Calithera Biosciences

2018 Annual Report

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

FORM 10-K

(Mark One)
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

For the fiscal year ended December 31, 2018
OR

Commission File Number 001-36644

CALITHERA BIOSCIENCES, INC.

(Exact name of Registrant as specified in its Charter)

Delaware
( State or other jurisdiction of
incorporation or organization)

343 Oyster Point Blvd., Suite 200
South San Francisco, CA
(Address of principal executive offices)

27-2366329
(I.R.S. Employer
Identification No.)

94080
(Zip Code)

Registrant’s’ telephone number, including area code: (650) 870-1000

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

Common Stock, Par Value $0.0001 Per Share
(Title of each class)

The NASDAQ Global Select Market
(Name of each exchange on which registered)

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 (cid:4) NO ⌧
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES (cid:4) 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 (cid:4)
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit
such files). YES ⌧ NO (cid:4)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual
Report on Form 10-K or any amendment to this Annual Report on 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.:

(cid:4)
(cid:4)
⌧

Large accelerated filer
Non-accelerated filer
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 (cid:4) NO ⌧
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business daya of the registrant’s
most recently completed second fiscal quarter was approximately $154.3 million, based on the closing price of the registrant’s common stock on the
NASDAQ Global Select Market of $5.00 per share.
The number of shares of Registrant’s Common Stock outstanding as of March 4, 2019, was 38,837,698.

Accelerated filer
Small reporting company

⌧
⌧

The Registrant’s Definitive Proxy Statement relating to the 2019 Annual Meeting of Stockholders will be filed with the Securities and Exchange
Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K and portions of such are incorporated by
reference into Part III of this Annual Report on Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

PART I
Item 1.
Business ........................................................................................................................................................................
Item 1A. Risk Factors...................................................................................................................................................................
Item 1B. Unresolved Staff Comments .........................................................................................................................................
Properties ......................................................................................................................................................................
Item 2.
Item 3.
Legal Proceedings .........................................................................................................................................................
Item 4. Mine Safety Disclosures ...............................................................................................................................................

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities...
Item 6.
Selected Financial Data.................................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................................................................................
Consolidated Financial Statements and Supplementary Data.......................................................................................
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure......................................
Item 9A. Controls and Procedures ...............................................................................................................................................
Item 9B. Other Information .........................................................................................................................................................

PART III

Item 10. Directors, Executive Officers and Corporate Governance............................................................................................
Item 11. Executive Compensation...............................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.....................
Item 13. Certain Relationships and Related Transactions, and Director Independence .............................................................
Item 14. Principal Accounting Fees and Services .......................................................................................................................

PART IV

Item 15. Exhibits, Financial Statement Schedules ......................................................................................................................
gSignatures......................................................................................................................................................................

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CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

“

“

“

” “should,

” created by those sections, concerning our

This Annual Report on Form 10-K for the year ended December 31, 2018, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor
business, operations, and financial performance and condition as well as our plans, objectives, and expectations for business
operations and financial performance and condition. Any statements contained herein that are not of historical facts may be deemed
to be forward-looking statements. You can identify these statements by words such as “anticipate,” “assume,” “believe,” “could,”
“estimate,” “expect,” “intend,” “may,” “plan,
indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts,
and projections about our business and the industry in which we operate and management's beliefs and assumptions and are not
guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in
some cases beyond our control. As a result, any or all of our forward-looking statements in this Annual Report on Form 10-K may
turn out to be inaccurate. Factors that could materially affect our business operations and financial performance and condition
” You are urged to
include, but are not limited to, those risks and uncertainties described herein under “Item 1A - Risk Factors.
consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the
forward-looking statements. The forward-looking statements are based on information available to us as of the filing date of this
Annual Report on Form 10-K. Unless required by law, we do not intend to publicly update or revise any forward-looking statements
to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports
we will file from time to time with the Securities and Exchange Commission, or the SEC, after the date of this Annual Report on Form
10-K.

” “will,” “would,” and other similar expressions that are predictions of or

“

Item 1.

Business.

Overview

PART I

We are a clinical-stage bio-pharmaceutical company focused on fighting cancer and other life threatening diseases by
discovering and developing novel small molecule drugs that target cellular metabolism. Tumor metabolism and immuno-oncology
have emerged as promising new fields for cancer drug discovery, and recent clinical successes with therapeutic agents in each field
have created fundamentally new potential therapies for cancer patients. With our unique approach, we have established a broad
cells and immune
pipeline of small molecule drug candidates that target enzymes controlling metabolically critical pathways in tumor
cells. We have four internally discovered clinical stage compounds that are all enzyme inhibitors. While we are primarily focused on
oncology, we may opportunistically develop therapeutics outside of oncology where we can leverage our existing expertise in immune
cell metabolism to treat life-threatening diseases with unmet need.

a

a

Through genetic mutations that alter fundamental metabolic pathways, cancer cells can acquire the ability to grow in an

ff

uncontrolled manner, but they also acquire nutrient dependencies that can differentiate them from normal cells. Targeting these
nutrient dependencies by inhibiting specific metabolic pathways in cancer cells is a novel therapeutic approach to blocking the
uncontrolled growth of tumors. Our lead product candidate, telaglenastat (CB-839), takes advantage of the critical dependency many
cancers including renal cell carcinoma, or RCC, have on the nutrient glutamine for growth and survival. We believe telaglenastat has
the potential to be an important new therapeutic agent with a novel mechanism of action for the treatment of a broad range of cancers,
and is the only selective allosteric glutaminase inhibitor currently in clinical trials. We retain all commercial rights to telaglenastat and
have been granted a U.S. patent, which includes composition of matter coverage for telaglenastat through 2032.

We are currently developing telaglenastat in combination with standard therapies in a select set of solid tumors. Our lead

development pathway is in RCC where we are evaluating telaglenastat in two randomized Phase 2 trials, including one with
registrational intent. The ENTRATA trial (NCT03163667) is a Phase 2 randomized, double blind trial designed to evaluate the safety
and efficacy of telaglenastat in combination with everolimus versus placebo with everolimus in patients with advanced clear cell RCC
who have been treated with at least two prior lines of systemic therapy, including
a VEGFR-targeted tyrosine kinase inhibitor. The
a
primary endpoint of ENTRATA is progression-free survival, or PFS. The trial enrolled 69 patients at multiple centers in the United
States. Enrollment is complete, and we plan to report efficacy and safety data from the trial in the second half of 2019.

2

Telaglenastat is also being investigated in the CANTATA trial (NCT03428217), which will enroll approximately 400 patients
and is designed with registrational intent. It is a global, randomized, double-blind trial designed to evaluate the safety and efficacy of
telaglenastat in combination with cabozantinib versus placebo with cabozantinib in patients with advanced clear cell RCC who have
been treated with one or two prior lines of systemic therapy. The primary endpoint is PFS by blinded independent review, and a key
secondary endpoint is overall survival. The trial is currently enrolling, and we plan to report topline efficacy and safety data in 2020.

Our product candidate, INCB001158 is an oral inhibitor of arginase, an enzyme that depletes the amino acid arginine, a key

metabolic nutrient for T-cells. INCB001158 was discovered by Calithera and is being co-developed with Incyte Corporation, or
Incyte, for oncology and hematology indications, and is currently being evaluated in Phase 1/2 trials as a monotherapy and in
combination with other anti-cancer agents. Arginase depletes arginine, a nutrient that is critical for the activation and proliferation of
the body’s cancer-fighting immune cells, such as cytotoxic T-cells and natural killer (NK)-cells. In some physiological circumstances
such as maternal-fetal immune tolerance, arginase-mediated depletion of arginine plays an important role in suppressing the immune
system. But in many tumors, arginase-expressing myeloid cells accumulate and maintain an immunosuppressive environment,
blocking the ability of T-cells and NK-cells to kill cancer cells. We have demonstrated that arginase-expressing myeloid cells can
accumulate in a number of cancers, including lung, gastrointestinal, bladder, renal, squamous cell head and neck and acute myeloid
leukemia. We believe that inhibitors of arginase can promote an anti-tumor immune response by restoring arginine levels, thereby
allowing activation of the body’s own immune cells, including cytotoxic T-cells and NK-cells. Data from the Phase 1/2 clinical trials
of INCB001158 are expected to be presented at a medical meeting in the second half of 2019.

Our product candidate CB-280 is an oral arginase inhibitor for the treatment of cystic fibrosis. It is a novel oral arginase
inhibitor which is solely owned by Calithera. In February, we initiated a Phase 1 trial designed to assess the safety, tolerability and
pharmacokinetics of CB-280 in healthy volunteers. We anticipate completion of this study in 2019.

CB-708, an orally administered small molecule inhibitor of CD73 and our fourth compound planned to enter clinical trials,

inhibits the oncometabolism target CD73. CD73 is an enzyme in the ATP adenosine metabolic pathway that plays a critical
immunosuppressive role in tumors. Initiation of a Phase 1 study for CB-708 is planned for 2019.

We are a fully integrated biopharmaceutical company with expertise in biology and chemistry, and our ongoing research efforts
are focused on discovering additional product candidates for the treatment of cancer and other life threatening diseases. In addition to
the products described above, we are also advancing additional preclinical stage programs with a focus on oncology.

Our Strategy

Our goal is to be the leader in the discovery, development and commercialization of novel small molecule drugs to address
unmet medical needs resulting from diseases affecting tumor and immune cell biology. Leveraging the potentially broad applicability
of our tumor and immune metabolism expertise, our primary focus is in oncology, though we may opportunistically develop
therapeutics outside of oncology where we can utilize existing expertise to treat diseases with unmet needs. The key element of our
strategy are to:

•

•

Advance and complete the clinical development of telaglenastat for RCC. We are developing telaglenastat for the
treatment of RCC in combination regimens with standard therapeutics. We have completed enrollment of the ENTRATA
trial, a Phase 2 randomized trial in advanced renal cell carcinoma. We are also currently enrolling the CANTATA trial, a
randomized Phase 2 global study with registrational intent that investigates the efficacy and safety of telaglenastat or
placebo in combination with cabozantinib, as second or third line therapy for patients with metastatic RCC. In April 2018,
telaglenastat received Fast Track designation from the FDA for the treatment of patients with metastatic RCC with
telaglenastat in combination with cabozantinib, who have received one or two prior lines of therapy, including at least one
vascular endothelial growth factor tyrosine kinase inhibitor or the combination of nivolumab and ipilimumab.

a

Advance the clinical development of telaglenastat for the treatment of additional cancers. Mutated oncogenes can
make cancer cells dependent on glutamine for growth and survival and glutaminase inhibitors have synergistic effects
when combined with many cancer drugs. Through the use of clinical collaborations and
exploratory studies, we are developing telaglenastat for additional oncology indications, including genetically defined
sub-populations. We currently have an ongoing clinical collaboration with Bristol-Myers Squibb for the treatment of
patients with several different tumor types using telaglenastat in combination with nivolumab, also known as OPDIVO®.
We also have a clinical collaboration with Pfizer to evaluate Pfizer
’s CDK4/6 inhibitor palbociclib, also known as
IBRANCE®, and the dual-mechanism poly (ADP-ribose) polymerase (PARP) inhibitor talazoparib also known as
TALZENNA®, each in combination with telaglenastat.

investigator-sponsored

a

a

3

•

•

•

•

Advance the clinical development for INCB001158 for the treatment of cancer with our partner Incyte.
INCB001158, an internally discovered molecule, is being evaluated in multiple clinical trials for the treatment of patients
with solid tumors both as a monotherapy, in combination with anti-PD-1 immunotherapy, and in three chemotherapy
regimens. INCB001158 is being developed as part of a collaboration and license agreement with Incyte.

Advance the clinical development of CB-280 as a new treatment modality for cystic fibrosis. Arginase and the amino
acid arginine are believed to be critical in the pathology of cystic fibrosis. Arginase impairs production of nitric oxide and
generates metabolites of arginine that may impair lung function. CB-280 is an orally administered small molecule
inhibitor of arginase. We have initiated a Phase 1 trial designed to assess the safety, tolerability and pharmacokinetics of
CB-280 in healthy volunteers.

Advance the clinical development of CB-708 as a new small molecule immunotherapy in the adenosine pathway for
the treatment of cancer. The oncometabolism target CD73 is an enzyme that plays a critical role in the process of ATP
conversion to adenosine.

Apply our insights in tumor metabolism and immuno-oncology to discover and develop additional targets beyond
our current pipeline. Our research focus has remained on metabolic enzymes, but our portfolio has diversified into the
therapeutic areas of oncology, immuno-oncology and cystic fibrosis.

Our Research and Development Programs

The following table summarizes our ongoing and planned clinical trials for our lead programs. We also intend to develop

additional product candidates from our research and discovery efforts in these fields.

ff

The Evolution of Cancer Therapeutic Agents

Cancer is characterized by the uncontrolled growth of aberrant cells in the body, leading to the invasion of essential organs and

often death. Unlike normal cells, which grow only in response to carefully regulated signals from the body, cancer cells are able to
proliferate largely without external signals. Cancer cells have gained this ability as the result of genetic alterations that change protein
expression or function. Invasive tumors, also known as metastatic tumors, which are the greatest threat to patients, typically have
multiple mutations, deletions or amplifications of genes encoding key proteins that regulate cell growth. These alterations allow the
cancer cell to grow, invade other tissues, and avoid recognition and destruction by the body’s immune system.

Initially, the pharmacological treatment of cancer utilized non-specific cytotoxic agents that targeted all rapidly dividing cells,
including normal cells. These non-specific cytotoxic agents have anti-tumor effects but their use is often limited by severe toxicities.
As the understanding of the proteins and pathways that enable cancer cells to thrive has evolved, newer more targeted agents have
been developed that block specific proteins that are activated in cancer cells.

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Tumor metabolism and tumor immunology represent two emerging fields for the development of therapeutics that can address

the challenges presented in treating cancers with multiple mutations or with mutations that are difficult to inhibit. Certain fundamental
changes in the metabolic pathways of cancer cells are observed in many cancer types with different mutational backgrounds.
Emerging therapeutic agents that can take advantage of these changes in metabolism have the potential to act broadly against many
cancers. Similarly, genetically diverse tumor types have developed mechanisms to escape destruction by the body’s immune system.
We believe additional opportunities exist to develop novel therapeutics that can further enhance the cancer-fighting ability of the
immune system, either as single agents, or in combination with approved therapeutics.

Rationale for Targeting Tumor Cell Metabolism

Cancer cells acquire the ability to grow rapidly and spread to new sites in the body by accumulating genetic alterations in

important genes that control growth and survival. These same genetic changes also result in altered metabolic pathways within the
cancer cells that fuel the high demand for energy and the production of new proteins, lipids, RNA and DNA needed for rapid
proliferation. We and others have observed that many types of cancer cells develop a unique dependence on specific metabolic
pathways upon which normal cells are less reliant. Accordingly, when these metabolic pathways are blocked, cancer cells are
essentially starved of critical nutrients and stop growing or die, whereas normal cells are largely unaffected.

a

a

Rewired metabolic signaling pathways are a hallmark of many cancers. Targeting oncometabolism is a novel therapeutic
approach to blocking cancer growth. Many cancer cells excessively consume nutrients, such as glutamine and glucose, to meet
increased metabolic demands. Glutamine is a critical fuel for the metabolic demands of cancer cell growth. Glutaminase catalyzes the
conversion of glutamine to glutamate and is frequently overexpressed in cancer. Cancer cells can become dependent on glutaminase in
response to oncogene signaling and thus glutaminase is emerging as a novel target for cancer therapeutics.

a

Our Programs

Our Glutaminase Program

It has been known for more than 50 years that most cancer cells require glutamine to thrive. Glutaminase converts glutamine to
glutamate, an amino acid required by cells for several essential functions. Many cancer cells, unlike normal cells, are dependent upon
the enzyme glutaminase to make sufficient amounts of glutamate to grow and survive. This higher dependency upon the glutaminase
pathway is likely due to an alternate use of the tricarboxylic acid cycle (also known as TCA or Krebs cycle) in cancer cells to generate
energy and metabolic intermediates required for cell growth and survival. Glutaminase inhibition in tumors implanted in animals leads
to tumor shrinkage and marked reduction in downstream metabolic intermediates including amino acids, nucleotides and glutathione,
whereas these metabolic intermediates are largely unaffected in normal tissues. This supports our hypothesis that glutaminase
inhibitors can selectively target tumors. When combined with therapeutic agents that target growth factor receptors and downstream
signaling pathways known to increase glucose utilization in tumor cells, it is possible to block glucose and glutamine utilization by
tumor cells, which we believe can provide an enhanced therapeutic benefit.

a

During an immune response, T-cell metabolism partially resembles the metabolism of cancer cells, and the need for both
glucose and glutamine increases markedly. The expression of the checkpoint PD-1 on T-cells following activation inhibits the uptake
and utilization of glucose, and blocks rapid proliferation. The checkpoint inhibitors that block PD-L1 or PD-1 restore the ability of T-
cells to utilize glucose. However, T-cells require both glucose and glutamine to proliferate. We believe that the accumulation of
glutamine through the inhibition of tumor cell glutaminase has the indirect effect of supplying T-cells and NK cells with a needed
nutrient. Since T-cell proliferation, unlike cancer cell proliferation, is not strongly inhibited by telaglenastat, we believe that
combining telaglenastat with inhibitors of the PD-L1/PD-1 checkpoint will support the activation and expansion of cytotoxic immune
cells in the nutrient-deprived tumor microenvironment and enhance anti-tumor responses.

Our Glutaminase Inhibitor Telaglenastat (CB-839)

Our lead product candidate, telaglenastat, takes advantage of the pronounced dependency many cancers have on the nutrient

glutamine for growth and survival. Telaglenastat is a novel, selective glutaminase inhibitor that blocks glutamine consumption in
tumor cells and demonstrates synergistic antitumor effects with multiple anticancer therapies in preclinical studies.

t

5

Many tumor cells depend on this metabolic pathway for growth and survival. Telaglenastat targets an allosteric binding site that
is highly specific for glutaminase. Inhibition of glutaminase prevents glutamine from serving its critical roles in nucleic acid synthesis,
DNA repair, cell cycle progression, energy generation, and protection from oxidative stress. Telaglenastat produces synergistic anti-
tumor effects in preclinical studies when used in combination with multiple classes of anti-cancer therapies. Because telaglenastat has
multiple mechanisms for impacting cellular metabolism, it has anti-tumor effects on a number of different tumor types when
combined with a variety of different agents, including tyrosine kinase inhibitors, mTOR inhibitors, taxanes, immune checkpoint
inhibitors, CDK4/6 inhibitors and PARP inhibitors.

Telaglenastat binds to a site on glutaminase distinct from the glutamine-binding active site, making it a highly selective and

unique allosteric inhibitor. Telaglenastat is well-tolerated in part because of this selectivity. We believe telaglenastat has the potential
to be an important new therapeutic agent with a novel mechanism of action for the treatment of a broad range of cancers, and is the
only selective allosteric glutaminase inhibitor currently in clinical trials. We retain all commercial rights to telaglenastat and have been
granted a U.S. patent, which provides composition of matter coverage for telaglenastat through 2032, as well as patents applied
for/issued in other territories.

In February 2014, we initiated three Phase 1 clinical trials to assess the safety and tolerability of telaglenastat in patients with

solid and hematological tumors. Most patients in these trials were relapsed and refractory to multiple approved therapies. These
studies showed that drug concentration generally increases with dose, and increasing concentration of telaglenastat in blood correlates
with increasing inhibition of glutaminase in blood platelets and tumors. The half-life of telaglenastat in blood is approximately four
hours. Telaglenastat is dosed with food on a twice-daily regimen.

Telaglenastat has been generally well-tolerated using doses up to 1000 mg administered either twice or three times daily. The
primary treatment-related toxicities with monotherapy telaglenastat observed to date include fatigue, gastrointestinal events (nausea,
vomiting, and constipation), elevations in liver function tests, or LFTs, and photophobia. The majority of these adverse events have
been mild to moderate (Grade 1/2) in severity.

Evaluation of telaglenastat in renal cell carcinoma (RCC)

New therapeutic options are needed to slow disease progression and improve overall survival in patients with advanced RCC.

Metastatic RCC is associated with a poor quality of life and high mortality, with a 5-year survival rate of 12%. According to the
American Cancer Society, 65,340 new cases of RCC were estimated to be diagnosed in the United States in 2018. It is the sixth most
common cancer diagnosed in men. Approximately 16% of patients with RCC present with metastatic disease; however, up to 40% of
patients develop metastatic disease after primary surgical treatment of localized RCC. New agents with novel mechanisms of action
are needed despite recent advances with antiangiogenic and immune therapies.

RCC commonly exhibits genetically-driven metabolic alterations that increase their dependence on glutamine, which creates

opportunities to develop novel agents targeting glutamine metabolism that could improve patient outcomes. Clear cell RCC, the most
common RCC subtype comprising 75-85% of patients, is closely associated with inactivation of the VHL tumor suppressor gene,
which can lead to activation of hypoxia-related pathways through HIFs (hypoxia-inducible transcriptional factors). VHL-deficient
cells and tumors are dependent on glutamine because of a HIF-mediated loss of ability to make fatty acids from glucose, which is a
characteristic that confers sensitivity to glutamine depletion. Targeted therapies that deprive VHL-deficient RCC cells of glutamine
could prove beneficial in the treatment of VHL-deficient tumors. Accordingly, we believe that most patients with RCC tumors will
have increased susceptibility to inhibition of glutaminase with telaglenastat.

Telaglenastat was evaluated as a monotherapy in an RCC cohort in the dose expansion stage of our solid tumor Phase 1 clinical

trial. Twenty-one efficacy-evaluable RCC patients were treated with single agent telaglenastat on the BID (twice-daily) dosing
schedule. One patient achieved a partial response with a substantial decrease in target lesions (32%), including a dramatic
improvement in the patient’s extensive lymphadenopathy. A total of 10 patients showed stable disease or better.

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In January 2018, we presented an update to the Phase 1b trial of telaglenastat in combination with everolimus in RCC. Twenty-

four patients, with a median of 3 prior therapies, were treated and evaluable for response. Ninety-two percent (92%) of patients
experienced control of their disease, including one patient with a partial response and 21 patients with stable disease. The median
progression free survival was 5.8 months, which compares favorably to historical data in this patient population. Patients were
administered telaglenastat in oral doses that ranged from 400-800 mg twice a day in combination with a fixed oral dose of everolimus
at 10 mg once a day. The addition of telaglenastat to full-dose everolimus has been well tolerated, with a similar safety profile to the
known profile of everolimus alone.

In February, we presented an update to the Phase 1b trial of telaglenastat in combination with cabozantinib in RCC. Among 12

evaluable late-line RCC patients treated with telaglenastat and cabozantinib, including 10 clear cell patients and two papillary patients,
100% of evaluable patients experienced tumor shrinkage and had disease control. The response rate was 50% in the clear cell patient
population, which compares favorably to historical data with cabozantinib monotherapy in which the overall response rate was 17% in
Exelixis’ METEOR trial. Patients enrolled in this trial had advanced or metastatic disease and had received a median of three prior
treatments, which included tyrosine kinase inhibitors, mTOR inhibitors, and immune checkpoint inhibitors. Patients were administered
telaglenastat in oral doses that ranged from 600-800 mg twice a day in combination with a fixed oral dose of cabozantinib at 60 mg
once a day.

On the basis of the efficacy and safety data presented, we are enrolling two Phase 2 randomized clinical trials of telaglenastat for

the treatment of RCC. The ENTRATA trial (NCT03163667) is a Phase 2 randomized, double blind trial designed to evaluate the
safety and efficacy of telaglenastat in combination with everolimus versus placebo with everolimus in patients with advanced clear
cell RCC who have been treated with at least two prior lines of systemic therapy, including a VEGFR-targeted tyrosine kinase
inhibitor. Patients are randomized in a 2:1 ratio. The trial opened for enrollment in August 2017 and completed enrollment in January
2019. The trial enrolled 69 patients at multiple centers in the United States. The primary endpoint of ENTRATA is progression-free
survival (PFS). We plan to report efficacy and safety data from the trial in the second half of 2019.

Telaglenastat is also being investigated in the CANTATA trial (NCT03428217), which will enroll approximately 400 patients
and is designed with registrational intent. It is a global, randomized, double-blind trial designed to evaluate the safety and efficacy of
telaglenastat in combination with cabozantinib versus placebo with cabozantinib in patients with advanced clear cell RCC who have
been treated with one or two prior lines of systemic therapy. The primary endpoint is PFS by blinded independent review, and a key
secondary endpoint is overall survival. Patients will be stratified by International Metastatic Renal Cell Carcinoma Database
Consortium, or IMDC, risk category and prior treatment with anti-PD(L)1 therapy. The study has 85% power to show a 31%
improvement in progression free survival. In support of the CANTATA trial, Exelixis, Inc. has entered into a material supply
agreement with us for cabozantinib. The FDA has granted Fast Track designation to telaglenastat in combination with cabozantinib,
for the treatment of patients with metastatic RCC who have received one or two prior lines of therapy, including at least one vascular
endothelial growth factor tyrosine kinase inhibitor or the combination of nivolumab and ipilimumab. The CANTATA trial opened for
enrollment in April 2018 and the primary endpoint analysis is expected in 2020.

Evaluation of telaglenastat in combination with talazoparib (Talzenna)

a
In October 2018, we announced a collaboration with Pfizer to evaluate the dual

mechanism poly ADP-ribose polymeriase

(PARP) inhibitor talazoparib (Talzenna) in combination with telaglenastat for the treatment of patients with renal cell carcinoma and
triple negative breast cancer. PARP inhibitors block repair of single stranded DNA breaks and are active cancer agents in patients with
DNA repair mutations. Telaglenastat synergizes with PARP inhibitors to impair DNA synthesis, enhance DNA damage, and block
cancer cell proliferation. The combination of telaglenastat with PARP inhibitors has demonstrated synergistic activity in a number of
preclinical cancer models, including RCC, TNBC, CRC, NSCLC, ovarian cancer and prostate cancer. There is a potential to develop
the combination therapy in patients with or without DNA repair mutations. Based on these data, we will initiate a Phase 1/2 clinical
trial of the combination of telaglenastat plus talazoparib in patients with RCC, and TNBC in the first quarter of 2019.

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Evaluation of telaglenastat in combination with palbociclib (Ibrance)

a

In October 2018, we announced a collaboration with Pfizer to evaluate the CDK4/6 inhibitor palbociclib (Ibrance) in
combination with telaglenastat for the treatment of patients with KRAS mutated colorectal cancer and patients with KRAS mutated
non-small cell lung cancer. Preclinical data suggest that telaglenastat, which is designed to starve tumor cells of the key nutrient
glutamine, synergizes with CDK4/6 inhibitors by enhancing cell cycle arrest and blocking cancer cell proliferation. The combination
of telaglenastat with CDK4/6 inhibitors has demonstrated synergistic activity in a number of preclinical cancer models, including
colorectal cancer (CRC), non-small cell lung carcinoma (NSCLC), triple negative breast cancer (TNBC) and ER+ breast cancer.
Based on these data, we will initiate a Phase 1/2 clinical trial of the combination of telaglenastat plus palbociclib in patients with
KRAS mutated CRC and patients with KRAS mutated NSCLC in the second quarter of 2019.

Evaluation of telaglenastat in PIK3CA-mutated colorectal carcinoma (CRC)

KK

CRC is one of the most common cancers with approximately 140,250 new cases and 50,630 deaths in the U.S. in 2018,

according to the American Cancer Society. The oncogene PIK3CA, which encodes the p110α catalytic subunit of
phosphatidylinositol-3-kinase α, is one of the most frequently mutated oncogenes in human cancers; mutations in PIK3CA are found
in approximately 10%-20% of CRC, which resulted in between 14,000 and 28,000 new cases of mutated PIK3CA CRC in the United
States in 2018.

An academic research group at Case Western Reserve University demonstrated that single agent telaglenastat inhibits the
growth of CRC tumors with PIK3CA mutations in immune-compromised mice, but CRC tumors with a normal PIK3CA gene were
not inhibited. Remarkably, the combination of telaglenastat with 5-florouracil induced complete and long-lasting tumor regressions in
animals bearing PIK3CA mutant CRC tumors, but not tumors with normal PIK3CA, suggesting that this combination therapy may be
a unique and effective approach in the clinic.

An investigator-sponsored clinical trial was initiated by Drs. Jennifer Eads, Alok Khorana, and Neal Meropol, at the Case

Western Comprehensive Cancer Center. This research is supported by a Stand Up To Cancer Colorectal Cancer Dream Team
Translational Research Grant (Grant Number: SU2C-AACR-DT22-17). The Phase 1 portion of the trial is designed to determine
safety and the recommended dose of the combination of telaglenastat and capecitabine in patients with advanced treatment-refractory
solid tumors, while the Phase 2 portion of the trial is designed to evaluate activity of the regimen in patients with late line PIK3CA
mutant colorectal cancer. As of the June 2018 data presentation, 16 patients have been enrolled, including 12 patients with CRC. CRC
patients must have progressed on prior fluoropyrimidine-containing therapy. In the dose escalation phase of the trial, there were no
dose limiting toxicities and telaglenastat plus capecitabine was well tolerated at the full dose of telaglenastat. The recommended Phase
2 BID. All late-line CRC patients had
2 dose for the combination is telaglenastat at 800 mg BID with capecitabine at 1000 mg/m
progressed on at least one prior fluoropyrimidine-containing regimen. For CRC patients with PIK3CA-mutated cancer (n=7), the
median PFS was 26 weeks and for patients with PIK3CA wild-type cancer (n=5) the median PFS was 16 weeks (p=0.058). These
results compare favorably to historical data in third line CRC patients receiving standard of care therapies, where the median PFS is
approximately 8 weeks. The Phase 2 dose expansion portion of this study in patients with PIK3CA mutant colorectal cancer is
ongoing.

a

Evaluation of telaglenastat with nivolumab

Cell lines and tumors that are treated with telaglenastat in vitro or in vivo, respectively, have been shown to have a substantial

increase in the content of glutamine. We believe that inhibition of glutaminase in the tumor results in a substantial increase in the
concentration of glutamine in the tumor microenvironment and that this glutamine supports the growth and proliferation of cytotoxic
T-cells and NK cells that reside within the tumor. Combination of telaglenastat with anti-PD-1 or anti-PD-L1 in mice results in a
doubling of the number of animals with complete tumor regressions.

In August 2016 we initiated a Phase 1/2 clinical trial of telaglenastat in combination with the PD-1 inhibitor nivolumab in

patients with RCC, melanoma, and NSCLC. The Phase 1/2 study is designed to assess the safety, pharmacokinetics and
pharmacodynamics of telaglenastat and nivolumab. A collaboration with Bristol-Myers Squibb, originally announced in December
2016 to evaluate nivolumab in combination with telaglenastat in patients with RCC, was expanded in May 2017 to include melanoma
and NSCLC. In November 2017, the melanoma cohort was expanded to enroll additional patients and the collaboration was expanded
such that subsequent melanoma development costs would be shared, and a joint development committee was established to guide the
development and regulatory strategy of the combination therapy.

8

In November 2017, we presented initial data from the ongoing study of five patient cohorts. The study enrolled three cohorts of

patients who had received a checkpoint inhibitor (PD-1/PD-L1) in the most recent line of therapy. Among 16 evaluable melanoma
patients, all of whom were progressing on a checkpoint inhibitor at study entry, one patient achieved a complete response and two
patients achieved partial responses. The overall response rate in this cohort was 19%, and the overall disease control rate was 44%.
Among six evaluable NSCLC patients, all of whom were progressing on a checkpoint inhibitor at study entry, 67% experienced stable
disease. Among eight evaluable RCC patients, 75% were progressing and 25% had stable disease at study entry. Stable disease was
achieved in 75%, all of whom were progressing on a checkpoint inhibitor at study entry. The study enrolled one cohort of RCC
patients who had received a checkpoint inhibitor in any prior line of therapy, but never achieved a response to checkpoint therapy.
Among seven evaluable checkpoint inhibitor experienced RCC patients with a median of four prior lines of therapy, 57% experienced
stable disease. The study enrolled another cohort of RCC patients who were previously treated with VEGF inhibiting therapy and were
naïve to checkpoint inhibitors. Among 19 evaluable checkpoint inhibitor naïve RCC patients, four patients (21%) achieved a partial
response and disease control rate was 74%. An analysis of all safety evaluable patients demonstrated that telaglenastat was well
tolerated when combined with nivolumab in melanoma, RCC and NSCLC patients. During dose escalation of the combination
therapy, there was one report of dose limiting Grade 3 ALT increase; however, no maximum tolerated dose was reported. The
majority of adverse events reported have been mild to moderate with the most common being fatigue, nausea and photophobia. With
3.7% immune-related adverse events Grade ≥ 3, the data suggest there was no apparent increase in the rate or severity of immune
related events compared to historical rates.

Evaluation of telaglenastat in combination with paclitaxel in triple negative breast cancer (TNBC)

In July 2017, we initiated a Phase 2 trial of telaglenastat with paclitaxel in TNBC patients. Based on our preliminary Phase 2

clinical trial efficacy results and recent changes in the competitive landscape of TNBC, we do not plan to pursue further development
of telaglenastat plus paclitaxel in triple negative breast cancer patients at this time. We will continue to assess the telaglenastat
competitive landscape to determine if there is rationale to pursue other combinations in TNBC.

Evaluation of telaglenastat in additional indications

Telaglenastat is also the subject of a number of additional investigator-sponsored clinical trials and is available under NIH/NCI

Cancer Therapy Evaluation Program (CTEP) collaborative agreement for clinical and non-clinical studies. Investigator-sponsored
Phase 2 trials are ongoing and recruiting patients in patients with RAS wild-type CRC and myelosdysplastic syndrome (MDS). A
Phase 1 trial sponsored by CTEP of telaglenastat in combination with carfilzomib and dexamethasone for the treatment of multiple
myeloma has opened recently. CTEP plans to initiate three additional Phase 1 and/or Phase 2 trials of telaglenastat for the treatment of
NSCLC, soft tissue sarcoma and glioma; the study designs for these trials are currently being finalized.

r

Preclinical Activity of Telaglenastat

ll

Telaglenastat is a novel, selective glutaminase inhibitor that blocks glutamine consumption in tumor cells and demonstrates

t

synergistic antitumor effects with multiple anticancer therapies in preclinical studies. Telaglenastat targets an allosteric binding site
that is highly specific for glutaminase. Inhibition of glutaminase prevents glutamine from serving its critical roles in nucleic acid
synthesis, DNA repair, cell cycle progression, energy generation, and protection from oxidative stress. Single-agent telaglenastat
blocks growth and survival in glutamine-dependent cancer cell lines and tumor xenograft models.

At plasma concentrations of telaglenastat of 300 nM or above, maximal effects on glutamine and glutamate levels in tumors

were observed. In contrast, normal tissues in the same animals showed only small changes in the levels of glutamine and glutamate,
despite exposure to high levels of telaglenastat. We believe that normal cells and tissues can utilize other pathways to produce
glutamate, whereas most tumor cells have been genetically re-wired to be highly reliant on glutaminase as their principal source of
glutamate. This provides a potential explanation for why high doses of telaglenastat are well tolerated in animals.

Telaglenastat produces synergistic antitumor effects in preclinical studies when used in combination with multiple classes of

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standard-of-care anticancer therapies. Telaglenastat also acted synergistically when combined with drugs that target the Ras/Raf and
PI3K/mTOR branches of growth factor signaling pathways. The two agents acting together have a greater effect on the growth and
survival of tumor cells than either agent used separately. Telaglenastat was synergistic with the epidermal growth factor receptor, or
EGFR, inhibitor erlotinib (marketed as Tarceva®) in non-small cell lung cancer, or NSCLC cells, with the multikinase inhibitors
sunitinib (marketed as Sutent®), sorafenib (marketed as Nexavar®), trametinib (marketed as Mekinist®), selumetinib (in
development), pazopanib (marketed as Votrient®), and cabozantinib (marketed as Cabometyx®) and the mTOR inhibitors everolimus
(marketed as Afinitor®) and temsirolimus (marketed as Toricel®) in RCC, cells. We believe these synergistic activities likely result
from the fact that growth factor pathways also control tumor metabolism and ultimately tumor cell dependence on glutamine and
glucose.

a

9

Glutaminase inhibition blocks the formation of key metabolic intermediates needed for nucleotide synthesis in cancer cells and

enhances the activity of DNA synthesis blocking agents, such as CDK4/6 inhibitors, and DNA repair inhibitors, such as PARP
inhibitors. Telaglenastat is synergistic with the CDK4/6 inhibitor palbociclib in ER+, estrogen-resistant breast cancer lines, which
results from enhanced cell cycle blockade. Furthermore, telaglenastat was recently shown to induce double-strand DNA breaks in
tumor cells and had synergistic activity in vitro and in vivo in RCC cell lines with the PARP inhibitor olaparib+ (marketed as
Lynparza®).

Inhibition of glutaminase also results in reduction in tumor pools of the antioxidant glutathione. The master transcriptional

regulator NRF2 induces more than 200 genes related to antioxidant stress including genes responsible for glutathione biosynthesis.
Somatic mutations in the NRF2/KEAP1 pathway are present in lung cancers, head and neck cancers, HCC and other cancer types.
Lung cancer models with NRF2/KEAP1 pathway mutations showed marked sensitivity to inhibition by telaglenastat which is believed
to be due to pronounced dependence on tumor cell glutathione production that is blocked by glutaminase inhibition.

In preclinical models, telaglenastat enhances the antitumor activity of immune checkpoint inhibitors by relieving nutrient
competition in the tumor microenvironment, which potentially supports T-cell function. Telaglenastat also acted synergistically when
combined with I-O drugs that inhibited the PD-1/PD-L1 immune cell checkpoint. Because many tumor cells consume large quantities
of glutamine, an important nutrient for T-cells and NK cells, the tumor microenvironment is thought to be severely depleted of this
nutrient. We believe that T-cells and NK cells benefit indirectly from treatment with telaglenastat by the increased availability of
glutamine in the tumor microenvironment. Telaglenastat significantly increased the number of tumor regressions observed in
syngeneic mice bearing CT-26 colorectal tumors when used in combination with an anti-PD-1 checkpoint inhibitor. Similar activity
was observed when an anti-PD-L1 checkpoint inhibitor was used in combination with telaglenastat. Anti PD-1 is known to increase
glucose utilization in T-cells, and we believe that telaglenastat, by blocking tumor consumption of glutamine, increases the
concentration of glutamine in the tumor microenvironment to further activate and stimulate the proliferation of T-cells and NK cells.

In IND-enabling toxicity studies, telaglenastat was well tolerated, with no dose limiting toxicities observed in either study. The
plasma concentration of telaglenastat measured at the highest dose in rats in these studies was greater than ten-fold above the 300 nM
concentration required in mice to achieve maximal effects on glutamine and glutamate levels in tumors and suppress tumor growth. In
independent studies, telaglenastat was shown to distribute broadly to all tissues except the brain, indicating that glutaminase could be
strongly inhibited in normal tissues without causing any major toxicological effects.

Our Arginase Inhibitor INCB001158

Immune surveillance is the process whereby the body identifies pathogens as well as abnormal cells that are either infected with

viruses or have become cancerous. Upon recognition of foreign or abnormal cells, a number of immune processes are activated to
allow the body to attack and clear cells. However, excessive or inappropriate activation of the immune system can have negative
consequences such as autoimmune disease, inflammation, or maternal-fetal rejection. Compensatory mechanisms have evolved to
control excessive inflammatory activity by dampening the immune stimulation. Cancerous cells that successfully evade immune
surveillance do so, in part, by blocking or reducing immune-stimulatory and/or enhancing immune-inhibitory activities. Immuno-
oncology therapies interfere with mechanisms that tumors have used to dampen the immune response.

Tumors have evolved a number of strategies to avoid recognition and destruction by the immune system. One key mechanism is

through suppression of cytotoxic T-cells that would otherwise attack and kill the cancer cells. Arginine is an amino acid that is
fundamental to the function of cytotoxic T-cells. Without arginine, tumor specific cytotoxic T-cells fail to activate, proliferate, and
mount an effective anti-tumor response.

10

In response to tumor-secreted factors, myeloid-derived suppressor cells, or MDSCs, and neutrophils accumulate in the tumor

and secrete the enzyme arginase, resulting in depletion of arginine from the tumor microenvironment. Significant infiltration by
arginase-expressing myeloid cells has been reported in many solid tumor types including lung cancer, colorectal esophageal, bladder,
head and neck, kidney cancer, and other tumor types. We have confirmed that arginase-expressing MDSCs are found by
immunohistochemistry, or IHC, in a wide range of tumor types including non-small cell lung (both adenocarcinoma and squamous
types), gastrointestinal cancers and bladder cancers as shown in the diagram below. Arginase enzyme levels are elevated in the plasma
of cancer patients across a wide range of malignancies. We believe that arginase inhibitors can promote an anti-tumor immune
response by restoring arginine levels, thereby allowing activation of the body’s cytotoxic T-cells.

t

Arginase is Elevated in Tumors and Plasma of Cancer Patients 

Arginase 1-positive myeloid cells in
tumor tissue (IHC)

Arginase 1 in cancer 
patient plasma

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INCB001158 has single agent anti-tumor activity in syngeneic mouse tumor models that has been demonstrated to act through

an immune mechanism. The compound reduces the growth rate of mouse melanoma and lung tumors in immunocompetent mice when
administered as a single agent. INCB001158 also enhances the activity of checkpoint inhibitors in the mouse breast cancer 4T1 model.
In this model, checkpoint inhibitors including anti-PD-1 and anti-CTLA-4 have no effect even when administered together.
INCB001158 has anti-tumor activity in this model when added to a combination of anti-PD-1 and anti-CTLA-4; furthermore, we
observed a 75% decrease in the number of lung metastases that were observed when INCB001158 was added to this regimen.

Inhibition of tumor growth was accompanied by an increase in the local concentration of arginine, and the induction of multiple

pro-inflammatory changes in the tumor microenvironment. Treatment with INCB001158 also enhanced the anti-tumor activity of
adoptive T-cell therapy, checkpoint blockade and chemotherapy in animal models.

INCB001158 entered clinical trials in September 2016, and is currently being tested in a Phase 1/2 clinical trial in patients with
solid tumors. The Phase 1 trial (NCT02903914) is designed to evaluate the safety and recommended Phase 2 dose of INCB001158 as
a mono-therapy, and in combination with immune checkpoint therapy. We presented mono-therapy data in June 2017 at the American
Society of Clinical Oncology, or ASCO, annual meeting. As of the data cut-off of April 24, 2017, a total of 17 patients with advanced
solid tumors had received single agent doses ranging from 50 to 150 mg twice a day in the ongoing Phase 1 trial. INCB001158 was
generally well tolerated with no drug-related serious adverse events. Treatment related adverse events were limited to one case each of
Grade 1 anemia, fatigue, increased ALT and myalgia. No Grade 3 treatment-related adverse events were reported. Reversible,
asymptomatic elevations of urinary orotic acid, a highly sensitive marker of urea cycle inhibition, were observed in two patients at 150
mg BID. Plasma levels of arginase were inhibited > 90% in all patients, and in 10 of 11 patients plasma arginine increased 1.5-fold or
more. The pharmacokinetics support BID dosing of INCB001158, as currently tested doses continuously maintained targeted levels of
arginase inhibition.

11

 
 
 
 
 
The recommended Phase 2 monotherapy dose has been selected, and we have initiated the evaluation of INCB001158 in
combination with pembrolizumab (Keytruda®). Expansion cohorts of INCB001158 dosed with pembrolizumab are enrolling patients
diagnosed with non-small cell lung cancer, melanoma, urothelial cell carcinoma, colorectal cancer, gastroesophageal cancer,
squamous cell head and neck cancer and mesothelioma. A second clinical trial (NCT03314935) designed to evaluate INCB001158 in
combination with chemotherapy opened for enrollment in November 2017. The Phase 1/2 trial in patients with solid tumors (including
metastatic microsatellite stable colorectal cancer, biliary tract cancer, gastroesophageal cancer, endometrial cancer or ovarian cancer),
is evaluating INCB001158 administered orally twice daily with either FOLFOX, gemcitabine/cisplatin or paclitaxel. Primary
endpoints include safety and objective response rate. An additional Phase 1/2 trial is planned evaluating the safety and anti-tumor
activity of INCB001158 in combination with daratumumab compared to daratumumab alone in refractory multiple myeloma patients.

In January 2017, we entered into a collaboration and license agreement, or the Incyte Collaboration Agreement, with Incyte
Corporation. Under the terms of the Incyte Collaboration Agreement, we granted Incyte an exclusive, worldwide license to co-develop
and co-commercialize our small molecule arginase inhibitors for hematology and oncology indications. The parties are collaborating
on and co-funding the development of the licensed products, with Incyte bearing 70% and us bearing 30% of global development
costs. The parties will share profits and losses in the U.S., with 60% to Incyte and 40% to us. We will have the right to co-detail the
licensed products in the U.S., and Incyte will pay us tiered royalties ranging from the low to mid-teens on net sales of licensed
products outside the U.S. We may opt out of our co-funding obligation, in which case the U.S. profit sharing will no longer be in
effect, and Incyte will pay us tiered royalties ranging from the low to mid-double digits on net sales of licensed products both in the
U.S. and outside the U.S., and additional royalties to reimburse us for previously incurred development costs.

a

In December 2014, we entered into an exclusive license agreement, or the Arginase License Agreement, with Mars, Inc., by and

through its Mars Symbioscience division, or Symbioscience, under which we have been granted the exclusive, worldwide license
rights to develop and commercialize Symbioscience’s portfolio of arginase inhibitors for use in human healthcare. Under the Arginase
License Agreement, we are responsible for the worldwide development and commercialization of the licensed products at our cost, are
required to use commercially reasonable efforts with respect to such development and commercialization activities, and must meet
certain general diligence obligations. We hold the first right to prosecute and to enforce all licensed rights under the Arginase License
Agreement throughout the world, and Symbioscience will retain certain step-in enforcement rights. Under the exclusivity provisions
of the Arginase License Agreement, each party agrees not to develop any other arginase inhibitors for use in human healthcare outside
of the scope of the Arginase License Agreement.

ff

Our Arginase Inhibitor CB-280

Arginase has been proposed to be critical in the pathophysiology of several non-oncology diseases, including cystic fibrosis
(CF). CF patients have a mutation in the gene that encodes the cystic fibrosis transmembrane-conductance regulator, or CFTR, making
them particularly susceptible to progressive loss in lung function. Airway disease in CF has a complex pathophysiology and, despite
recent advances in developing therapies for CF, there still remains an unmet need. CB-280 is a potent and selective oral inhibitor of
arginase. Arginase plays an important role in the pathophysiology of CF airway disease. Sputum from patients with CF has elevated
arginase activity leading to diminished arginine levels. Reduced arginine is thought to exacerbate pulmonary disease in CF by
impairing production of nitric oxide, leading to a diminished anti-microbial immune response and impaired airway function. It is
known that airways of patients with CF have lower than normal nitric oxide (NO) production, and lower NO levels directly correlate
with worsened lung function and increased colonization with pathogens, including Pseudomonas aeruginosa. Research in CF patients
has demonstrated that increasing arginine levels can increase the production of nitric oxide and improve lung function.

We, along with our pre-clinical collaborators, have validated arginase inhibitors in mouse

models of CF. Based on pre-clinical
studies in a mouse model of CFTR-mutated CF, we believe that arginase inhibition can lead to reduced infection and improved lung
function in CF patients. We believe these data support the clinical development of CB-280 in CF. In February, we initiated a Phase 1
trial conducted under an IND application. The first-in-human Phase 1 trial will evaluate the safety, tolerability and pharmacokinetic
profile of oral CB-280 in healthy volunteers. We anticipate completion of this study in 2019.

a

Arginase is also thought to play an important pathophysiologic role in several other diseases, including idiopathic pulmonary

fibrosis and other fibrotic diseases, primary pulmonary hypertension, acute respiratory distress syndrome, and others. Under our
collaboration agreement with Incyte, we retained the sole right to develop and commercialize CB-280 in specific non-oncology rare
disease indications, including CF.

12

Our CD73 Inhibitor CB-708

CD73 is an enzyme in the tumor microenvironment that produces adenosine, a powerful inhibitor of immune function in tumors.

CD73 is expressed across a wide range of tumors and tumor infiltrating leukocytes, and often correlates with poor prognosis.
Blockade of adenosine production by CD73 inhibition is expected to reverse immunosuppression in the tumor microenvironment and
enhance the immune system’s ability to fight the cancer.

We have developed an orally-bioavailable small molecule inhibitor of CD73, CB-708, that has anti-tumor activity in mouse

syngeneic models both as monotherapy and in combination with checkpoint inhibitors as well as chemotherapy. Preclinical data has
been accepted for presentation on April 2, 2019, at the 2019 American Association for Cancer Research annual meeting. We anticipate
that our CD73 inhibitor will enter clinical trials in 2019.

Intellectual Property

Our commercial success depends in large part on our ability to obtain and maintain intellectual property protection for our
product candidates, including telaglenastat, INCB001158, our preclinical compounds, and our core technologies. Our policy is to seek
to protect our intellectual property position by, among other methods, filing U.S. and foreign patent applications related to the
technology, inventions and improvements that are important to the development and implementation of our business strategy. We also
rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary position.

We file patent applications directed to our product candidates, preclinical compounds and related technologies to establish

intellectual property positions on these compounds and their uses in disease. We are seeking patent protection for the use of
biomarkers to identify patients most likely to benefit from treatment with our product candidates. As of December 31, 2018, we
owned six issued U.S. patents, seventeen issued foreign patents, and approximately 187 pending U.S. and foreign patent applications
in the following foreign jurisdictions: Argentina, Australia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Ecuador, the
Eurasian Patent Organization, Europe, Hong Kong, India, Israel, Japan, Malaysia, Mexico, New Zealand, Peru, Philippines,
Singapore, South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Ukraine, Venezuela, and Vietnam. We expect that these patents
and patent applications, if issued, would expire between April 2031 and June 2039.

As of December 31, 2018, the intellectual property portfolio for our glutaminase inhibitor program, which includes telaglenastat,

included four issued U.S. patents, three of which expire in 2032 and the other of which expires in 2035, claiming compositions of
matter for and methods of treating cancer with telaglenastat. We also have sixteen issued foreign patents, nine pending U.S. patent
applications and 94 corresponding pending PCT and foreign patent applications directed to compositions of matter for telaglenastat
and related chemical compounds, as well as methods of using these compounds. These pending patent applications also include two
pending U.S. patent applications relating to methods for measuring biomarkers in cancer patients to identify patients suitable for
treatment with glutaminase inhibitors. We expect that these patents and patent applications, if issued, would expire between November
2032 and November 2038.

The intellectual property portfolio for our arginase inhibitor program, which includes INCB001158, includes issued patents and

pending patent applications that we have exclusively licensed from Symbioscience as well as issued patents and pending patent
applications that we own. This portfolio includes nine issued U.S. patents, seven pending U.S. patent applications, 72 corresponding
pending foreign patent applications, and 33 issued foreign patents directed to various arginase inhibitors and therapeutic
methods of
using the compounds. We expect that these patents and patent applications, if issued, would expire between April 2031 and May 2038.

a

Manufacturing

We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currently rely, and expect

to continue to rely, on third parties to manufacture clinical supplies of telaglenastat, INCB001158, CB-280, and CB-708.
Telaglenastat, INCB001158, CB-280 and CB-708 are organic compounds of low molecular weight. Our third-party contract
manufacturers are currently producing telaglenastat, INCB001158, CB-280, and CB-708 for use in our clinical trials utilizing reliable
and reproducible synthetic processes and common manufacturing techniques. We obtain our supplies from manufacturers on a
purchase order basis and do not have any long-term arrangements. In addition, we do not currently have arrangements in place for
bulk drug substance or drug product services of telaglenastat, INCB001158, CB-280 or CB-708. We intend to identify and qualify
additional manufacturers to provide bulk drug substance and drug product services prior to submission of a new drug application to
the FDA if necessary to ensure sufficient commercial quantities of telaglenastat, CB-280 and CB-708. Incyte Corporation has assumed
responsibility for manufacturing of INCB001158 drug substance and drug product.

13

Research and Development

In the ordinary course of business, we enter into agreements with third parties, such as contract research organizations, medical

institutions, clinical investigators and contract laboratories, to conduct our clinical trials and aspects of our research and preclinical
testing. These third parties provide project management and monitoring services and regulatory consulting and investigative services.

Competition

The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a

strong emphasis on proprietary products. While we believe that our technology, development experience and scientific knowledge
provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical,
specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private
research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies
and new therapies that may become available in the future.

Our principal competitors in the fields of tumor immunology and/or tumor metabolism include Agios Pharmaceuticals, Inc.,
Arcus Biosciences, Inc., AstraZeneca plc, Boehringer Ingelheim GmbH, Bayer Pharma AG, Bristol-Myers Squibb Company, Celgene
Corporation, Corvus Pharmaceuticals, Inc., CureTech Ltd., Dynavax Technologies Corp., Eisai Co., Ltd., Eli Lilly and Company,
Forma Therapeutics Holdings, LLC, GlaxoSmithKline plc, Idera Pharmaceuticals, Inc., Immunomedics Inc., Incyte Corporation,
iTeos Therapeutics SA, Merck & Co., Merck KGaA, Nektar Therapeutics, NewLink Genetics Corporation, Novartis International AG,
Ono Pharmaceuticals Co., Ltd, Pfizer Inc, Roche Holdings AG and its subsidiary Genentech, Inc., Sprint Bioscience AB, Takeda
Pharmaceutical Co., Ltd, and TG Therapeutics, Inc.

Our primary competitors in the field of Cystic Fibrosis include AbbVie, Inc., AIT Therapeutics, Inc., Corbus Pharmaceuticals,

Inc., Flatley Discovery Lab, LLC, Galapagos NV, Novartis AG, Novoteris, LLC, Proteostatis Therapeutics, Inc., ProQR Therapeutics
NV, Translate Bio, Inc., and Vertex Pharmaceuticals, Inc.

The most common methods of treating patients with cancer are surgery, radiation and drug therapy, including chemotherapy,
hormone therapy, targeted drug therapy, and immunotherapy. There are a variety of available drug therapies marketed for cancer. In
many cases, these drugs are administered in combination to enhance efficacy. Any product candidates we develop will compete with
many existing drug and other therapies. To the extent they are ultimately used in combination with or as an adjunct to these therapies,
our product candidates will not be competitive with them. Some of the currently approved drug therapies are branded and subject to
patent protection, and others are available on
widely accepted by physicians, patients and third-party payors. In general, although there has been considerable progress over the past
few decades in the treatment of cancer and the currently marketed therapies provide benefits to many patients, these therapies all are
limited to some extent in their efficacy and frequency of adverse events, and none are successful in treating all patients. As a result,
the level of morbidity and mortality from cancer remains high.

a generic basis. Many of these approved drugs are well established therapies and are

a

r

In addition to currently marketed therapies, there are also a number of therapeutics in late stage clinical development to treat

cancer. These therapeutics in development may provide efficacy, safety, convenience and other benefits that are not provided by
currently marketed therapies. As a result, they may provide significant competition for any product candidate for which we may obtain
market approval.

a

Many of our competitors may have significantly greater financial resources and expertise in research and development,

manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved therapeutics than
we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources
being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining
qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as
in acquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may also prove to be
significant competitors, particularly through collaborative arrangements with large and established companies.

The key competitive factors affecting the success of telaglenastat, INCB001158, and any future product candidates we develop,

if approved, are likely to be their efficacy, safety, synergy with other approved therapies, convenience, price and the availability of
reimbursement from government and other third-party payors.

14

Our competitors may develop and commercialize therapeutics that are safer, more effective, have fewer or less severe side

a
effects, are more convenient or are less expensive than any therapeutics that we may develop. Our competitors also may obtain
or other regulatory approval for their therapeutics more rapidly than we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be
affected in many cases by insurers or other third-party and government programs seeking to control healthcare costs.

FDA

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 products, such as those we are developing.

United States Drug Approval Process

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implements

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 United States requirements at any time during the product development process, approval process or after approval, 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 may be marketed in the United States generally involves the following:

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•

•

•

contract manufacturing expenses, primarily for the production or purchase of clinical supplies;

completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good
laboratory practice, or GLP, regulations;

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

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

performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to
establish the safety and efficacy of the proposed drug for each indication;

submission to the FDA of a new drug application, or NDA;

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, or cGMP, requirements and to assure that the facilities,
methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and

FDA review and approval of the NDA.

Preclinical Studies and IND

Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to

a

assess the potential for adverse events, and in some cases, to establish a rationale for therapeutic use. The
studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor
must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or
literature and plans for clinical trials, among other things, to the FDA as part of an IND. Some long-term preclinical testing, such as
animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. 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 trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any
outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical
trials to commence.

conduct of preclinical

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Clinical Trials

Clinical trials involve the administration of the investigational new drug 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 trials 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 trial 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 trial must review and approve the plan
for any clinical trial before it commences at that institution, and the IRB must conduct continuing review. The IRB must review and
approve, among other things, the study protocol and informed consent information to be provided
operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to
the National Institutes of Health for public dissemination at www.clinicaltrials.gov. Human clinical trials are typically conducted in
three sequential phases, which may overlap or be combined:

to study subjects. An IRB must

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•

•

•

Phase 1: The drug 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 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 is administered to an expanded patient population in adequate and well-controlled clinical trials to
generate sufficient data to statistically confirm the efficacy and safety of the product for approval, to establish the overall
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risk-benefit profile of the product and to provide adequate information for the

labeling of the product.

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Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and, more frequently, if

serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified
period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial 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 trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s
requirements or if the drug has been associated with unexpected serious harm to patients.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, 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 requesting approval to market the product for one or more indications. Under federal law, the
submission of most NDAs is additionally subject to a substantial application user fee, and the sponsor of an approved NDA is also
subject to annual product and establishment user fees, which fees are typically increased annually.

The FDA conducts a preliminary review of all NDAs 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 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. Under these goals, the
FDA has committed to review most such applications for non-priority products within 10 months, and most applications for priority
review products, that is, drugs that the FDA determines represent a significant improvement over existing therapy, within six months.
The review process may be extended by the FDA for three additional months to consider certain information or clarification regarding
information already provided in the submission. 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, 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, the FDA will typically inspect one or more clinical sites to assure compliance with GCP and integrity of the clinical data
submitted.

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The testing and approval process requires substantial time, effort and financial resources, and each 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 and inspection of the manufacturing facilities, the FDA may issue an approval letter or a

ff

complete response letter. An approval letter authorizes commercial marketing of the drug 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, 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
a
refuse to approve the NDA. 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 trials, 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 restrictions or other risk management mechanisms,
including Risk Evaluation and Mitigation Strategies, or REMs, which can materially affect the potential market and profitability of the
product. 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.

the application does not satisfy the regulatory criteria for approval and

Fast Track Designation

The FDA is required to facilitate the development and expedite the review of drugs that are intended for the treatment of a

serious or life-threatening condition for which there is no effective treatment and which demonstrate the potential to address unmet
medical needs for the 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 submission of the IND for the
product candidate. The FDA must determine if the product candidate qualifies for Fast Track designation within 60 days after receipt
of the sponsor’s request.

In addition to other benefits, such as the ability of the sponsor to have more frequent interactions with the FDA, the FDA may

initiate review of sections of a Fast Track product’s NDA 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 fees. However, the FDA’s time period goal for reviewing a Fast Track application does not begin until the last section
of the NDA 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 trial process.

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Priority Review

Under FDA policies, a product candidate may be eligible for Priority Review, or review generally within a six-month time

frame from the time a complete application is accepted for filing. Products regulated by the FDA’s Center for Drug Evaluation and
Research, or CDER, are eligible for Priority Review if they provide a significant improvement compared to marketed products in the
treatment, diagnosis or prevention of a disease. 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 for a serious or life-threatening illness that

a

provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely
to predict clinical benefit. In clinical trials, 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 trials to confirm the effect on the
clinical endpoint. Failure to conduct required post-approval trials, 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.

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Breakthrough Therapy Designation

A sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a
drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition,
and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in
clinical development.
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. The FDA may later decide that the product candidate no longer meets
the conditions for breakthrough therapy designation.

d

Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs 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. Orphan drugr
designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the
drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or
shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular
active ingredient 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, for that indication. During the seven-year exclusivity period, the FDA may not approve any other
applications to market the same drug for the same orphan indication, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan drug exclusivity in that 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 for the same disease or condition, or
the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain
research and a waiver of the NDA application user fee.

Pediatric Exclusivity and Pediatric Use

Under the Best Pharmaceuticals for Children Act, or BPCA, certain drugs may obtain an additional six months of exclusivity, if

the sponsor submits information requested in writing by the FDA (a Written Request), relating to the use of the active moiety of the
drug in children. The FDA may not issue a Written Request for studies on unapproved or approved indications or where it determines
that information relating to the use of a drug in a pediatric population, or part of the pediatric population, may not produce health
benefits in that population.

In addition, the Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric studies for most drugs and

biologics, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under
PREA, original NDAs, biologics license application and supplements thereto, must contain a pediatric assessment unless the sponsor
has received a deferral or waiver. Unless otherwise required by regulation, PREA does not apply to any drug for an indication where
orphan designation has been granted. The required assessment must assess the safety and effectiveness of the product for the claimed
indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which
the product is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or all of the pediatric
subpopulations. A deferral may be granted for several reasons, including a finding that the drug or biologic is ready for approval for
use in adults before pediatric studies are complete or that additional safety or effectiveness data needs to be collected before the
pediatric studies begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a
deferral current or fails to submit a request for approval of a pediatric formulation.

Overview of FDA Regulation of Companion Diagnostics

We may seek to develop in vitro companion diagnostics for use in selecting the patients that we believe will respond to our

therapeutics. In August 2014, the FDA issued a guidance document that states that if safe and effective use of a therapeutic product
depends on an in vitro diagnostic, then the FDA generally will require approval or clearance of the diagnostic at the same time that the
FDA approves the therapeutic product. The guidance addresses issues critical to developing and obtaining approval or clearance for
companion diagnostics and provides guidance as to when the FDA will require that the in vitro diagnostic, which is regulated as a
medical device, and the drug be approved simultaneously. The FDA requires in vitro companion diagnostics intended to select the
patients who will respond to cancer treatment to obtain approval simultaneously with approval of the drug.

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Other Regulatory Requirements

Any drug manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by

the FDA, including, among other things, requirements relating to 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. For

example, the FDA may require post-marketing testing, including phase four clinical trials, and surveillance to further assess and
monitor the product’s safety and effectiveness after commercialization. Regulatory approval of oncology products often requires that
patients in clinical trials be followed for long periods to determine the overall survival benefit of the drug.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to

a

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 trials to assess new safety risks or imposition of distribution or other restrictions under a Risk Evaluation and
Mitigation Strategy program. Other potential consequences include, among other things:

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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 trials;

refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation
of product license 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 may

be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other
agencies actively enforce the laws and regulations prohibiting the promotion of off label uses, 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, among others, anti-
kickback statutes and false claims statutes. The federal healthcare program 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. 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.

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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. Violations of the anti-kickback statute
and false claims laws are punishable by imprisonment, criminal fines, civil monetary penalties, possible exclusion from participation
in federal healthcare programs and integrity oversight and reporting obligations to resolve allegations of non-compliance with this law.
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.

We may also be subject to additional federal and state laws related to physician transparency, data privacy and security, and
pharmaceutical manufacturer compliance guidelines, including the federal Health Insurance Portability and Accountability Act of
1996 and the Physician Payments Sunshine Act.

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 trials, 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
trials 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.

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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.

Employees

As of December 31, 2018, we had 79 full-time employees, including 29 employees with Ph.D. or M.D. degrees. Of these full-

time employees, 59 employees are engaged in research and development activities. None of our employees are represented by a labor
union or covered by a collective bargaining agreement.

Facilities

We occupy approximately 54,000 square feet of office and laboratory space in South San Francisco, California. Our lease term
is through January 2024, with an option to extend another two years to January 2026. Approximately 21,000 square feet of laboratory
space have been leased to another biotechnology company under a sublease agreement that expires in February 2020. We believe that
our facility is sufficient to meet our current needs and that suitable additional space will be available as and when needed.

Legal Proceedings

From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Our
management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a
material adverse effect on our results of operations, financial condition or cash flows.

Available Information

We were incorporated in the State of Delaware on March 9, 2010. Our website address is www.calithera.com. Information

found on, or accessible through, our website is not a part of, and is not incorporated into, this Annual Report on Form 10-K.

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We file electronically with the U.S. Securities and Exchange Commission, or SEC, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended. We make available on our website at
www.calithera.com, free of charge,
copies of these reports as soon as reasonably practicable after filing these reports with, or furnishing them to, the SEC.

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Item 1A.

Risk Factors.

Our business involves significant risks, some of which are described below. You should carefully consider these risks, in
addition to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and
related notes and the section of this report titled “Management
’
’s Discussion and Analysis of Financial Condition and Results of
Operations.” The occurrence of any of the events or developments described in the following risk factors and the risks described
elsewhere in this report could harm our business, financial condition, results of operations, cash flows, the trading price of our
common stock and our growth prospects. Additional risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business operations. This report on Form 10-K also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result
of factors that are described in the following risk factors and the risks described elsewhere in this report.

ii
“

Risks Related to Our Financial Position and Need For Additional Capital

We have incurred significant operating losses since our inception and anticipate that we will continue to incur substantial
operating losses for the foreseeable future. We may never achieve or maintain profitability.

Since our inception, we have incurred significant operating losses. Our net loss was $54.6 million, $27.8 million, and $38.0
million for year ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, we had an accumulated deficit of
$196.2 million. To date, we have financed our operations through sales of our capital stock and payments from the Incyte
Collaboration Agreement. We have devoted substantially all of our financial resources and efforts to research and development. We
expect that it will be many years, if ever, before we receive regulatory approval and have a product candidate ready for
commercialization. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our
net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase
substantially if and as we:

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advance further into clinical trials for our existing clinical product candidates, telaglenastat, INCB001158, and CB-280;

continue the preclinical development of our research programs and advance candidates into clinical trials;

identify additional product candidates and advance them into preclinical development;

pursue regulatory approval of product candidates;

seek marketing approvals for our product candidates that successfully complete clinical trials;

establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain
marketing approval;

maintain, expand and protect our intellectual property portfolio;

hire additional clinical, regulatory and scientific personnel;

add operational, financial and management information systems and personnel, including personnel to support product
development;

acquire or in-license other product candidates and technologies; and

operate as a public company.

We have never generated any revenue from product sales and may never be profitable. To become and remain profitable, we
and our collaborators must develop and eventually commercialize one or more products with significant market potential. This will
require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our
product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those product
candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements. We may never succeed in
these activities and, even if we do, may never generate revenue that is significant or large enough to achieve profitability. Our failure
to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain our
research and development efforts, expand our business or continue our operations. A decline in the value of our company could also
cause you to lose all or part of your investment.

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We will need substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or
eliminate our product development programs or commercialization efforts.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and

development of, continue and initiate clinical trials of and seek marketing approval for our product candidates, specifically
telaglenastat and INCB001158, and as we become obligated to make milestone payments pursuant to our outstanding license
agreements. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant
commercialization expenses related to product sales, marketing, manufacturing and distribution of the approved product.

Our future capital requirements will depend on many factors, including:

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•

the scope, progress, results and costs of drug discovery, clinical development, laboratory testing and clinical trials for our
product candidates, in particular telaglenastat and INCB001158;

the costs, timing and outcome of any regulatory review of our product candidates, telaglenastat and INCB001158;

the cost of any other product programs we pursue;

the costs and timing of commercialization activities, including manufacturing, marketing, sales and distribution, for any
product candidates that receive marketing approval;

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property
rights and defending intellectual property-related claims;

achieving the milestones set forth in the Incyte Collaboration Agreement;

our ability to establish and maintain collaborations on favorable terms, if at all; and

a

the extent to which we acquire or in-license other product candidates and technologies.

Identifying potential product candidates and conducting preclinical studies and clinical trials are time consuming, expensive and
uncertain processes that take years to complete, and we may never generate the necessary data or results required to obtain marketing
approval and achieve product sales for any of our current or future product candidates. In addition, our product candidates, if
approved, may not achieve commercial success. Our commercial revenue, if any, will be derived from sales of products that we do not
expect to be commercially available for many years, if at all.

We do not have any material committed external source of funds or other support for our development efforts other than the

Incyte Collaboration Agreement for the development and commercialization of small molecule arginase inhibitors in hematology and
oncology indications, including INCB001158, which agreement is terminable by Incyte for convenience or following our uncured
breach. If Incyte terminates our collaboration agreement, we would need to obtain substantial additional sources of funding to develop
INCB001158 as currently contemplated. If such additional funding is not available on favorable terms or at all, we may need to delay
or reduce the scope of our INCB001158 development program or dedicate resources allocated to other programs to fund
INCB001158. We may also need to grant rights in the United States, as well as outside the United States, to INCB001158 to one or
more partners.

Accordingly, we will need substantial additional funding in connection with our continuing operations and to achieve our goals.

We expect that our existing cash, cash equivalents, and investments will be sufficient to enable us to meet our current operating plan
for at least the next 12 months. However, our existing cash, cash equivalents and investments may prove to be insufficient for these
activities. 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. Adequate additional financing may not be available to us on
acceptable terms, or at all. In addition, we may seek additional financing due to favorable market conditions or strategic
considerations, even if we believe we have sufficient funds for our operating plans.

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

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a

combination of equity and debt financings, as well as entering into new collaborations, strategic alliances and licensing arrangements.
We do not have any committed external source of funds, other than our collaborations, which are limited in scope and duration. To the
extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted,
and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common
stockholder. 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, and may be secured by all or a
portion of our assets. If we raise funds by entering into new collaborations, strategic alliances or licensing arrangements in the future
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 or through collaborations, strategic alliances or licensing
arrangements 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.

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Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future
viability.

We were founded in March 2010 and our operations to date have been limited to organizing and staffing our company, business

planning, raising capital, developing our technology, identifying potential product candidates, undertaking preclinical studies and
commencing Phase 1 and 2 clinical trials of our product candidates. CB-280, INCB001158, and telaglenastat are currently being
evaluated in Phase 1, Phase 1/2, and Phase 2 clinical trials, respectively. All of our other programs are in research and preclinical
development. We have not yet demonstrated our ability to successfully complete any clinical trials, including large-scale, pivotal
clinical trials required for regulatory approval of our product candidates, obtain marketing approvals, manufacture a commercial scale
product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful
commercialization. Typically, it takes many years to develop one new product from the time it is discovered to when it is
commercially available. Consequently, any predictions made about our future success or viability may not be as accurate as they could
be if we had a longer operating history or if we had product candidates in advanced clinical trials.

In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors

that may alter or delay our plans. We will need to transition from a company with a research focus to a company capable of supporting
development activities and, if a product candidate is approved, a company with commercial activities. We may not be successful in
any step in such a transition.

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

The U.S. government recently enacted comprehensive tax legislation that includes significant changes to the taxation of business

entities. These changes include, among others, (i) a permanent reduction to the corporate income tax rate, (ii) a partial limitation on
the deductibility of business interest expense, (iii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide
income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base) and (iv) a one-time tax
on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate. Notwithstanding the reduction
in the corporate income tax rate, the overall impact of this tax reform is uncertain, and our business and financial condition could be
adversely affected.

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Risks Related to Drug Discovery, Development and Commercialization

Our approach to the discovery and development of product candidates that target tumor metabolism and tumor immunology is
unproven and may never lead to marketable products.

Our scientific approach focuses on using our understanding of cellular metabolic pathways and the role of glutaminase in these

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pathways, as well as the role of arginase in the anti-tumor immune response, to identify molecules that are potentially promising as
therapies for cancer indications. Any product candidates we develop may not effectively modulate metabolic or immunology
pathways. The scientific evidence to support the feasibility of developing product candidates based on inhibiting tumor metabolism or
impacting the anti-tumor immune response are both preliminary and limited. Although preclinical studies suggest that inhibiting
glutaminase can suppress the growth of certain cancer cells, to date no company has translated this mechanism into a drug that has
received marketing approval. Even if we are able to develop a product candidate in preclinical studies, we may not succeed in
demonstrating the safety and efficacy of the product candidate in human clinical trials. Our expertise in cellular metabolic pathways,
the role of glutaminase in these pathways, and the role of arginase in the anti-tumor immune response may not result in the discovery
and development of commercially viable products to treat cancer.

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We are very early in our development efforts, which may not be successful.

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and co-fund the development of INCB001158 for hematology

We have invested a significant portion of our efforts and financial resources in the identification of our most advanced product
candidates, telaglenastat and INCB001158, which are being evaluated in Phase 2 and Phase 1/2 clinical trials, respectively. We have
entered into the Incyte Collaboration Agreement for the development and commercialization of INCB001158. Pursuant to our
agreement, we collaborate on
opt out of our co-funding obligation, Incyte will fund 70% of global development costs and we will be responsible for the remaining
30%. All of our other programs are in research and preclinical development. It is also too early in our development efforts to
determine whether our product candidates will demonstrate single-agent activity or will be developed for use in combination with
other approved therapies, or both. As a result, the timing and costs of the regulatory paths we will follow and marketing approvals
remain uncertain. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend
heavily on the successful development and eventual commercialization of telaglenastat and INCB001158. The success of
telaglenastat, INCB001158 and any other product candidates we may develop will depend on many factors, including the following:

and oncology indications, and, unless we

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successful enrollment in, and completion of, clinical trials;

demonstrating safety and efficacy;

receipt of marketing approvals from applicable regulatory authorities;

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

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

launching commercial sales of the product candidates, if and when approved, whether alone or selectively in collaboration
with others;

our ability to successfully develop and commercialize small molecule arginase inhibitors, including INCB001158 with
Incyte;

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

effectively competing with other therapies;

a continued acceptable safety profile of the products following approval;

enforcing and defending intellectual property rights and claims; and

other legal, regulatory, compliance and fraud and abuse matters.

If we do not accomplish one or more of these goals in a timely manner, or at all, we could experience significant delays or an

inability to successfully commercialize our product candidates, which would harm our business.

We may not be successful in our efforts to identify or discover potential product candidates.

Our drug discovery efforts may not be successful in identifying compounds that are useful in treating cancer. Our research
programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical
development for a number of reasons. In particular, our research methodology used may not be successful in identifying compounds
with sufficient potency or bioavailability to be potential product candidates. In addition, our potential product candidates may, on
further study, be shown to have harmful side effects or other negative characteristics.

Research programs to identify new product candidates require substantial technical, financial and human resources. We may

choose to focus our efforts and resources on potential product candidates that ultimately prove to be unsuccessful. If we are unable to
identify suitable compounds for preclinical and clinical development, we will not be able to generate product revenue, which would
harm our financial position and adversely impact our stock price.

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If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do
not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to
complete, the development and commercialization of our product candidates.

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Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must complete
preclinical development and in the case of INCB001158, together with Incyte, then conduct extensive clinical trials to demonstrate the
safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take
many years to complete and is uncertain as to outcome. A failure of one or more clinical trials could occur at any stage of testing. The
outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of
a particular clinical trial do not necessarily predict final results of that trial.

Moreover, preclinical and clinical data are often susceptible to multiple interpretations and analyses. Many companies that have

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

We may experience numerous unforeseen events during, or as a result of, preclinical testing or clinical trials that could delay or

prevent our ability to receive marketing approval or commercialize our product candidates, including that:

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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct
a clinical trial at a prospective trial site;

we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols
with prospective trial sites;

clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators
may require us, to conduct additional clinical trials or abandon product development programs;

the number of patients required for clinical trials of our product candidates may be larger than we anticipate; enrollment in
these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate
than we anticipate;

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

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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for
various reasons, including noncompliance with regulatory requirements or a finding that the participants are being
exposed to unacceptable health risks;

the cost of clinical trials of our product candidates may be greater than we anticipate; and

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product
candidates may be insufficient or inadequate.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently
contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these
trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

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be delayed in obtaining marketing approval for our product candidates;

not obtain marketing approval at all;

obtain approval for indications or patient populations that are not as broad as intended or desired;

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed
warnings;

be subject to additional post-marketing testing requirements; or

have the product removed from the market after obtaining marketing approval.

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Product development costs will also increase if we experience delays in testing or in receiving marketing approvals. We do not

know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all.
Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our
product candidates, could allow our competitors to bring products to market before we do, and could impair our ability to successfully
commercialize our product candidates, any of which may harm our business and results of operations.

If we experience delays or difficulties in enrolling patients in clinical trials, our receipt of necessary regulatory approvals could be
delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to identify and enroll a
sufficient number of eligible patients to participate in these trials as required by the U.S. Food and Drug Administration, or the FDA,
or analogous regulatory authorities outside the United States. In addition, some of our competitors may have ongoing clinical trials for
product candidates that would treat the same indications as our product candidates, and patients who would otherwise be eligible for
our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Patient enrollment is also affected by
other factors, including:

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severity of the disease under investigation;

availability and efficacy of approved medications for the disease under investigation;

eligibility criteria for the trial in question;

perceived risks and benefits of the product candidate under study;

efforts to facilitate timely enrollment in clinical trials;

patient referral practices of health care professionals;

the ability to monitor patients adequately during and after treatment; and

proximity and availability of clinical trial sites for prospective patients.

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or may require us to

abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for
our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

If serious adverse effects or unexpected characteristics of our product candidates are identified during development, we may ne
to abandon or limit our development of some or all of our product candidates.

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We are currently evaluating CB-280, INCB001158, and telaglenastat in Phase 1, Phase 1/2, and Phase 2 clinical trials,
respectively. All our other programs are in research and preclinical development and their risk of failure is high. It is impossible to
predict when or if any of our product candidates will prove effective or safe in humans or will receive marketing approval. Adverse
events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, any current or
future collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of
our product candidates and could result in a more restrictive label, or the delay or denial of marketing approval by the FDA or
comparable foreign regulatory authorities. If adverse effects were to arise in patients being treated with any of our product candidates,
it could require us to halt, delay or interrupt clinical trials of such product candidate or adversely affect our ability to obtain requisite
approvals to advance the development and commercialization of such product candidate. If our product candidates are associated with
undesirable side effects or have characteristics that are unexpected, we may need to abandon their development or limit development
to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more
acceptable from a risk-benefit perspective. Many agents that initially showed promise in early stage testing for treating cancer or other
diseases have later been found to cause side effects that prevented further development of the agent.

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We are in early clinical trials with telaglenastat and INCB001158 and we have seen several adverse events, or AEs, deemed

possibly or probably related to study drug in each of those programs. For example, in our evaluation of telaglenastat with nivolumab,
during the dose escalation of the combination therapy, there was one report of dose limiting Grade 3 ALT increase. We have treated
an insufficient number of patients to fully assess the safety of telaglenastat and INCB001158 and, as these trials progress, we may
experience frequent or severe adverse events. Our ongoing and planned trials for telaglenastat and our and Incyte’s ongoing and
planned trials for INCB001158 may fail due to safety issues, and we may need to abandon development of telaglenastat or
INCB001158. Our other research programs may fail due to preclinical or clinical safety issues, causing us to abandon or delay the
development of a product candidate from these programs.

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Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials.

The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and
interim results of clinical trials do not necessarily predict success in future clinical trials. Many companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier
development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval
of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may
experience delays in designing and executing clinical trials to support marketing approval. In addition, preclinical and clinical data are
often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed
satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates.
Even if we, or our current and future collaborators, believe that the results of clinical trials for our product candidates warrant
marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our
product candidates.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same

product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type
of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout
among clinical trial participants. If we fail to receive positive results in clinical trials of our product candidates, the development
timeline and regulatory approval and commercialization prospects for our most advanced product candidates, and, correspondingly,
our business and financial prospects would be negatively impacted.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product
candidates or indications that may be more profitable or for which there is a greater likelihood of success.

We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other
product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions
may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and
future research and development programs and product candidates for specific indications may not yield any commercially viable
products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may
relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements, including our
agreement with Incyte, in cases in which it would have been more advantageous for us to retain sole development and
commercialization rights to such product candidate. In addition, under our agreement with Incyte, Incyte has the right to
commercialize INCB001158 in hematology and oncology indications. If Incyte does not successfully commercialize INCB001158, we
may be unable to realize the full value from our collaboration with Incyte.

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Even if any of our product candidates receives marketing approval, we or others may later discover that the product is less effective
than previously believed or causes undesirable side effects that were not previously identified, which could compromise our ability,
or that of any future collaborators, to market the product.

Clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical

trials. Consequently, it is possible that our clinical trials, or those of any future collaborator, may indicate an apparent positive effect
of a product candidate that is greater than the actual positive effect, if
any, or alternatively fail to identify undesirable side effects. If,
following approval of a product candidate, we, or others, discover that the product is less effective than previously believed or causes
undesirable side effects that were not previously identified, any of the following adverse events could occur:

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regulatory authorities may withdraw their approval of the product or seize the product;

we, or any future collaborators, may be required to recall the product, change the way the product is administered or
conduct additional clinical trials;

additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;

regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a
contraindication;

we, or any future collaborators, may be required to create a Medication Guide outlining the risks of the previously
unidentified side effects for distribution to patients;

we, or any future collaborators, could be sued and held liable for harm caused to patients;

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the product may become less competitive; and

our reputation may suffer.

Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by
health care professionals, patients, third party payors and others in the medical community necessary for commercial success.

If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by
health care professionals, patients, third party payors and others in the medical community for us to achieve commercial success. For
example, current cancer treatments like chemotherapy and radiation therapy for certain diseases and conditions are well established in
the medical community, and doctors may continue to rely on these treatments. If our product candidates do not achieve an adequate
level of acceptance, we may not generate significant product revenue to become profitable. The degree of market acceptance of our
product candidates, if approved for commercial sale, will depend on a number of factors, including:

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the efficacy and potential advantages compared to alternative treatments;

our ability to offer any approved products for sale at competitive prices;

convenience and ease of administration compared to alternative treatments;

the willingness of the target patient population to try new therapies and of health care professionals to prescribe these
therapies;

the strength of marketing and distribution support;

third-party coverage and sufficient reimbursement; and

the prevalence and severity of any side effects.

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

We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of

pharmaceutical products. To achieve commercial success for any approved product for which we retain sales and marketing
responsibilities, we must either develop a sales and marketing organization or outsource these functions to other third parties. For our
small molecule arginase inhibitors in hematology and oncology indications, including INCB001158, unless we establish our own sales
and marketing capabilities, we will be significantly dependent on Incyte
commercialize these products. In the future, we may choose to build a focused sales and marketing infrastructure to sell some of our
product candidates if and when they are approved.

’s sales and marketing infrastructure to effectively

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There are risks involved both with establishing our own sales and marketing capabilities and with entering into arrangements
with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and
could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish
marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these
commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and
marketing personnel.

Factors that may inhibit our efforts to commercialize our product candidates on our own include:

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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

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the inability of sales personnel to obtain access to health care professionals or persuade adequate numbers of health care
professionals to prescribe any future products; and

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

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the
profitability of these product revenue to us may be lower than if we were to market and sell any products that we develop ourselves. In
addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may
be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to
devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing

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

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

The development and commercialization of new drug products is highly competitive. Research and discoveries by others may

result in breakthroughs which may render our products obsolete even before they generate any revenue. We face competition with
respect to our current product candidates, and will face competition with respect to any product candidates that we may seek to
develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and
biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market
and sell products or are pursuing the development of products for the treatment of the cancer indications for which we are focusing our
product development efforts. Some of these competitive products and therapies are based on scientific approaches that are the same as
or similar to our approach and others are based on entirely different approaches. Potential competitors also include academic
institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and
establish collaborative arrangements for research, development, manufacturing and commercialization.

We are developing our product candidates for the treatment of various cancers. There are a variety of available drug therapies

marketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy. Some of the currently approved
drug therapies are branded and subject to patent protection, and others are available on a generic basis. Many of these approved drugs
are well-established therapies and are widely accepted by health care professionals, patients and third-party payors. Insurers and other
third-party payors may also encourage the use of generic products. We expect that if our product candidates are approved, they will be
priced at a significant premium over competitive generic products. This may make it difficult for us to achieve our business strategy of
using our product candidates in combination with existing therapies or replacing existing therapies with our product candidates.

There are also a number of product candidates in preclinical and clinical development by third parties to treat cancer by
targeting cellular metabolism. Our principal competitors in the fields of tumor immunology and/or tumor metabolism include Agios
Pharmaceuticals, Inc., Arcus Biosciences, Inc., AstraZeneca plc, Boehringer Ingelheim GmbH, Bayer Pharma AG, Bristol-Myers
Squibb Company, Celgene Corporation, Corvus Pharmaceuticals, Inc., CureTech Ltd., Dynavax Technologies Corp., Eisai Co., Ltd.,
Eli Lilly and Company, Forma Therapeutics Holdings, LLC, GlaxoSmithKline plc, Idera Pharmaceuticals, Inc., Immunomedics Inc.,
Incyte Corporation, iTeos Therapeutics SA, Merck & Co., Merck KGaA, Nektar Therapeutics, NewLink Genetics Corporation,
Novartis International AG, Ono Pharmaceuticals Co., Ltd, Pfizer Inc, Roche Holdings AG and its subsidiary Genentech, Inc., Sprint
Bioscience AB, Takeda Pharmaceutical Co., Ltd, and TG Therapeutics, Inc.

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Our primary competitors in the field of Cystic Fibrosis include AbbVie, Inc., AIT Therapeutics, Inc., Corbus Pharmaceuticals,

Inc., Flatley Discovery Lab, LLC, Galapagos NV, Novartis AG, Novoteris, LLC, Proteostatis Therapeutics, Inc., ProQR Therapeutics
NV, Translate Bio, Inc., and Vertex Pharmaceuticals, Inc.

Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are
developing or that would render our product candidates obsolete or non-competitive. In addition, our competitors may discover
biomarkers that more efficiently measure metabolic pathways than our methods, which may give them a competitive advantage in
developing potential products. Our competitors may also obtain marketing approval from the FDA or other regulatory authorities for
their products sooner than we may obtain approval for ours, which could result in our competitors establishing a strong market
position before we are able to enter the market. Many of our competitors have significantly greater financial resources and expertise in
research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing
approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more
resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to
be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties
may compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and
patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

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

The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary widely from country to
country. In the United States, new and future legislation may significantly change the approval requirements in ways that could
involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it
can be marketed. In many countries, the pricing review period begins after marketing or product-licensing approval is granted. In
some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial

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marketing approval is granted. As a result, we might obtain marketing approval for a drug in a particular country, but then be subject
to price regulations that delay its commercial launch, possibly for lengthy time periods, and negatively impact the revenue we are able
to generate from the sale of the drug in that country. Adverse pricing limitations may hinder our ability to commercialize and generate
revenue from one or more product candidates, even if our product candidates obtain marketing approval.

Our ability to commercialize any product candidates successfully also will depend in part on the extent to which reimbursement

for these products and related treatments will be available from government health programs, 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 significant 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 payment 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. Reimbursement may not be
available for any product that we commercialize and, if reimbursement is available, the level of reimbursement may not be sufficient.
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 successfully commercialize any product
candidate for which we obtain marketing approval.

There may be significant delays in obtaining reimbursement for newly approved products, and coverage may be more limited

than the purposes for which the product is approved by the FDA or similar regulatory authorities outside the United States. Moreover,
eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including
research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be
sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the
medical circumstances under which it is used, may be based on reimbursement levels already set for lower cost products or procedures
or may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or
rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict
imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon
Medicare coverage policies and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain
coverage and profitable payment rates from both government-funded programs and private payors for any approved products that we
develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize our
approved products and our overall financial condition.

In addition, there has been heightened governmental scrutiny of pharmaceutical pricing practices in light of the rising cost of

prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal
and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between
pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. We
continue to monitor and evaluate the potential impact of these legislative actions and their effect on our business and operations.

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

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and

will face an even greater risk if we commercially sell any products that we may develop after approval. If we cannot successfully
defend ourselves against claims that our product candidates caused injuries, we could incur substantial liabilities. Regardless of merit
or eventual outcome, liability claims may result in:

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decreased demand for any product candidates that we may develop;

injury to our reputation and significant negative media attention;

withdrawal of clinical trial participants;

significant costs to defend any related litigation;

substantial monetary awards to trial participants or patients;

loss of revenue; and

the inability to commercialize any products we may develop.

30

Although we maintain product liability insurance coverage in the amount of up to $10.0 million per claim and in the aggregate,
it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as
we continue clinical trials and if we successfully commercialize any products. Insurance coverage is increasingly expensive. We may
not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or
incur costs that could harm our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory
procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of
hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce
hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate
the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous
materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur
significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our
employees in our workplace, including those resulting from the use of hazardous materials, this insurance may not provide adequate
coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted
against us in connection with our storage or disposal of biological, chemical, hazardous or radioactive materials.

a

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and

regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure
comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

ff

to

Risks Related to Our Dependence on Third Parties

We rely on third parties to conduct our clinical trials and some aspects of our research and preclinical testing and manufacture
our product candidates, and those third parties may not perform satisfactorily, including failing to meet deadlines for the
completion of such trials, research or testing.

We currently rely and expect to continue to rely on third parties, such as our collaborators, contract research organizations,

clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials and to conduct
some aspects of our research and preclinical testing. Any of these third parties may terminate their engagements with us at any time. If
these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in
accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining,
marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully
commercialize our product candidates. Furthermore, these third parties may also have relationships with other entities, some of which
may be our competitors. If we need to enter into alternative arrangements, it would delay our product development activities.

Our reliance on these third parties for research and development activities will reduce our control over these activities but will

not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted
in accordance with the general investigational plan and protocols for the trial, and that all clinical trial activities conducted by our
contract research organizations follow applicable laws and regulations, and are conducted in an ethical and compliant manner.
Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording
and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity
and confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of
completed clinical trials on a government sponsored database, available at www.clinicaltrials.gov, within certain timeframes. Failure
by us, or any of the third parties working on our behalf, to do the above can result in fines, adverse publicity and civil and criminal
sanctions.

We do not have any manufacturing facilities. We currently rely, and expect to continue to rely, on third party manufacturers for
the manufacture of our product candidates for preclinical studies and clinical trials and for commercial supply of any of these product
candidates for which we obtain marketing approval. To date, we have obtained or plan to obtain materials for telaglenastat and
INCB001158 for our current and planned clinical trials from third-party manufacturers. We have engaged third party manufacturers to
obtain the active ingredient for telaglenastat and INCB001158 for pre-clinical testing and clinical trials. We do not have a long-term
supply agreement with any third-party manufacturers, and we purchase our required drug supply on a purchase order basis.

31

We may be unable to establish agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to

establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

•

•

•

reliance on the third party for legal and regulatory compliance and quality assurance;

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

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

Third-party manufacturers may not be able to comply with current U.S. Good Manufacturing Practice requirements, or cGMPs,

or similar legal and regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to
comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays,
suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates, operating restrictions and criminal
prosecutions, any of which could adversely affect supplies of our product candidates and harm our business and results of operations.

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

Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing

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

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

We also currently rely, and expect to continue to rely, on third parties to store and distribute drug supplies for our clinical trials.

Any performance failure on the part of these third parties could delay clinical development or marketing approval of our product
candidates or commercialization of our drugs, producing additional losses and depriving us of potential revenue. Although we believe
that there are several potential alternative third parties who could store and distribute drug supplies for our clinical trials, we may incur
added costs and delays in identifying and qualifying any such replacement.

Our arginase inhibitors program in hematology and oncology indications, including INCB001158, is reliant in part on Incyte for
the successful development and commercialization in a timely manner. If Incyte does not devote sufficient resources to
INCB001158’s development, is unsuccessful in its efforts, or chooses to terminate its agreement with us, our business, operating
results and financial condition will be harmed.

’

We have entered into the Incyte Collaboration Agreement under which we have granted Incyte an exclusive, worldwide license

to develop and commercialize small molecule arginase inhibitors for hematology and oncology indications, including INCB001158,
which is currently in Phase 1/2 clinical trials.

Under the agreement, we and Incyte will jointly conduct and co-fund development of INCB001158, with Incyte leading global

development activities. Unless we opt out of our co-funding obligation, Incyte will fund 70% of global development costs and we will
be responsible for the remaining 30%. Should we disagree with Incyte about the clinical development or commercialization strategy,
we could escalate the disagreement to our representatives on the Joint Steering Committee for resolution. We and Incyte are obligated
to use good faith efforts to resolve such disputes; however, in cases of deadlock, Incyte will have the deciding vote. If the agreement is
terminated, other than as a result of our breach, with respect to one or more products or countries, all rights in the terminated products
and countries revert to us. The Incyte collaboration may not be clinically or commercially successful due to a number of important
factors, including the following:

ff

•

•

Subject to the terms of our collaboration agreement, including diligence obligations, although Incyte has certain
obligations to use commercially reasonable efforts to develop and commercialize INCB001158, Incyte has discretion in
determining the efforts and resources that it will apply to its partnership with us. The timing and amount of any
development milestones, and downstream commercial milestones and royalties that we may receive under such
partnership will depend on, among other things, the efforts, allocation of resources and successful development and
commercialization of INCB001158;

ff

Incyte may select a dose for INCB001158 that does not have a favorable benefit/risk profile;

32

•

•

Incyte may terminate its partnership with us without cause and for circumstances outside of our control, which could
make it difficult for us to attract new strategic partners or adversely affect how we are perceived in scientific and financial
communities;

ff

Incyte may develop or commercialize INCB001158 in a way that exposes us to potential litigation that could jeopardize or
invalidate our intellectual property rights or expose us to potential liability; and

a

If Incyte were to breach our collaboration agreement, we may need to enforce our rights under the agreement, which could be

costly. If we were to terminate our agreement with Incyte due to Incyte’s breach or if Incyte were to terminate the agreement without
cause, there could be a delay in the return of our rights to INCB001158 and the development and commercialization of INCB001158
would be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue
development and commercialization on our own.

Incyte may enter into one or more transactions with third parties, including a merger, consolidation, reorganization, sale of

substantial assets, sale of substantial stock or other change in control, which could divert the attention of its management and
adversely affect Incyte’s ability to retain and motivate key personnel who are important to the continued development of the small
molecule arginase inhibitor program. In addition, the third party to any such transaction could reprioritize Incyte’s development
programs which could delay the development of our programs or cause Incyte to terminate the agreement.

We have in the past and may seek in the future to selectively establish collaborations, and, if we are unable to establish them on
commercially reasonable terms, we may have to alter our development and commercialization plans.

Our drug development programs and the potential commercialization of our product candidates will require substantial
additional cash to fund expenses. In addition to our collaboration with Incyte, for some of our product candidates, we may decide to
collaborate with additional pharmaceutical and biotechnology companies for the development and potential commercialization of
those product candidates.

We may also be restricted under existing license agreements from engaging in research and development activities or entering

into future agreements on certain terms with potential collaborators. For example, pursuant to our license agreement with
Symbioscience, we have agreed not to develop any other arginase inhibitors for use in human healthcare outside of the scope of that
agreement. In addition, under our agreement with Incyte, we are not allowed to develop any retained arginase inhibitors (small
molecule arginase inhibitors, other than INCB001158, retained by us for research and development in non-hematology/oncology
indications) for any indication except specific orphan indications outside of hematology and oncology.

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

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

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

to us on acceptable terms or at all. If we do not have sufficient funds, we may not

33

To the extent we enter into any other collaborations, we may depend on such collaborations for the development and
commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the
market potential of our product candidates.

We may selectively seek additional third-party collaborators for the development and commercialization of our product
candidates. Our current and any future collaborators for any collaboration arrangements include large and mid-size pharmaceutical
companies, regional and national pharmaceutical companies and biotechnology companies. Pursuant to these arrangements and any
potential future arrangements, we will have limited control over the amount and timing of resources that our collaborators dedicate to
the development or commercialization of our product candidates. Our ability to generate revenue from these arrangements will depend
on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.

a

Collaborations involving our product candidates, including our collaboration with Incyte, pose many risks to us, including that:

•

•

•

•

•

•

•

•

•

•

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

Collaborators may not pursue development and commercialization of our product candidates or may elect not to continue
or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic
focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

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

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

A collaborator with marketing and distribution rights to one or more product candidates or products may not commit
sufficient resources to the marketing and distribution of such drugs;

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

Disputes may arise between the collaborators and us that result in the delay or termination of the research, development or
commercialization of our product candidates or products or that result in costly litigation or arbitration that diverts
management attention and resources;

We may lose certain valuable rights under circumstances identified in our collaborations if we undergo a change of
control;

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

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient
manner or at all. If a future collaborator of ours were to be involved in a business combination, the continued pursuit and
emphasis on our product development or commercialization program under such collaboration could be delayed,
diminished or terminated.

We have in-licensed a portfolio of arginase inhibitors as part of our efforts to develop product candidates for the arginase
program, and we are substantially dependent on this in-license for that program. To the extent this in-license is terminated, our
business may be harmed.

34

Our internal computer systems, or those used by our Clinical Research Organizations or other contractors or consultants, may fail
or suffer security breaches.

Despite the implementation of security measures, our internal computer systems, and those of our Clinical Research
Organizations and other third parties on which we rely, are vulnerable to damage from computer viruses and unauthorized access,
malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures, cyber-attacks 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 cyber-attacks or cyber intrusion, including by computer hackers, foreign
governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and
intrusions from around the world have increased. While we have not experienced any such material system failure or security breach
to our knowledge to date, if such an event were to occur and cause interruptions in our operations, it could result in a material
disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed,
ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover
or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials,
and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any
disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of
confidential or proprietary information, we could incur liability and the further development and commercialization of our future
product candidates could be delayed.

a

Risks Related to Our Intellectual Property

Recent laws and rulings by U.S. courts make it difficult to predict how patents will be issued or enforced in our industry.

Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may have a

significant impact on our ability to protect our technology and enforce our intellectual property rights. There have been numerous
recent changes to the patent laws and to the rules of the United States Patent and Trademark Office, or the USPTO, which may have a
significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, the Leahy-Smith
America Invents Act, which was signed into law in 2011, includes a transition from a “first-to-invent” system to a “first-to-file”
system, and changes the way issued patents are challenged. Certain changes, such as the institution of inter partes review proceedings,
came into effect on September 16, 2012. Substantive changes to patent law associated with the America Invents Act may affect our
ability to obtain patents, and, if obtained, to enforce or defend them in litigation or post-grant proceedings, all of which could harm our
business.

ff

Furthermore, the patent positions of companies engaged in the development and commercialization of biologics and
pharmaceuticals are particularly uncertain. Two cases involving diagnostic method claims and “gene patents” have recently been
decided by the Supreme Court. On March 20, 2012, the Supreme Court issued a decision in Mayo Collaborative Services v.
Prometheus Laboratories, Inc., or Prometheus, a case involving patent claims directed to measuring a metabolic product in a patient
to optimize a drug dosage amount for the patient. According to the Supreme Court, the addition of well-understood, routine or
conventional activity such as “administering” or “determining” steps was not enough to transform an otherwise patent ineligible
natural phenomenon into patent eligible subject matter. On July 3, 2012, the USPTO issued guidance indicating that process claims
directed to a law of nature, a natural phenomenon or an abstract idea that do not include additional elements or steps that integrate the
natural principle into the claimed invention such that the natural principle is practically applied and the claim amounts to significantly
more than the natural principle itself should be rejected as directed to non-statutory subject matter. On June 13, 2013, the Supreme
Court issued its decision in Association for Molecular Pathology v. Myriad Genetics, Inc., or Myriad, a case involving patent claims
held by Myriad Genetics, Inc. relating to the breast cancer susceptibility genes BRCA1 and BRCA2. Myriad held that isolated
segments of naturally occurring DNA, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patent eligible subject
matter, but that complementary DNA, which is an artificial construct that may be created from RNA transcripts of genes, may be
patent eligible.

We cannot assure you that our efforts to seek patent protection for our technology and products will not be negatively impacted
by the decisions described above, rulings in other cases or changes in guidance or procedures issued by the USPTO. We cannot fully
predict what impact the Supreme Court’s decisions in Prometheus and Myriad may have on the ability of life science companies to
obtain or enforce patents relating to their products and technologies in the future.

35

Moreover, although the Supreme Court has held in Myriad that isolated segments of naturally occurring DNA are not patent-
eligible subject matter, certain third parties could allege that activities that we may undertake infringe other gene-related patent claims,
and we may deem it necessary to defend ourselves against these claims by asserting non-infringement and/or invalidity positions, or
pay to obtain a license to these claims. In any of the foregoing or in other situations involving third-party intellectual property rights, if
we are unsuccessful in defending against claims of patent infringement, we could be forced to pay damages or be subjected to an
injunction that would prevent us from utilizing the patented subject matter. Such outcomes could harm our business.

If we are alleged to infringe intellectual property rights of third parties, our business could be harmed.

Our research, development and commercialization activities may be alleged to infringe patents, trademarks or other intellectual

property rights owned by other parties. Certain of our competitors and other companies in the industry have substantial patent
portfolios and may attempt to use patent litigation as a means to obtain a competitive advantage. We may be a target for such
litigation. Even if our pending patent applications issue, they may relate to our competitors’ activities and may therefore not deter
litigation against us. The risks of being involved in such litigation may also increase as we become more visible as a public company
and move into new markets and applications for our product candidates. There may also be patents and patent applications that are
relevant to our technologies or product candidates that are unknown to us. For example, certain relevant patent applications may have
been filed but not published. If such patents exist, or if a patent issues on any of such patent applications, that patent could be asserted
against us. Third parties could bring claims against us that would cause us to incur substantial expenses and, if the claims against us
are successful, could cause us to pay substantial damages, including treble damages and attorneys’ fees for willful infringement. The
defense of such a suit could also divert the attention of our management and technical personnel. Further, if an intellectual property
infringement suit were brought against us, we could be forced to stop or delay research, development or sales of the product that is the
subject of the suit.

d

As a result of infringement claims, or to avoid potential claims, we may choose or be compelled to seek intellectual property

licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license,
the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us likely would be nonexclusive,
which would mean that our competitors also could obtain licenses to the same intellectual property. Ultimately, we could be prevented
from commercializing a product candidate and/or technology or be forced to cease some aspect of our business operations if, as a
result of actual or threatened infringement claims, we are unable to enter into licenses of the relevant intellectual property on
acceptable terms. Further, if we attempt to modify a product candidate and/or technology or to develop alternative methods or
products in response to infringement claims or to avoid potential claims, we could incur substantial costs, encounter delays in product
introductions or interruptions in sales.

We may become involved in other lawsuits to protect or enforce our patents or other intellectual property, which could be
expensive and time-consuming, and an unfavorable outcome could harm our business.

In addition to the possibility of litigation relating to infringement claims asserted against us, we may become a party to other

patent litigation and other proceedings, including inter partes review proceedings, post-grant review proceedings, derivation
proceedings declared by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to
our current or future technologies or product candidates or products. The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may
also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other
proceedings could impair our ability to compete in the marketplace.

Competitors may infringe or otherwise violate our intellectual property, including patents that may issue to or be licensed by us.
As a result, we may be required to file claims in an effort to stop third-party infringement or unauthorized use. Any such claims could
provoke these parties to assert counterclaims against us, including claims alleging that we infringe their patents or other intellectual
property rights. This can be expensive, particularly for a company of our size, and time-consuming, and even if we are successful, any
award of monetary damages or other remedy we may receive may not be commercially valuable. In addition, in an infringement
proceeding, a court may decide that our asserted intellectual property is not valid or is unenforceable, or may refuse to stop the other
party from using the technology at issue on the grounds that our intellectual property does not cover its technology. An adverse
determination in any litigation or defense proceedings could put our intellectual property at risk of being invalidated or interpreted
narrowly and could put our patent applications at risk of not issuing.

r

If the breadth or strength of our patent or other intellectual property rights is compromised or threatened, it could allow third

parties to commercialize our technology or products or result in our inability to commercialize our technology and products without
infringing third-party intellectual property rights. Further, third parties may be dissuaded from collaborating with us.

36

Interference or derivation proceedings brought by the USPTO or its foreign counterparts may be necessary to determine the
priority of inventions with respect to our patent applications, and we may also become involved in other proceedings, such as re-
examination proceedings, before the USPTO or its foreign counterparts. Due to the substantial competition in the pharmaceutical
space, the number of such proceedings may increase. This could delay the prosecution of our pending patent applications or impact the
validity and enforceability of any future patents that we may obtain. In addition, any such litigation, submission or proceeding may be
resolved adversely to us and, even if successful, may result in substantial costs and distraction to our management.

ff

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is

a risk that some of our confidential information could be compromised by disclosure during this type of litigation. Moreover,
intellectual property law relating to the fields in which we operate is still evolving and, consequently, patent and other intellectual
property positions in our industry are subject to change and are often uncertain. We may not prevail in any of these suits or other
efforts to protect our technology, and the damages or other remedies awarded, if any, may not be commercially valuable. During the
course of this type of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings
or developments. If securities analysts or investors perceive these results to be negative, the market price for our common stock could
be significantly harmed.

We may not be able to protect our intellectual property rights throughout the world, which could impair our competitive position.

Filing, prosecuting, defending and enforcing patents on all of our technologies, product candidates and products throughout the

world would be prohibitively expensive. As a result, we seek to protect our proprietary position by filing patent applications in the
United States and in select foreign jurisdictions and cannot guarantee that we will obtain the patent protection necessary to protect our
competitive position in all major markets. Competitors may use our technologies in jurisdictions where we have not obtained patent
protection to develop their own products and, further, may export infringing products to territories where we may obtain patent
protection but where enforcement is not as strong as that in the United States. These products may compete with our current and future
products in jurisdictions where we do not have any issued patents, and our patent claims or other intellectual property rights may not
be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign
jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents
and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or the marketing
of competing products in violation of our proprietary rights generally. The legal systems of certain countries make it difficult or
impossible to obtain patent protection for pharmaceutical products and services. Proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial costs and could divert our efforts and attention from other aspects of our business.

ff

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed.

In addition to seeking patents for some of our technologies and product candidates, we also rely on trade secrets, including

unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these
trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our
employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third
parties. We also enter into confidentiality and invention assignment agreements with our employees and consultants that obligate them
to assign to us any inventions developed in the course of their work for us. However, we cannot guarantee that we have executed these
agreements with each party that may have or have had access to our trade secrets or that the agreements we have executed will provide
adequate protection. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information,
including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. As a result, we may be forced to
bring claims against third parties, or defend claims that they bring against us, to determine ownership of what we regard as our
intellectual property. Monitoring unauthorized disclosure is difficult and we do not know whether the procedures we have followed to
prevent such disclosure are, or will be adequate. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is
difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United
States may be less willing or unwilling to protect trade secrets. If any of the technology or information that we protect as trade secrets
were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that
technology or information to compete with us. If any of our trade secrets were to be disclosed to, or independently developed by, a
competitor, our competitive position would be harmed.

37

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of
interest, and our business may be harmed.

Our trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on

other marks. As a means to enforce our trademark rights and prevent infringement, we may be required to file trademark claims
against third parties or initiate trademark opposition proceedings. This can be expensive and time-consuming, particularly for a
company of our size. In addition, in an infringement proceeding, a court may decide that a trademark of ours is not valid or is
unenforceable, or may refuse to stop the other party from using the trademark at issue. We may not be able to protect our rights to
these and other trademarks and trade names which we need to build name recognition by potential partners or customers in our
markets of interest. We do not currently have any registered trademarks in the United States. Any trademark applications in the United
States and in other foreign jurisdictions where we may file may not be allowed or may subsequently be opposed. In addition, other
companies in the biopharmaceutical space may be using trademarks that are similar to ours and may in the future allege that our use of
the trademark infringes or otherwise violates their trademarks. Over the long term, if we are unable to establish name recognition
based on our trademarks and trade names, then we may not be able to compete effectively and our business may be harmed.

a

ff

Third parties may assert ownership or commercial rights to inventions we develop.

Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. We have

written agreements with collaborators that provide for the ownership of intellectual property arising from our collaborations. In some
instances, there may not be adequate written provisions to address clearly the resolution of intellectual property rights that may arise
from a collaboration. If we cannot successfully negotiate sufficient ownership and commercial rights to the inventions that result from
our collaborations, or if disputes otherwise arise with respect to the intellectual property developed in the course of a collaboration, we
may be limited in our ability to capitalize on the market potential of these inventions.

In addition, we may face claims by third parties that our agreements with employees, contractors or consultants obligating them

to assign intellectual property to us are ineffective or are in conflict with prior or competing contractual obligations of assignment,
which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our
ability to capture the commercial value of such inventions. Litigation may be necessary to resolve an ownership dispute, and if we are
not successful, we may be precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual
property. Either outcome could have an adverse impact on our business.

Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-
consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product
candidates. If we or our collaborators are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we
will not be able to commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate
revenue will be impaired.

Our product candidates and the activities associated with their development and commercialization, including their design,
testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are
subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in
other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product
candidate. We have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction. We
have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on
third-party contract research organizations to assist us in this process. Securing regulatory approval requires the submission of
extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication
to establish the product candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information
about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our
product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side
effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.

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The process of obtaining marketing approvals, both in the United States and elsewhere, is expensive, may take many years and
can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved.
We cannot assure you that we will ever obtain any marketing approvals in any jurisdiction. Changes in marketing approval policies
during the development period, changes in or the enactment of additional statutes or regulations or changes in regulatory review for
each submitted product application may cause delays in the approval or rejection of an application. The FDA and comparable
authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may
decide that our data is insufficient for approval and require additional preclinical or other studies, and clinical trials. In addition,
varying interpretations of the data obtained from preclinical testing and clinical trials could delay, limit or prevent marketing approval
of a product candidate. Additionally, any marketing approval we ultimately obtain may be limited or subject to restrictions or post-
approval commitments that render the approved product not commercially viable.

Any product candidate for which we obtain marketing approval could be subject to marketing restrictions or withdrawal from the
market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated
problems with our products.

Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical
data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the
FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and
reports, registration and listing requirements, cGMP requirements, quality assurance and corresponding maintenance of records and
documents and requirements regarding the distribution of samples to health care professionals and recordkeeping. Even if marketing
approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may
be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the
safety or efficacy of the medicine. The FDA closely regulates the post approval marketing and promotion of drugs to ensure that they
are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes
stringent restrictions on manufacturers’ communications regarding off-label use and if we do not market our products for their
approved indications, we may be subject to enforcement

action for off-label marketing.

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In addition, later discovery of previously unknown problems with our products, manufacturers or manufacturing processes, or

failure to comply with regulatory requirements, may result in, among other things:

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restrictions on such products, manufacturers or manufacturing processes;

restrictions on the labeling, marketing, distribution or use of a product;

requirements to conduct post-approval clinical trials;

warning or untitled letters;

withdrawal of the products from the market;

refusal to approve pending applications or supplements to approved applications that we submit;

recall of products;

fines, restitution or disgorgement of profits or revenue;

suspension or withdrawal of marketing approvals;

refusal to permit the import or export of our products;

product seizure; and

injunctions or the imposition of civil or criminal penalties.

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

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any

product candidates for which we obtain marketing approval. Our current and future arrangements with third-party payors and
customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the
business or financial arrangements and relationships through which we market, sell and distribute our medicines for which we obtain
marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

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the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the
referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be
made under federal and state healthcare programs such as Medicare and Medicaid;

the federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against
individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment
that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the
federal government;

the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information
Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud
any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to
safeguarding 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 Physician Payments Sunshine Act requires manufacturers of drugs, devices, biologics and medical supplies to report to
the Department of Health and Human Services information related to physician payments and other transfers of value and
physician ownership and investment interests; and

analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors,
including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government
in addition to requiring drug manufacturers to report information related to payments to physicians and other health care
providers or marketing expenditures.

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
our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be
subject to significant civil, criminal and administrative penalties, damages, fines, possible exclusion from government funded
healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations to resolve allegations of non-
compliance with these laws, and the curtailment or restructuring of our operations. If any of the health care professionals or other
providers or entities with whom we expect to do business 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.

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Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and
commercialize our product candidates and affect the prices we may obtain.

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In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and

proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or
regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing
approval.

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The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the Medicare Modernization Act, changed
the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by
the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In
addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost
reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved
products. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow
Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in
reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payors.

Additionally, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
of 2010, or collectively the PPACA, enacted in 2010, made a number of substantial changes in the way healthcare is financed by both
governmental and private insurers. In the years since its enactment, there have been, and continue to be, significant developments in,
and continued legislative activity around, attempts to repeal or repeal and replace the PPACA. Due to these efforts, there is significant
uncertainty regarding the future of the PPACA.

Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of any certain
provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Additionally,
on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the
implementation of certain mandated fees under the PPACA, including the so-called “Cadillac” tax on certain high cost employer-
sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical
device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, among other things, amends the
PPACA, effective January 1, 2019, to increase from 50% to 70% the point-of-sale discount that is owed by pharmaceutical
manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to
as the “donut hole”. The Trump administration has also announced that it will discontinue the payment of cost-sharing reduction, or
CSR, payments to insurance companies until Congress approves the appropriation of funds for the CSR payments. The loss of the
CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the PPACA. A bipartisan
bill to appropriate funds for CSR payments has been introduced in the Senate, but the future of that bill is uncertain. Further, each
chamber of Congress has put forth multiple bills designed to repeal or repeal and replace portions of the PPACA. Although none of
these measures has been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements of the
PPACA. Any repeal and replace legislation may have the effect of limiting the amounts that government agencies will pay for
healthcare products and services. Due to these efforts, there is significant uncertainty regarding the future of the PPACA.

Policy changes, including potential modification or repeal of all or parts of the PPACA or the implementation of new health care

legislation could result in significant changes to the health care system, which may prevent us from being able to generate revenue,
attain profitability or commercialize our drugs. We expect that additional state and federal healthcare reform measures will be adopted
in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services,
which could result in reduced demand or lower pricing for our product candidates, or additional pricing pressures.

Further, there has been heightened governmental scrutiny of pharmaceutical pricing practices in light of the rising cost of
prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal
and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between
pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.

We expect that healthcare reform measures that may be adopted in the future, could have a material adverse effect on our

industry generally and on our ability to maintain or increase sales of any of our product candidates that we successfully
commercialize.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional

activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA
regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product
candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay
or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other
requirements.

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Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain our senior management team and to attract, retain and motivate qualified
personnel.

We are highly dependent upon our senior management team, as well as the other principal members of our research and
development teams. All of our executive officers are employed “at will,” meaning we or they may terminate the employment
relationship at any time. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the
services of any of these persons could impede the achievement of our research, development and commercialization objectives.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to

our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous
pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and
clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and
clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and
advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other
entities that may limit their availability to us.

We expect to expand our operations, and may encounter difficulties in managing our growth, which could disrupt our business.

We expect to expand the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales and

marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and
financial systems, expand our facilities and continue to recruit and train additional qualified personnel. We may not be
able to
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effectively manage the expected expansion of our operations or recruit and train additional qualified personnel. Moreover, the
expected expansion of our operations may lead to significant costs and may divert our management and business development
resources. For example, our facilities expenses may increase, or decrease which will vary depending on the time and terms of any
facility lease or sublease we may enter into from time to time. Any inability to manage growth could delay the execution of our
business plans or disrupt our operations.

We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders or reduce our financial
resources.

In the future, we may enter into transactions to acquire other businesses, products or technologies. Because we have not made

any acquisitions to date, our ability to do so successfully is unproven. If we do identify suitable candidates, we may not be able to
make such acquisitions on favorable terms, or at all. Any acquisitions we make may fail to strengthen our competitive position, and
these transactions may be viewed negatively by customers or investors. We may decide to incur debt in connection with an acquisition
or issue our common stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage
ownership of our existing stockholders. We could incur losses resulting from undiscovered liabilities of the acquired business that are
not covered by the indemnification we may obtain from the seller. In addition, we may not be able to successfully integrate the
acquired personnel, technologies and operations into our existing business in an effective, timely and non-disruptive manner.
Acquisitions may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash
available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or the effect that any such
transactions might have on our operating results.

International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks
associated with doing business in various jurisdictions globally.

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Our business strategy incorporates international expansion, including establishing and maintaining relationships with service

providers, distributors and manufacturers globally. Doing business internationally involves a number of risks, including:

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multiple, conflicting and changing laws and regulations such as tax laws, export and import restrictions, employment
laws, anti-bribery and anti-corruption laws, regulatory requirements and other governmental approvals, permits and
licenses;

failure by us or our distributors to obtain appropriate licenses or regulatory approvals for the sale or use of our product
candidates, if approved, in various countries;

difficulties in managing foreign operations;

financial risks, such as difficulty enforcing contracts exposure to foreign currency exchange rate fluctuations;

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reduced protection for intellectual property rights;

reduced protection of contractual rights in the event of bankruptcy or insolvency of the other contracting party;

natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease,
boycotts, curtailment of trade and other business restrictions;

difficulties in complying with changes in laws, regulations and costs affecting our foreign operations, including our
United Kingdom, or UK, operations potentially affected by the UK exiting the European Union, or EU;

failure to comply with foreign laws, regulations, standards and regulatory guidance governing the collection, use,
disclosure, retention, security and transfer of personal data, including the European Union General Data Privacy
Regulation, or GDPR, which introduces strict requirements for processing personal data of individuals within the
European Union; and

failure to comply with the United Kingdom Bribery Act 2010, or UK Bribery Act, and similar antibribery and
anticorruption laws in other jurisdictions, and the Foreign Corrupt Practices Act, including its books and records
provisions and its anti-bribery provisions, including by failing to maintain accurate information and control over sales and
distributors’ activities.

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The UK’s planned withdrawal from the EU, commonly referred to as Brexit, may have a negative effect on global economic
conditions, financial markets and our business.

Brexit has created significant uncertainty concerning the future relationship between the UK and the EU, particularly if the UK

withdraws from the EU without a ratified withdrawal agreement in place. From a regulatory perspective, there is uncertainty about
which laws and regulations will apply. A significant portion of the regulatory framework in the UK is derived from EU laws.
However, it is unclear which EU laws the UK will decide to replace or replicate in connection with its withdrawal from the EU and
the regulatory regime applicable to our operations may change.

A basic requirement related to the grant of a marketing authorization for a medicinal product in the EU is the requirement that
the applicant be established in the EU. Following withdrawal of the UK from the EU, marketing authorizations previously granted to
applicants established in the UK through the centralized, mutual recognition or decentralized procedures may no longer be valid.
Moreover, depending upon the exact terms of the UK's withdrawal, there is a risk that the scope of a marketing authorization for a
medicinal product granted by the European Commission pursuant to the centralized procedure, or by the competent authorities of
other EU member states through the decentralized or mutual recognition procedures, would not encompass the UK. In that
circumstance, a separate authorization granted by the UK competent authorities would be required to place medicinal products on the
UK market.

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Brexit has also given rise to calls for the governments of other EU member states to consider withdrawal from the EU. These

developments, or the perception that they could occur, have had and may continue to have a material adverse effect on global
economic conditions and the stability of global financial markets, including by significantly reducing global market liquidity or
restricting the ability of key market participants to operate in certain financial markets.

Any of these risks, if encountered, could significantly harm our future international operations and, consequently, negatively

impact our financial condition, results of operations and cash flows.

Risks Related to Our Common Stock

The trading price of our common stock is likely to be volatile, and purchasers of our common stock could incur substantial losses.

Our stock price has fluctuated in the past and is likely to be volatile in the future. The stock

market in general and the market for
biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance
of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock. The
market price for our common stock may be influenced by many factors, including:

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the success of competitive products or technologies;

regulatory actions with respect to our product candidates or our competitors’ product and product candidates;

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

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results of clinical trials of our product candidates or those of our competitors;

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

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

the recruitment or departure of key personnel;

actual and anticipated fluctuations in our quarterly operating results;

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

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

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

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

fluctuations in the valuation of companies perceived by investors to be comparable to us;

inconsistent trading volume levels of our shares;

announcement or expectation of additional financing efforts;

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

changes in the structure of healthcare payment systems;

market conditions in the pharmaceutical and biotechnology sectors;

general economic, industry and market conditions; and

the other factors described in this “Risk Factors” section.

In addition, in the past, stockholders have initiated class action lawsuits against companies following periods of volatility in the

market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert
management’s attention and resources.

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may
prevent new investors from influencing significant corporate decisions.

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Our executive officers, directors and current beneficial owners of 5% or more of our common stock, in the aggregate,
beneficially own a significant percentage of our outstanding common stock. These persons, acting together, will be able to
significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or
other significant corporate transactions. The interests of this group of stockholders may not coincide with the interests of other
stockholders.

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

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts

publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of
the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or
more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which could cause our share price or trading volume to decline.

We will incur costs and demands upon management as a result of complying with the laws and regulations affecting public
companies in the United States, which may harm our operating results.

As a public company listed in the United States, we have and will continue to incur significant additional legal, accounting and

other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including
regulations implemented by the Securities and Exchange Commission, or SEC, and the Nasdaq Global Select Market, may increase
legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are
subject to varying interpretations, and as a result, their
regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this
investment may result in increased general and administrative expenses and a diversion of management’s time and attention from

application in practice may evolve over time as new guidance is provided by

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revenue-generating activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and
standards, we fail to comply, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.

Further, failure to comply with these laws, regulations and standards might also make it more difficult for us to obtain certain

types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more
difficult for us to attract and retain qualified persons to serve on our Board of Directors, on committees of our Board of Directors or as
members of senior management.

We do not anticipate paying any cash dividends on our common stock so any returns will be limited to changes in the value of our
common stock.

We have never declared or paid cash dividends on our common stock. We currently intend to retain our future earnings, if any,

to fund the development and growth of our business. In addition, the terms of any existing or future credit facility may restrict our
ability to pay dividends. Any return to stockholders will therefore be limited to the increase, if any, of our stock price.

We are an “emerging growth company,
growth companies, which could make our common stock less attractive to investors.

“

” and we expect to comply with the reduced disclosure requirements applicable to emerging

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April
2012, and for as long as we continue to be an “emerging growth company,” we expect to take advantage of exemptions from various
reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to,
not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We
will continue to be an “emerging growth company” until the earlier of (1) the last day of the fiscal year (a) following the fifth
anniversary of the closing of our initial public offering in October 2014, (b) in which we have total annual gross revenue of at least
$1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is
held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in
non-convertible debt during the prior three-year period. We cannot predict if investors will find our common stock less attractive by
our reliance on these exemptions. If some investors find our common stock less attractive as a result of our choices to reduce
disclosure, there may be a less active trading market for our common stock, and our stock price may be more volatile.

If we are unable to maintain proper and effective internal controls over financial reporting, the accuracy and timeliness of our
financial reporting may be adversely affected.

Effective internal controls are necessary for us to provide reliable financial reports and to protect from fraudulent, illegal or
unauthorized transactions. If we cannot provide effective controls and reliable financial reports, our business and operating results
could be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need
improvement. We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on the
effectiveness of our internal control over financial reporting. Our independent registered public accounting firm will not be required to
attest to the effectiveness of our internal control over financial reporting until the earlier of the fifth anniversary of the closing of our
initial public offering in October 2014 or until we are no longer an “emerging growth company.”

If material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately on
a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence
and cause the market price of our common stock to decline.

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Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to
change our management or hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be
lower as a result.

There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to acquire, or

attempt to acquire, control of our company, even if a change in control was considered favorable by our stockholders.

Our charter documents also contain other provisions that could have an anti-takeover effect, such as:

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establishing a classified Board of Directors so that not all members of our Board of Directors are elected at one time;

permitting the Board of Directors to establish the number of directors and fill any vacancies and newly created
directorships;

providing that directors may only be removed for cause;

prohibits cumulative voting for directors;

requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws;

authorizing the issuance of “blank check” preferred stock that our Board of Directors could use to implement a
stockholder rights plan;

eliminating the ability of stockholders to call special meetings of stockholders; and

prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our
stockholders.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us
for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting
stock, unless the merger or combination is approved in a prescribed manner. Any provision in our certificate of incorporation or our
bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders
to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for
our common stock.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive
forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the

exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any
action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of
incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of
forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our
directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.
Some companies that adopted a similar federal district court forum selection provision are currently subject to a suit in the Chancery
Court of Delaware by stockholders who assert that the provision is not enf
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orceable.
provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may
incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial
condition.

court were to find the choice of forum

If a

Item 1B.

Unresolved Staff Comments.

None.

Item 2.

Properties.

Our headquarters are located at 343 Oyster Point Blvd., Suite 200, South San Francisco, California 94080 under a lease that

expires in January 2024, with an option to extend another two years to January 2026. We have subleased a portion of this office and
laboratory space to another biotechnology company under a three-year sublease agreement that expires in February 2020. We believe
that our existing facilities are adequate for our current needs, as the facilities have sufficient laboratory space to house additional
employees to be hired as we expand.

Item 3.

Legal Proceedings.

From time to time, we may become involved in legal proceedings relating to claims arising from the ordinary course of
business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which
could have a material adverse effect on our results of operations, financial condition or cash flows.

Item 4.

Mine Safety Disclosures.

Not applicable.

46

PART II

Item 5.

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

Price Range of Common Stock

Our common stock commenced trading on the NASDAQ Global Select Market under the symbol "CALA" on October 2, 2014.

Holders

As of March 4, 2019, there were approximately 20 holders of record of our common stock.

Stock Price Performance Graph

The following stock performance graph compares our total stock return with the total return for (i) the NASDAQ Composite
Index and the (ii) the NASDAQ Biotechnology Index for the period from October 2, 2014 (the date our common stock commenced
trading on the NASDAQ Global Select Market) through December 31, 2018. The figures represented below assume an investment of
$100 in our common stock at the closing price of $9.41 on October 2, 2014 and in the NASDAQ Composite Index and the NASDAQ
Biotechnology Index on October 2, 2014 and the reinvestment of dividends into shares of common stock. The comparisons in the table
are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock.

Comparison of Cummulative Return

$350

$300

$250

$200

$150

$100

$50

$0

Oct-14

Mar-15

Sep-15

Mar-16

Sep-16

Mar-17

Sep-17

Mar-18

Sep-18

CALA

IXIC

NBI

$100 investment in stock or index
Calithera Biosciences, Inc. ......... CALA $
NASDAQ Composite Index .......
IXIC $
NASDAQ Biotechnology

Ticker

Index ........................................ NBI $

October 2, 2014

100.00 $
100.00 $

December 31, 2015 December 31, 2016 December 31, 2017 December 31, 2018
42.61
149.77

81.40 $
113.03 $

34.54 $
121.51 $

88.74 $
155.83 $

100.00 $

125.91 $

98.61 $

119.37 $

108.24

This graph shall not be deemed “soliciting material

” for purposes of Section 18 of the Exchange Act, or
otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings
under the Securities Act whether made before or after the date hereof and irrespective of any general incorporation language in any
such filing.

” or be deemed “filed

“

“

s

Dividend Policy

47

We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future

earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the
foreseeable future. Any future determination related to dividend policy will be made at the discretion of our Board of Directors.

Issuer Purchases of Equity Securities

None.

Item 6. Selected Financial Data.

The statements of operations data for the years ended December 31, 2018, 2017, and 2016, and the balance sheet data as of

December 31, 2018 and 2017, are derived from our audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K. The selected balance sheet data as of December 31, 2016 is derived from our audited consolidated financial
statements which are not included in this Annual Report on Form 10-K.

Our historical results are not necessarily indicative of the results to be expected in the future. You should read the selected

financial data below in conjunction with the section of this report entitled “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included in this Annual
Report on Form 10-K.

Statements of Operation Data:
Revenue:

Year Ended December 31,
2017

2016

2018

(in thousands, except per share data)

Collaboration revenue (1)...................................................... $
Total revenue (1)..............................................................

22,254
22,254

$

25,955
25,955

$

—
—

Operating expenses:

Research and development....................................................
General and administrative....................................................
Total operating expenses .................................................
Loss from operations ..................................................................
Interest income............................................................................
Net loss ....................................................................................... $
Net loss per share, basic and diluted........................................... $
Shares used in computing net loss per share, basic and

66,195
13,340
79,535
(57,281)
2,652
(54,629) $
(1.49) $

43,111
12,530
55,641
(29,686)
1,860
(27,826) $
(0.84) $

27,748
10,586
38,334
(38,334)
330
(38,004)
(1.95)

diluted ......................................................................................

36,604

32,951

19,486

Year Ended December 31,
2017

2016

2018

Balance Sheet Data:

Cash, cash equivalents, and investments............................... $
Working capital .....................................................................
Total assets ............................................................................
Deferred revenue ...................................................................
Accumulated deficit ..............................................................
Total stockholders' equity .....................................................

136,153
125,371
142,725
—
(196,170)
126,714

$

(in thousands)
186,154
$
128,640
192,455
31,045
(150,333)
150,307

51,781
49,108
54,796
—
(122,502)
49,906

(1)

In 2018, $8.8 million of collaboration revenue was credited directly to accumulated deficit upon adoption of Accounting
Standards Update No. 2014-09 (Topic 606) “Revenue from Contracts with Customers, or ASC 606. In 2018, we adopted ASC
606 using the modified retrospective method applied to our Incyte Collaboration Agreement which was not completed as of
January 1, 2018. As such, results for 2018 are presented under ASC 606, while the information for prior periods has not been
adjusted and continues to be reported in accordance with our historical accounting under Topic 605 “Revenue Recognition”.
Refer to Item 8, Notes to consolidated financial statements, Notes 2 and 10, for further information on the adoption of ASC 606
and the Incyte Collaboration Agreement.

48

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with

our consolidated financial statements and related notes included in Part II, Item 8 of this report.

“

“

“

” “plan,

” “expect,” “predict,

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities
Exchange Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,”
“anticipate,” “intend,” “should,
expressions. You should read these statements carefully because they discuss future expectations, contain projections of fut
of operations or financial condition, or state other “forward-looking
objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-
looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those
anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited
to, those
discussed in this report in Part I, Item 1A — “Risk
our management’s beliefs and assumptions and on information currently available to our management. These statements, like all
statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of
future developments. We caution investors that our business and financial performance are subject to substantial risks and
uncertainties.

Factors,” and elsewhere in this report. Forward-looking statements are based on

” information. These statements relate to our future plans,

” or the negative of these terms or similar

“
” “could,” “potentially

ure results

“

“

’

ff

ff

Overview

We are a clinical-stage bio-pharmaceutical company focused on fighting cancer and other life threatening diseases by
discovering and developing novel small molecule drugs that target cellular metabolism. Tumor metabolism and immuno-oncology
have emerged as promising new fields for cancer drug discovery, and recent clinical successes with therapeutic agents in each field
have created fundamentally new potential therapies for cancer patients. With our unique approach, we have established a broad
pipeline of small molecule drug candidates that target enzymes controlling metabolically critical pathways in tumor
cells and immune
cells. We have four internally discovered clinical stage compounds that are all enzyme inhibitors. While we are primarily focused on
oncology, we may opportunistically develop therapeutics outside of oncology where we can leverage our existing expertise in immune
cell metabolism to treat life threatening diseases with unmet need.

a

a

Through genetic mutations that alter fundamental metabolic pathways, cancer cells can acquire the ability to grow in an

ff

uncontrolled manner, but they also acquire nutrient dependencies that can differentiate them from normal cells. Targeting these
nutrient dependencies by inhibiting specific metabolic pathways in cancer cells is a novel therapeutic approach to blocking the
uncontrolled growth of tumors. Our lead product candidate, telaglenastat (CB-839), takes advantage of the critical dependency many
cancers including renal cell carcinoma, or RCC, have on the nutrient glutamine for growth and survival. We believe telaglenastat has
the potential to be an important new therapeutic agent with a novel mechanism of action for the treatment of a broad range of cancers,
and is the only selective allosteric glutaminase inhibitor currently in clinical trials. We retain all commercial rights to telaglenastat and
have been granted a U.S. patent, which includes composition of matter coverage for telaglenastat through 2032.

We are currently developing telaglenastat in combination with standard therapies in a select set of solid tumors. Our lead

development pathway is in RCC where we are evaluating telaglenastat in two randomized Phase 2 trials, including one with
registrational intent. The ENTRATA trial (NCT03163667) is a Phase 2 randomized, double blind trial designed to evaluate the safety
and efficacy of telaglenastat in combination with everolimus versus placebo with everolimus in patients with advanced clear cell RCC
a VEGFR-targeted tyrosine kinase inhibitor. The
a
who have been treated with at least two prior lines of systemic therapy, including
primary endpoint of ENTRATA is progression-free survival (PFS). The trial enrolled 69 patients at multiple centers in the United
States. Enrollment is complete, and we plan to report efficacy and safety data from the trial in the second half of 2019.

Telaglenastat is also being investigated in the CANTATA trial (NCT03428217), which will enroll approximately 400 patients
and is designed with registrational intent. It is a global, randomized, double-blind trial designed to evaluate the safety and efficacy of
telaglenastat in combination with cabozantinib versus placebo with cabozantinib in patients with advanced clear cell RCC who have
been treated with one or two prior lines of systemic therapy. The primary endpoint is PFS by blinded independent review, and a key
secondary endpoint is overall survival. The trial is currently enrolling, and we plan to report topline efficacy and safety data in 2020.

49

Our product candidate, INCB001158 is an oral inhibitor of arginase, an enzyme that depletes the amino acid arginine, a key

metabolic nutrient for T-cells. INCB001158 was discovered by Calithera and is being co-developed with Incyte Corporation, or
Incyte, for oncology and hematology indications, and is currently being evaluated in Phase 1/2 trials as a monotherapy and in
combination with other anti-cancer agents. Arginase depletes arginine, a nutrient that is critical for the activation and proliferation of
the body’s cancer-fighting immune cells, such as cytotoxic T-cells and natural killer (NK)-cells. In some physiological circumstances
such as maternal-fetal immune tolerance, arginase-mediated depletion of arginine plays an important role in suppressing the immune
system. But in many tumors, arginase-expressing myeloid cells accumulate and maintain an immunosuppressive environment,
blocking the ability of T-cells and NK-cells to kill cancer cells. We have demonstrated that arginase-expressing myeloid cells can
accumulate in a number of cancers, including lung, gastrointestinal, bladder, renal, squamous cell head and neck and acute myeloid
leukemia. We believe that inhibitors of arginase can promote an anti-tumor immune response by restoring arginine levels, thereby
allowing activation of the body’s own immune cells, including cytotoxic T-cells and NK-cells. Data from the Phase 1/2 clinical trials
of INCB001158 are expected to be presented at a medical meeting in the second half of 2019.

Our product candidate CB-280 is an oral arginase inhibitor for the treatment of cystic fibrosis. It is a novel oral arginase
inhibitor which is solely owned by Calithera. In February, we initiated a Phase 1 trial designed to assess the safety, tolerability and
pharmacokinetics of CB-280 in healthy volunteers. We anticipate completion of this study in 2019.

CB-708, our fourth compound planned to enter clinical trials, inhibits the oncometabolism target CD73. CD73 is an enzyme in

the ATP adenosine metabolic pathway that plays a critical immunosuppressive role in tumors. Initiation of a Phase 1 study for CB-
708, an orally administered small molecule inhibitor of CD73, is planned for 2019.

We are a fully integrated biopharmaceutical company with expertise in biology and chemistry, and our ongoing research efforts
are focused on discovering additional product candidates for the treatment of cancer and other life threatening diseases. In addition to
the products described above, we are also advancing additional preclinical stage programs with a focus on oncology.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated

a

financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S.
GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the
the consolidated financial
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our 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. We believe that the accounting policies discussed below are critical to
understanding our historical and future performance, as these policies relate to the more significant areas involving management’s
judgments and estimates.

Revenue Recognition

Effective January 1, 2018, we adopted Accounting Standards Codification, or ASC, Revenue from Contracts with Customers
(Topic 606), or ASC 606, using the modified retrospective approach. Under this approach, we recorded a cumulative adjustment to
decrease accumulated deficit and deferred revenue by $8.8 million. Under ASC 606, an entity recognizes revenue when its customer
obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in
exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the
scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the
performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance
obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. 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. At contract inception, once the contract is determined to be within the scope of ASC 606, we
assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether
each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the
respective performance obligation when (or as) the performance obligation is satisfied.

50

We have a collaboration and licensing agreement that is within the scope of ASC 606, under which we license certain rights to

one of our product candidates to Incyte Corporation. The terms of this arrangement include payment to us of a non-refundable, upfront
license fee, and potential development, regulatory and sales milestones, and sales royalties. Each of these payments results in
collaboration revenues, except for revenues from royalties on net sales of licensed products, which would be classified as royalty
revenues.

In determining the appropriate

a

amount of revenue to be recognized as we fulfill our obligations under our agreement, we

perform the following steps: (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. As part of the
accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for
each performance obligation identified in the contract.

Licenses of Intellectual Property: If the license to our intellectual property is determined to be distinct from the other
performance obligations identified in the arrangement, we recognize revenues from non-refundable, upfront fees allocated to the
license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are
bundled with other promised goods or services, 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 and, if over time, the appropriate
method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. We evaluate the measure of
progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Milestone Payments: At the inception of each arrangement that includes development, regulatory or commercial milestone
payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the
transaction price. If it is probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is
included in the transaction price. Milestone payments that are not within our control or the licensees’ control, such as regulatory
approvals, are not considered probable of being achieved until those approvals are received or the underlying activity has been
completed. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for
which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent
reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if
necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis,
which would affect collaboration revenue in the period of adjustment.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and

the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related
sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or
partially satisfied). To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.

Contract Balances

Upfront payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue
recognition to a future period until we perform our obligations under these arrangements. Amounts payable to us are recorded as
accounts receivable when our right to consideration is unconditional.

We receive payments from Incyte based on billing schedules established in the contract. Upfront payments and fees are recorded
as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until we perform our
obligations under these arrangements. Amounts are recorded as accounts receivable when our right to consideration is
unconditional. 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 licensees and the transfer of the promised goods or services to the licensees will be one
year or less.

51

Accrued Research and Development Costs

We record accrued liabilities for estimated costs of our research and development activities conducted by third-party service
providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. We record the estimated
costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and include
these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations.
These costs are a significant component of our research and development expenses. We accrue for these costs based on factors such as
estimates of the work completed and in accordance with agreements established with our third-party service providers under the
service agreements.

r

We have not experienced any material differences between accrued costs and actual costs incurred. However, the status and
timing of actual services performed, number of patients enrolled, and the rate of patient enrollments may vary from our estimates,
resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to our accruals could
materially affect our results of operations.

Stock-Based Compensation

We recognize compensation costs related to stock options granted to employees and nonemployee directors based on the
estimated fair value of the awards on the date of grant, net of forfeitures. Through December 31, 2016, we estimated forfeitures at the
time of grant based on actual forfeiture experience, analysis of employee turnover behavior, and other factors and revised, if
necessary, in subsequent periods if actual forfeitures differed from estimates. Upon the adoption of ASU No. 2016-09,
to Employee Share-Based Payment Accounting, effective as of January 1, 2017, we elected to account for forfeitures as they occur.
We estimate the grant date fair value for employee and nonemployee directors, and the resulting stock-based compensation expense,
using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is generally recognized on a
straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.

Improvements

t

Stock-based option awards issued to non-employees

are recorded at fair value as of the grant date using the Black-Scholes

option-pricing model and recognized as expense on a straight-line basis over the vesting period. The fair value is re-measured each
reporting period over the vesting term resulting in periodic adjustments to stock-based compensation expense.

The Black-Scholes option-pricing model requires the use of highly subjective assumptions, which determine the fair value of

stock-based awards. These assumptions include:

Expected Term. Our expected term represents the period that our stock-based awards are expected to be outstanding and is
determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).

Expected Volatility. Since we have only been publicly traded for a short period and do not have adequate trading history for our
common stock, the expected volatility was estimated based on a weighted volatility using both the trading history for our
common stock and the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the
expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life
cycle, or area of specialty.

Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant
for periods corresponding with the expected term of option.

Expected Dividend. We have never paid dividends on our common stock and have no plans to pay dividends on our common
stock. Therefore, we used an expected dividend yield of zero.

Income Taxes

As of December 31, 2018 and 2017, we had approximately $167.3 million and $129.3 million of federal operating loss

carryforwards, respectively, and $53.6 million and $50.1 million of state operating loss carryforwards, respectively, available to
reduce future taxable income that will begin to expire in 2030 for federal and state tax purposes.

As of December 31, 2018 and 2017, we also had research and development tax credit carryforwards of approximately $8.1
million and $5.5 million for federal purposes, respectively, and $4.3 million and $3.2 million for state purposes, respectively, available
to offset future taxable income tax. If not utilized, the federal carryforwards will expire in various amounts beginning in 2030, and the
state credits can be carried forward indefinitely.

52

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. We have performed an analysis
to determine whether an "ownership change" has occurred from inception to December 31, 2014. Based on this analysis, management
has determined that there was an ownership change. The annual limitation may result in the expiration of net operating losses and
credits before utilization, however, we do not believe any of our net operating losses and research and development credits are limited
by this potential ownership change. Subsequent ownership changes since 2014 may subject us to annual limitations of our net
operating loss and credit carryforwards. Such annual limitation could result in the expiration of the net operating loss and credit
carryforwards before utilization.

Financial Overview

Collaboration Revenue

Collaboration revenue represents the portion of deferred revenue recognized from a $45.0 million upfront fee and $12.0 million

milestone achieved in the first quarter of 2017, from the Incyte Collaboration Agreement. The combined transaction price of
The combined transaction price of
$57.0 million was recognized over the estimated period of performance under the Incyte Collaboration Agreement based on the
measure of progress toward completion for the combined performance obligation, which was satisfied as of June 2018.
Effective
January 1, 2018, we adopted ASC 606 using the modified retrospective approach. Refer to Item 8, Notes to consolidated financial
statements, Notes 2 and 10, for further information on the adoption of ASC 606 and the Incyte Collaboration Agreement.

Research and Development Expenses

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our

product candidates. We recognize all research and development costs as they are incurred. Costs associated with co-development
activities performed under our collaboration agreements with Incyte, Bristol-Myers Squibb, and Pfizer are included in research and
development expenses, with any reimbursement of costs reflected as a reduction of such expenses.

Research and development expenses consist primarily of the following:

•

•

•

•

•

•

employee-related expenses, which include salaries, benefits and stock-based compensation;

expenses incurred under agreements with clinical trial sites that conduct research and development activities on our
behalf;

laboratory and vendor expenses related to the execution of preclinical studies and clinical trials;

contract manufacturing expenses, primarily for the production of clinical supplies;

facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities,
depreciation expense and other supplies; and

license fees and milestone payments related to our licensing agreements.

The largest component of our total operating expenses has historically been our investment in research and development
activities including the clinical development of our product candidates. We allocate to research and development expenses the salaries,
benefits, stock-based compensation expense, and indirect costs of our clinical and preclinical programs on a program-specific basis,
and we include these costs in the program-specific expenses.

53

The following table shows our research and development expenses for 2018, 2017, and 2016:

Development candidate:

Telaglenastat (CB-839)................................. $
INCB001158 .................................................
CB-280..........................................................
Total development ...........................................

Preclinical and research:

Preclinical and research ...................................
Total ............................................................................... $

2018

Year Ended December 31,
2017

(in thousands)

2016

44,264
7,235
3,830
55,329

10,866
66,195

$

$

29,839
5,745
—
35,584

7,527
43,111

$

$

11,355
11,596
—
22,951

4,797
27,748

We expect our research and development expenses will increase during the next few years as we advance our product candidates

into and through clinical trials, and pursue regulatory approval of our product candidates, which will require a significant investment
in contract manufacturing and inventory build-up related costs.

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never

succeed in achieving marketing approval for our product candidates. The probability of success of our product candidates may be
affected by numerous factors, including clinical data, competition, manufacturing capability and commercial viability. As a result, we
are unable to determine the duration and completion costs of our research and development projects or when and to what extent we
will generate revenue from the commercialization and sale of any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, allocated expenses and other expenses for outside professional

services, including legal, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation.
Allocated expenses consist of facilities and other allocated expenses, which include direct and allocated expenses for rent and
maintenance of facilities, depreciation expense and other supplies. We have incurred and expect to continue to incur additional
expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to
companies listed on a national securities exchange and costs related to compliance and reporting obligations pursuant to the rules and
regulations of the SEC, particularly after we cease to be an “emerging growth company.” In addition, we have incurred and expect to
continue to incur increased expenses associated with being a public company, including additional legal, insurance, investor relations
and other increases related to needs for additional human resources and professional services.

Results of Operations

Comparison of the Years Ended December 31, 2018 and 2017

Years Ended

December 31,

2018

2017

Change

$

%

(in thousands, except percentages)

Revenue:

Collaboration revenue................................................. $
Total revenue......................................................

22,254
22,254

Operating expenses:

Research and development .........................................
General and administrative.........................................
Total operating expenses ....................................
Loss from operations ..........................................................
Interest income, net.............................................................
Net loss ............................................................................... $

66,195
13,340
79,535
(57,281)
2,652
(54,629)

$

$

25,955
25,955

43,111
12,530
55,641
(29,686)
1,860
(27,826)

$

$

(3,701)
(3,701)

-14%
-14%

23,084
810
23,894
(27,595)
792
(26,803)

54%
6%
43%
93%
43%
96%

54

Collaboration Revenue

Collaboration revenue decreased from $26.0 million for the year ended December 31, 2017 to $22.2 million for the year ended

December 31, 2018, or 14%. Collaboration revenue represents the portion of deferred revenue from the Incyte Collaboration
Agreement recognized in the period. Effective January 1, 2018, we adopted ASC 606 using the modified retrospective approach. The
decrease of $3.7 million was primarily due the satisfaction of our and Incyte’s combined performance obligation in June 2018 under
the Incyte Collaboration Agreement, for which revenue recognized in each period was determined based on the measure of progress
toward the completion of the manufacturing services and technology transfer to Incyte, partially offset by differences in accounting
under the adoption of ASC 606. Refer to Item 8, Notes to consolidated financial statements, Notes 2 and 10, for further information on
the adoption of ASC 606 and the Incyte Collaboration Agreement.

Research and Development

Research and development expenses increased $23.1 million, or 54%, from $43.1 million for 2017 to $66.2 million for 2018.

The increase of $23.1 million was due to a $14.4 million increase in the telaglenastat program to support our new and ongoing clinical
trials, including for our Phase 2 CANTATA trial which opened in 2018, an increase of $1.5 million in the INCB001158 program, an
increase of $3.8 million in the CB-280 program, and an increase of $3.3 million for investment in our early stage research programs.

General and Administrative

General and administrative expenses increased $0.8 million, or 6%, from $12.5 million for 2017 to $13.3 million for 2018. The

increase was due to an increase of $1.9 million in higher personnel-costs primarily as a result of higher headcount, salary increases
and stock-based compensation expenses, partially offset by $0.8 million of lower outside professional services, including legal
expenses in connection with the Incyte Collaboration Agreement, and $0.3 million lower expenses due to the execution of the sublease
agreement for our office and laboratory space in the first quarter of 2017.

Interest Income

Interest income increased $0.8 million, from $1.9 million for the year ended December 31, 2017 to $2.7 million for the year

ended December 31, 2018. The increase of $0.8 million was due to higher interest income generated from higher returns on our
investments, partially offset by lower cash equivalents and investment balances compared to the prior year.

Comparison of the Years Ended December 31, 2017 and 2016

Year Ended

December 31,

Change

2017

2016

$
(in thousands, except percentages)

Revenue:

Collaboration revenue................................................. $
Total revenue......................................................

25,955
25,955

Operating expenses:

Research and development .........................................
General and administrative.........................................
Total operating expenses ....................................
Loss from operations ..........................................................
Interest income, net.............................................................
Net loss ............................................................................... $

43,111
12,530
55,641
(29,686)
1,860
(27,826)

$

$

—
—

27,748
10,586
38,334
(38,334)
330
(38,004)

$

$

25,955
25,955

15,363
1,944
17,307
8,648
1,530
10,178

%

*
*

55%
18%
45%
-23%
464%
-27%

*

Percentage not meaningful.

55

Collaboration Revenue

Collaboration revenue increased $26.0 million for the year ended December 31, 2017 and represented the portion of deferred

revenue from the $45.0 million upfront fee and $12.0 million milestone achieved in the first quarter of 2017 from the Incyte
Collaboration Agreement recognized ratably over the estimated performance period that was consistent with the term of our
obligations under the agreement and prior to the adoption of ASC 606. Refer to Item 8, Notes to consolidated financial statements,
Notes 2 and 10, for further information on the adoption of ASC 606 and the Incyte Collaboration Agreement.

Research and Development

Research and development expenses increased $15.4 million, or 55%, from $27.7 million for 2016 to $43.1 million for 2017.

The increase of $15.4 million was due to an $18.5 million increase in the telaglenastat program to support our new and ongoing
clinical trials, including our two Phase 2 trials, as well as an increase of $2.7 million from investment in our early stage research
programs, offset by a decrease of $5.8 million from the INCB001158 program, primarily due to Incyte’s co-funding of development
costs pursuant to the Incyte Collaboration Agreement.

General and Administrative

General and administrative expenses increased $1.9 million, or 18%, from $10.6 million for 2016 to $12.5 million for 2017. The

increase was due to an increase of $1.0 million in professional services, including activities to support our collaboration and license
agreements and our Phase 2 clinical trials, and an increase of $0.9 million in higher personnel-related costs, primarily as a result of
higher headcount, salary increases and stock-based compensation expenses.

Interest Income

Interest income increased $1.5 million, from $0.3 million for the year ended December 31, 2016 to $1.8 million for the year

ended December 31, 2017. The increase of $1.5 million was due to higher interest income generated from higher returns on our
investments and higher cash equivalents and investment balances compared to the prior year.

Liquidity and Capital Resources

As of December 31, 2018, we had cash, cash equivalents and investments totaling $136.2 million. Our operations have been

financed by net proceeds from the sale of shares of our capital stock and payments from the Incyte Collaboration Agreement.

In August 2017, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission which
permits the offering, issuance and sale by us of up to a maximum aggregate offering price of $250.0 million of our common stock. As
of December 31, 2018, $234.2 million of our common stock remained available for sale, of which up to $34.2 million may be issued
and sold pursuant to an at-the-market offering program for sales of our common stock under a sales agreement with Cowen and
Company, LLC, subject to certain conditions as specified in the sales agreement.

Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund
operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts
payable and accrued expenses.

We believe that our existing cash, cash equivalents and investments as of December 31, 2018 will be sufficient for us to meet
our current operating plan for at least the twelve-month period following the filing of our December 31, 2018 Form 10-K. However,
our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-
looking statement that involves risks and uncertainties, and actual results could vary materially. In order to complete the process of
obtaining regulatory approval for our product candidates and to build the sales, marketing and distribution infrastructure that we
believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use
all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research,
development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital
requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•

•

the timing and costs of our planned clinical trials for our product candidates;

the timing and costs of our planned preclinical studies of our product candidates;

56

•

•

•

•

•

•

•

our success in establishing and scaling commercial manufacturing capabilities;

the number and characteristics of product candidates that we pursue;

the outcome, timing and costs of seeking regulatory approvals;

subject to receipt of regulatory approval, revenue received from commercial sales of our product candidates;

the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;

the amount and timing of any payments we may be required to make in connection with the licensing, filing, prosecution,
maintenance, defense and enforcement of any patents or patent applications or other intellectual property rights; and

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

We plan to continue to fund our operations and capital funding needs through reimbursement of expenses under our existing

collaboration agreements and through equity and/or debt financing. We may also consider further collaborations or selectively
partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to our
stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could
provide for operating and financing covenants that would restrict our operations. If we are not able to secure adequate additional
funding we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible,
and/or suspend or curtail planned programs. Any of these actions could harm our business, results of operations and future prospects.

a

The following table summarizes our cash flows for the periods indicated:

Cash provided by (used in) operating activities........
Cash provided by (used in) investing activities ........
Cash provided by financing activities .......................

$
$
$

(64,842) $
$
52,799
$
14,626

13,751
$
(98,431) $
$
122,948

(31,025)
23,705
11,816

Year Ended December 31,

2018

2017

2016

(in thousands)

Cash Flows from Operating Activities

Cash used in operating activities for the year ended December 31, 2018 was $64.8 million. Our net loss of $54.6 million was
offset in part by non-cash charges of $7.4 million of stock-based compensation and $0.2 million for depreciation and amortization.
The change in operating assets and liabilities was primarily related to a $22.2 million decrease in deferred revenue due to our Incyte
Collaboration Agreement, and a $5.2 million increase primarily due to the timing of payments for our clinical trial and manufacturing
activities, partially offset by a $0.9 million increase in the receivables, mainly related to our collaboration agreement with Incyte.

Cash provided by operating activities for the year ended December 31, 2017 was $13.8 million. Our net loss of $27.8 million

was offset in part by non-cash charges of $5.5 million of stock-based compensation and $0.8 million for depreciation. The change in
operating assets and liabilities was primarily related to a $31.0 million increase in deferred revenue due to our Incyte Collaboration
Agreement and a $5.3 million increase primarily due to the timing of payments for our clinical trial and manufacturing activities,
partially offset by a $1.1 million increase in the receivables related to our collaboration agreements with Incyte and Bristol-Myers
Squibb.

Cash used in operating activities for the year ended December 31, 2016 was $31.0 million, consisting of a net loss of $38.0

million, which was offset by non-cash charges $0.9 million for depreciation expense and $4.3 million for stock-based compensation.
The change in our net operating assets and liabilities of $1.8 million was primarily due to the
timing of payments for our clinical trial
and manufacturing activities.

a

Cash Flows from Investing Activities

Cash provided by investing activities was $52.8 million for the year ended December 31, 2018 and was related to the proceeds
from the maturity of investments of $129.1 million, partially offset by the purchase of investments of $76.1 million and purchase of
property and equipment of $0.2 million.

Cash used in investing activities was $98.4 million for the year ended December 31, 2017 and was related to the purchases of

investments of $194.7 million, partially offset by the maturity of investments of $97.4 million, and purchase of property and
equipment, primarily for leasehold improvements of our office and laboratory space, of $1.2 million.

57

Cash provided by investing activities for the year ended December 31, 2016 was $23.7 million and was related to the maturity

t

of investments of $68.7 million, offset by the purchase of investments of $44.6 million, and purchase of property and equipment of
$0.4 million.

Cash Flows from Financing Activities

Cash provided by financing activities was $14.6 million for the year ended December 31, 2018 and was related to $13.7 million
in net proceeds from the issuance of common stock through our at-the-market offering program, and issuance of common stock upon
the exercise of stock options and employee stock plan purchases of $0.9 million.

Cash provided by financing activities was $122.9 million for the year ended December 31, 2017 and was related to $75.4
million in net proceeds from the sale and issuance of common stock related to our public offering, $7.9 million in net proceeds from
the issuance of common stock under our stock purchase agreement with Incyte, $38.3 million in net proceeds from the issuance of
common stock through our at-the-market offering programs, and issuance of common stock upon the exercise of stock options and
employee stock plan purchases of $1.3 million.

Cash provided by financing activities for the year ended December 31, 2016 was $11.8 million and was from the issuance of

common stock through an at-the-market offering program of $11.3 million and from the issuance of common stock upon the exercise
of stock options and employee stock plan purchases of $0.5 million.

Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations as of December 31, 2018:

Contractual Obligations:

Less Than 1 Year

1 to 3 Years

3 to 5 Years

More Than 5
Years

Total

Operating lease obligations (1) ..............................
Less: sublease income (2) .....................................
Total contractual obligations (3).......................

$

$

2,260 $
(1,115)
1,145 $

(In thousands)

4,755 $
(187)
4,568 $

5,045 $
—
5,045 $

219 $
—
219 $

12,279
(1,302)
10,977

Payments Due By Period

1.

2.

Represents future minimum lease payments under the non-cancelable lease for our headquarters in South San Francisco,
California. The minimum lease payments above do not include any related common area maintenance charges or real estate
taxes.
In February 2017, we entered into a non-cancelable sublease agreement for a portion of our facilities, from March 2017 through
February 2020.

3. We enter into agreements in the normal course of business with organizations for collaborations or in-licensing arrangements,
contract research organizations for clinical trials and vendors for preclinical studies and other services and products for
operating purposes which are cancelable at any time by us, generally upon 30 to 60 days prior written notice. These payments
are not included in this table of contractual obligations
.

t

Off-Balance Sheet Arrangements

During 2018, 2017, and 2016 we did not have any off-balance sheet arrangements.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can

delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those
standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised
accounting standards, and, therefore, are subject to the same new or revised accounting standards as other public companies that are
not emerging growth companies.

58

Recent Accounting Pronouncements

Please refer to Note 2 to our audited consolidated financial statements appearing under Part II, Item 8 for a discussion of new

accounting standards updates that may impact us.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities.

Our investment policy allows us to maintain a portfolio of cash equivalents and investments in a variety of high credit quality
securities issued by the U.S. government, U.S. government-sponsored agencies and highly rated banks and corporations, subject
certain concentration limits. Our investment policy prohibits us from holding auction rate securities or derivative financial
instruments. As of December 31, 2018, we had cash, cash equivalents and investments of $136.2 million. A portion of our investments
may be subject to interest rate risk and could fall in value if market interest rates increase. However, we believe that our exposure to
interest rate risk is not significant as the majority of our investments are short-term in duration and due to the low risk profile of our
investments, a 1% change in interest rates would not have a material impact on the total market value of our portfolio. We have the
ability to hold our short-term investments until maturity, and therefore we do not expect that our results of operations or cash flows
would be adversely affected by any change in market interest rates on our investments. We actively monitor changes in interest rates.
We had no outstanding debt as of December 31, 2018.

to

r

59

Item 8.

Consolidated Financial Statements and Supplementary Data.

CALITHERA BIOSCIENCES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm ..............................................................................................................
Consolidated Balance Sheets..............................................................................................................................................................
Consolidated Statements of Operations ............................................................................................................................................
Consolidated Statements of Comprehensive Loss .............................................................................................................................
Consolidated Statements of Stockholders’ Equity .............................................................................................................................
Consolidated Statements of Cash Flows ............................................................................................................................................
Notes to Consolidated Financial Statements ......................................................................................................................................

Page

61
62
63
64
65
66
67

60

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Calithera Biosciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Calithera Biosciences, Inc. (the Company) as of December 31,
2018 and 2017, the related consolidated statements of operations, comprehensive loss, stockholder’s 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 at 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.

Adoption of ASU No. 2019-14

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue
recognition due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified
retrospective method effective January 1, 2018.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no
such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2014.
Redwood City, California
March 7, 2019

61

Calithera Biosciences, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)

Assets
Current assets:

Cash and cash equivalents.......................................................................................................... $
Short-term investments ..............................................................................................................
Receivables from collaborations................................................................................................
Prepaid expenses and other current assets .................................................................................
Total current assets ...............................................................................................................
Long-term investments....................................................................................................................
Other assets......................................................................................................................................
Restricted cash.................................................................................................................................
Property and equipment, net............................................................................................................

Total assets.................................................................................................................................... $

Liabilities and Stockholders’ Equity
Current liabilities:

Accounts payable ....................................................................................................................... $
Accrued liabilities ......................................................................................................................
Current portion of deferred revenue...........................................................................................
Total current liabilities..........................................................................................................
Deferred revenue, less current portion ............................................................................................
Deferred rent....................................................................................................................................
Total liabilities ..............................................................................................................................

Commitments and contingencies (Note 5)
Stockholders’ equity:

December 31,

2018

2017

$

$

$

51,058
85,095
1,997
2,102
140,252
—
569
440
1,464
142,725

1,247
13,634
—
14,881
—
1,130
16,011

48,475
115,318
1,142
2,732
167,667
22,361
228
440
1,759
192,455

1,072
8,938
29,017
39,027
2,028
1,093
42,148

Preferred stock, $0.0001 par value, 10,000 shares authorized as of

December 31, 2018 and 2017; no shares issued and outstanding as of
December 31, 2018 and 2017 .................................................................................................

Common stock, $0.0001 par value, 200,000 shares authorized as of

December 31, 2018 and 2017; 38,834 and 35,759 shares
issued and outstanding as of December 31, 2018 and 2017, respectively ..............................
Additional paid-in capital...........................................................................................................
Accumulated deficit ...................................................................................................................
Accumulated other comprehensive loss.....................................................................................
Total stockholders’ equity ....................................................................................................

Total liabilities and stock and stockholders’ equity ........................................................................ $

—

—

4
322,993
(196,170)
(113)
126,714
142,725

$

4
300,906
(150,333)
(270)
150,307
192,455

See accompanying notes.

62

Calithera Biosciences, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)

2018

Year Ended December 31,
2017

2016

Revenue:

Collaboration revenue ....................................................................... $
Total revenue ...............................................................................

22,254
22,254

$

25,955
25,955

$

—
—

Operating expenses:

Research and development................................................................
General and administrative................................................................
Total operating expenses .............................................................
Loss from operations ..............................................................................
Interest income, net.................................................................................
Net loss ................................................................................................... $
Net loss per share, basic and diluted....................................................... $
Weighted average common shares used to compute

66,195
13,340
79,535
(57,281)
2,652
(54,629) $
(1.49) $

43,111
12,530
55,641
(29,686)
1,860
(27,826) $
(0.84) $

27,748
10,586
38,334
(38,334)
330
(38,004)
(1.95)

net loss per share, basic and diluted.....................................................

36,604

32,951

19,486

See accompanying notes.

63

Calithera Biosciences, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)

Net loss ............................................................................................................... $
Other comprehensive gain (loss):

2018

Year Ended December 31,
2017

2016

(54,629)

$

(27,826)

$

(38,004)

Net unrealized gain (loss) on available-for-sale securities............................
Total comprehensive loss ................................................................................... $

157
(54,472)

$

(257)
(28,083)

$

56
(37,948)

See accompanying notes.

64

Calithera Biosciences, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)

Common Stock

Balance at December 31, 2015 .................................. 18,232 $

Shares

Amount
2

Issuance of common stock in connection with
at-the-market offering, net of underwriting
commissions and issuance costs..........................
Exercise of stock options .......................................
Issuance of common stock per ESPP purchase......
Stock-based compensation expense .......................
Net loss...................................................................
Unrealized gain on available-for-sale securities ....

99
112
—
—
—
Balance at December 31, 2016 .................................. 21,502

3,059

Issuance of common stock in connection with
at-the-market offering, net of underwriting
commissions and issuance costs..........................

Issuance of common stock in connection with

4,351

public offering, net of underwriting
commissions and issuance costs..........................

7,855

Issuance of common stock in connection with
Incyte Stock Purchase Agreement, net of
issuance costs ......................................................
Exercise of stock options .......................................
Issuance of common stock per ESPP purchase......
Stock-based compensation expense .......................
Cumulative-effect adjustment from adoption

1,720

153
178
—

—

of accounting standard on stock-based
compensation.......................................................
Net loss...................................................................
Unrealized loss on available-for-sale securities .....

—
—
Balance at December 31, 2017 .................................. 35,759

Issuance of common stock in connection with
at-the-market offering, net of underwriting
commissions and issuance costs..........................
Exercise of stock options .......................................
Issuance of common stock per ESPP purchase......
Stock-based compensation expense .......................
Cumulative-effect adjustment from adoption

of ASC 606 accounting standard on revenue
recognition...........................................................
Net loss...................................................................
Unrealized gain on available-for-sale securities ....

2,731

125
219
—

—

—
—

Balance at December 31, 2018 .................................. 38,834 $

—

—
—
—
—
—
2

1

1

—

—
—
—

—

—
—
4

—

—
—
—

—

—
—
4

Additional
Paid-In
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss

Total
Stockholders'
Equity

$ 156,353 $ (84,498) $

(69) $

71,788

11,281

—

—

11,281

177
358
4,250
—
—
172,419

38,314

75,385

7,914

787
546
5,541

—

—
—
300,906

13,729

247
674
7,437

—
—
—
(38,004)
—
(122,502)

—

—

—

—
—
—

(5)

(27,826)
—
(150,333)

—

—
—
—

—

—
—

8,792

(54,629)
—

$ 322,993 $ (196,170) $

—
—
—
—
56
(13)

—

—

—

—
—
—

—

—
(257)
(270)

—

—
—
—

—

177
358
4,250
(38,004)
56
49,906

38,315

75,386

7,914

787
546
5,541

(5)

(27,826)
(257)
150,307

13,729

247
674
7,437

8,792

(54,629)
—
157
157
(113) $ 126,714

See accompanying notes.

65

Calithera Biosciences, Inc.
Consolidated Statements of Cash Flows
(in thousands)

Cash Flows Provided By (Used In) Operating Activities
Net loss......................................................................................................................... $
Adjustments to reconcile net loss to net cash provided by (used in) operating

activities:

Depreciation............................................................................................................
Amortization of premiums (discounts) on investments..........................................
Stock-based compensation......................................................................................
Loss on disposal of property and equipment ..........................................................

Changes in operating assets and liabilities:

Receivables from collaborations.............................................................................
Prepaid expenses and other current assets ..............................................................
Other assets .............................................................................................................
Accounts payable....................................................................................................
Accrued liabilities ...................................................................................................
Deferred revenue.....................................................................................................
Deferred rent ...........................................................................................................
Net cash provided by (used in) operating activities......................................

Cash Flows Provided By (Used In) Investing Activities

Purchases of investments ........................................................................................
Proceeds from the maturity of investments ............................................................
Purchase of property and equipment ......................................................................
Net cash provided by (used in) investing activities.......................................

Cash Flows Provided By Financing Activities

Proceeds from issuance of common stock upon public offering, net .....................
Proceeds from issuance of common stock under stock purchase agreement,

net.........................................................................................................................
Proceeds from issuance of common stock through at-the-market offerings, net....
Proceeds from stock option exercises and employee stock plan purchases ...........
Net cash provided by financing activities......................................................

Net increase in cash, cash equivalents, and restricted cash..........................................
Cash, cash equivalents, and restricted cash at beginning of period .............................
Cash, cash equivalents, and restricted cash at end of period........................................ $

2018

Year Ended December 31,
2017

2016

(54,629) $

(27,826) $

(38,004)

505
(272)
7,437
—

(855)
630
(341)
175
4,725
(22,254)
37
(64,842)

(76,107)
129,120
(214)
52,799

365
446
5,536
9

(1,142)
(952)
62
674
4,878
31,045
656
13,751

(194,650)
97,448
(1,229)
(98,431)

—

75,386

—
13,705
921
14,626

2,583
48,915
51,498

7,914
38,315
1,333
122,948

38,268
10,647
48,915

$

$

297
590
4,250
—

—
787
(9)
(28)
925
—
167
(31,025)

(44,618)
68,724
(401)
23,705

—

—
11,281
535
11,816

4,496
6,151
10,647

Supplemental Disclosure of Non-Cash Investing and Financing Information:
Change in unpaid amounts related to property and equipment purchases ................... $
Change in unpaid amounts related to deferred financing costs.................................... $

(5) $
$
24

5

$
— $

—
—

See accompanying notes.

66

Calithera Biosciences, Inc.
Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

Organization

Calithera Biosciences, Inc., or the Company, was incorporated in the State of Delaware on March 9, 2010. The Company is a

clinical-stage biopharmaceutical company focused on discovering and developing small molecule drugs that target novel and critical
metabolic pathways in tumor and cancer-fighting immune cells. The Company’s principal operations are based in South San
Francisco, California, and it operates in one segment.

Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Calithera

Biosciences UK Limited, incorporated on April 20, 2017. All significant intercompany accounts and transactions have been
eliminated from the consolidated financial statements.

Liquidity

In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over

the next several years. The Company’s ultimate success depends on the outcome of its research and development activities. The
Company has incurred net losses from operations since inception and has an accumulated deficit of $196.2 million as of December 31,
2018. The Company intends to raise additional capital through the issuance of additional equity, and potentially through strategic
at adequate levels, the Company will need to reevaluate
alliances with partner companies. However, if such financing is not availablea
its operating plans. Management believes that the currently available resources will provide sufficient funds to enable the Company to
meet its operating plan for at least the twelve-month period following the filing of the Company’s 2018 consolidated financial
statements on Form 10-K. However, if the Company’s anticipated operating results are not achieved in future periods, management
believes that planned expenditures may need to be reduced in order to extend the time period over which the then-available resources
would be able to fund the Company’s operations.

2. Summary of Significant Accounting Policies

Use of Estimates

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting

principles, or GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On
an ongoing basis, management evaluates its estimates, including those related to clinical trial accrued liabilities, revenue recognition,
fair value of marketable securities, income taxes, and stock-based compensation. Management bases its estimates on historical
experience and on various other market specific and relevant assumptions that management believes to be reasonable under the
circumstances. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to

be cash equivalents. Cash equivalents, which consist primarily of amounts invested in money market accounts, are stated at fair value.

Investments

All investments have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon

quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments
at the time of purchase and reevaluates such designation as of each balance sheet date. Unrealized gains and losses are excluded from
earnings and are reported as a component of comprehensive loss. Realized gains and losses and declines in fair value judged to be
other than temporary, if any, on available-for-sale securities are included in interest income, net. The cost of securities sold is based on
the specific-identification method. Interest on marketable securities is included in interest income, net.

67

Receivables from Collaborations

Receivables from collaborations represent amounts due under the terms of the Company’s collaboration agreements, primarily

its collaboration agreement with Incyte Corporation, or Incyte, as described in Note 10, Collaboration and Licensing Agreements -
Incyte Collaboration and License Agreement, for reimbursements of certain costs. Based on its evaluation of credit worthiness and
historical payment patterns, the Company did not record any allowance for doubtful accounts as of December 31, 2018 and 2017.

Restricted Cash

Restricted cash consists of money market funds held by the Company’s financial institution as collateral for the Company’s

obligations under its facility lease for the Company’s corporate headquarters in South San Francisco, California.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents,
investments and restricted cash. The Company invests in a variety of financial instruments and, by its policy, limits these financial
instruments to high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies and highly rated
banks and corporations, subject to certain concentration limits. The Company’s cash, cash equivalents, investments and restricted cash
are held by financial institutions in the United States that management believes are of high credit quality. Amounts on deposit may at
times exceed federally insured limits.

All of the Company’s collaboration revenue and the majority of the Company’s receivables from collaborations are derived

from its collaboration and license agreement with Incyte as described in Note 10, Collaboration and Licensing Agreements - Incyte
Collaboration and License Agreement.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line

method over the estimated useful lives of the respective assets. Depreciation begins at the time the asset is placed in service.
Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated
depreciation is removed from the balance sheet and the resulting gain or loss is reflected in operations.

The useful lives of property and equipment are as follows:

Research and development equipment ..................
Furniture and office equipment..............................
Computer equipment .............................................
Software .................................................................
Leasehold improvements ....................................... Shorter of remaining lease term or estimated useful life

5 years
5 years
3 years
3 years

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets, including property and equipment, for impairment whenever events or changes in

circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by
comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its
remaining life. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the
carrying value and the fair value of the impaired asset. The Company has not recorded impairment of any long-lived assets during any
of the periods presented.

Revenue Recognition

Effective January 1, 2018, the Company adopted Accounting Standards Codification, or ASC No. 2014-09, Revenue from

Contracts with Customers (Topic 606), or ASC 606, using the modified retrospective approach. Under this approach, the Company
recorded a cumulative adjustment to decrease accumulated deficit and deferred revenue by $8.8 million. Under ASC 606, an entity
recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that
the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity
determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer;

68

(ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the
performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The
Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to
in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within
the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are
performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the
amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is
satisfied.

The Company has a collaboration and license agreement with Incyte, or the Incyte Collaboration Agreement, that is within the

scope of ASC 606, under which it licenses certain rights to one of its product candidates to Incyte Corporation. The terms of this
arrangement include payment to the Company of a non-refundable, upfront license fee, and potential development, regulatory and
sales milestones, and sales royalties. Each of these payments results in collaboration revenues, except for revenues from royalties on
net sales of licensed products, which would be classified as royalty revenues.

In determining the appropriate

a

amount of revenue to be recognized as it fulfills its obligations under its agreement, the Company

performs the following steps: (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) the Company satisfies each performance obligation. As part of
the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone
selling price for each performance obligation identified in the contract.

Licenses of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the
other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees
allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For
licenses that are bundled with other promised goods or services, the Company utilizes 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 and, if
over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The
Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related
revenue recognition.

Milestone Payments: At the inception of each arrangement that includes development, regulatory or commercial milestone

payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be
included in the transaction price. If it is probable that a significant reversal of cumulative revenue would not occur, the associated
milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee,
such as regulatory approvals, are not considered probable of being achieved until those approvals are received or the underlying
activity has been completed. The transaction price is then allocated to each performance obligation on a relative stand-alone selling
price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the
end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones
and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on
a cumulative catch-up basis, which would affect collaboration revenue in the period of adjustment.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and

the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when
the related sales occur, or (ii) when the performance obligation to which some or all of the royalty that has been allocated has been
satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its licensing
arrangements.

69

The following table summarizes the impact of adopting ASC 606 on select consolidated statement of operations line items for

the year ended December 31, 2018 (in thousands, except per share data):

Year Ended December 31, 2018
Collaboration revenue ................................................................ $
Total revenue ..............................................................................
Loss from operations ..................................................................
Net loss .......................................................................................

As Reported
22,254
22,254
(57,281)
(54,629)

Adjustments
8,792
$
8,792
8,792
8,792

Balances
Without the
Adoption of
ASC 606

$

31,046
31,046
(48,489)
(45,837)

Contract Balances

Upfront payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue
recognition to a future period until the Company performs its obligations under these arrangements. Amounts payable to the Company
are recorded as accounts receivable when the Company’s right to consideration is unconditional.

The Company does 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 licensees and the transfer of the promised goods or services to the licensees will be one
year or less.

The following table presents changes in the Company’s contract liabilities for the year ended December 31, 2018 (in thousands):

a

Year Ended December 31, 2018

Balance at
Beginning of
Period

Balance at
End of
Period

Deferred revenue .................................................................................
Deferred revenue, less current portion ................................................

$

29,017
2,028

$

—
—

Deferred revenue related to the Incyte Collaboration Agreement, which was comprised of the $57 million transaction price

including a $45 million upfront license payment and a $12 million development milestone achieved, less the collaboration revenue
recognized from the effective date of the contract, was recognized as the combined performance obligation was satisfied.

The Company had no contract assets as of December 31, 2018 and 2017. During the year ended December 31, 2018, the

a

Company’s contract liabilities, which consisted of deferred revenue, decreased $31.0
period related to amounts included in the contract liability at the beginning of the period. In addition, the Company recorded a
cumulative adjustment to decrease accumulated deficit and deferred revenue by $8.8 million upon the adoption of ASC 606 on
January 1, 2018, using the modified retrospective approach. For the year ended December 31, 2018, the Company did not recognize
any revenue from performance obligations satisfied in previous periods

million related to revenue recognized in the

Accrued Research and Development Costs

The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party

service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company
records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet
invoiced, and includes these costs in accrued liabilities in the consolidated balance sheets and within research and development
expense in the consolidated statements of operations. These costs are a significant component of the Company’s research and
development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in
accordance with agreements established with its third-party service providers under the service agreements. The Company makes
significant judgments and estimates in determining the accrued liabilities balance
in each reporting period. As actual costs become
a
known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs
and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled, and the rate of
patient enrollments may vary from the Company’s estimates, resulting in adjustments to expense in future periods. Changes in these
estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations.

70

Research and Development Costs

Research and development costs are expensed as incurred and consist of salaries and benefits, stock-based compensation

expense, laboratory supplies, manufacturing costs, and allocated facility costs, as well as fees paid to third parties that
research and development activities on the Company’s behalf. Costs associated with development activities performed under the
collaboration agreements are included in research and development expenses, with any reimbursement of costs reflected as a reduction
of such expenses. Nonrefundable advance payments for goods or services to be rendered 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 performed.

conduct certain

ff

Deferred Rent

Rent expense is recognized on a straight-line basis over the noncancelable term of the Company’s operating lease and,
accordingly, the Company records the difference between cash rent payments and the recognition of rent expense as a deferred rent
liability. Incentives granted under the Company’s facility leases, including allowances to fund leasehold improvements, are deferred
and are recognized as adjustments to rental expense on a straight-line basis over the term of the lease.

Stock-Based Compensation

Stock-based awards issued to employees and non-employee directors of the board, including stock options and stock purchased
under the employee stock purchase plan, are recorded at fair value as of the grant date using the Black-Scholes option-pricing model
and recognized as expense on a straight-line basis over the employee or director’s requisite service period (generally the vesting
period).

Stock-based option awards issued to non-employees
Stock-based option awards issued to non-employees are recorded at fair value as of the grant date using the Black-Scholes

option-pricing model and recognized as expense on a straight-line basis over the vesting period. The fair value is re-measured each
The fair value is re-measured each
reporting period over t

jadjustments to stock-based compensation expense.

he vesting term resulting in periodic

g

Because stock compensation expense is based on awards ultimately expected to vest, it is reduced by forfeitures. Through
December 31, 2016, the Company estimated forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differed from estimates. Upon the adoption of Financial Accounting Standards Board, or FASB, Accounting Standards
Update, or ASU, No. 2016-09, Improvements to Employee Share-Based Payment Accounting, effective as of January 1, 2017, the
Company elected to account for forfeitures as they occur.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are

determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the
likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that
some portion or all of a deferred tax asset will not be realized. Since realization of the Company’s deferred tax assets is dependent
upon the Company generating future taxable income, the timing and amount of which are uncertain, the net deferred tax assets have
been fully offset by a valuation allowance.

The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained
upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized
upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes
as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the
unrecognized tax benefits.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock
outstanding during the period without consideration of common stock equivalents. Since the Company was in a loss position for all
periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential
common shares outstanding would have been anti-dilutive.

71

Recent Accounting Pronouncements

In May 2014, the FASB issued a comprehensive new standard on revenue from contracts with customers, ASC 606. The
standard’s core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities
have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. In 2016, the FASB
updated the guidance for reporting revenue gross versus net to improve the implementation guidance on principal versus agent
considerations, and for identifying performance obligations and the accounting of intellectual property licenses. In addition, the FASB
introduced practical expedients and made narrow scope
p

ovements to the new accounting guidance.

pimpr

g g

p

p

The Company adopted the ASU on January 1, 2018, using the modified retrospective approach for its collaboration and license

agreement with Incyte. Therefore, comparative information was not adjusted and the impact of the transition is reflected in opening
accumulated deficit. The consideration the Company is eligible to receive under this agreement includes upfront payments, research
and development funding, milestone payments, and sales-based royalties. The new revenue recognition standard differs from the
previous accounting in many respects, such as in the accounting for variable consideration and the measurement of progress toward
completion of performance obligations. The most significant impact of the standard relates to the Company’s method of revenue
recognition for performance obligations that are delivered over time. Under the new standard, milestone payments are included in the
transaction price as variable consideration, subject to a constraint, and are allocated to the performance obligations in the contract.
Therefore, the milestone payments are recognized over the performance period rather than when achieved. In addition, legacy
guidance permitted straight-line recognition of revenue for performance obligations that are delivered over time. The new standard
requires an entity to recognize revenue based on the pattern of transfer of the services. The impact of adoption resulted in the
Company recording an adjustment to decrease the accumulated deficit and deferred revenue by $8.8 million at January 1, 2018 to
reflect revenue being recognized based on a measurement of progress toward completion of the combined performance obligation,
rather than on a straight-line basis.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is aimed at making leasing activities more

transparent, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and
corresponding lease liability, including leases currently accounted for as operating leases. The ASU was previously required to be
applied with a modified retrospective approach to each prior reporting period presented. In July 2018, the FASB issued ASU No.
2018-11, Leases (Topic 842): Targeted Improvements, or ASU No. 2018-11. In issuing ASU No. 2018-11, the FASB is permitting
another transition method for ASU 2016-02, which allows the transition to the new lease standard by recognizing a cumulative-effect
adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt the ASU on January 1,
2019, using a modified retrospective approach. The Company will elect the practical expedients upon transition to not reassess prior
conclusions related to contracts containing leases, lease classification and initial direct costs. The Company will also elect the practical
expedient for lessees to combine lease and nonlease components for all asset classes. The Company is finalizing its assessment of the
impact of adoption of the ASU and anticipates recording a right-of-use asset and lease liability to account for its facility lease and will
record a cumulative-effect adjustment in the period of adoption.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash Payments,
ASC 230, to clarify how entities should present restricted cash and restricted cash equivalents in their statements of cash flows. Under
ws. Under
this update, entities are required to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash
equivalents in their statements of cash flows. The Company adopted this standard on January 1, 2018, retrospectively. The ado
this standard did not impact the Company’s consolidated balance sheets, statements of operations, or statements of comprehensive
loss. The following tables summarize the
loss.
the years ended December 31, 2017 and 2016:

impact of adopting ASC 230 on select statement of cash flows line items (in thousands) for

ption of
f

ror

Year Ended December 31, 2017

Change in restricted cash....................................................... $
Net cash provided by (used in) investing activities...............
Net increase in cash, cash equivalents and restricted

cash* ...................................................................................

Cash, cash equivalents and restricted cash at beginning of

period* ................................................................................

Cash, cash equivalents and restricted cash at end of

period* ................................................................................

48,475

72

As Originally
Reported

Adjustments

Balances
With the
Adoption of
ASC 230

(394) $

(98,825)

394 $
394

—
(98,431)

37,874

10,601

394

46

440

38,268

10,647

48,915

*

F

or the year ended December 31, 2017, this line it

y

em, as originally reported, excluded restricted cash.

g

y

Year Ended December 31, 2016
Cash, cash equivalents and restricted cash at beginning of
period* ...............................................................................

Cash, cash equivalents and restricted cash at end of

As Originally
Reported

Adjustments

Balances
With the
Adoption of
ASC 230

$

6,105

46

$

6,151

period* ...............................................................................

10,601

46

10,647

*

For the year ended December 31, 2016, this line item, as originally reported, excluded restricted cash.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to
SEC Staff Accounting Bulletin No. 118, or SAB 118, which provides guidance on accounting for the tax effects of the U.S. Tax Cuts
and Jobs Act, or the Act, that was enacted in December 2017. SAB 118 provides a measurement period that should not extend beyond
one year from the Tax Act enactment date for companies to complete the accounting. In accordance with this guidance, the Company
determined that $17.8 million of the deferred tax expense offset by a full valuation allowance recorded in connection with the
remeasurement of certain deferred tax assets and liabilities was a provisional amount and a reasonable estimate at December 31, 2017.
No changes have been made to these adjustments and the Company’s accounting for the impact of the Act is now complete.

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting, or ASU 2018-07. The ASU expands the scope of Topic 718 to include share-based
payment transactions for acquiring goods and services from non-employees. The ASU also clarifies that Topic 718 does not apply to
share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or
services to customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic 606). The Company
will adopt ASU 2018-07 on January 1, 2019. The Company is finalizing its assessment of the impact of the ASU and does not
anticipate its adoption will have a material impact on its financial position and results of operations.

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 modifies the disclosure requirements on fair value measurements. This
guidance is effective for fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. The
Company is currently evaluating the impact of adoption of this new standard on its related disclosures.

In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532,

Disclosure Update and Simplification. These amendments eliminate, modify, or integrate into other SEC requirements certain
disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim
financial statements included in quarterly reports on Form 10-Q. The analysis, which can be presented as a footnote or separate
statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all
filings made on or after November 5, 2018. The Company adopted these SEC amendments on November 5, 2018 and will present the
analysis of changes in stockholders’ equity in its interim financial statements in its March 31, 2019 Form 10-Q. The Company does
not anticipate that the adoption of these SEC amendments will have a material effect on its financial statements other than the
disclosures noted above.

In November 2018, the FASB issued ASU 2018-18—Collaborative Arrangements (Topic 808): Clarifying the Interaction
between Topic 808 and Topic 606, or ASU 2018-18. This standard provides guidance on the interaction between Revenue Recognition
(Topic 606) and Collaborative Arrangements (Topic 808) by aligning the unit of account guidance between the two topics and
clarifying whether certain transactions between collaborative participants should be accounted for as revenue under Topic 606. ASU
2018-18 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption
is permitted. The Company plans to adopt this new standard on January 1, 2020, and is currently evaluating the impact ASU 2018-18
will have on its financial statements and related disclosures, but does not expect it to have a material impact on its financial
statements.

73

3. Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the

consolidated financial statements on a recurring basis (at least annually). Financial instruments include
short-term investments, receivables from collaborations, accounts payable, accrued liabilities and the current portion of defe
revenue that approximate fair value due to their relatively short maturities.

cash and cash equivalents,

rred

r

rr

Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the

level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would
be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair
value measurements establishes a three tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted
prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the related assets or liabilities; and

—

Level 3—Unobservable inputs that are significant to the
supported by little or no market data.

measurement of the fair value of the assets or liabilities that are

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant

to the fair value measurement. Where quoted prices are available in an active market, securities are classified as Level 1. The
Company classifies money market funds as Level 1. When quoted market prices are not available for
the specific security, then the
Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-
based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market
data for substantially the full term of the assets. Where applicable,
amounts to a present value using market-based observable inputs obtained from various third party data providers, including but not
limited to, benchmark yields, interest rate curves, reported trades, broker/dealer quotes and market reference data. The Company
classifies its corporate notes and commercial paper, U.S. treasury securities, and U.S. government agency securities as Level 2. Level
2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted
prices that are observable for the asset or liability. There were no transfers between Level 1 and

these models project future cash flows and discount the future

Level 2 during the periods presented.

a

a

a

r

The following table sets forth the fair value of the Company’s financial assets and liabilities, allocated into Level 1, Level 2 and

Level 3, that was measured on a recurring basis (in thousands):

Level 1

Level 2

Level 3

Total

December 31, 2018

Financial Assets:

Money market funds .............................................. $
Corporate notes and commercial paper..................
U.S. treasury securities...........................................
U.S. government agency securities ........................
Total financial assets .............................................. $

14,077 $
—
—
—
14,077 $

— $

73,733
20,334
28,072
122,139 $

— $
—
—
—
— $

14,077
73,733
20,334
28,072
136,216

Level 1

Level 2

Level 3

Total

December 31, 2017

Financial Assets:

Money market funds .............................................. $
Corporate notes and commercial paper..................
U.S. treasury securities...........................................
U.S. government agency securities ........................
Total financial assets .............................................. $

12,430 $
—
—
—
12,430 $

— $

85,492
34,437
53,691
173,620 $

— $
—
—
—
— $

12,430
85,492
34,437
53,691
186,050

74

4. Balance Sheet Components

Financial Instruments

Cash equivalents and investments, all of which are classified as available-for-sale securities, and restricted cash consisted

a

of the

following (in thousands):

December 31, 2018

December 31, 2017

Cost

Unrealized
Gain

Unrealized
(Loss)

Estimated
Fair Value

Cost

Unrealized
Gain

Unrealized
(Loss)

$

— $

— $

14,077

$ 12,430 $

— $

Estimated
Fair Value
— $ 12,430

Money market funds............................. $ 14,077
Corporate notes and commercial

paper ..................................................
U.S. treasury securities.........................
U.S. government agency securities ......

73,769
20,334
28,149
$136,329

—
4
—

$

4 $

Classified as:

Cash equivalents ..........................
Short-term investments ................
Long-term investments ................
Restricted cash .............................

Total cash equivalents,
restricted cash and
investments.............................

(36)
(4)
(77)
(117) $

73,733
20,334
28,072
136,216

85,553

34,505
53,832
$186,320 $

—
—
—
— $

(61)

85,492

34,437
(68)
(141)
53,691
(270) $ 186,050

$

50,681
85,095
—
440

$

136,216

$ 47,931
115,318
22,361
440

$ 186,050

At December 31, 2018, the remaining contractual maturities of available-for-sale securities were less than one year. There have

been no significant realized gains or losses on available-for-sale securities for the periods presented. As of December 31, 2018,
unrealized losses on cash equivalents and investments were $0.1 million, and the losses were deemed to be temporary. The Company
had unrealized losses of $59,000 on investments with an aggregate fair value of $22.4 million that were in a continuous loss position
for 12 months or longer as of December 31, 2018. There were no investments in a continuous loss position for 12 months or longer as
of December 31, 2017. The Company does not intend to sell its securities that are in an unrealized loss position, and it is unlikely that
the Company will be required to sell its securities before recovery of their amortized cost basis, which may be maturity. Factors
considered in determining whether a loss is temporary include the length of time and extent to which the fair value has been less than
the amortized cost basis and whether the Company intends to sell the security or whether it is more likely than not that the Company
would be required to sell the security before recovery of the amortized cost basis. As of December 31, 2018, the Company had a total
of $136.6 million in cash, cash equivalents, restricted cash and investments, which included $0.4 million in cash and $136.2 million in
cash equivalents, restricted cash and investments.

Property and Equipment, Net

Property and equipment, net consist of the following (in thousands):

December 31,

2018

2017

Research and development equipment ............................................ $
Furniture and office equipment .......................................................
Computer equipment .......................................................................
Software...........................................................................................
Leasehold improvements.................................................................
Total property and equipment .........................................................
Less: accumulated depreciation.......................................................

Property and equipment, net ...................................................... $

2,132
167
595
80
1,234
4,208
(2,744)
1,464

$

$

2,052
161
475
79
1,232
3,999
(2,240)
1,759

Property and equipment depreciation expense for the years ended December 31, 2018, 2017, and 2016 was $505,000, and

$365,000, and $297,000, respectively.

75

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

December 31,

2018

2017

Accrued clinical and manufacturing expenses ................................ $
Accrued bonus and payroll expenses ..............................................
Collaboration reimbursement advances ..........................................
Accrued professional and consulting services.................................
Accrued preclinical and research expenses .....................................
Other ................................................................................................

Total accrued liabilities.............................................................. $

6,316 $
3,529
2,467
581
359
382
13,634 $

4,845
3,016
—
367
469
241
8,938

5. Commitments and Contingencies

Facilities

In February 2013, the Company entered into a non-cancelable facility lease agreement for office and laboratory facilities in
South San Francisco, California. The lease commenced on July 2013. In October 2013, the Company signed an addendum to the lease
agreement for additional space and to extend the lease term through November 2017. The amended lease provided for a tenant
improvement allowance of up to $230,000, which was fully utilized in 2014 and included in deferred rent. In addition, the amended
lease has rent escalation clauses through the lease term, as well as reduced rent on the additional space for the first 12 months.

In March 2016, the Company signed a second addendum to the lease agreement for an additional 24,900 of office and laboratory

space and to extend the lease term through January 2024. The second addendum to the lease commenced December 2016 and has a
two-year renewal option prior to expiration. In addition, the second addendum to the lease provides for an additional tenant
improvement allowance of up to $269,900, which was fully utilized in December 2017 and included in deferred rent. The lease has
rent escalation clauses through the lease term. The Company recognizes rent expense on a straight-line basis over the non-cancelable
term of the lease.

Pursuant to the lease, as amended, in February 2017 the Company increased the amount of its existing letter of credit from

$46,000 to $440,000 as a security deposit to the lease. The lessor shall be entitled to draw on the letter of credit in the event of any
uncured default by the Company under the terms of the lease.

Future aggregate minimum lease payments under the non-cancelable operating leases, as amended, are as follows (in

thousands):

Year ending December 31:
2019 ...................................................................... $
2020 ......................................................................
2021 ......................................................................
2022 ......................................................................
Thereafter..............................................................

Total ................................................................ $

2,260
2,342
2,413
2,485
2,779
12,279

In September 2014, the Company entered into a non-cancelable sublease agreement for a portion of its facilities, through July

2016. In February 2017, the Company entered into a non-cancelable sublease agreement for a portion of its facilities, commencing on
March 2017 through February 2020. Future annual minimum sublease proceeds as of December 31, 2018 (in thousands), are as
follows:

Year ending December 31:
2019 ....................................................................
2020 ....................................................................
Total ..............................................................

$

$

1,115
187
1,302

76

Expenses and income associated with the Company’s operating leases were as follows (in thousands):

Rent expense ...................................
Sublease income .............................

$

3,439
(1,566)

$

3,445
(1,277)

$

2018

Year Ended December 31,
2017

2016

1,861
(234)

Indemnifications

The Company indemnifies each of its officers and directors for certain events or occurrences, subject to certain limits, while the

officer or director is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance
with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as an officer or a director may be
subject to any proceeding arising out of acts or omissions of such officer or director in such capacity. The maximum amount of
potential future indemnification is unlimited; however, the Company currently holds director and officer liability insurance. This
insurance allows the transfer of risk associated with the Company’s exposure and may enable it to recover a portion of any fut
ure
amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, it has not
a
recognized any liabilities relating to

these obligations for any period presented.

a

6. Stockholders’ Equity

Public Offering

In March 2017, the Company entered into an underwriting agreement with Leerink Partners LLC, as representative of several
underwriters named therein (collectively, the “Underwriters”), pursuant to which the Company issued and sold 7,854,500 shares of
common stock, including 1,024,500 shares sold pursuant to the Underwriters’ exercise in full of their option to purchase additional
shares. The price to the public in the offering was $10.25 per share, and the Underwriters purchased the shares from the Company at a
price of $9.635 per share. The net proceeds to the Company from this public offering were approximately $75.4 million, after
deducting underwriting discounts and commissions and other offering expenses.

Incyte Stock Purchase Agreement

In January 2017, the Company entered into a stock purchase agreement with Incyte, pursuant to which the Company issued and

sold 1,720,430 shares of common stock, at a price of $4.65 per share to Incyte, resulting in net proceeds of approximately $7.9
million, after deducting offering expenses.

At-the-Market Offerings

In November 2015, the Company entered into a sales agreement with Cowen and Company LLC, or Cowen, as sales agent and

underwriter, pursuant to which the Company could issue and sell shares of its common stock for an aggregate maximum offering price
of $50.0 million under an at-the-market offering program, or 2015 ATM program. The Company paid Cowen up to 3% of gross
proceeds for the common stock sold through the sales agreement. As of December 31, 2017, the Company had sold all available
shares under the 2015 ATM program.

In August 2017, the Company entered into a sales agreement with Cowen, as sales agent and underwriter, pursuant to which the
Company could issue and sell shares of its common stock with an aggregate maximum offering price of $50.0 million under an at-the-
market offering program, or ATM program. The Company will pay Cowen up to 3% of gross proceeds for any common stock sold
through the sales agreement. During the year ended December 31, 2018, the Company sold an aggregate of 2,730,789 shares at an
average at an average price of approximately $5.18 per share for gross proceeds of $14.2 million, resulting in net proceeds of $13.7
million after underwriting fees and offering expenses. As of December 31, 2018, $34.2 million of common stock remained available
for sale under the ATM program.

7. Equity Incentive Plans

2010 Plan

In 2010, the Company adopted the 2010 Equity Incentive Plan, or the 2010 Plan. Under the 2010 Plan, shares of the Company’s

common stock have been reserved for the issuance of stock options to employees, directors, and consultants under terms and
provisions established by the Board of Directors. Under the terms of the 2010 Plan, options were granted at an exercise price not less

77

than fair market value. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for
incentive and nonstatutory stock options were not less than 110% of fair market value, as determined by the Board of Directors. The
terms of options granted under the 2010 Plan did not exceed ten years. The vesting schedule of option grants was typically four years.

The Company granted options under the 2010 Plan until October 2014 when it was terminated as to future awards, although it

continues to govern the terms of options that remain outstanding under the 2010 Plan.

As of December 31, 2018, approximately 550,000 shares of common stock are subject to options outstanding under the 2010

Plan.

2014 Plan

In September 2014, the Company’s Board of Directors and stockholders approved the 2014 Equity Incentive Plan, or the 2014
Plan, which became effective in October 2014, at which time the 2010 Plan was terminated. The 2014 Plan provides for the grant of
stock options, other forms of equity compensation, and performance cash awards. The number of shares of common stock reserved for
issuance under the 2014 Plan will automatically increase on January 1 of each year, beginning on January 1, 2015 and ending on and
including January 1, 2024, by 4% of the total number of shares of the Company’s capital stock outstanding on December 31 of the
preceding calendar year, or a lesser number of shares determined by the Company’s Board of Directors.

As of December 31, 2018, approximately 4.7 million shares of common stock were reserved for issuance under the 2014 Plan
and there were approximately 532,000 shares of common stock available for future grant. The Company issues new shares upon the
exercise of options. The maximum term of options granted under the 2014 Plan is ten years. The vesting schedule of option grants are
typically four years

Inducement Plan

In January 2018, the Company’s Board of Directors approved the Inducement Plan, a non-stockholder approved stock plan,
under which it reserved and authorized up to 1 million shares of the Company’s common stock in order to award nonstatutory options
and restricted stock unit awards to persons not previously an employee or director of the Company, or following a bona fide period of
non-employment, as an inducement material to such persons entering into employment with the Company. As of December 31, 2018,
1 million shares of common stock are available for future grant.

The following summarizes option activity (in thousands, except price per option data):

Outstanding — December 31, 2017....................................
Options granted..............................................................
Options exercised...........................................................
Options cancelled...........................................................
Outstanding — December 31, 2018....................................
Exercisable — December 31, 2018.....................................
Vested and expected to vest — December 31, 2018...........

Options Outstanding
Weighted-
Average
Exercise Price
per Option

Number of
Options

$
3,571
1,304
$
(125) $
(81) $
$
$
$

4,669
2,517
4,669

7.67
7.83
1.97
8.19
7.86
8.01
7.86

$

$
$
$

Aggregate
Intrinsic
Value

10,518

1,108
824
1,108

The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference

between the exercise price of the options and the fair value of the Company’s common stock of $4.01 per share as of December 31,
2018.

The weighted-average fair value per share of employee options granted during the years ended December 31, 2018, 2017, and

2016 were $5.69, $10.79, and $2.85, respectively. The total fair value of options that vested during the years ended December 31,
2018, 2017, 2016 was $5.6 million, $4.8 million, and $4.7 million, respectively. The aggregate intrinsic value of options exercised was
$0.6 million, $1.3 million and $0.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.

78

As of December 31, 2018, the weighted-average remaining contractual life was 6.75 years and 7.54 years for exercisable options

and vested and expected to vest options, respectively.

Stock-Based Compensation Expense

Total stock-based compensation recognized related to the 2010 Plan and 2014 Plan was as follows (in thousands):

Research and development ............................................... $
General and administrative ...............................................

Total stock-based compensation ................................. $

3,187
3,233
6,420

$

$

2,243
2,511
4,754

$

$

1,570
2,202
3,772

Year Ended December, 31
2017

2018

2016

As of December 31, 2018, the total unrecognized compensation expense related to unvested options was $9.9 million, which the

Company expects to recognize over an estimated weighted average period of 2.35 years.

In each of the periods presented, the exercise price per share for each stock option was the same as the fair value of the

Company’s common stock on the date of grant.

In determining the fair value of the stock-based awards, the Company uses the Black-Scholes option-pricing model and

assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.

Expected Term—The Company’s expected term represents the period that the Company’s stock-based awards are expected to be
outstanding and is determined using the simplified method (based on the midpoint between the vesting date and the end of the
contractual term).

Expected Volatility—yy Since the Company has only been publicly traded for a short period and does not have adequate trading
history for its common stock, the expected volatility was estimated based on a weighted volatility using both the Company’s
trading history for its common stock and the average volatility for comparable publicly traded biopharmaceutical companies
over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their
similar size, stage in the life cycle, or area of specialty.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of
grant for periods corresponding with the expected term of option.

Expected Dividend—dd The Company has never paid dividends on its common stock and has no plans to pay dividends on its
common stock. Therefore, the Company used an expected dividend yield of zero.

The fair value of stock option awards was estimated using a Black-Scholes option pricing model with the following

assumptions:

Expected term ....................................
Volatility ............................................
Risk-free interest rate.........................
Expected dividend rate.......................

2018
5.3 - 6.1 years
84.4% - 95.7%
2.40% - 3.10%
—%

Year Ended December 31,
2017
5.3 - 6.1 years
68.9% - 95.0%
1.80% - 2.27%
—%

2016
5.3 - 6.1 years
73.6% - 91.3%
1.16% - 2.18%
—%

ESPP

In September 2014, the Company’s Board of Directors and stockholders approved the 2014 Employee Stock Purchase Plan, or

the ESPP, which became effective in October 2014. The number of shares of common stock reserved for issuance under the ESPP will
increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by the lesser of
(1) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year; (2) 250,000 shares
of common stock; or (3) such lesser number as determined by the Company’s Board of Directors.

79

The ESPP allows eligible employees to purchase shares of the Company's common stock at a discount through payroll
deductions of up to 15% of their eligible compensation, subject to certain plan limitations. Through December 9, 2018, the ESPP
provided for 24-month offering periods with four 6-month purchase periods, and at the end of each purchase period, employees were
able to purchase shares at 85% of the lower of the fair market value of the Company's common stock on the first trading day of the
offering period or on the last day of the purchase period. Effective beginning December 10, 2018, the ESPP provides for 6-month
offering periods and a 6-month purchase period, and at the end of each purchase period, employees are able to purchase shares at 85%
of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last day
of the purchase period. As of December 31, 2018, 578,746 shares of common stock have been issued to employees participating in
the ESPP and 437,904 shares were available for issuance under the ESPP. The ESPP is a compensatory plan as defined by the
authoritative guidance for stock compensation. As such stock-based compensation expense has been recorded for the years ended
December 31, 2018, 2017 and 2016.

Total stock-based compensation expense recognized related to the ESPP was as follows (in thousands):

Research and development ................ $
General and administrative ................
Total stock-based compensation ........ $

819
198
1,017

$

$

639
143
782

$

$

312
166
478

2018

Year Ended December 31,
2017

2016

The Company used the following assumptions to estimate the fair value of stock offered under the ESPP for the years ended

December 31, 2018, 2017 and 2016:

Expected term ....................................
Volatility ............................................
Risk-free interest rate.........................
Expected dividend rate.......................

2018
0.24 - 0.86 years
61.0% - 86.6%
1.56% - 2.55%
—%

Year Ended December 31,
2017
0.03 - 1.74 years
72.2% - 135.6%
0.76% - 1.59%
—%

2016
0.08 - 2.07 years
70.3% - 98.8%
0.30% - 1.02%
—%

8. Income Taxes

No provision for income taxes was recorded for the years ended December 31, 2018, 2017, and 2016. The Company has
incurred net operating losses for all the periods presented. The Company has not reflected any benefit of such net operating loss
carryforwards in the accompanying consolidated financial statements.

The domestic and foreign components of loss before provision for income tax are as follows (in thousands):s

Domestic...............................................
Foreign .................................................
Total ..................................................

$

$

(54,629)
—
(54,629)

$

$

(27,826) $
—
(27,826) $

(38,004)
N/A
(38,004)

2018

2017

2016

Year Ended December 31,

80

The effective tax rate of the provision for income taxes differs from the federal statutory rate as follows:

Federal statutory income tax rate...........................................
State income taxes, net of federal benefit ..............................
Federal and state tax credits, net of reserves..........................
Stock-based compensation.....................................................
Other permanent differences..................................................
Tax Cuts and Jobs Act remeasurement of deferred taxes ......
Change in valuation allowance ..............................................

2018

Year Ended December, 31
2017

2016

21.0%
0.7
4.4
(1.4)
(0.1)
—
(24.6)
0%

34.0%
0.5
5.6
(1.8)
(2.7)
(63.8)
28.2

0%

34.0%
—
2.1
(1.8)
(0.1)
—
(34.2)
0%

The components of the deferred tax assets and liabilities are as follows (in thousands):

a

Year Ended December 31,
2017
2018

Deferred tax assets:

Net operating loss carryforwards .................................................................. $
Tax credits, net of reserves............................................................................
Accrued liabilities .........................................................................................
Stock-based compensation ............................................................................
Other..............................................................................................................
Gross deferred tax assets ..........................................................................
Valuation allowance......................................................................................
Net deferred tax assets................................................................................... $

$

38,707
7,220
1,109
2,152
273
49,461
(49,461)

— $

30,731
4,805
918
1,366
381
38,201
(38,201)
—

Realization of the Company’s deferred tax assets is dependent upon the Company generating future taxable income, the timing

and amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance as of
December 31, 2018 and 2017. The valuation allowance increased by $11.3 million for the year ended December 31, 2018, and
decreased by $7.6 million for the year ended December 31, 2017. ASC Topic 740 requires that the tax benefit of deductible temporary
differences of carryforwards be recorded as a deferred tax asset to the extent that management assesses that realization is "more likely
than not." Future realization of the tax benefit ultimately depends on the existence of sufficient taxable income within the carryback or
carryforward period available under the tax law. The Company has set up the valuation allowance against the federal and state
deferred tax assets because based on all available evidence, these deferred tax assets are not more likely than not to be realizable.

As of December 31, 2018 and 2017, the Company had approximately $167.3 million and $129.3 million of federal operating

loss carryforwards, respectively, and $53.6 million and $50.1 million of state net operating loss carryforwards, respectively, available
to reduce future taxable income that will begin to expire in 2030 for federal and state tax purposes.

a

As of December 31, 2018 and 2017, the Company also had research and development tax credit carryforwards of approximately

$8.1 million and $5.5 million for federal purposes, respectively, and $4.3 million and $3.2 million for state purposes, respectively,
available to offset future taxable income tax. If not utilized, the federal carryforwards will expire in various amounts beginning in
2030, and the state credits can be carried forward indefinitely.

Sections 382 and 383 place a limitation on the amount of taxable income which can be offset by carryforward tax attributes,
such as net operating losses or tax credits, after a change in control. Generally, after a change in control, a loss corporation cannot
deduct carryforward tax attributes in excess of the limitation prescribed by Section 382 and 383. Therefore, certain of the Company's
carryforward tax attributes may be subject to an annual limitation regarding their utilization against taxable income in future periods.
As a result of the Company's IPO in 2014, the Company triggered an "ownership change" as defined in Internal Revenue Code Section
382 and related provisions. However, the Company does not believe any of its net operating losses and research and development
credits are limited by this ownership change in 2014. Subsequent ownership changes since 2014 may subject the Company to annual
limitations of its net operating loss and credit carryforwards. Such annual limitation could result in the expiration of the net operating
loss and credit carryforwards before utilization.

ff

81

The Tax Cuts and Jobs Act (Act) was enacted on December 22, 2017 and provides for significant changes to U.S. tax law.
Among other provisions, the Act reduces the U.S. corporate income tax rate to 21%, effective in 2018. The Act also contains a number
of provisions that may impact the Company in future years. At December 31, 2017, the Company had not completed its accounting for
all of the enactment-date income tax effects of the Act for remeasurement of deferred tax assets and liabilities, one-time transition tax,
and tax on global intangible low-taxed income. During the year ended December 31, 2018, the Company completed its accounting for
all of the enactment-date income tax effects of the Act. Upon completing the analysis, the Company recognized no material
adjustments to the provisional amounts recorded for the year ended December 31, 2017.

As a result of the reduction in the corporate rate, the Company determined the remeasurement resulted in a reduction in deferred

tax assets of $17.8 million as of December 31, 2017, which was fully offset by a corresponding change to the Company’s valuation
allowance. There were no material changes from provisional amounts recorded for the year ended December 31, 2017.

The Act also provides for a transition to a new territorial system of taxation and generally requires companies to include certain

untaxed foreign earnings of non-U.S. subsidiaries into taxable income in 2017, or Transition Tax. As the Company’s foreign
subsidiary was dormant, the Company had no Transition Tax.

The Act subjects a U.S. shareholder to current tax on global intangible low-taxed income, or GILTI, earned by certain foreign
subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can
make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future
years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize the tax on
GILTI as a period expense in the period the tax is incurred. As a result of no activity in the Company’s dormant foreign subsidiary, the
Company has no GILTI inclusion for the year ended 2018.

Uncertain Tax Positions

As of December 31, 2018, the Company’s total unrecognized tax benefit was $5.0 million, of which none of the tax benefit, if

recognized, would affect the effective income tax rate due to the valuation allowance that currently offsets deferred tax assets. A
reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2018, 2017, and 2016 is as follows (in
thousands):

Balance at beginning of year .................................................... $
Additions based on tax positions related to prior year........
Additions based on tax positions related to current year ....
Balance at end of year .............................................................. $

3,623
—
1,341
4,964

$

$

2,326
—
1,297
3,623

$

$

1,714
5
607
2,326

2018

Year Ended December 31,
2017

2016

The unrecognized tax benefits, if recognized and in absence of full valuation allowance, would increase the Company’s credit

carryforwards and hence deferred tax assets. The Company does not expect the unrecognized tax benefits to change significantly over
the next 12 months.

Interest and penalties are zero, and the Company’s policy is to account for interest and penalties in tax expense on the statement

of operations and comprehensive loss. The Company files income tax returns in the U.S. federal and California tax jurisdictions. All
periods since inception are subject to examination by U.S. federal and California tax jurisdictions, none of which are currently under
examination.

9. Net Loss per Common Share

Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per

share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

82

Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive

were as follows (in thousands):

Options to purchase common stock ..................................
Employee stock plan purchases ........................................
Total ..................................................................................

2018

4,669
16
4,685

December 31,
2017

3,571
59
3,630

2016

3,228
19
3,247

10. Licensing and Collaboration Agreements

Incyte Collaboration and License Agreement

On January 27, 2017, the Company entered into a collaboration and license agreement with Incyte, or the Incyte Collaboration
Agreement. Under the terms of the Incyte Collaboration Agreement, the Company granted Incyte an exclusive, worldwide license to
develop and commercialize its small molecule arginase inhibitors for hematology and oncology indications. The parties are
collaborating on and co-funding the development of the licensed products, with Incyte bearing 70% and the Company bearing 30% of
global development costs. The parties will share profits and losses in the United States, with 60% to Incyte and 40% to the Company.
The Company will have the right to co-detail the licensed products in the United States, and Incyte will pay the Company tiered
royalties ranging from the low to mid-double digits on net sales of licensed products outside the United States. The Company may opt
out of its co-funding obligation, in which case the United States profit sharing will no longer be in effect, and Incyte will pay the
Company tiered royalties ranging from the low to mid-double digits on net sales of licensed products both in the United States and
outside the United States, and additional royalties to reimburse the Company for previously incurred development costs.

Under the Incyte Collaboration Agreement, the Company received an upfront payment of $45.0 million in February 2017. In

March 2017, the Company achieved a development milestone of $12.0 million, for which the Company received payment in May of
2017. The Company is also eligible to receive up to an additional $418.0 million in potential development, regulatory and sales
milestones. Incyte and the Company will share in any future United States net profits and losses, with the Company bearing 40% and
Incyte bearing 60%, respectively, and outside the United States the Company will be eligible to receive from Incyte tiered royalties,
with rates in the low to mid-teens of sales.

The Incyte Collaboration Agreement also provides that the Company may choose to opt out of its co-funding obligations at any
time. In this scenario, the potential development, regulatory and commercialization milestones from Incyte will be up to an additional
$738.0 million. The Company would no longer be eligible to receive future United States profits and losses but would be eligible to
receive tiered royalty payments on future global sales, including United States sales. In addition, if the Company opts out, the
Company will receive an incremental 3% royalty on annual net sales in the United States of such licensed product until such
incremental royalty equals 120% of previous development expenditures incurred by the Company.

The Incyte Collaboration Agreement is considered to be under the scope of FASB Topic 808, Collaborative Arrangements. The

hnology transfer services

hnology transfer services.

to be performed under the agreement. Specifically, the Company believes the lic

dand
associated
the license was not distinct from the associated

Company has concluded that the research and development co-funding activities were not representative of a customer relationship
and this unit of account is accounted for as an increase to or reduction of research and development expenses, rather than as revenue.
In addition, the Company has analogized to ASC 606 for other aspects of the arrangement. The performance obligations under the
Incyte Collaboration Agreement consist of intellectual property licenses and the performance of certain manufacturing
manufacturing technology transfer services. The Company determined that
manufacturing and tec
is not capable of being distinct, as Incyte did not have the know-how to manufacture the collaboration product without Calithera’s
assistance until completion of the manufacturing technology transfer process, and no other third parties could perform such assistance
due to the early stage nature of the licensed intellectual property as well as Calithera’s propriety knowledge with respect to the
licensed intellectual property. Prior to the adoption of ASC 606, the Company concluded that the delivered licenses did not have
stand-alone value, and the rights conveyed to Incyte did not permit Incyte to perform all efforts necessary to use the Company’s
technology to bring the c
ompound through development and, upon regulatory approval, commercialization of the compound, without
t
the associated manufacturing and technology transfer services. Accordingly, the Company combined these deliverables and allocatedd
the upfront consideration of $45.0 million to the combined unit of accounting. The Company recognized the $45.0 million upfront
the upfront consideration of $45.0 million to the combined unit of accounting. The Company recognized the $45.0 million upfront
payment on a straight-line basis over the estimated period of performance under the Incyte Collaboration Agreement, and recognized
payment on a straight-line basis over the estimated period of performance under the Incyte Collaboration Agreement, and recognized
the $12.0 million developmental milestone payment from Incyte on a straight-line basis over the remaining period of performance for
r
the combined unit of accounting. For the year ended December 31, 2017,
the Company recognized revenue from its collaboration with
Incyte totaling $26.0 million related to amortization of the $45.0 million upfront fee and the $12.0 million milestone.

ense

83

Upon the adoption of ASC 606 on January 1, 2018 under the modified retrospective approach, the transaction price of the Incyte

Collaboration Agreement was determined to be $57.0 million, representing the $45.0 million upfront payment and the $
developmental milestone payment from Incyte that was earned in March 2017. The $57.0 million transaction price was recognized
d
over the performance period, based on the mea
sure of progress toward completion for the combined performance obligation, rather
r
than on a straight-line basis. The measure of progress towards completion was based on the effort of certain employees within the
Company who dedicated time to complete the man
An $8.8 million cumulative
effect adjustment to decrease the accumulated deficit and deferred revenue was recorded on January 1, 2018, as a result of applying
the new standard. As of June 30, 2018, the manufacturing services and technology transfer to Incyte were determined to be
substantially complete.
For the year ended December 31, 2018,
totaling $22.2 million related to the completion of the combined performance obligation.

the Company recognized revenue from its collaboration with Incyte

ufacturing services and technology transfer to Incyte.

45.0 million upfront payment and the $12.0

million

Net costs associated with co-development activities performed under the Incyte Collaboration Agreement are included in
research and development expenses in the accompanying consolidated statements of operations, with any reimbursement of costs by
Incyte reflected as a reduction of such expenses. For the years ended December 31, 2018 and 2017, net costs reimbursable by Incyte
were $3.9 million and $6.4 million, respectively. As of December 31, 2018, the receivable due from Incyte was $2.0 million.

d

Bristol-Myers Squibb and Pfizer Collaboration Agreements

In December 2016, the Company entered into a clinical trial collaboration and supply agreement with Bristol-Myers Squibb, or
BMS, to evaluate BMS’s PD-1 inhibitor nivolumab (OPDIVO®) in combination with telaglenastat. In November 2017, the agreement
was expanded such that certain development costs would be shared.

In October 2018, the Company entered into a clinical trial collaboration and supply agreement with Pfizer to evaluate Pfizer’s

PARP inhibitor talazoparib (Talzenna) and CDK4/6 inhibitor palbociclib (Ibrance), each in combination with telaglenastat.

Under the terms of the clinical collaborations, BMS and Pfizer

each provide reimbursement of certain development costs. Costs
associated with development activities performed under the clinical collaborations are included in research and development expenses
in the accompanying consolidated statements of operations, with any reimbursements of costs reflected as a reduction of such
expenses.

a

S
Symbioscience License Agreement

In December 2014, the Company entered into an exclusive license agreement with Mars, Inc., by and through its Mars
Symbioscience division, or Symbioscience, under which the Company has been granted the exclusive, worldwide license rights to
develop and commercialize Symbioscience’s portfolio of arginase inhibitors for use in human healthcare, or the Symbioscience
License Agreement. Under the terms of the Symbioscience License Agreement, the Company paid Symbioscience an upfront license
fee of $0.3 million, which was recorded as research and development expense in 2014. For the years ended December 31, 2018, 2017
and 2016, the Company recognized expense related to its licensing arrangement with Symbioscience of $0, $0 and $0.6 million,
respectively, which was recorded in research and development expense in the consolidated statement of operations.

ff

The Company may make future payments of up to $23.6 million contingent upon attainment of various development and
regulatory milestones and $95.0 million contingent upon attainment of various sales milestones. Additionally, the Company will pay
royalties on sales of the licensed product, if such product sales are ever achieved. If the Company develops additional licensed
products, after achieving regulatory approval of the first licensed product, the Company would owe additional regulatory milestone
payments and additional royalty payments based on sales of such additional licensed products.

84

11. Selected Quarterly Financial Data (Unaudited)

Selected quarterly results from operations for the years ended December 31, 2018 and 2017 are as follows (in thousands, except

per share amounts):

March 31,

June 30,

September 30,

December 31,

2018 Quarter End

17,065
20,803
(3,075)
(0.09)

$

$

— $

19,507
(18,849)
(0.52)

2017 Quarter End

June 30,

September 30,

7,255
12,990
(5,194)
(0.15)

$

$

7,254
13,907
(6,071)
(0.17)

—
20,224
(19,499)
(0.51)

December 31,

7,254
18,796
(10,974)
(0.31)

$

$

$

Collaboration revenue............................................................ $
Operating expenses ................................................................
Net loss...................................................................................
Basic and diluted net loss per common share ........................ $

5,189
19,001
(13,206)
(0.37)

Collaboration revenue............................................................ $
Operating expenses ................................................................
Net loss...................................................................................
Basic and diluted net loss per common share ........................ $

March 31,

4,192
9,948
(5,587)
(0.22)

$

$

$

$

85

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

As of December 31, 2018, management, with the participation of our Chief Executive Officer (Principal Executive Officer and

Principal Financial Officer), performed an evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to
ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that
such information is accumulated and communicated to our management, including the Chief Executive Officer, to allow timely
decisions regarding required disclosures.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the

desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on this evaluation, our Chief Executive Officer concluded that, as of December 31, 2018, the design
and operation of our disclosure controls and procedures were effective at a reasonable assurance level.

Management’s 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 Rules 13a-15(f) and 15d-15(f). Our management conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2018 based on the criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the results of its evaluation, management concluded that our internal control over financial reporting was effective as

of December 31, 2018.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the three months ended December 31, 2018 that has

materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm

due to an exemption established by the JOBS Act for “emerging growth companies.”

Item 9B.

Other Information.

None.

86

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

Information required by this item will be contained in our definitive proxy statement to be filed with the Securities and

Exchange Commission on Schedule 14A in connection with our 2019 Annual Meeting of Stockholders or the Proxy Statement, which
is expected to be filed not later than 120 days after the end of our year ended December 31, 2018, under the headings “Executive
Officers,” “Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance,” and “ Section 16(a)
Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees, which is
available on our website at www.calithera.com. The Code of Business Conduct and Ethics is intended to qualify as a “code of ethics”
within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. In addition, we intend to
promptly disclose (1) the nature of any amendment to our Code of Business Conduct and Ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and (2) the nature
of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the
name of such person who is granted the waiver and the date of the waiver on our website in the future.

ff

Item 11.

Executive Compensation.

The information required by this item regarding executive compensation is incorporated by reference to the information set forth

in the sections titled “Executive Compensation” in our Proxy Statement.

Item 12.

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

The information required by this item regarding security ownership of certain beneficial owners and management is

incorporated by reference to the information set forth
Management” in our Proxy Statement.

ff

in the section titled “Security Ownership of Certain Beneficial Owners and

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this item regarding certain relationships and related transactions and director independence is
in the sections titled “Transactions with Related Parties” and “Election of

incorporated by reference to the information set forth
Directors – Independence of the Board of Directors,” respectively, in our Proxy Statement.

ff

Item 14.

Principal Accounting Fees and Services.

The information required by this item regarding principal accountant fees and services is incorporated by reference to the

information set forth in the section titled “Principal Accountant Fees and Services” in our Proxy Statement.

Item 15.

Exhibits, Financial Statement Schedules.

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

g

PART IV

1. Financial Statements

See Index to Consolidated Financial Statements at Item 8 herein.

2. Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is shown in the financial statements
or notes thereto.

3. Exhibits

87

Exhibit
Number

3.1

3.2

4.1

4.2

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8†

10.9

10.10

10.11

10.12

10.13

10.14

23.1

24.1

31.1

32.1*

Exhibit Index

Exhibit Description

Form SEC File No. Exhibit

Filing Date

Incorporation By Reference

y

Amended and Restated Certificate of Incorporation of the Registrant.

8-K 001-36644

3.1

10/07/2014

Amended and Restated Bylaws of the Registrant.

S-1

333-198355 3.4

9/19/2014

Reference is made to Exhibits 3.1 through 3.2.

Form of common stock certificate of the Registrant.

S-1

333-198355 4.1

9/25/2014

Amended and Restated Investor Rights Agreement, among the Registrant and
certain of its security holders, dated October 7, 2013, as amended.

2014 Equity Incentive Plan.

S-1

333-198355 10.1

8/25/2014

S-1

333-198355 10.4

9/25/2014

Form of Stock Option Grant Notice (2014 Equity Incentive Plan).

S-1

333-198355 10.5

9/25/2014

2014 Employee Stock Purchase Plan.

S-1

333-198355 10.6

9/25/2014

Form of Indemnification Agreement between the Registrant and each of its
directors and executive officers.

S-1

333-198355 10.13 9/19/2014

Lease between Are-Technology Center SSF, LLC and the Registrant, dated
February 14, 2013.

S-1

333-198355 10.14 8/25/2014

Amendment to lease between Are-Technology Center SSF, LLC and the
Registrant, dated October 30, 2013.

S-1

333-198355 10.15 8/25/2014

Collaboration and License Agreement by and between the Registrant and Mars,
Inc., dated December 9, 2014.

10-K 001-36644

10.16 3/27/2015

Second Amendment to Lease Agreement by and between ARE-Technology Center
SSF, LLC and Calithera Biosciences, Inc., effective March 1, 2016.

10-Q 001-36644

10.18 5/10/2016

Collaboration and License Agreement between Incyte Corporation and the
Registrant, dated January 27, 2017.

10-Q 001-36644

10.1

5/09/2017

Third Amendment to Lease Agreement between Are-Technology Center SSF,
LLC and the Registrant, dated February 28, 2017.

Calithera Biosciences Inc. Severance Benefit Plan.

Inducement Plan.

Stock Option Grant Notice (Inducement Plan).

Consent of Independent Registered Public Accounting Firm.

Power of Attorney (included on signature page to this Annual Report on Form 10-
K).

Certifications of Principal Executive and Financial Officer pursuant to Rule 13a-
14(a).

Certification of Principal Executive and Financial Officer pursuant to Rule 13a-
14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

10-Q 001-36644

10.2

5/09/2017

10-Q 001-36644

10.1

11/02/2017

S-8

333-223533 99.4

03/08/2018

S-8

333-223533 99.5

03/08/2018

101.INS

XBRL Instance Document.

101.SCH** XBRL Taxonomy Extension Schema Document.

101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF** XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB** XBRL Taxonomy Extension Label Linkbase Document.

88

Exhibit
Number
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document.

Exhibit Description

Incorporation By Reference

Form SEC File No. Exhibit

Filing Date

*

**

The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by reference into any filing of Calithera Biosciences, Inc.
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or
after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

Attached as Exhibit 101 to this Annual Report on Form 10-K formatted in XBRL (Extensible Business Reporting Language): (i)
Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss,
(iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders’ Equity; and (vi) Notes to
Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

†

Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed
separately with the Securities and Exchange Commission.

89

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly

caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Date: March 7, 2019

Calithera Biosciences, Inc.

By:

/s/ Susan M. Molineaux
Susan M. Molineaux, Ph.D.
President and Chief Executive Officer

Each person whose individual signature appears below hereby authorizes and appoints

a

Susan M. Molineaux and Stephanie

POWER OF ATTORNEY

Wong, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true
and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each
person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and
thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes
lawfully do or cause to be done by virtue thereof.

may

tt

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the

following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name

Title

Date

/s/ Susan M. Molineaux

Susan M. Molineaux, Ph.D.

President, Chief Executive Officer and Director
(Principal Executive Officer and Principal Financial
Officer)

March 7, 2019

/s/ Stephanie Wong
Stephanie Wong

/s/ Sunil Agarwal
Sunil Agarwal, M.D.

g

/s/ Jonathan G. Drachman
Jonathan G. Drachman, M.D.

/s/ Jean M. George
Jean M. George

/s/ Suzy Jones

Suzy Jones

/s/ Deepa R. Pakianathan
Deepa R. Pakianathan, Ph.D.

/s/ Blake Wise
Blake Wise

/s/ H. Ward Wolff
H. Ward Wolff

Senior Vice President, Finance and Secretary
(Principal Accounting Officer)

Director

Director

Director

Director

Director

Director

Director

90

March 7, 2019

March 7, 2019

March 7, 2019

March 7, 2019

March 7, 2019

March 7, 2019

March 7, 2019

March 7, 2019

ff

Management Team
Susan M. Molineaux, Ph.D.
Founder President and Chief Executive Officer
Curtis C. Hecht
Chief Business Officff er
Keith Orford, M.D., Ph.D.
Chief Medical Officer
Christopher J. Molineaux, Ph.D.
Senior Vice President of Development
Sumita Ray
Senior Vice President, General Counsel and Chief
Compliance Offiff cer
Eric B. Sjogren, Ph.D.
Senior Vice President of Drug Discovery
Sam Whiting, M.D., Ph.D.
Senior Vice President of Clinical Development
Stephanie Wong
Senior Vice President of Finance and Secretary
Susan Demo, Ph.D.
Vice President of Medical Affai
Jennifer I. McNealey
Vice President of Investor Relations and Strategy
Frank Parlati, Ph.D.
Vice President of Research

rs

ff

Board of Directors
Susan M. Molineaux, Ph.D.
r
Founder President and Chief Executive Officeff
Jean M. George
General Partner
Advanced Technology Ventures
Deepa R. Pakianathan, Ph.D.
Managing Member
Delphi Ventures
Jonathan Drachman, M.D.
Chief Executive Officff er
Neoleukin Therapeutics
H. Ward Wolff
Former Executive Vice President and Chief Financial
Officer
Sangamo Therapeutics
Sunil Agarwal, M.D.
Chief Development Offiff cer and Head Portfolio Strategy
Sana Biotechnology
Suzy Jones
Founder and Managing Partner
DNA Ink
Blake Wise
Chief Executive Officff er
Achaogen

Stockholder Information
Corporate Headquarters
Calithera Biosciences
343 Oyster Point Boulevard, Suite 200
South San Francisco, CA 94080
Stockholder Inquiry
Requests for inforff mation may be sent to Investor
Relations at our Corporate Headquarters or by visiting
the investor relations portion of our website at:
www.calithera.com
Stock Listing
NASDAQ: CALA
Transfer Agent
American Stock Transferff & Trust Company, LLC 6201
15th Avenue, Brooklyn, New York 11219
Legal Counsel
Cooley
Palo Alto, Californi
a
Independent Registered Public Accounting Firm
Ernst & Young LLP
Redwood City, California

ff

Calithera Biosciences, Inc.
343 Oyster Point Boulevard, Suite 200
South San Francisco, CA 94080

www.calithera.com