events are resolved or other changes in
circumstances occur.

The Company did not incur any significant incremental costs of obtaining the Allergan contract.

F-26

For the year ended December 31, 2018 and 2017, the Company recorded approximately $14.8 million
in revenue associated with the Collaboration Agreement, respectively.
and $9.0 million, respectively,
Short-term and long-term deferred revenue contract liabilities related to the Collaboration Agreement were
approximately $5.1 million and approximately $35.6 million at December 31, 2018 and approximately
$5.2 million and approximately $40.6 million at December 31, 2017. Under the legacy revenue guidance in
ASC 605, Revenue Recognition, the Company’s collaboration revenue for the year ended December 31,
2018, would not have differed materially.

On the consolidated balance sheets, contract asset balances of approximately $2.4 million and
approximately $2.3 million were recorded as accounts receivable from collaboration as of December 31,
2018 and 2017, respectively.

The following table presents changes in the Company’s contract liabilities ($ in thousands):

Year ended December 31, 2018

Contract liabilities:

Balance at
Beginning
of Period

Additions Deductions

Balance at
End of Period

Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$45,785

$—

$(5,125)

$40,660

($ in thousands)

Year Ended
December 31,
2018

Collaboration revenue recognized in the period from:
Amounts included in deferred revenue at the beginning of the period . . . . . . . . . . . . . . . . . .
Performance obligations satisfied in previous period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,125
—

Note 9 — Milestones and Research Agreements

HBV Research Agreement with Indiana University

Since September 2013, the Company has been party to an exclusive License Agreement dated
September 3, 2013 with Indiana University Research and Technology Corporation (IURTC) from whom it
has licensed aspects of the Company’s HBV program held by IURTC. The license agreement requires the
Company to make milestone payments based upon the successful accomplishment of clinical and
regulatory milestones. The aggregate amount of all performance milestone payments under the IURTC
license agreement, should all milestones through development be met, is approximately $0.8 million, with a
portion related to the first performance milestone having been paid. The Company also is obligated to pay
IURTC royalty payments based on net sales of the licensed technology. The Company is also obligated to
pay diligence maintenance fees each year to the extent that the royalty, sublicensing, and milestone
payments to IURTC are less than the diligence maintenance fee for that year. The Company made
approximately $0.1 million, in milestone payments for the years ended December 31, 2018. Amounts paid in
2017 or 2016 were insignificant.

Microbiome Targeted Colonic Delivery Platform

In November 2013, the Company entered into a License and Collaboration Agreement with
Therabiome, LLC (Therabiome), for all
intellectual property and know-how owned or controlled by
Therabiome relating to the oral delivery of pharmaceutical drugs to specific sites in the intestine, using a pH
sensitive controlled release capsule-in-capsule technology. The Company will be solely responsible for all
research and development activities with respect to any product it develops under the license.

The Company must pay Therabiome clinical and regulatory milestones for each product or therapy
advanced from the platform for U.S. regulatory milestones. The Company also must pay Therabiome lesser
amounts for foreign regulatory milestones, which vary by country and region. The Company also must pay
Therabiome royalties on annual net sales of a product in the low to mid-single digit percentages plus, once
annual net sales exceed certain thresholds, a one-time cash payment upon reaching the thresholds.

F-27

Therabiome must pay the Company royalties on annual net sales of any product Therabiome is
permitted to develop using the intellectual property in the low double to mid-double digit percentages,
depending on the level of development or involvement the Company had in the product. No amounts were
incurred or accrued for this agreement as of and for the years ended December 31, 2018, 2017 and 2016.

Note 10 — Income Taxes

There was no current income tax provision for the years ended December 31, 2018, 2017 and 2016. The
Company recognized deferred income tax expense of $1.1 million and a deferred income tax benefit of
$9.1 million and $0.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The effective tax rate of our provision for income taxes differs from the federal statutory rate as

follows:

As of December 31,

2018

2017

2016

Statutory federal income tax rate . . . . . . . . . . . . . . . . . . . . .

(21.0)% (34.0)%

(34.0)%

State taxes, net of federal tax benefit

. . . . . . . . . . . . . . . . . .

Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . .

Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective change in enacted tax rates
. . . . . . . . . . . . . . . . . .
State rate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . .

(7.1)

(6.7)

(2.4)
—
(2.5)
(0.4)
41.3

(2.6)

—

(2.1)
47.7
0.2
0.3
(27.0)

(4.3)

3.4

(1.8)
—
7.5
2.3
25.5

Income taxes provision (benefit)

. . . . . . . . . . . . . . . . . . . . .

1.2%

(17.5)%

(1.4)%

Significant components of the Company’s deferred tax assets and (liabilities) are as follows:

($ in thousands)

Deferred tax assets:

As of December 31,

2018

2017

Federal and state-operating loss carryforwards . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development credits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 58,668
14,023
2,282
11,409
5,472
575

$ 43,577
5,726
2,259
11,064
5,604
360

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

92,429
(87,543)

68,590
(63,718)

Deferred tax asset, net of allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,886

$ 4,872

In-process research and development

. . . . . . . . . . . . . . . . . . . . . . . . .

(8,138)

(7,008)

Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (3,252) $ (2,136)

The Company maintains a valuation allowance on deferred tax assets due to the uncertainty regarding
the ability to utilize these deferred tax assets in the future. The deferred tax liability was recorded in
connection with the merger with Assembly Pharmaceuticals in 2014 and relates to the difference between
the carrying amount of in-process research and development for financial statement purposes relative to the
amount used for income tax purposes.

On December 22, 2017, the Tax Act, was signed into law. Among other items, the Tax Act reduces the
federal corporate tax rate to 21% from the existing applicable rate of 34%, effective January 1, 2018. As a
result, in 2017 the Company recorded a provisional estimate as a decrease to its deferred tax assets of
$24.7 million and to valuation allowance of $28.4 million, resulting in a net tax benefit of $3.7 million.

F-28

The Tax Act also permits an indefinite carry forward of net operating losses generated in taxable years
ending after December 31, 2017, subject to a utilization limitation of 80% of taxable income. Due to the
change in the carryforward period for post-2017 net operating losses, the Company determined that it
would be able to use the deferred tax liability associated with certain in-process research and development
as a source of income in determining the realizability of its deferred tax assets. As a result, in 2017 the
Company recorded a $4.9 million income tax benefit from the reduction of its valuation allowance.

On December 22, 2017, Staff Accounting Bulletin No. 118, or SAB 118, was issued to address the
application of GAAP in situations when a registrant does not have the necessary information available,
prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain
income tax effects of the Act. The Company was able to provide a reasonable estimate for the revaluation of
deferred taxes. The Company completed its review in December 2018 with no material adjustments to the
provisional amount previously recorded.

The Company’s income tax benefit for the year ended December 31, 2017 of $9.1 million includes a tax

benefit of $8.6 million related to the Tax Act.

As of December 31, 2018, the Company had potentially utilizable gross federal net operating loss
carryforwards of approximately $209.2 million with $94.7 million of net operating losses generated during
2018 carrying forward indefinitely and $114.5 million of net operating losses beginning to expire between
2027 and 2038. There are state net operating loss carryforwards of $209.0 million beginning to expire
between 2027 and 2038. In addition,
the Company has federal research and development credit
carryforwards of approximately $3.6 million which will expire between 2027 and 2038 and California
research and development credit carryforwards of $1.9 million will carryforward indefinitely.

Pursuant to Internal Revenue Code (IRC), Section 382 and 383, use of the Company’s U.S. federal and
state net operating loss and research and development income tax credit carryforwards may be limited in
the event of a cumulative change in ownership of more than 50.0% within a three-year period. The
Company has performed an ownership change study through December 31, 2017 and has determined that a
“change in ownership” as defined by IRC Section 382 and the rules and regulations promulgated
thereunder, did occur in December 2010, January 2013 and October 2014. The Company has adjusted its
net operating loss carryovers to appropriately reflect any attributes which will expire due to the limitation.
The Company has not performed any additional analysis for IRC Sections 382 and 383 and there is a risk
that additional changes in ownership could have occurred since December 31, 2017. If a change in
ownership were to have occurred, additional net operating loss and tax credit carryforwards could be
eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset
schedule with a corresponding reduction in the valuation allowance.

The following table summarizes activity related to the Company’s gross unrecognized tax benefits

(in thousands):

Balances as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to 2017 tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

$ —
—
—

Balances as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —

Increases related to prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to 2018 tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,679
934

Balances as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,613

The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax
rate assuming the Company continues to maintain a full valuation allowance position. Based on prior year’s
operations and experience, the Company does not expect a significant change to its unrecognized tax
benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next
items for items that arise in the ordinary course of business. At
year for unexpected or unusual
December 31, 2018, the Company has not accrued for interest or penalties associated with unrecognized tax
liabilities. In subsequent periods, any interest and penalties related to uncertain tax positions will be
recognized as a component of income tax expense.

F-29

The Company files income tax returns in the U.S. federal and other state jurisdictions and is not
currently under examination by federal, state, or local taxing authorities for any open tax years. Due to net
operating loss carryforwards, all years effectively remain open for income tax examination by tax authorities
in the U.S. and states in which the Company files tax returns.

Note 11 — Commitments and Contingencies

Operating Leases

The Company leases office space for corporate and administrative functions in Carmel, Indiana under
a lease agreement that expires in August 2023. The Company leases office and laboratory space in South
San Francisco, California under a sub-sublease that expires in December 2023. Prior to moving into the
South San Francisco office and laboratory space in February 2019, the Company leased office and
laboratory space in San Francisco, California, under a sublease that expired on February 28, 2019. The
Company also leases office and laboratory space in Groton, Connecticut under a lease that expires in
March 2020. The Company ceased leasing laboratory space from Indiana University at Bloomington,
Indiana in May 2017. The Company ceased leasing office and laboratory space from the University of
Florida Research Foundation in Alachua, Florida in May 2017.

The Company also leases certain laboratory equipment accounted for as operating leases. These

equipment leases began to expire in 2017, with the final lease expiring in 2021.

Future minimum lease payments under noncancelable operating leases are as follows:

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,032
4,537
4,055
4,075
4,095

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,794

Rent expense for the years ended December 31, 2018, 2017 and 2016 were approximately $4.2 million,

$2.1 million and $1.9 million, respectively.

Note 12 — Employee Benefit Plan

Effective January 1, 2018, the Company established a defined contribution 401(k) plan (the Plan) for
all employees who are at least 21 years of age. Employees are eligible to participate in the Plan upon
commencement of employment. Under the terms of the Plan, employees may make voluntary contributions
as a percentage of compensation. The Plan also permits the Company to make discretionary matching
contributions. In 2018, the Company made discretionary matching contributions of $0.7 million.

In 2017 and 2016, the Company participated in a professional employer organization sponsored 401(k)

plan. The Company did not make any discretionary matching contributions in 2017 or 2016.

F-30

Note 13 — Selected Quarterly Financial Data (Unaudited)

The following table contains quarterly financial information for fiscal years 2018 and 2017. The
Company believes that the following information reflects all normal recurring adjustments necessary for a
fair statement of the information for the periods presented.

($ in thousands except for per share amounts)

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

2018

Collaboration revenue . . . . . . . . . . . . . . . . . .

$ 3,565

Operating expenses . . . . . . . . . . . . . . . . . . . .

$ 20,237

Interest and other income . . . . . . . . . . . . . . .

Unrealized loss from marketable securities, net

of tax . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

446

(23)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(16,249)

Basic and diluted net loss per common share . .

$

(0.80)

2017

Collaboration revenue . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . .
Interest and other income . . . . . . . . . . . . . . .
Unrealized loss from marketable securities, net

of tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per common share . .

$
684
$ 14,614
136
$

(137)
$
$(13,931)
(0.81)
$

$ 3,218

$ 30,384

$

$

453

(127)

$(26,806)

$

(1.30)

$ 2,359
$ 15,927
240
$

(341)
$
$(13,599)
(0.78)
$

$ 4,286

$ 26,861

$ 1,116

$

(82)

$(21,535)

$

(0.87)

$ 2,660
$ 15,110
241
$

(99)
$
$(12,272)
(0.71)
$

$ 3,735

$ 30,057

$ 1,069

$

231

$(26,161)

$

(1.03)

$ 3,315
$ 15,595
366
$

(38)
$
$ (3,007)
(0.16)
$

F-31

CORPORATE INFORMATION 

Directors  

Anthony E. Altig 
Former Chief Financial Officer, Biotix 
Holdings, Inc. 

Mark Auerbach 
Former Non-Executive Chairman of the Board 
and Chairman of the Audit Committee for RCS 
Capital Corporation; Former Lead Independent 
Director and Chairman of the Audit Committee 
of Optimer Pharmaceuticals, Inc. 

Richard D. DiMarchi, Ph.D. 
Cox Distinguished Professor of Biochemistry 
and Gill Chair in Biomolecular Sciences  and 
Vice President of Research, Novo Nordisk 
Research Labs 

Myron Z. Holubiak 
President and Chief Executive Officer, Citius 
Pharmaceuticals, Inc. 

Helen S. Kim 
Former Executive Vice President of Business 
Development, Kite Pharma, Inc. 

Alan J. Lewis, Ph.D. 
Chief Executive Officer, DiaVacs, Inc. 

Susan Mahony, Ph.D. 
Former Senior Vice President and President of 
Lilly Oncology, Eli Lilly and Company 

William R. Ringo, Jr. 
Director of Immune Design Corp., Dermira, Inc. 
and Five Prime Therapeutics, Inc. 

Derek A. Small 
President and Chief Executive Officer, 
Assembly Biosciences, Inc. 

Headquarters 
11711 N. Meridian Street, Suite 310 
Carmel, Indiana 46032 
833.509.4583 

Website 

www.assemblybio.com  

Stock Listing 
Assembly Biosciences, Inc. common stock is 
listed on the Nasdaq Global Select Market and 
quoted under the symbol “ASMB” 

Executive Officers 

Derek A. Small 
President and Chief Executive Officer 

Graham Cooper 
Chief Financial Officer and Chief Operating 
Officer 

Richard J. Colonno, Ph.D. 
Executive Vice President and Chief Scientific 
Officer of Virology Operations 

Uri A. Lopatin, M.D. 
Chief Medical Officer 

Jacqueline S. Papkoff, Ph.D. 
Chief Scientific Officer Microbiome 

Transfer Agent 
VStock Transfer, LLC  
18 Lafayette Place 
Woodmere, New York 11598  
212.828.8436 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
www.assemblybio.com

© 2019 Assembly Biosciences, Inc.