CymaBay Therapeutics

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

FORM 10-K

☒

☐

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

For the fiscal year ended December 31, 2017

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-36500

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

Delaware
(State or other jurisdiction of
Incorporation or Organization)

94-3103561
(I.R.S. Employer
Identification No.)

7999 Gateway Blvd., Suite 130
Newark, CA 94560
(510) 293-8800
(Address, including zip code, and telephone number, including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class  
Common Stock, $0.0001 par value per share

Name of each exchange on which registered
Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ☐    No  ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ☐    No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to

be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will

not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.    ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated fil er, 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) (Check one):

Large accelerated filer

Non-accelerated filer
Emerging Growth Company 

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Accelerated filer

Smaller reporting company  

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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 Act).    Yes   ☐    No  ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based upon the closing price of its Common

Stock on the Nasdaq Capital Market on June 30, 2017, was $154,300,291. This excludes 1,964,206 shares of the registrant’s Common Stock held by executive officers,
directors and stockholders affiliated with directors outstanding at June 30, 2017. Exclusion of such shares should not be construed to indicate that any such person
possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant or that such person is controlled by or under
common control with the registrant.

The number of shares of common stock outstanding as of February 28, 2018, was 58,501,794

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120

days after the registrant’s fiscal year ended December 31, 2017, are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K.

 
 
 
 
 
 
 
 
 
 
 
 
 
CYMABAY THERAPEUTICS, INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2017

TABLE OF CONTENTS

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

PART I

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
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information

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 Accountant Fees and Services

PART III

Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures

PART IV

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CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of

1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by
those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently
available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,”
“could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “projected,” “potential,” “seek,” “target,” “goal,” “intend,”
and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance, time frames or achievements to be materially different from any future
results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks,
uncertainties and other factors in this Annual Report on Form 10-K in greater detail under the heading “Risk Factors.” Given these risks,
uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of the date of this filing. You should read this Annual Report on Form 10-K
completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify
our forward-looking statements by our cautionary statements. Except as required by law, we assume no obligation to update these
forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these
forward-looking statements, even if new information becomes available in the future.

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Item 1. Business

CymaBay Overview

PART I

We are a clinical-stage biopharmaceutical company focused on developing and providing access to innovative therapies for patients

with liver and other chronic diseases with high unmet medical need.

Our lead product candidate, seladelpar, is a potent and selective agonist of peroxisome proliferator-activated receptor delta (PPAR

δ), a nuclear receptor that regulates genes involved in bile acid/sterol, lipid and glucose metabolism and inflammation. We are currently
developing seladelpar for the treatment of primary biliary cholangitis (PBC), an autoimmune disease that causes progressive destruction of
the bile ducts in the liver. We are also planning to develop seladelpar for the treatment of nonalcoholic steatohepatitis (NASH), a prevalent
and serious chronic liver disease caused by excessive fat accumulation in the liver that results in inflammation and cellular injury that can
progress to fibrosis and cirrhosis, and potentially liver failure and death.

Data from two Phase 2 studies of seladelpar in patients with PBC have established seladelpar’s anti-cholestatic and anti-

inflammatory effects. In July 2017, we announced positive interim results from an ongoing low-dose Phase 2 study of seladelpar in patients
with PBC. In the first part of the study, patients with an inadequate response to ursodeoxycholic acid (UDCA), as characterized by a
persistent elevation in alkaline phosphatase (AP), or who were intolerant to UDCA, received either 5 mg or 10 mg of seladelpar once daily.
A planned interim analysis of these two dose groups demonstrated after 12 weeks of treatment a significant AP reduction from baseline of
39% and 45% for the 5 mg and 10 mg groups, respectively. After 12 weeks of treatment with seladelpar, 45% of patients in the 5 mg and
82% of patients in the 10 mg dose groups, had AP values < 1.67 times the upper limit of normal (ULN). AP is a recognized biomarker of
cholestasis, and reaching a level of < 1.67 ULN is the key component in the composite endpoint used for regulatory approval. In addition to
the reduction in AP, patients in both dose groups experienced decreases in other liver markers of cholestasis including gamma glutamyl
transferase and total bilirubin. Seladelpar also improved metabolic and inflammatory markers with patients experiencing decreases in low-
density lipoprotein-C (LDL-C) and high sensitivity C-reactive protein (hs-CRP). There were no serious adverse events and no safety
transaminase signal was observed at either dose. Instead, mean transaminase levels decreased over the course of treatment, further
supporting seladelpar’s anti-inflammatory activity. Consistent with prior studies, there was no signal for drug-induced pruritus.

In 2017, we expanded the number of patients in the 5 and 10 mg dose groups of the low-dose study and extended dosing to 52-

weeks. In addition, a 2 mg dose group was added in order to identify a minimally effective dose. We expect to report data on a subset of
patients in the study through 26-weeks of dosing in the first half of 2018 and a subset through 52-weeks of dosing in the second half of
2018. In the first half of 2018, we also plan to conclude End of Phase 2 discussions with the U.S. Food and Drug Administration (FDA) and
Scientific Advice discussions with the European Medicines Agency (EMA) in order to finalize the design of a Phase 3 study of seladelpar
in patients with PBC, which we intend to initiate in the second half of 2018.

In November 2016, the FDA granted orphan drug designation to seladelpar for the treatment of PBC, and in September 2017, the
EMA’s Committee for Orphan Medicinal Products (COMP) similarly granted orphan drug designation to seladelpar for the treatment of
PBC. In October 2016, seladelpar received EMA PRIority MEdicines (PRIME) designation for the treatment of PBC.

We believe that seladelpar could also have utility in the treatment of NASH. Seladelpar was found to reverse NASH pathology,

decrease fibrosis, inflammation, hepatic lipids and reverse insulin resistance in the foz/foz mouse, which is a diabetic obese model of
NASH. We are currently planning to start a Phase 2 study of seladelpar in patients with NASH in the first half of 2018.

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Our second product candidate, arhalofenate, is a dual-acting anti-inflammatory and uric acid lowering agent being developed for the

treatment of gout. In 2016, we entered into an exclusive licensing agreement granting Kowa Pharmaceuticals America, Inc. (Kowa) the
rights to develop and commercialize arhalofenate in the U.S. (including all possessions and territories). Arhalofenate has been studied in
five Phase 2 clinical trials in patients with gout and consistently demonstrated the ability to reduce gout flares and reduce serum uric acid
(sUA). Gout flares are recurring and painful episodes of joint inflammation that are triggered by the presence of monosodium urate crystals
that form as a result of elevated sUA levels. We believe the potential for arhalofenate to prevent or reduce flares while also lowering sUA
could differentiate it from currently available treatments for gout and classify it as the first potential drug in what we believe could be a new
class of gout therapy referred to as Urate Lowering Anti-Flare Therapy (ULAFT). Arhalofenate has established a favorable safety profile in
clinical trials involving over 1,100 subjects exposed to date. Under the terms of the agreement with Kowa, we received an up-front payment
of $5 million in January 2017, and in January 2018 received a $5 million milestone payment for the initiation of a study evaluating the
pharmacokinetics of arhalofenate in subjects with renal impairment. We are entitled to receive an additional milestone payment of
$5 million on the initiation of a Phase 3 study and up to an additional $190 million in payments based upon the achievement of specific
development and sales milestones. We are also eligible to receive tiered, double digit royalties on future sales of arhalofenate products.
Kowa will be responsible for all development and commercialization costs. We retain full development and commercialization rights for
the rest of the world and intend to partner arhalofenate in geographies outside the U.S. and its possessions and territories.

We reported net loss of approximately $27.6 million and $26.7 million for the years ended December 31, 2017, and 2016,

respectively. As of December 31, 2017, our cash equivalents and marketable securities totaled $97.2 million. We believe these funds,
together with net proceeds of $135.5 million received in our February 2018 public offering and a $5 million milestone payment received
pursuant to our license agreement with Kowa in January 2018, are sufficient to fund our current operating plan into 2021.

CymaBay Strategy

Our goal is to become a leading biopharmaceutical company focused on developing and providing access to innovative therapies for

patients with liver and other chronic diseases with high unmet medical need. Key elements of our strategy are to:

•

•

•

•

develop seladelpar for patients with PBC;

develop seladelpar for other chronic liver diseases, including NASH;

partner with third-parties for the development and commercialization of arhalofenate outside the U.S. for patients with
gout; and

strengthen our patent portfolio and other means of protecting exclusivity.

CymaBay Pipeline Overview

Our pipeline includes three clinical stage product candidates: seladelpar (MBX-8025); arhalofenate (MBX-102) and MBX-2982  

Seladelpar (MBX-8025)

Seladelpar is a selective agonist for the peroxisome proliferator-activated receptor delta (PPARδ). An agonist is a substance that

elicits a response by binding to a receptor. The PPARδ receptor is a nuclear receptor that regulates genes involved in lipid, bile acid/sterol
and glucose metabolism, insulin sensitivity, and regulation of certain inflammatory cells. Seladelpar has the potential to treat a variety of
disorders of lipid metabolism and certain diseases of the liver.

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Previously, seladelpar had been in development for the treatment of mixed dyslipidemia, which is characterized by elevated LDL-C
and triglycerides (TGs). Results from our Phase 2 clinical study of seladelpar in patients with mixed dyslipidemia established effects of the
drug that we believe have the potential to benefit patients affected with other conditions. In this study, seladelpar demonstrated an anti-
atherogenic profile in which it lowered LDL-C, decreased the more atherogenic small dense LDL-C particles and raised high-density
lipoprotein (HDL-C). In addition, seladelpar decreased TGs and free fatty acids. Seladelpar also decreased C-reactive protein, a marker of
systemic and local inflammation. Treatment with seladelpar also resulted in significant reductions in AP and in gamma-glutamyl transferase
(GGT). Taken together these metabolic improvements suggest that seladelpar can address disorders manifested by increases in LDL-C,
increases in TGs, liver cholestasis (the impairment of the flow of bile from the liver) and liver fat accumulation with subsequent
inflammation.

Based on our understanding of the mechanism of action of seladelpar, our prior clinical experience with the compound, and our

evaluation of other possible indications, we decided to focus the development of seladelpar on orphan diseases or more prevalent diseases
with high unmet medical need. We currently believe seladelpar may provide a significant benefit for patients with rare cholestatic liver
diseases, such as PBC and more prevalent, but high unmet need liver diseases, such as nonalcoholic steatohepatitis (NASH).

To date, we have completed six-month and twelve-month toxicology studies of seladelpar in rats and monkeys, respectively, as well

as two-year carcinogenicity studies in mice and rats.  In addition, five Phase 1 and three Phase 2 clinical studies with seladelpar have been
completed. A fourth Phase 2 clinical study is currently ongoing in patients with PBC. In addition, a long-term safety extension study for
PBC patients is currently enrolling patients as they complete 52 weeks of treatment in the ongoing Phase 2 PBC study.

Primary Biliary Cholangitis (PBC)

PBC is a slowly progressive autoimmune disease of the liver characterized by portal inflammation and immune-mediated
destruction of intrahepatic bile ducts. The loss of bile duct function leads to decreased bile secretion and the retention of toxic substances
within the liver, resulting in further hepatic damage, fibrosis, cirrhosis and, eventually, liver failure. It is a common cause of liver
transplantation.

PBC affects primarily women with peak incidence in the fifth decade of life. It has been recognized as an orphan disease both in the

U.S. and in the E.U. It is a long-term debilitating and life-threatening disease. Fatigue and pruritus (itching) are the most common
presenting symptoms. Pruritus, which occurs in 20 to 70% of patients, can be extremely distressing for patients. Other common findings
include jaundice, hyperlipidemia (notably hypercholesterolemia), hypothyroidism, osteopenia and osteoporosis, and coexisting autoimmune
diseases. Portal hypertension is a late complication of the disease, as is malabsorption, deficiencies of fat-soluble vitamins, and steatorrhea
(excess fat in feces).

Currently, the only FDA-approved treatments are ursodeoxycholic acid (UCDA), also known as ursodiol, an isomer of

chenodeoxycholic acid and the synthetic bile acid analog obeticholic acid (Ocaliva®, Intercept Pharmaceuticals). Ursodiol decreases serum
levels of AP, bilirubin, alanine aminotransferase, aspartate aminotransferase, cholesterol, and immunoglobulin M, all of which are elevated
in patients with PBC and can serve as biochemical markers of the disease. In a study that combined data from three controlled trials with a
total of 548 patients, ursodiol significantly reduced the likelihood of liver transplantation or death after four years. Ursodiol also delayed the
progression of hepatic fibrosis in early-stage PBC but was not effective in advanced disease. It is also known that up to 50% of PBC
patients fail to respond adequately to ursodiol therapy.

Ocaliva was approved by the FDA and European Medicines Agency in 2016 for the treatment of PBC in combination with ursodiol

in adults with an inadequate response to ursodiol, or as monotherapy in adults unable to tolerate ursodiol. Ocaliva also received orphan
designations in the U.S. and the E.U. A Phase 3 study was completed with a primary composite endpoint defined as a responder rate
comprised of the percentage of patients with AP < 1.67 times upper limit of normal (ULN) with a decrease in AP of at least 15% and total
bilirubin less than or equal to upper limit of normal. This study met its goals and Ocaliva was granted an accelerated approval based on
meeting this primary composite endpoint.

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Other therapies, such as colchicine, methothrexate, prednisone and multiple immunosuppressive regimens have been attempted.

However, these therapies have efficacy that is limited, or unproven and are associated with multiple side-effects impacting tolerance and
safety. Liver transplantation improves survival in patients with PBC, and it is the only effective treatment for those with liver failure. Liver
transplantation however is problematic because of its costs, the limited availability of donor organs, and by the fact that the disease may
recur after an initially successful transplantation.

As a result, despite the previously mentioned therapeutic interventions, it is recognized that PBC continues to progress in many

patients and additional medical treatment is needed to address this disease.

Additional potential therapies in early stage clinical development for PBC include FXR agonists that act through the same
mechanism of action as Ocaliva (tropifexor -LJN452-, GS-9674 and EDP-305), the mixed PPARα/δ agonist elafibranor, the dual PPARδ/γ
agonist saroglitazar, the selective NOX inhibitor GKT137831, the oxy-sterol sulfate DUR-928, and the selective S1P receptor modulator
etrasimod (APD334). GSK23306772 is an inhibitor of the Intestinal Bile Acid Transporter (IBAT) and is evaluated for the treatment of itch
associated with PBC and maralixibat, another IBAT inhibitor, was recently discontinued for this indication due to lack of efficacy. NGM-
282, a FGF-19 variant was also studied in PBC, but the clinical program has been re-focused towards the treatment of NASH.

Phase 2 Studies of Seladelpar in PBC

In November 2015, we initiated a Phase 2 study of seladelpar in patients with PBC. The study was a placebo controlled, double
blind, dose ranging study of 12 weeks duration in patients who had an inadequate response to ursodiol, as characterized by a persistent
elevation in AP. The study planned to enroll approximately 75 patients who were randomized to receive placebo, 50 or 200 mg daily doses
of seladelpar. The goal of the study was to assess whether the improvements in biochemical markers of cholestasis observed previously for
seladelpar in other patient populations would be observed in patients with PBC.

The primary endpoint was the percent change in AP. A secondary endpoint was the responder rate for patients achieving the
composite criteria of serum AP values less than 1.67xULN with a decrease of at least 15% and with normal levels of total bilirubin (TBIL).
AP values were blinded, but other secondary endpoints that are also recognized as biochemical markers of cholestasis, such as changes in
GGT, TBIL and 5’-nucleotidase, were only blinded with respect to treatment group because they were part of the safety surveillance.

During the study, three cases of asymptomatic increases (5-8 times the upper limit of normal) in transaminases were observed (two

in the 200 mg and one in the 50 mg cohorts). All three were reversible on discontinuation of treatment and were not accompanied by
elevation of TBIL. After unblinding of study data, changes in the primary endpoint AP were analyzed using data available for the 38
subjects enrolled in the study and who had completed at least two weeks of treatment. The primary analysis of changes in AP were
calculated using the last observation carried forward (LOCF) as specified in the study statistical analysis plan.

The mean decreases from baseline in AP for the 50 and 200 mg dose groups were 53% and 63%, respectively, vs. 2% for placebo (p

< 0.0001 for both). There was no statistically meaningful difference in efficacy between both seladelpar groups. All patients on seladelpar
who received treatment for 12 weeks (three on 50 mg and two on 200 mg) normalized their AP levels. Thus, in this study seladelpar
demonstrated a rapid and potent anti-cholestatic effect in patients with PBC. The lack of a dose response suggested that lower doses could
be effective as well.

Patients receiving study drug also demonstrated improvements in metabolic parameters, including reductions in LDL-C, and
reductions in inflammatory markers (e.g. hs-CRP). Seladelpar was also associated with a decrease in a plasma marker of hepatic bile acid
synthesis, 7α-hydroxy-4-cholesten-3-one (C4). Seladelpar did not appear to be associated with drug-induced pruritus. In summary, the study
was discontinued early after review of safety and efficacy data demonstrated proof-of-concept for anti-cholestatic effects and it was
recognized that another study was needed with further dose reduction to establish optimal clinical safety and efficacy.

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In December 2016, we initiated a second Phase 2 study of seladelpar in patients with PBC. A prospectively planned interim analysis
was conducted to evaluate the treatment effects of seladelpar. The study is an open label, randomized, dose-ranging study evaluating lower
doses of seladelpar and the primary efficacy endpoint is the percent change in AP. Similarly, secondary outcomes are shared with the
previous study.

In the first part of the study, initially planned for 26 weeks of treatment, patients at high risk of disease progression, with an
inadequate response to UDCA, as characterized by a persistent elevation in AP, or who were intolerant to UDCA, received either 5 mg or
10 mg of seladelpar once daily. A planned interim analysis of the first 24 patients enrolled in these two dose groups demonstrated after 12
weeks of treatment a significant AP reduction from baseline of 39% and 45% for the 5 mg and 10 mg groups, respectively. On seladelpar,
45% of patients in the 5 mg and 82% of patients in the 10 mg dose groups had AP values < 1.67 ULN. AP is an established surrogate
marker of disease progression in PBC and reaching a level of < 1.67 x ULN is a key component in the composite endpoint used for
regulatory approval. Alongside substantial reductions in AP, patients in both dose groups experienced decreases in other liver markers of
cholestasis including gamma glutamyl transferase and total bilirubin. Seladelpar also improved metabolic and inflammatory markers with
patients experiencing decreases in LDL-C and high sensitivity C-reactive protein (hs-CRP).  There were no serious adverse events and no
safety transaminase signal was observed at either dose. Instead, mean transaminase levels decreased over the course of treatment, further
supporting seladelpar’s anti-inflammatory activity. Consistent with prior studies, there was no signal for drug-induced pruritus. These
results were presented as a late-breaking abstract at the annual meeting of the American Association for the Study of Liver Disease
(AASLD; Washington DC, October 2017). After sharing preliminary results from this study, the FDA agreed to allow continuation of
seladelpar treatment beyond six months for the 5 mg and 10 mg doses. Following the planned interim analysis and in concordance with
regulators, the study, in its second part, was thus modified to expand its sample size for the 5 and 10 mg doses (from N=12 per group to
N=49 per group), include an additional arm of seladelpar 2 mg/day to complete the dose-ranging evaluation, and extend its duration to 52
weeks.

In addition, during the fourth quarter of 2017, we initiated a long-term safety extension study of seladelpar. The study is open to

patients participating in a current or future PBC study that is part of our clinical development program. The first patients initially enrolled in
the low dose Phase 2 study were transferred into the long-term safety extension study in December 2017.

Non-Alcoholic Fatty Liver Disease (NAFLD) / Nonalcoholic Steatohepatitis (NASH)

NAFLD is a disease characterized by accumulation of fat in the liver in individuals that consume little or low amounts of alcohol (<
70 g/week for women and < 140 g/week for men). Approximately one-third of NAFLD patients develop NASH, which is characterized by
inflammation in the liver that is often accompanied by fibrosis. This can progress to cirrhosis, followed by eventual liver failure and death.
NASH is the third most common reason for liver transplantation in the United States. NASH is a major challenge to healthcare systems
worldwide. NASH is initially a silent disease, the first sign of which may be elevations in transaminases such as alanine aminotransferase
(ALT) or aspartate aminotransferase (AST) from routine blood testing. When further evaluation rules out medications, viral hepatitis,
alcohol, etc. as a cause, or when imaging studies of the liver show fat, NASH is suspected. A confirmation of a diagnosis of NASH requires
a liver biopsy.

There are currently no drugs approved by the FDA for the treatment of NASH. However, several clinical studies have been carried
out or are underway with drug candidates that may affect disease outcomes in patients with non-cirrhotic NASH, including Phase 3 studies
with OCA (Intercept Pharmaceuticals) and elafibranor (GFT505), a PPARα/δ agonist (Genfit SA), cenicriviroc, a CCR2/5 receptor
antagonist (Allergan), and selonsertib, an ASK1 inhibitor (Gilead). Over two dozen other compounds are currently in Phase 2 development
in NASH.

We believe seladelpar may have utility in treating patients with NASH. Seladelpar is a potent and selective PPARδ agonist, and is a
key regulator of lipid metabolism, cholesterol transport, bile acid synthesis, and inflammation/fibrosis. Ligand binding to PPARδ results in
activation and repression of its target genes by which it regulates the above processes. In the liver, PPARδ is expressed in hepatocytes,
cholangiocytes, Kupffer and stellate cells (Iwaisako et al., 2012; Xia et al., 2012).

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The mode of action for seladelpar in NASH was established in a diabetic and dyslipidemic obese mouse model (the foz/foz mouse

model; Haczeyni et al., 2017).  These mice develop liver pathology similar to humans with NASH consisting of steatohepatitis complicated
by pericellular fibrosis (Van Rooyen et al., 2011; Haczeyni et al., 2015).   The pathogenic progression of NASH and seladelpar’s actions in
this model are broadly summarized as follows: (1) The accumulation of fat with an accompanying development of insulin resistance:
Seladelpar reduced hepatic steatosis by increasing expression of genes associated with mitochondrial fatty acid oxidation, which was
accompanied by restoration of full insulin sensitivity; (2) Cell stress and injury response: Seladelpar reduced hepatocellular toxic species,
including lipotoxic lipids and free cholesterol, with strong reductions in apoptosis and cell regeneration response to injury.  There was a
complete abrogation of cellular ballooning (necroinflammation), which is a defining characteristic of NASH; (3) Initiation and perpetuation
of inflammation: Seladelpar treatment led to strong reductions in liver macrophages, which was accompanied by reductions in
inflammatory mediators; (4) Extracellular matrix deposition and remodeling: Seladelpar reduced collagen deposition and characteristic
fibrogenic transcripts that accompany stellate cell activation and fibrosis.  We are currently planning to start a Phase 2 study of seladelpar in
patients with NASH in the first half of 2018.

Arhalofenate  (MBX-102) — Gout

Gouty arthritis, or gout, is the most common form of inflammatory arthritis in men and affects more than eight million people in the

United States. Gout is caused by elevated levels of uric acid in the blood, or hyperuricemia. A great majority, approximately 90%, of gout
patients have an under excretion of uric acid. The hallmark symptom of gout is a flare, characterized by debilitating pain, along with
tenderness and inflammation of affected joints. Gout has a significant impact on patients’ quality of life and health care utilization. Patients
experiencing gout flares miss an average of 4.6 more days of work per year than those without gout. Gout flares also result in increased
health care utilization with approximately 35% of patients with moderate flare and 50% of patients with severe flare having at least one
acute care visit per year.

Gout flares are triggered by the presence of monosodium urate (MSU) crystals in joints. These crystals are formed in tissues when
the concentration of sUA exceeds its solubility limit (approximately 6.8 milligrams per deciliter mg/dL). Long term accumulation of MSU
crystals in the body leads to the progression of gout with an increase in the frequency of flares, the involvement of multiple joints, their
progressive deformation, and the appearance of masses of MSU crystals called tophi. Hence, the goal of treatment is to maintain sUA
below 6 mg/dL, or even 5 mg/dL when tophi needs to be dissolved. Elevated levels of sUA, or hyperuricemia, most commonly results from
the under excretion of uric acid by the kidney. Uric acid is normally filtered through the glomerular section of the kidney and reabsorbed in
the proximal renal tubule back to the blood by specialized urate transporters/exchangers.

Multiple clinical studies indicate that gout patients have a high incidence of comorbidities, such as hypertension (50% or more),

chronic kidney disease (~40%), coronary artery disease (>35%), and diabetes (~20%). Managing patients with these comorbidities is
challenging because medication currently used to treat gout flares could be contraindicated. For instance, non-steroidal anti-inflammatory
drugs (NSAIDs) have renal toxicity and corticosteroids worsen hypertension and diabetes.

Unmet Needs in the Treatment of Gout

To halt the progression of gout and provide long term reduction in flares, MSU crystals must be eliminated from the body.
Therefore, the major goals of gout treatment are to prevent flares and lower sUA to below 6 mg/dL in order to dissolve MSU crystals. Of
the eight million patients with gout in the U.S., we estimate that over three million patients are on urate lowering therapy (ULT) and of
these patients on ULTs, as many as 60% may not get to their sUA goal of below 6.0 mg/dL. In addition, we estimate about one million
patients continue to experience three or more flares per year. According to a 2012 study, patients having three or more flares per year
typically incur $10,000 more in annual health care costs than patients without gout. With a large number of patients not reaching the sUA
goal of below 6 mg/dL on current therapies, gout remains a significantly undermanaged disease. Studies have also shown that abrupt
decreases in sUA with existing ULTs paradoxically cause an increase in flares, leading many patients to discontinue or avoid therapy. Non-
adherence to therapy is thus a significant problem.

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Current Treatment

Xanthine oxidase (XO) inhibitors are ULTs that decrease the production of uric acid. The XO inhibitors, allopurinol and febuxostat
(marketed by Takeda Pharmaceutical Company Limited as Uloric®), are the most commonly prescribed drugs in the ULT market. Generic
allopurinol at doses up to 300 mg accounts for about 90% of ULT prescriptions in the U.S. Studies have shown that the most commonly
prescribed doses of these drugs (allopurinol 300 mg or febuxostat 40 mg) in the U.S. result in only about 40% of patients reaching the sUA
goal of below 6.0 mg/dL. In addition, both allopurinol and febuxostat can cause an increase in gout flares for up to 6 – 12 months following
initiation of treatment.

Uricosurics are ULTs that lower sUA by promoting the excretion of uric acid by the kidney. Lesinurad (Zurampic ®, Ironwood
Pharmaceuticals, Inc. and AstraZeneca PLC) is a uricosuric that blocks URAT1, the main urate transporter/exchanger in renal proximal
tubules. Zurampic 200mg in combination with a xanthine oxidase inhibitor was approved in the U.S. in 2015 and in the E.U. in 2016 for the
treatment of hyperuricemia associated with gout in patients that have not reached target serum uric acid levels with an XO inhibitor alone.
The FDA approved Zurampic with a black-box warning regarding the potential for acute renal failure and the approved indication is
restricted to its use in combination with an XO inhibitor.

To address the increase in flare rate associated with initiation of ULT therapy, anti-inflammatory drugs such as colchicine and

NSAIDs are co-prescribed with ULTs. These agents cause adverse effects. The risks associated with colchicine include diarrhea, nausea,
vomiting, and neuromuscular toxicity. Long term use of colchicine should be carefully monitored. NSAIDs are associated with
gastrointestinal (GI) bleeding that can be severe and life-threatening. Their long-term use is associated with an increased risk of renal
toxicity, chronic renal insufficiency and increased cardiovascular morbidity. Steroids are also associated with GI bleedings. They can
severely worsen hypertension and diabetes that are frequent comorbities of gout patients and their chronic use is associated with debilitating
osteoporosis and bone fractures.

Arhalofenate Has the Potential to Address the Unmet Needs in Gout

We believe that a significant opportunity exists for arhalofenate as a result of its combined anti-flare activity and its sUA lowering
activity. As an investigational Urate Lowering Anti-Flare Therapy (ULAFT), arhalofenate has the potential to address the unmet needs of
gout patients by preventing flares while helping patients to achieve sUA target goals. This dual activity might also be advantageous when
combining arhalofenate with febuxostat to increase the number of patients reaching their desired sUA targets, to limit the number of flares
and, in patients with tophaceous gout, to potentially resolve tophi.

Clinical Studies with Arhalofenate

The Gout Development Program

Arhalofenate is a prodrug which upon absorption is converted to its active form, arhalofenate acid. Arhalofenate acid’s dual actions

are to inhibit uric acid reabsorption by urate transporters in the kidney and to block the MSU crystal-stimulated production of IL-1ß by
macrophages (white blood cells that play an important role in the body’s defense against pathogens and foreign matter) in inflamed joints.

Arhalofenate has been studied in five Phase 2 gout clinical studies. Collectively across these studies, we evaluated the safety and

efficacy of arhalofenate in doses ranging from 400 mg – 800 mg as monotherapy and in combination with the two approved XO inhibitors,
allopurinol and febuxostat. The results of these studies collectively support further development of arhalofenate as a potential urate-
lowering anti-flare therapy (ULAFT) for the large number of gout patients that are inadequate responders or are intolerant to XO inhibitors.

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Conclusions of Arhalofenate’s Clinical Experience

Arhalofenate has been studied in a total of 17 clinical studies with over 1,100 subjects in healthy volunteer, type 2 diabetic and gout
populations. These include Phase 1 studies of safety, tolerability and PK, Phase 2 studies of blood glucose effects in diabetics, and Phase 2
studies of sUA and flare effects in gout patients. Arhalofenate was generally well tolerated with a safety profile that supports development
for gout.

In clinical studies conducted to date that included over two hundred patients with hyperuricemia and a diagnosis of gout, arhalofenate

was found to be well tolerated when dosed at 400 mg, 600 mg or 800 mg once daily up to twelve weeks. Arhalofenate treatment resulted in
reductions in sUA whether administered alone or in combination with a XO inhibitor. As a uricosuric, arhalofenate decreases sUA by
increasing the urinary excretion of uric acid. In clinical trials to date, Arhalofenate has increased the fractional excretion of uric acid with
levels that were at or near normal without overcorrection.

In addition, arhalofenate when administered at 800 mg daily without colchicine decreased the incidence of flares and also increased
the proportion of patients not experiencing any flare. Activity against flares would address one of the most burdensome symptoms for gout
patients.

Gout Partnership with Kowa Pharmaceuticals America, Inc.

In late December 2016, we entered into an exclusive license agreement with Kowa for the development and commercialization of

arhalofenate in the U.S. Pursuant to the license agreement, we granted to Kowa an exclusive license to certain patent rights and technology
related to arhalofenate. Kowa will have exclusive rights to, among other things, develop, use, manufacture, sell and otherwise exploit the
licensed technology in the United States (including all possessions and territories).

We plan to enter into licensing agreements with other parties for development and commercialization rights to arhalofenate in other

geographies.

MBX-2982

MBX-2982 is an oral, G-protein coupled receptor (GPR119) agonist being evaluated as a novel therapeutic agent for an undisclosed

therapeutic indication.

GPR119 is expressed in pancreatic islet cells and gastrointestinal hormone secreting cells (enteroendocrine cells). Activation of
GPR119 in pancreatic ß-islets either by natural (endogenous) substances or by drugs developed to interact with it (GPR119 agonists) results
in direct stimulation of glucose-dependent insulin secretion in vitro. Activation of GPR119 in intestinal enteroendocrine cells either by
endogenous substances or by GPR119 agonists results in stimulation of glucagon-like peptide 1 (GLP-1) and gastrointestinal inhibitory
peptide release, and subsequent enhanced glucose-dependent insulin secretion and suppression of glucagon, leading to improved acute
glucose tolerance, both in vitro and in vivo. MBX-2982 was synthesized and screened as a GPR119 agonist, and is capable of activating
endogenous GPR119 in a cell line over-expressing the receptor. MBX-2982 has been shown to increase glucose-dependent insulin secretion
in both in vitro and in animal models. MBX-2982 also increases incretin hormone levels in animals, which may contribute to its
pharmacological effects.

Nonclinical studies show that MBX-2982 has desirable effects on blood glucose levels, and this effect is additive to the effect of the

dipeptidyl peptidase-4 (DPP-4) inhibitor, sitagliptin. Based on these results, there may be an important role for MBX-2982 as a novel
therapeutic agent.

Extensive preclinical toxicological studies (up to 6 months in rats and dogs) have been completed, and PK profiling of MBX-2982

has shown low potential for safety risk. We filed an IND for MBX-2982 with the FDA in January 2008.

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Clinical Studies with MBX-2982

Four Phase 1 clinical studies and one Phase 2 clinical study with MBX-2982 have been completed and the safety review showed no

safety or tolerability concerns with escalating doses (25, 100, and 300 mg/day) tested for up to 4 weeks of dosing. MBX-2982 at doses of
25, 100, and 300 mg exhibited a profile consistent with a once daily oral drug and appeared to be safe and was well tolerated.  Based on
these results, we believe further evaluation is warranted for MBX-2982 in pre-clinical models for undisclosed indications.  If successful,
the next step would be evaluation in a clinical proof-of-concept study.

License Agreements and Intellectual Property

General

We actively seek to obtain, where appropriate, patent protection and regulatory exclusivity for the proprietary technology that we

consider important to our business, including compounds, compositions and formulations, their methods of use and processes for their
manufacture both in the United States and other countries. We also rely on trade secrets, know-how, continuing technological innovation
and in-licensing to develop and maintain our proprietary position. Our success depends in part on our ability to obtain, maintain and enforce
proprietary protection for our product candidates, technology and know–how, to operate without infringing the proprietary rights of others,
and to exclude others from infringing our proprietary rights. However, patent protection may not afford us complete protection against
competitors who seek to circumvent our patents.

We also depend upon the skills, knowledge, experience and know-how of our management, research and development personnel, as

well as that of our advisors, consultants and other contractors. To help protect our proprietary know-how, which is not patentable, and for
inventions for which patents may be difficult to enforce, we currently rely, and will in the future rely, on trade secret protection and
confidentiality agreements to protect our interests. To this end, we require all of our employees, consultants, advisors and other contractors
to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions important to our business.

Collaborations and Licensing Agreements

We have entered into various arrangements with licensors and licensees. Our current significant collaborations are summarized

below.

Kowa Pharmaceuticals America, Inc.: In December 2016, we entered into an exclusive license agreement with Kowa

Pharmaceuticals America, Inc. for the development and commercialization of arhalofenate in the U.S. Pursuant to the license agreement, we
granted to Kowa an exclusive license to certain patent rights and technology related to arhalofenate. Kowa will have exclusive rights to,
among other things, develop, use, manufacture, sell and otherwise exploit the licensed technology in the United States (including all
possessions and territories). Under the license agreement, Kowa paid us an up-front payment of $5 million in January 2017, and in January
2018 we received a $5 million milestone payment for the initiation of a study evaluating the pharmacokinetics of arhalofenate in subjects
with renal impairment. We are entitled to receive an additional milestone payment of $5 million on the initiation of a Phase 3 study and up
to an additional of $190 million upon the achievement of additional development and sales milestones, and tiered, double digit royalties on
future net sales of arhalofenate products. Kowa is responsible for all development and commercialization costs in the US. We retain full
development and commercialization rights for the rest of the world and intend to partner arhalofenate in geographies outside the U.S. and its
possessions and territories.

Johnson and Johnson: In June 2006, we entered into a license agreement with Janssen Pharmaceutical NV (Janssen NV), an
affiliate of Johnson and Johnson, in which we received an exclusive worldwide, royalty-bearing license to seladelpar and certain other
PPARδ compounds (the “PPARδ Products”) with the right to grant sublicenses to third parties to make, use and sell such PPARδ Products.
Under the terms of the agreement, we have full control and responsibility over the research, development and registration of any PPARδ
Products and are required to use diligent efforts to conduct all such activities. Janssen NV has the sole responsibility for the preparation,
filing, prosecution, maintenance of, and defense of the patents with respect to, the PPARδ Products. Janssen NV has a right of first
negotiation under the agreement to license a particular PPARδ Product from us in the

12

 
event that we elect to seek a third party corporate partner for the research, development, promotion, and/or commercialization of such
PPARδ Products. Under the terms of the agreement Janssen NV is entitled to receive up to an 8% royalty on net sales of PPARδ Products.
Under the terms of the agreement, if we do not expend more than a de minimus amount of effort and resources on the research and/or
development of at least one PPARδ product, such action would constitute a default under the agreement. In addition, if we fail to use
diligent efforts to promote, market and sell any PPARδ Product under the agreement, such action would constitute a default under the
agreement. In the event of such default, or upon our termination of the agreement, we are obligated to grant Janssen NV a worldwide,
exclusive, irrevocable license under the agreement in all information that is controlled, developed or acquired by us which relate to a
PPARδ compound or PPARδ Product and in all patents that are filed during the term of the agreement with a priority date after the
effective date of the agreement and relate to a PPARδ compound or PPARδ Product.

In June 2010, we entered into two development and license agreements with Janssen Pharmaceuticals, Inc. (Janssen) to further

develop and discover undisclosed metabolic disease target agonists for the treatment of Type 2 diabetes and other disorders and received a
one-time nonrefundable technology access fee related to the agreements. We received a termination notice from Janssen, effectively ending
these development and licensing agreements in early April 2015. In December 2015, we exercised an option pursuant to the terms of one of
the original agreements to continue work to research, develop and commercialize compounds with activity against an undisclosed metabolic
disease target. Janssen granted us an exclusive, worldwide license (with rights to sublicense) under the Janssen know-how and patents to
research, develop, make, have made, import, use, offer for sale and sell such compounds. We have full control and responsibility over the
research, development and registration of any products developed and/or discovered from the metabolic disease target and are required to
use diligent efforts to conduct all such activities.

DiaTex: On June 30, 1998, we entered into a License and Development Agreement with DiaTex, Inc. Under the agreement, DiaTex

granted us an exclusive license to develop and commercialize therapeutic products containing halofenate, its enantiomers (mirror images,
including arhalofenate), derivatives, and analogs (the licensed products) for the treatment of diseases.

The license agreement contains a $2,000 per month license fee as well as a requirement to make additional payments for
development achievements and royalty payments on any sales of licensed products. DiaTex is entitled to up to $0.8 million for the future
development of arhalofenate, as well as a 2% royalty payment on any net sales of products containing arhalofenate. Under the terms of the
agreement, if we fail to use diligent efforts to conduct preclinical and clinical testing of halofenate and its enantiomers to determine its
efficacy for use in the treatment or prevention of human diseases or conditions, fail to make any payment called for under the agreement, or
disclose non-exempt confidential information under the agreement, such action would constitute a material breach under the agreement. In
addition, if we fail to execute all instruments and assignments or fail to take any action to effect joint ownership of any enantiomer patent
with DiaTex, such action would constitute a material breach under the agreement. We may terminate the agreement at any time if we
determine we are no longer interested in DiaTex’s license grant, provided we provide sufficient written notice within a specified time
period.

Research and Development

We do not currently own or operate research and development facilities. We rely on contract service providers (CSPs) including

clinical research organizations, clinical trial sites, central laboratories and other service providers to ensure the proper and timely conduct of
our clinical trials. While we have agreements governing their activities, we have limited influence over their actual performance. We have
relied and plan to continue to rely upon CSPs to monitor and manage data for our ongoing clinical programs for our product candidates, as
well as the execution of nonclinical studies. We control only certain aspects of our CSPs’ activities. Nevertheless, we are responsible for
ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our
reliance on the CSPs does not relieve us of our regulatory responsibilities. We also 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, which could also adversely affect the progress of our research, development and
commercialization objectives.

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Intellectual Property

We own and co-own approximately 50 United States patents, 150 foreign patents, as well as 20 United States patent applications

and 120 foreign and Patent Cooperation Treaty applications that are counterparts to certain United States patents and patent applications. In
addition, we license from third parties approximately 20 United States patents and 5 United States patent applications, 300 foreign patents
and 50 foreign and Patent Cooperation Treaty applications that are counterparts to certain United States patents and patent applications.
These patents and patent applications include claims covering various aspects of our product pipeline and research and development
strategies, including: arhalofenate crystal forms, methods of use both alone and in combination with other drugs and methods of
manufacture, certain PPARδ agonists (including seladelpar), their compositions and uses, certain GPR119 agonist compositions and uses
and undisclosed metabolic disease target agonist compositions and uses.

The arhalofenate portfolio consists of approximately 100 issued patents and 50 pending patent applications relating to composition,
method of use or methods of manufacture. We believe our issued patents protect arhalofenate through at least 2019-2032 before accounting
for any potential patent term extension. The seladelpar portfolio consists of approximately 300 issued patents and 100 pending patent
applications related to composition and method of use that we believe protect it through at least 2025-2035 before accounting for any
potential patent term extension. Patent and trade secret protection is critical to our business. Our success will depend in large part on our
ability to obtain, maintain, defend and enforce patents and other intellectual property, to extend the life of patents covering our product
candidates, to preserve trade secrets and proprietary know-how, and to operate without infringing the patents and proprietary rights of third
parties.

Manufacturing

We do not currently own or operate manufacturing facilities for the production or testing of seladelpar, arhalofenate or other product

candidates that we develop, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We presently
depend on third party contract manufacturers to obtain all of our required raw materials, Active Pharmaceutical Ingredients (APIs) and
finished products for our clinical studies for seladelpar. We have executed manufacturing agreements for our API and clinical supplies of
seladelpar and arhalofenate with established manufacturing firms that are responsible for sourcing and obtaining the raw materials
necessary for the finished products. The raw materials necessary to manufacture the API for seladelpar and arhalofenate are available from
more than one source.

Competition

The biopharmaceutical industry is highly competitive and subject to rapid and significant innovation. Although we believe that our

development expertise and scientific knowledge provide us with advantages over our competitors, particularly in the therapeutic areas in
which we are focused, other biopharmaceutical companies in the industry may be able to develop therapeutics that are able to achieve better
results. Our competitors include pharmaceutical companies, biotechnology companies, specialty pharmaceutical companies, universities
and other research institutions. Many of our competitors have significantly greater financial, technical and human resources than we have.

We are currently developing seladelpar for the treatment of patients with primary biliary cholangitis (PBC). Currently, the only
FDA-approved treatments for PBC are ursodeoxycholic acid (UCDA), also known as ursodiol, an isomer of chenodeoxycholic acid and the
synthetic bile acid analog obeticholic acid (Ocaliva®, Intercept Pharmaceuticals). Ursodiol decreases serum levels of AP, bilirubin, alanine
aminotransferase, aspartate aminotransferase, cholesterol, and immunoglobulin M, all of which are elevated in patients with PBC and can
serve as biochemical markers of the disease. In a study that combined data from three controlled trials with a total of 548 patients, ursodiol
significantly reduced the likelihood of liver transplantation or death after four years. Ursodiol also delayed the progression of hepatic
fibrosis in early-stage PBC, but was not effective in advanced disease. It is also known that up to 50% of PBC patients fail to respond
adequately to ursodiol therapy. Ursodiol is available as a generic and is priced at a discount to typical branded therapies.

Ocaliva was approved by the FDA and European Medicines Agency in 2016 for the treatment of PBC in combination with UDCA

in adults with an inadequate response to UDCA, or as monotherapy in adults unable to tolerate UDCA. Ocaliva also received orphan
designations in the U.S. and the E.U. A Phase 3 study was completed with a primary composite endpoint defined as a responder rate
comprised of the percentage of patients with AP < 1.67 times upper limit of normal with a decrease in AP of at least 15% and total bilirubin
less than or equal to upper limit of normal. This study met its goals and Ocaliva was granted accelerated approval based on meeting this
primary composite endpoint.

14

 
 
Although not approved for use in PBC, off-label use of fibrate drugs has been reported, though many fibrates are specifically
contraindicated for use in PBC due to potential concerns over acute and long-term safety in this patient population. Other therapies, such as
colchicine, methothrexate, prednisone and multiple immunosuppressive regimens have been attempted. However, their efficacy is limited
or unproven, and they are associated with multiple side-effects impacting tolerance and safety. Liver transplantation improves survival in
patients with PBC, and it is the only effective treatment for those with liver failure. Liver transplantation however is problematic because of
its costs, the limited availability of donor organs, and by the fact that the disease may recur after an initially successful transplantation.  As
a result, despite the previously mentioned therapeutic interventions, it is recognized that PBC continues to progress in many patients and
additional medical treatment is needed to address this disease.

Additional potential therapies in early stage clinical development for PBC include FXR agonists that act through the same
mechanism of action as Ocaliva (tropifexor (LJN452, Novartis Pharmaceuticals Corp.), GS-9674 (Gilead Sciences, Inc.) and EDP-305
(Enanta Pharmaceuticals, Inc.)), the mixed PPARα/δ agonist elafibranor, the dual PPARα/γ agonist saroglitazar, the selective NOX
inhibitor GKT137831, the oxy-sterol sulfate DUR-928, and the selective S1P receptor modulator etrasimod (APD334) (Arena
Pharmaceuticals, Inc.). GSK23306772 is an inhibitor of the Intestinal Bile Acid Transporter (IBAT) and is evaluated for the treatment of
itch associated with PBC and maralixibat, another IBAT inhibitor, was recently discontinued for this indication due to lack of efficacy.
NGM-282, a FGF-19 variant was also studied in PBC, but the clinical program has been re-focused towards the treatment of NASH.

Arhalofenate is being developed for the treatment of patients with gout. The xanthine oxidase inhibitors, allopurinol and febuxostat
(marketed by Takeda Pharmaceutical Company Limited as Uloric®), are the most commonly prescribed drugs to lower uric acid in patients
with gout. Lesinurad (Zurampic®, Ironwood Pharmaceuticals, Inc. and AstraZeneca PLC) is a uricosuric that blocks URAT1, the main
urate transporter/exchanger in renal proximal tubules. Zurampic 200mg in combination with a xanthine oxidase inhibitor is approved in the
U.S. and in the E.U. for the treatment of hyperuricemia associated with gout in patients that have not reached target serum uric acid levels
with a xanthine oxidase inhibitor alone. Pegloticase (marketed by Horizon Pharma plc as KRYSTEXXA®) is a PEGylated uric acid
specific enzyme indicated for the treatment of chronic gout in adult patients refractory to conventional therapy. Anti-inflammatory drugs,
such as colchicines, steroids and NSAIDs, are prescribed to manage gout flares.

Research & Development Costs

Our research and development costs for the years ended December 31, 2017, 2016 and 2015, all of which are borne by us, were

$18.9 million, $15.9 million, and $17.0 million, respectively.

Government Regulation and Product Approval

Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among

other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping,
promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we
are developing. The pharmaceutical drug product candidates that we develop must be approved by the Food and Drug Administration
(FDA) before they may be legally marketed in the United States.

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United States Pharmaceutical Product Development Process

In the United States, the FDA regulates pharmaceutical products under the Federal Food, Drug and Cosmetic Act, and implementing

regulations. Pharmaceutical products are also subject to other federal, state and local statutes and regulations. The process of obtaining
regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require 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 administrative or judicial sanctions. FDA
sanctions could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls,
product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution,
disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The
process required by the FDA before a pharmaceutical product may be marketed in the United States generally involves the following:

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•

•

•

•

•

•

Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices
(GLP) or other applicable regulations;

Submission to the FDA of an Investigational New Drug application (IND), which must become effective before human
clinical studies may begin;

Performance of adequate and well-controlled human clinical studies according to the FDA’s current Good Clinical
Practices (GCP), to establish the safety and efficacy of the proposed pharmaceutical product for its intended use;

Submission to the FDA of a New Drug Application (NDA) for a new pharmaceutical product;

Satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the pharmaceutical product is
produced to assess compliance with the FDA’s current Good Manufacturing Practice standards (cGMP), to assure that the
facilities, methods and controls are adequate to preserve the pharmaceutical product’s identity, strength, quality and purity;

Potential FDA audit of selected preclinical and clinical study sites that generated the data in support of the NDA; and

FDA review and approval of the NDA.

The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations

require the expenditure of substantial resources and approvals are inherently uncertain.

Before testing any compounds with potential therapeutic value in humans, the pharmaceutical product candidate enters the
preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal
studies to assess the potential safety and activity of the pharmaceutical product candidate. The conduct of the preclinical tests must comply
with federal regulations and requirements including Good Laboratory Practices. The sponsor must submit the results of the preclinical tests,
together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the
FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA has concerns and
notifies the sponsor by way of a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before
the clinical study can begin. The FDA may also impose clinical holds on a pharmaceutical product candidate at any time before or during
clinical studies due to safety concerns or non-compliance. Submission of an IND may not result in the FDA allowing clinical studies to
begin and, once begun, issues may arise that lead to suspension or termination of such clinical study.

During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may
be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These
meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice,
and for the sponsor and FDA to reach agreement on the next phase of development. Sponsors typically use the End-of-Phase 2 meeting to
discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support approval of
the new drug.

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Clinical studies involve the administration of the pharmaceutical product candidate to healthy volunteers or patients under the

supervision of qualified investigators, generally physicians not employed by or under the clinical study sponsor’s control. Clinical studies
are conducted under protocols detailing, among other things, the objectives of the clinical study, dosing procedures, subject selection and
exclusion criteria, how the results will be analyzed and presented and the parameters to be used to monitor subject safety. Each protocol
must be submitted to the FDA as part of the IND. Clinical studies must be conducted in accordance with GCP. Further, each clinical study
must be reviewed and approved by an independent institutional review board (IRB) at, or servicing, each institution at which the clinical
study will be conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether
the risks to individuals participating in the clinical studies are minimized and are reasonable in relation to anticipated benefits. The IRB also
approves the informed consent form that must be provided to each clinical study subject or his or her legal representative and must monitor
the clinical study until completed.

Human clinical studies are typically conducted in three sequential phases that may overlap or be combined:

•

•

•

•

Phase 1. The pharmaceutical product is initially introduced into healthy human subjects and tested for safety, dosage
tolerance, absorption, metabolism, distribution and excretion.

Phase 2. The pharmaceutical product is evaluated in a limited patient population to identify possible adverse effects and
safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases, to determine dosage
tolerance, optimal dosage and dosing schedule and to identify patient populations with specific characteristics where the
pharmaceutical product may be more effective.

Phase 3. Clinical studies are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient
population at geographically dispersed clinical study sites. These clinical studies are intended to establish the overall
risk/benefit ratio of the product and provide an adequate basis for product labeling. The studies must be well-controlled and
usually include a control arm for comparison. One or two Phase 3 studies are required by the FDA for an NDA approval,
depending on the disease severity and other available treatment options.

Post-approval studies, or Phase 4 clinical studies, may be conducted after initial marketing approval. These studies are used
to gain additional experience from the treatment of patients in the intended therapeutic indication.

Progress reports detailing the results of the clinical studies must be submitted at least annually to the FDA and written IND safety

reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in
laboratory animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3 clinical studies may not be completed
successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend a clinical study
at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.
Similarly, an IRB can suspend or terminate approval of a clinical study at its institution if the clinical study is not being conducted in
accordance with the IRB’s requirements or if the pharmaceutical product has been associated with unexpected serious harm to patients.

Concurrent with clinical studies, companies usually complete additional animal studies and must also develop additional information
about the chemistry and physical characteristics of the pharmaceutical product as well as finalize a process for manufacturing the product in
commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing
quality batches of the pharmaceutical product candidate and, among other things, must develop methods for testing the identity, strength,
quality and purity of the final pharmaceutical product. Additionally, appropriate packaging must be selected and tested and stability studies
must be conducted to demonstrate that the pharmaceutical product candidate does not undergo unacceptable deterioration over its shelf life.

United States Review and Approval Processes

The results of product development, preclinical studies and clinical studies, along with descriptions of the manufacturing process,
analytical tests conducted on the chemistry of the pharmaceutical product, proposed labeling and other relevant information are submitted
to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of
substantial user fees; a waiver of such fees may be obtained under certain limited circumstances.

17

 
 
 
 
 
In addition, under the Pediatric Research Equity Act (PREA), an NDA or supplement to an NDA must contain data to assess the
safety and effectiveness of the pharmaceutical product for the claimed indications in all relevant pediatric subpopulations and to support
dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for
submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any pharmaceutical product
for an indication for which orphan designation has been granted.

The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting
an NDA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies
agreed to by the FDA under the Prescription Drug User Fee Act (PDUFA), the FDA has 10 months from filing in which to complete its
initial review of a standard NDA and respond to the applicant, and six months from filing for a priority NDA. The FDA does not always
meet its PDUFA goal dates for standard and priority NDAs. The review process and the PDUFA goal date may be extended by three
months if the FDA requests or if the NDA sponsor otherwise provides additional information or clarification regarding information already
provided in the submission within the last three months before the PDUFA goal date.

After the NDA submission is accepted for filing, the FDA reviews the NDA application to determine, among other things, whether
the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to
assure and preserve the product’s identity, strength, quality and purity. The FDA may refer applications for novel pharmaceutical products
or pharmaceutical products which 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 and under what
conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully
when making decisions. During the pharmaceutical product approval process, the FDA also will determine whether a risk evaluation and
mitigation strategy (REMS) is necessary to assure the safe use of the pharmaceutical product. If the FDA concludes that a REMS is needed,
the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without a REMS, if required.

Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the

product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to
assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically
inspect one or more clinical sites as well as the site where the pharmaceutical product is manufactured to assure compliance with GCP and
cGMP. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the
deficiencies in the submission and often will request additional testing or information. In addition, the FDA will require the review and
approval of product labeling.

The NDA review and approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable
regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information
is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical studies are
not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a complete response
letter if the agency decides not to approve the NDA. The complete response letter describes the specific deficiencies in the NDA identified
by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional
clinical studies. Additionally, the complete response letter may include recommended actions that the applicant might take to place the
application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of
the deficiencies identified in the letter, or withdraw the application.

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the
indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that
certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing
which involves clinical studies designed to further assess pharmaceutical product safety and effectiveness and may require testing and
surveillance programs to monitor the safety of approved products that have been commercialized.

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Post-Approval Requirements

Any pharmaceutical products for which we receive FDA approvals are subject to continuing regulation by the FDA, including,
among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated
safety and efficacy information, product sampling and distribution requirements, complying with certain electronic records and signature
requirements and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-
consumer advertising, prohibitions on promoting pharmaceutical products for uses or in patient populations that are not described in the
pharmaceutical product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities and
promotional activities involving the internet. Failure to comply with FDA requirements can have negative consequences, including adverse
publicity, enforcement letters from the FDA, actions by the United States Department of Justice and/or United States Department of Health
and Human Services Office of Inspector General, mandated corrective advertising or communications with doctors, and civil or criminal
penalties. Although physicians may prescribe legally available pharmaceutical products for off-label uses, manufacturers may not directly
or indirectly market or promote such off-label uses.

Manufacturers of our products are required to comply with applicable FDA manufacturing requirements contained in the FDA’s

cGMP regulations. cGMP regulations require, among other things, quality control and quality assurance, as well as the corresponding
maintenance of records and documentation. Pharmaceutical product manufacturers and other entities involved in the manufacture and
distribution of approved pharmaceutical products are required to register their establishments with the FDA and certain state agencies, and
are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws.
Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain
cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of
an approved NDA, including withdrawal of the product from the market. In addition, changes to the manufacturing process generally
require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications
and additional labeling claims, are also subject to further FDA review and approval.

The FDA also may require post-marketing testing, known as Phase 4 testing, risk minimization action plans and surveillance to
monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product.

U.S. Foreign Corrupt Practices Act

The U.S. Foreign Corrupt Practices Act, or FCPA, prohibits certain individuals and entities, including us, from promising, paying,

offering to pay, or authorizing the payment of anything of value to any foreign government official, directly or indirectly, to obtain or retain
business or an improper advantage. The U.S. Department of Justice and the U.S. Securities and Exchange Commission, or SEC, have
increased their enforcement efforts with respect to the FCPA. Violations of the FCPA may result in large civil and criminal penalties and
could result in an adverse effect on a company’s reputation, operations, and financial condition. A company may also face collateral
consequences such as debarment and the loss of export privileges.

Federal and state fraud and abuse laws

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws

have been applied to restrict certain business practices in the biopharmaceutical industry in recent years. These laws include anti-kickback
statutes, false claims statutes, data privacy and security laws, as well as transparency laws regarding payments or other items of value
provided to healthcare providers. The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering,
paying, soliciting, or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or
order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. The term
“remuneration” has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies
or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair
market value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand
and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and

19

 
regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and
our practices may not in all cases meet all of the criteria for statutory exemptions or safe harbor protection. Practices that involve
remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do
not qualify for an exemption or safe harbor. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose
of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. The
intent standard of the Anti-Kickback Statute was also broadened by the Patient Protection and Affordable Health Care Act, as amended by
the Health Care and Education Reconciliation Act, or collectively the PPACA, so that a person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the PPACA provides that the
government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the civil False Claims Act (discussed below).

The federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment

to the federal government. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for
allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other
companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for
unapproved, and thus non-reimbursable, uses. Additionally, the civil monetary penalties statute imposes penalties against any person who
is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for
an item or service that was not provided as claimed or is false or fraudulent. The federal Health Insurance Portability and Accountability
Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit knowingly and willfully executing a scheme to defraud any
healthcare benefit program, including private third-party payers and knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare
benefits, items or services.

The federal Physician Payments Sunshine Act, created under the PPACA, and its implementing regulations, require certain
manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program (with certain exceptions) to report annually information related to certain payments or other transfers
of value provided to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the
physicians and teaching hospitals, and applicable manufacturers and group purchasing organizations to report annually certain ownership
and investment interests held by physicians and their immediate family members.

We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct

our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its
implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health
information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates”—
independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a
service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities,
business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or
injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil
actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from
each other in significant ways and may not have the same effect, thus complicating compliance efforts.

The majority of states also have statutes or regulations similar to the aforementioned federal fraud and abuse laws, some of which

are broader in scope and apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply
regardless of the payor. Further, 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 or other transfers of value provided to physicians and other health care providers
and entities or marketing expenditures.

20

 
These federal and state laws may impact, among other things, our proposed sales, marketing and education programs. If our
operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply
to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion
from participation in government healthcare programs, and the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate its business and our results of operations. To the extent that any of our product candidates are ultimately sold in
a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing
requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting
of payments or transfers of value to healthcare professionals.

Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of the FDA approval of the use of our pharmaceutical product candidates, some

of our patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of
1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up
to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent
term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term
restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time
between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved pharmaceutical
product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The United
States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or
restoration. In the future, we may apply for restoration of patent term for one of our currently owned or licensed patents to add patent life
beyond its current expiration date, depending upon the expected length of the clinical studies and other factors involved in the filing of the
relevant NDA.

Market exclusivity provisions under the U.S. Food, Drug, and Cosmetic Act can also delay the submission or the approval of certain

applications of other companies seeking to reference another company’s NDA. Currently seven years of reference product exclusivity are
available to pharmaceutical products designated as Orphan Drugs, during which the FDA may not approve generic products relying upon
the reference product’s data. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric
exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the
end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric clinical study in
accordance with an FDA-issued “Written Request” for such a clinical study.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical product candidates for which we

obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory
approval for commercial sale will depend in part upon the availability of reimbursement from third-party payors. Third-party payors
include government payors such as Medicare and Medicaid, managed care providers, private health insurers and other organizations. In the
United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. While commercial payors
often follow Medicare cover policy and payment limitations, coverage and reimbursement for products can differ significantly from payor
to payor. The process for determining whether a payor will provide coverage for a pharmaceutical product may be separate from the
process for setting the price or reimbursement rate that the payor will pay for the pharmaceutical product. Third-party payors may limit
coverage to specific pharmaceutical products on an approved list, or formulary, which might not include all of the FDA-approved
pharmaceutical products for a particular indication.

Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical

products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmaco-economic studies in order to
demonstrate the medical necessity and cost-effectiveness of its products, in addition to the costs required to obtain the FDA approvals. Our
pharmaceutical product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for
a

21

 
pharmaceutical product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not
be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In
addition, in the United States there is a growing emphasis on comparative effectiveness research, both by private payors and by government
agencies. To the extent other drugs or therapies are found to be more effective than our products, payors may elect to cover such therapies
in lieu of our products and/or reimburse our products at a lower rate.

Different pricing and reimbursement schemes exist in other countries. The downward pressure on health care costs in general,

particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new
products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a
country.

The marketability of any pharmaceutical product candidates for which we receive regulatory approval for commercial sale may

suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed
care in the United States has increased and we expect this will continue to increase the pressure on pharmaceutical pricing. Coverage
policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for
one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be
implemented in the future.

In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare
system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the
United States federal and state levels that seek to reduce healthcare costs. For example, in March 2010 the PPACA was enacted, which
includes measures to significantly change the way healthcare is financed by both governmental and private insurers. Among the provisions
of the PPACA of importance to the pharmaceutical and biotechnology industry are the following:

•

•

•

•

•

•

•

•

•

•

an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic
agents, apportioned among these entities according to their market share in certain government healthcare programs;

an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the
average manufacturer price for branded and generic drugs, respectively;

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale
discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a
condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in
Medicaid managed care organizations;

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage
to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below
133% of the Federal Poverty Level, thereby potentially increasing manufacturers’ Medicaid rebate liability;

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

new transparency reporting requirements under the federal Physician Payments Sunshine Act, created under Section 6002
of the PPACA;

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

expansion of health care fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new
government investigative powers, and enhanced penalties for noncompliance;

a licensure framework for follow-on biologic products;

22

 
 
 
 
 
 
 
 
 
 
 
•

•

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

establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower
Medicare and Medicaid spending, potentially including prescription drug spending.

Since its enactment there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, and we

expect there will continue to be additional challenges and amendments to it in the future.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. In August 2011, the president

signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction, or
joint committee, to recommend proposals in spending reductions to Congress. The joint committee did not achieve its targeted deficit
reduction of at least $1.2 trillion for the years 2013 through 2021, triggering automatic reductions to several government programs. These
reductions include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013 and, due to
subsequent legislative amendments, will remain in effect through 2025 unless additional congressional action is taken. In January 2013, the
president signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several
providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
More recently, there have been several recent congressional inquiries and proposed bills designed to, among other things, bring more
transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program
reimbursement methodologies for drug products. These new laws may result in additional reductions in Medicare and other healthcare
funding, which could have a material adverse effect on our financial operations.

International Regulation

In addition to regulations in the United States, there are a variety of foreign regulations governing clinical studies and commercial

sales and distribution of our future product candidates. Whether or not FDA approval is obtained for a product, approval of a product must
be obtained by the comparable regulatory authorities of foreign countries before clinical studies or marketing of the product can commence
in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA
approval. The requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary greatly from
country to country. In addition, certain regulatory authorities in select countries may require us to repeat previously conducted preclinical
and/or clinical studies under specific criteria for approval in their respective country which may delay and/or greatly increase the cost of
approval in certain markets targeted for approval by us.

Corporate Information

CymaBay Therapeutics, Inc., formerly Metabolex, Inc., was incorporated under the laws of the State of Delaware on October 5,

1988, originally under the name Transtech Corporation. Our executive offices are located at 7999 Gateway Blvd., Suite 130, Newark, CA
94560. The telephone number at our executive office is (510) 293-8800. Our corporate website address is www.cymabay.com. We do not
incorporate the information contained on, or accessible through, our website into this Annual Report on Form 10-K, and you should not
consider it part of this Annual Report. We make available free of charge on or through our website our annual report 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 Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.

We had revenues of $10 million in 2017 and had no revenues in 2016 and 2015. All our long-lived assets are located in the

United States.

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Implications of Being an “Emerging Growth Company”

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As

an “emerging growth company,” we may take advantage of specified reduced disclosure and other requirements that are otherwise
applicable generally to public companies. These provisions include:

•

•

•

•

only two years of audited financial statements in addition to any required unaudited interim financial statements with
correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
disclosure;

reduced disclosure about our executive compensation arrangements;

no requirement that we solicit non-binding advisory votes on executive compensation or golden parachute arrangements;
and

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

In addition, 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.

We could remain an emerging growth company for up to five years or until the earliest of (i) the last day of the first fiscal year in

which our annual gross revenues exceed $1 billion, (ii) the date that we becomes a “large accelerated filer” as defined in Rule 12b-2 under
the Securities Exchange Act of 1934, which would occur if the market value of our common stock that are held by non-affiliates exceeds
$700 million as of the last business day of our most recently completed second fiscal quarter, (iii) the date on which we have issued more
than $1 billion in non-convertible debt during the preceding three-year period and (iv) the last day of 2019, which will be the fiscal year
following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement
under the Securities Act (a date which occurred in July 2014).

Employees

As of February 28, 2018, we had 26 full-time employees.

Executive Officers of the Registrant

As of February 28, 2018, our executive officers and key other officers were as follows:

Name
Executive Officers
Sujal Shah
Pol Boudes, M.D.
Charles A. McWherter, Ph.D.
Paul T. Quinlan
Daniel Menold
Key Other Officers
Klara Dickinson
Robert L. Martin, Ph D

Patrick J. O’Mara

Age

44
60
62
55
48

50
55

56

Position Held With CymaBay  

  President & Chief Executive Officer
  Chief Medical Officer
  Senior Vice President, Chief Scientific Officer
  General Counsel and Corporate Secretary
  Vice President, Finance

  Senior Vice President, Regulatory and Quality
  Senior Vice President, Manufacturing and Nonclinical Development
  Senior Vice President, Business Development

24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
Biographical Information

Executive Officers

Sujal Shah has served as our President and Chief Executive Officer since November 2017. Prior to that he served as our Interim

President and Chief Executive Officer from March 2017 to November 2017. From December 2013 to March 2017, Mr. Shah served as
Chief Financial Officer. Prior to that he served as a consultant and acting Chief Financial Officer for us from June 2012 to December 2013.
From 2010 to 2012, Mr. Shah served as Director, Health Care Investment Banking for Citigroup Inc., where he was responsible for
managing client relationships and executing strategic and financing related transactions for clients focused in life sciences. From 2004 to
2010 Mr. Shah was employed with Credit-Suisse, last serving in the capacity as Vice President, Health Care Investment Banking Group.
Mr. Shah currently serves on the Executive Advisory Board of the Chemistry of Life Processes Institute at Northwestern University.
Mr. Shah received a MBA from Carnegie Mellon University – Tepper School of Business and M.S. and B.S. degrees in Biomedical
Engineering from Northwestern University.

Pol Boudes, M.D. has served as our Chief Medical Officer since April 2014. Prior to joining CymaBay, Dr. Boudes was Chief

Medical Officer at Amicus Therapeutics, from 2009 to 2013 where he was responsible for clinical development, pharmacology, medical
affairs, regulatory affairs and quality assurance, and toxicology. From 2004 to 2009, Dr. Boudes was with Berlex Laboratories (which
merged with Bayer HealthCare Pharmaceuticals in 2006) where Dr. Boudes held the position of Vice President, Global Clinical
Development, Women’s, Health Care US. From 1990 to 2004, he held positions of increasing responsibility with Wyeth-Ayerst Research
both in Philadelphia, PA and in Europe, with Hoffmann-La Roche, and with Pasteur-Merieux Serums & Vaccines. Dr. Boudes received his
M.D. from the University of Aix-Marseilles, France. He completed his internship and residency in Marseilles and in Paris, France and was
an Assistant Professor of Medicine at the University of Paris. He is specialized in Endocrinology and Metabolic Diseases, Internal
Medicine, and Geriatric diseases.

Charles A. McWherter, Ph.D.  has served as our Senior Vice President and Chief Scientific Officer since July 2007. From 2003 to

2007, he served as Vice President and head of the cardiovascular therapeutics areas of Pfizer Inc., a biopharmaceutical company. From
2001 to 2003, Dr. McWherter served as Vice President of Drug Discovery at Sugen, Inc., a biopharmaceutical company acquired by Pfizer
Inc. in 2003. Dr. McWherter obtained his Ph.D. from Cornell University.

Paul T. Quinlan has served as our General Counsel and Secretary since December 2017. Previously, he served as General Counsel
and Secretary at TerraVia Holdings, Inc. (formerly Solazyme, Inc.) since 2010, where he was responsible for the general supervision of the
company’s legal affairs. From 2005 to 2010, Mr. Quinlan was General Counsel and Secretary at Metabolex, Inc. and from 2000 to 2005,
Mr. Quinlan held various positions in the legal department at Maxygen, Inc., most recently that of Chief Corporate Securities Counsel.
Prior to joining Maxygen, Mr. Quinlan was an associate at Cooley LLP and Cravath, Swaine & Moore LLP. Mr. Quinlan obtained a law
degree from Columbia University Law School and a M.Sc. in Medical Biophysics from the University of Toronto.

Daniel Menold has served as our Vice President, Finance since April 2017, and was previously our Corporate Controller since

January 2014. Prior to joining CymaBay, Mr. Menold served as Corporate Controller for technology firm Zoosk, Inc., from 2011 to 2013,
where he was responsible for the accounting and financial reporting functions and as Controller and Director of Accounting at Affymetrix.
Prior to 2005, he also held accounting and finance positions of increasing responsibility at public and private life sciences and high
technology companies in the Silicon Valley. Earlier in his career, Mr. Menold was at Ernst & Young where he was an audit manager and
served on audits of life sciences and high technology companies. Mr. Menold received a M.S. in accounting and B.S. in finance from The
University of Virginia McIntire School of Commerce.

Key Other Officers

Klara Dickinson has served as our Senior Vice President Regulatory Affairs and Quality Assurance since June 2017. Previously,

she served as Senior Vice President, Chief Regulatory Officer of Anthera. From 2007 to 2014, she was Senior Vice President of Regulatory
Affairs and Compliance at Hyperion Therapeutics Inc. Ms. Dickinson also spent three years at CoTherix, Inc. as Vice President, Regulatory
Affairs and Healthcare Compliance Officer, and held various positions at biopharmaceutical companies Scios, Inc. and DEY Laboratories,
a subsidiary of Mylan, Inc. Ms. Dickinson holds a B.S. in Biology from the College of Great Falls in Montana and is certified by the
Regulatory Affairs Certification Board.

25

 
Robert L. Martin, Ph.D., has served as our Senior Vice President, Manufacturing and Nonclinical Development since April 2015.
Previously, he served as our Vice President of Nonclinical Development and Project Management from 2008 to 2015. Dr. Martin served as
our Sr. Director of Preclinical Development and Project Management from 2006 to 2008 and our Director of Preclinical Development and
Project Management from 2004 to 2006. From 1994 to 2004, Dr. Martin served in various positions with Roche Palo Alto, a division of F.
Hoffman-La Roche Ltd. Dr. Martin obtained his Ph.D. in Biochemistry from the University of California, Davis.

Patrick J. O’Mara has served as our Senior Vice President, Business Development since January 2017. Previously he served as our

Vice President, Business Development from 2006 through 2016. He served as our Sr. Director of Business Development, from 2004 to
2006, our Director of Business Development from 2000 to 2004 and our Manager of Business Development from 1997 to 2000.
Mr. O’Mara served as our Manager of Laboratory Operations from 1991 to 1997. Mr. O’Mara received a B.A. in Biochemistry from the
University of California, Berkeley.

Item 1A. Risk Factors

Risks Related to Our Financial Condition and Capital Requirements

We will need additional capital in the future to sufficiently fund our operations and research.

We have incurred significant net losses in each year since our inception, including a net loss of approximately $27.6 million and

$26.7 million for the years ended December 31, 2017, and 2016, respectively. We anticipate that we will continue to incur significant
losses for the foreseeable future, and we may never achieve or maintain profitability. As of December 31, 2017, we had cash, cash
equivalents and marketable securities of approximately $97.2 million. In January 2018 we received proceeds of $5.0 million from our
license agreement with Kowa, and in February 2018 we completed the issuance of 13,340,000 shares of our common stock at a public
offering price of $10.80 per share in an underwritten public offering raising net proceeds of $135.5 million. We believe that these funds, in
the aggregate will allow us to continue operation with our current operating plan into 2021. If appropriate opportunities become available,
we intend to seek to raise additional equity and/or debt capital to fund our continued operations, including clinical trials and other product
development. Our monthly spending levels vary based on new and ongoing development and corporate activities. Developing
pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process
that takes years to complete. We expect our research and development expenses to increase in connection with our ongoing activities,
particularly as we advance development of our lead clinical product candidate seladelpar (MBX-8025).

In the event we do not successfully raise sufficient funds in financing our product development activities, particularly related to the
ongoing development of seladelpar, it will be necessary to curtail our product development activities commensurate with the magnitude of
the shortfall or our product development activities may cease altogether. To the extent that the costs of the ongoing development of
seladelpar exceed our current estimates and we are unable to raise sufficient additional capital to cover such additional costs, we will need
to reduce operating expenses, enter into a collaboration or other similar arrangement with respect to development and/or commercialization
rights to seladelpar, out-license intellectual property rights to seladelpar, sell assets or effect a combination of the above. No assurance can
be given that we will be able to effect any of such transactions on acceptable terms, if at all. Failure to progress the development of
seladelpar will have a negative effect on our business, future prospects and ability to obtain further financing on acceptable terms (if at all).

Beyond the plan of operations outlined above, our future funding requirements and sources will depend on many factors, including

but not limited to the following:

•

•

•

the rate of progress and cost of our clinical studies, including in particular the Phase 2 and Phase 3 studies of seladelpar;

the extent to which we receive the milestone payments and royalties under our licensing agreement with Kowa;

the extent to which we are able to out-license arhalofenate outside of the United States;

26

 
 
 
 
 
•

•

•

•

•

•

•

the need for additional or expanded clinical studies;

the rate of progress and cost of our Chemistry, Manufacturing and Control development, registration and validation
program;

the timing, economic and other terms of any licensing, collaboration or other similar arrangement into which we may enter;

the costs and timing of seeking and obtaining FDA and other regulatory approvals;

the extent of our other development activities;

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

the effect of competing products and market developments.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing

development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects and
on our ability to develop our product candidates.

We are dependent on our partner, Kowa Pharmaceuticals America, Inc., for the successful development, regulatory approval and
commercialization of arhalofenate in the United States.

In December 2016, we entered into an exclusive licensing agreement with Kowa Pharmaceuticals America, Inc., or Kowa, for the

development and commercialization of arhalofenate in the U.S. (including all possessions and territories). The terms of our licensing
agreement with Kowa provide them with exclusive authority over the development and commercialization plans for arhalofenate in the U.S.
and the execution of those plans. We have no effective influence over those plans and are dependent on Kowa’s decision making. In
January 2018 we received a $5.0 million milestone from Kowa for the initiation of a study evaluating the pharmacokinetics of arhalofenate
in subjects with renal impairment. Under the license agreement, Kowa has also agreed to pay an additional milestone payment of $5.0
million on the initiation of Phase 3, and we are eligible to receive up to an additional $190.0 million in payments based upon the
achievement of additional development and sales milestones. We are also eligible to receive tiered, double digit royalties on future sales of
arhalofenate products.

We are dependent upon Kowa to develop arhalofenate further. Any significant changes to Kowa’s business strategy and priorities,

over which we have no control, could adversely affect Kowa’s willingness or ability to complete their obligations under our licensing
agreement and could result in harm to our business and operations. Subject to contractual diligence obligations, Kowa has complete control
over and financial responsibility for arhalofenate’s development program and regulatory strategy and execution, and we are not able to
control the amount or timing of resources that Kowa will devote to the product. If Kowa does not diligently pursue the development or
commercialization of arhalofenate, we will not receive any further payments under the licensing agreement and our ability to derive value
from arhalofenate will be seriously harmed. Further, regardless of Kowa’s efforts and expenditures for the further development of
arhalofenate, the results of such additional clinical investigation may not provide positive results and may not result in a commercial
product due to regulatory or other reasons similar to those described below with respect to seladelpar.

The current plan is to use arhalofenate in combination with febuxostat, a treatment for gout currently marketed by Takeda

Pharmaceuticals. However, in November 2017, the FDA issued an alert noting that preliminary results from a safety clinical trial of
febuxostat showed an increased risk of heart-related death with febuxostat compared to another gout medicine called allopurinol. The FDA
recommended that health care professionals consider this safety information when deciding whether to prescribe or continue patients on
febuxostat. It is not known whether this safety information and/or the FDA alert will have a significant impact on the continued use of
febuxostat.  Reduced use of febuxostat could have a significant negative affect on the development prospects of arhalofenate and could
negatively impact the willingness or ability of Kowa to continue development of arhalofenate

27

 
 
 
 
 
 
 
 
We do not intend to invest further in the development and commercialization of arhalofenate, and currently intend to out-license the
rights to arhalofenate outside of the United States.

In December 2016, we entered into an exclusive licensing agreement with Kowa for the development and commercialization of

arhalofenate in the U.S. (including all possessions and territories). We currently intend to out-license the development and
commercialization of arhalofenate outside of the U.S., and do not intend to invest further in the development and commercialization of
arhalofenate. However, there is no guarantee that our efforts to out-license arhalofenate in countries outside of the U.S. will result in any
licensing agreements or, if they do result in licensing agreements, that we will derive any value from those agreements. The terms of those
licensing agreements, if any, we expect will provide the licensee with exclusive authority over the development and commercialization
plans for arhalofenate in the jurisdiction(s) covered by the licensing agreement, and that we will have no influence over the actions of the
licensees and will be dependent on their decision making. In the event that we are not able to enter into any further license agreements, or
the licensees’ do not, or are not able to, develop or commercialize arhalofenate in their respective jurisdictions, our ability to derive further
value from arhalofenate will be seriously harmed.

Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain
regulatory approval for, and commercialize our product candidates.

Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully
complete the development of, obtain the necessary regulatory approvals for, and commercialize, our product candidates. We do not
anticipate generating revenues from sales of our product candidates for the foreseeable future, if ever. Our ability to generate future
revenues from product sales depends heavily on our success in:

•

•

•

•

the performance of Kowa under our licensing agreement, including whether development milestones and regulatory
approvals regarding arhalofenate are achieved;

our ability to out-license arhalofenate in jurisdictions outside of the United States;

obtaining favorable results for, and advancing the development of, seladelpar; and

generating a pipeline of product candidates.

Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete,

and we may never generate the necessary data required to obtain regulatory approval and achieve product sales. Our anticipated
development costs would likely increase if we do not obtain favorable results or if development of our product candidates is delayed. In
particular, we would likely incur higher costs than we currently anticipate if development of our product candidates is delayed because we
are required by a regulatory authority such as the U.S. FDA to perform studies or trials in addition to those that we currently anticipate.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing
or amount of any increase in our anticipated development costs.

In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be
derived from sales of products that we do not expect to be commercially available for several years, if at all. Even if one or more of our
product candidates is approved for commercial sale, we anticipate incurring significant costs in connection with commercialization. As a
result, we cannot assure you that we will be able to generate revenues from sales of any approved product candidates, or that we will
achieve or maintain profitability even if we do generate sales.

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

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

of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution
arrangements. If appropriate opportunities become available, we intend to seek to raise additional equity and/or debt capital to fund our
continued operations, including clinical trials and other product development. We do not have any committed external source of funds.

28

 
 
 
 
 
In order to raise additional funds to support our operations, we may sell additional equity or debt securities, enter into

collaborations, strategic alliances, or licensing arrangements or other marketing or distribution arrangements. In July 2015, we completed
the issuance of 8,188,000 shares of our common stock at a public offering price of $2.81 per share and in February 2017, we completed the
issuance of 5,181,348 shares of our commons stock at a public offering price of $1.93 per share in underwritten public offerings. In January
2017, we issued 124,100 shares at a public offering price of $2.48 per share under our at-the-market facility. Also, in July 2017 we
completed the issuance of 14,950,000 shares of our common stock at a public offering price of $6.50 per share and in February 2018, we
completed the issuance of 13,340,000 shares of our common stock at a public offering price of $10.80 in underwritten public offerings. To
the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests of our stockholders
will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of
stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose limitations on our ability
to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our
business.

If we raise additional funds through collaborations, strategic alliances, or licensing arrangements or other marketing or distribution

arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, technologies, future revenue
streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. For example, in December
2016 we entered into an agreement to license our right to develop and commercialize arhalofenate for the treatment of gout in the U.S. in
exchange for consideration including (i) a $5.0 million upfront payment, (ii) a $5.0 million milestone payment for the initiation of a study
evaluating the pharmacokinetics of arhalofenate in subjects with renal impairment, (iii) eligibility to receive an additional milestone
payment of $5.0 million on the initiation of Phase 3, as well as (iv) up to an additional $190.0 million in payments based upon the
achievement of additional development and sales milestones and (v) tiered, double digit royalties on any product sales.

If we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition

and results of operations could be materially adversely affected and we may not be able to meet our debt service obligations. If we are
unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our
product development or commercialization efforts, or grant others rights to develop and market product candidates that we would otherwise
prefer to develop and market ourselves.

We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or 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.  However, 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.

For as long as we continue to be an emerging growth company, we do intend to take advantage of certain other exemptions from
various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations
regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding
advisory stockholder vote on executive compensation and any golden parachute payments not previously approved, exemption from the
requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption from any requirement
that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the
auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). As a result
of our reliance on these exemption, the information that we provide stockholders may be different than what is available with respect to
other public companies. We cannot predict if investors will find our common stock less attractive because we will rely on these
exemptions. If investors find our common stock less attractive as a result of our status as an emerging growth company, there may be less
liquidity for our common stock and our stock price may be more volatile.

29

 
We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our

common stock that is held by non-affiliates exceeds $700 million as of the end of the second fiscal quarter, (ii) the end of the fiscal year in
which we have total annual gross revenues of $1 billion or more during such fiscal year, (iii) the date on which we issue more than $1
billion in non-convertible debt in a three-year period or (iv) the end of 2019.

Risks Related to Clinical Development and Regulatory Approval

We depend on the success of our product candidates, in particular seladelpar, which is still under clinical development and we may not
obtain regulatory approval or successfully commercialize this product candidate.

We have not marketed, distributed or sold any products. The success of our business depends upon our ability to develop and
commercialize our product candidates, including seladelpar, which has completed multiple Phase 1 and Phase 2 clinical trials. There is no
guarantee that our clinical trials will be completed or, if completed, will be successful. In July 2017, we announced positive interim results
from an ongoing low-dose Phase 2 study of seladelpar in patients with PBC. During the fourth quarter of 2017, we initiated enrollment in a
long-term extension study of seladelpar in patients with PBC. The success of seladelpar will depend on many factors, including the
following:

•

•

•

•

•

•

•

•

•

successful enrollment and completion of clinical trials;

recognition by the FDA and other regulatory authorities outside of the U.S. of orphan disease designation for seladelpar in
target indications in addition to those already obtained;

receipt of marketing approvals from the FDA and regulatory authorities outside the U.S. for seladelpar;

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

launching commercial sales of the product, whether alone or in collaboration with others;

acceptance of the product by patients, the medical community and third-party payors;

effectively competing with other therapies;

a continued acceptable safety profile of the product following approval; and

obtaining, maintaining, enforcing and defending intellectual property rights and claims.

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

to successfully commercialize seladelpar, which would materially harm our business.

We depend on the successful completion of clinical trials for our product candidates, including seladelpar. The positive clinical

results obtained for our product candidates in prior clinical studies may not be repeated in future clinical studies.

Before obtaining regulatory approval for the sale of our product candidates, including seladelpar, we must conduct additional

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 of our clinical trials can 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 clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in
preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.

We have completed numerous Phase 1 and Phase 2 clinical studies with seladelpar. However, we have never conducted a Phase 3

clinical trial, have never obtained regulatory approval for a drug and we may be unable to obtain, or may be delayed in obtaining, regulatory
approval for seladelpar. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy characteristics
despite having progressed satisfactorily

30

 
 
 
 
 
 
 
 
 
 
through preclinical studies and initial clinical testing. A number of companies in the pharmaceutical and biotechnology industries,
including those with greater resources and experience, have suffered significant setbacks in Phase 3 clinical development, even after seeing
promising results in earlier clinical trials.

We may experience a number of unforeseen events during clinical trials for our product candidates, including seladelpar, that could

delay or prevent the commencement and/or completion of our clinical trials, including the following:

•

•

•

•

•

•

•

•

•

•

•

•

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;

the clinical study protocol may require one or more amendments delaying study completion;

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

clinical investigators or study subjects fail to comply with clinical study protocols;

trial conduct and data analysis errors may occur, including, but not limited to, data entry and/or labeling errors;

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;

we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that
the subjects are being exposed to unacceptable health risks;

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;

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

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

our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our
investigators to suspend or terminate the trials.

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

undertake additional clinical trials of seladelpar. We also will need to raise substantial additional capital in the future to complete the
development and commercialization of seladelpar. Because successful development of our product candidates is uncertain, we are unable to
estimate the actual funds required to complete research and development and commercialize our products under development.

Negative or inconclusive results of our future clinical trials of seladelpar, or any other clinical trial we conduct, could cause the

FDA to require that we repeat or conduct additional clinical studies. If later stage clinical trials do not produce favorable results, our ability
to obtain regulatory approval for our product candidates may be adversely impacted.

We have commenced testing of seladelpar in clinical studies for the indications that we are currently pursuing for seladelpar,

including Primary Biliary Cholangitis (PBC)). If seladelpar does not demonstrate safety or efficacy in the treatment, or if the benefits of
treatment with seladelpar do not outweigh the risks, our ability to successfully develop and commercialize seladelpar may be adversely
affected.

We commenced clinical trials of seladelpar for the indications for which we currently are pursuing, including PBC and seladelpar

may not be demonstrated to be effective in treatment of this or other indications we may target.

31

 
 
 
 
 
 
 
 
 
 
 
 
 
For instance, in May 2016, we announced results from a Phase 2 clinical study of seladelpar in patients with primary biliary cholangitis
(PBC). We made the decision to discontinue the study early after review of safety and efficacy data demonstrated clear proof-of-concept
and need for further dose reduction to optimize clinical safety and efficacy. In December 2016, we initiated a dose-ranging Phase 2 trial of
seladelpar at lower doses in patients with PBC. In March 2016, we completed a Phase 2 clinical study evaluating seladelpar in 13 patients
with HoFH. However, as a result of the variability in responses observed in this study, including a number of patients that did not
experience a decrease in LDL-C, we believe additional proof-of-concept data would be warranted before determining whether or not to
advance to a registration study of seladelpar in patients with HoFH. Although we believe that seladelpar may be beneficial to address the
diseases for which we are considering redirecting its development, there is no guarantee that seladelpar will prove to be safe or efficacious
in the treatment of these diseases, or that we will be able to obtain regulatory approval for these indications. The results of these clinical
studies and other nonclinical studies may determine whether the benefits perceived from the use of seladelpar would outweigh the risks
perceived from treatment with seladelpar.  

Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay
our ability to obtain regulatory approval and commence product sales.

Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We

may experience delays in clinical trials at any stage of development and testing of our product candidates. Our planned clinical trials may
not begin on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all.

Events that may result in delays or unsuccessful completion of clinical trials, including our future clinical trials for seladelpar,

include the following:

•

•

•

•

•

•

•

•

•

•

•

•

inability to raise funding necessary to initiate or continue a trial;

delays in obtaining regulatory approval to commence a trial;

delays in reaching agreement with the FDA or other regulatory authorities on final trial design;

imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other
regulatory authorities;

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

delays in obtaining required institutional review board (IRB) approval at each site;

delays in recruiting suitable patients to participate in a trial;

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

delays caused by subjects dropping out of a trial due to side effects or otherwise;

delays caused by clinical sites dropping out of a trial;

time required to add new clinical sites; and

delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.

If initiation or completion of any of our clinical trials for our product candidates, including seladelpar, is delayed for any of the
above reasons, our development costs may increase, the approval process could be delayed, any periods during which we may have the
exclusive right to commercialize our product candidates may be reduced and our competitors may bring products to market before us. Any
of these events could impair our ability to generate revenues from product sales and impair our ability to generate regulatory and
commercialization milestones and royalties, all of which could have a material adverse effect on our business.

32

 
 
 
 
 
 
 
 
 
 
 
 
 
Our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit
the scope of any approved label or market acceptance.

In May 2016, we announced results from a Phase 2 clinical study of seladelpar in patients with PBC. During the course of this trial

three cases of asymptomatic, reversible transaminase elevations occurred, and we made the decision to discontinue the study early after
review of safety and efficacy data demonstrated a need for further dose reduction to optimize clinical safety and efficacy. The emergence
of adverse events (AEs) caused by seladelpar in future studies, including at lower doses, could cause us, other reviewing entities, clinical
study sites or regulatory authorities to interrupt, delay or halt clinical studies and could result in the denial of regulatory approval. There is
also a risk that our other product candidates may induce AEs, many of which may be unknown at this time. If an unacceptable frequency
and/or severity of AEs are reported in our clinical trials for our product candidates, our ability to obtain regulatory approval for product
candidates, including seladelpar, may be negatively impacted.  

Furthermore, if any of our approved products cause serious or unexpected side effects after receiving market approval, a number of

potentially significant negative consequences could result, including the following:

•

•

•

•

•

•

regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in a form of a
risk evaluation and mitigation strategy (REMS);

regulatory authorities may require the addition of labeling statements, such as warnings or contraindications that could
diminish the usage of the product or otherwise limit the commercial success of the affected product;

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

we may choose to discontinue sale of the product;

we could be sued and held liable for harm caused to patients; and

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could

substantially increase the costs of commercializing our product candidates.

We have obtained orphan drug designation for some of the targeted indications for seladelpar but not all possible indications for which
we may seek approval and we may not be able to obtain or maintain orphan designation or obtain the benefits associated with orphan
drug status, including market exclusivity.

Regulatory authorities in some jurisdictions, including the United States and the European Union, or EU, may designate drugs for

relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, as amended, the FDA may designate a drug as an
orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000
individuals annually in the United States. Generally, if a drug with an orphan drug designation subsequently receives the first marketing
approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the
FDA or the European Medicines Agency, or EMA, from approving another marketing application for the same drug for that time period.
The applicable period is seven years in the United States and ten years in the European Union. The EU exclusivity period can be reduced to
six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity
is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially
defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or
condition. In addition, the orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review or
approval process. Also, regulatory approval for any product candidate may be withdrawn and other candidates may obtain approval before
us.

33

 
 
 
 
 
 
 
We have obtained orphan-drug designations for seladelpar for the treatments of PBC, HoFH and Frederickson Type I or V
hyperlipoproteinemia. That exclusivity, or any other orphan exclusivity we may receive for another product candidate or indication, may
not effectively protect the candidate from competition because: different drugs can be approved for the same condition; the same drugs can
be approved for different indications and prescribed off-label; and the first entity with an orphan drug designation to receive regulatory
approval for a particular indication will receive marketing exclusivity. If one of our product candidates that receives an orphan drug
designation, including seladelpar, is approved for a particular indication or use within the rare disease or condition, the FDA may later
approve the same product for additional indications or uses within that rare disease or condition that are not protected by our exclusive
approval. Even after an orphan drug is approved, the FDA can subsequently approve another drug for the same condition if the FDA
concludes that the later drug is clinically superior in that it is shown to be safer in a substantial portion of the target population, more
effective or makes a major contribution to patient care.  

If any product candidate that we successfully develop does not achieve broad market acceptance among physicians, patients, health care
payors and the medical community, the revenues that it generates from its sales will be limited.

Even if seladelpar or any other product candidates receive regulatory approval, the products may not gain market acceptance among
physicians, patients, health care payors and the medical community. Coverage and reimbursement of our product candidates by third-party
payors, including government payors, generally is also necessary for commercial success. The degree of market acceptance of any of our
approved products will depend upon a number of factors, including:

•

•

•

•

•

•

•

•

•

•

•

•

the efficacy and safety, as demonstrated in clinical studies;

the risk/benefit profile of our product candidates such as seladelpar;

the prevalence and severity of any side effects;

the clinical indications for which the product is approved;

acceptance of the product by physicians, other health care providers and patients as a safe and effective treatment;

the potential and perceived advantages of product candidates over alternative treatments;

the safety of product candidates seen in a broader patient group, including if physicians prescribe our products for uses
outside the approved indications;

the cost of treatment in relation to alternative treatments;

the timing of market introduction of competitive products;

the availability of adequate reimbursement and pricing by third parties and government authorities;

relative convenience and ease of administration; and

the effectiveness of our or our partners’ sales, marketing and distribution efforts.

If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, health care

payors and patients, we may not generate sufficient revenue from these products and we may not become or remain profitable.

Potential conflicts of interest arising from relationships and any related compensation with respect to clinical studies could adversely
affect the process.

Principal investigators for our clinical studies may serve as scientific advisors or consultants to us from time to time and receive cash
compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of
interest, the integrity of the data generated at the applicable clinical study site may be questioned or jeopardized.

34

 
 
 
 
 
 
 
 
 
 
 
 
 
We may be subject to costly claims related to our clinical studies and may not be able to obtain adequate insurance.

Because we conduct clinical studies in humans, we face the risk that the use of seladelpar or future product candidates will result in

adverse side effects. We cannot predict the possible harms or side effects that may result from our clinical studies. Although we have
clinical study liability insurance, our insurance may be insufficient to cover any such events. There is also a risk that we may not be able to
continue to obtain clinical study coverage on acceptable terms. In addition, we may not have sufficient resources to pay for any liabilities
resulting from a claim excluded from, or beyond the limit of, our insurance coverage. There is also a risk that third parties that we have
agreed to indemnify could incur liability. Any litigation arising from our clinical studies, even if we are ultimately successful, would
consume substantial amounts of our financial and managerial resources and may create adverse publicity.   

After the completion of our clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize our
product candidates and we cannot, therefore, predict the timing of any future revenue from our product candidates. Regulatory
approval of an NDA is not guaranteed, and the approval process is expensive, uncertain and lengthy.

We cannot commercialize our product candidates, including seladelpar, until the appropriate regulatory authorities, such as the
FDA, have reviewed and approved the product candidate. The regulatory agencies may not complete their review processes in a timely
manner, or we may not be able to obtain regulatory approval for our product candidates. Additional delays may result if a product candidate
is brought before an FDA advisory committee, which could recommend restrictions on approval or recommend non-approval of the
product candidate. In addition, we may experience delays or rejections based upon additional government regulation from future legislation
or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review
process. As a result, we cannot predict when, if at all, we will receive any future revenue from commercialization of any of our product
candidates, including seladelpar. The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or
deny approval of a product candidate for many reasons, including the following:

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we may be unable to demonstrate to the satisfaction of regulatory authorities that a product candidate is safe and effective
for any indication;

regulatory authorities may not find the data from nonclinical studies and clinical studies sufficient or may differ in the
interpretation of the data;

regulatory authorities may require additional nonclinical or clinical studies;

the FDA or foreign regulatory authority might not approve our third party manufacturers’ processes or facilities for clinical
or commercial product;

the FDA or foreign regulatory authority may change its approval policies or adopt new regulations;

the FDA or foreign regulatory authorities may disagree with the design or implementation of our clinical studies;

the FDA or foreign regulatory authority may not accept clinical data from studies that are conducted in countries where the
standard of care is potentially different from that in the U.S.;

the results of clinical studies may not meet the level of statistical significance required by the FDA or foreign regulatory
authorities for approval;

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; and

the data collection from clinical studies of our product candidates may not be sufficient to support the submission of a NDA
or other submission or to obtain regulatory approval in the U.S. or elsewhere.

In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased caution by the
FDA and other regulatory authorities in reviewing new pharmaceuticals based on safety, efficacy or other regulatory considerations and
may result in significant delays in obtaining regulatory approvals.

35

 
 
 
 
 
 
 
 
 
 
 
Even if we obtain regulatory approval for seladelpar and our other product candidates, we will still face extensive regulatory
requirements and our products may face future development and regulatory difficulties.

Even if we obtain regulatory approval in the U.S., the FDA may still impose significant restrictions on the indicated uses or
marketing of our product candidates, including seladelpar, or impose ongoing requirements for potentially costly post-approval studies or
post-market surveillance. For example, the labeling ultimately approved for our product candidates, including seladelpar, may include
restrictions on use due to the specific patient population and manner of use in which the drug was evaluated and the safety and efficacy data
obtained in those evaluations.  

Seladelpar and our other product candidates will also be subject to additional ongoing FDA requirements governing the labeling,

packaging, storage, distribution, safety surveillance, advertising, promotion, record-keeping and reporting of safety and other post-market
information. The holder of an approved NDA is obligated to monitor and report AEs and any failure of a product to meet the specifications
in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain
changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with
FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. Furthermore, promotional
materials must be approved by the FDA prior to use for any drug receiving accelerated approval.

In addition, manufacturers of drug products and their facilities are subject to payment of user fees and continual review and periodic
inspections by the FDA and other regulatory authorities for compliance with current Good Manufacturing Practices (cGMP), and adherence
to commitments made in the NDA. If we, or a regulatory agency, discover previously unknown problems with a product, such as quality
issues or AEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency
may impose restrictions relative to that product or the manufacturing facility, including requesting recall or withdrawal of the product from
the market or suspension of manufacturing.

If we, or our third party contractors, fail to comply with applicable regulatory requirements following approval of our product

candidate, a regulatory agency may:

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issue an untitled or warning letter asserting violation of the law;

seek an injunction or impose civil or criminal penalties up to and including imprisonment or monetary fines;

suspend or withdraw regulatory approval;

suspend any ongoing clinical trials;

refuse to approve a pending NDA or supplements to an NDA; or

request recall and/or seize product.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and

could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize
seladelpar and our other product candidates and inhibit our ability to generate revenues.

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. If we
are found to have improperly promoted our products for off-label uses, we may become subject to significant fines and other liability.

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In
particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the
product’s approved labeling. If we receive marketing approval for our product candidates, physicians may nevertheless prescribe such
products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we
may become subject to significant government fines and other related liability. For example, the federal government has levied large civil
and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label
promotion. The FDA also has requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed.  

36

 
 
 
 
 
 
 
Even if we obtain FDA approval for seladelpar or any of our other product candidates in the United States, we may never obtain
approval for or commercialize seladelpar or any of our other product candidates outside of the United States, which would limit our
ability to realize their full market potential.

In order to market any products outside of the U.S., we must establish and comply with numerous and varying regulatory
requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA does not ensure approval by regulatory
authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory
authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval
processes vary among countries and can involve additional product testing and validation and additional administrative review periods.
Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials
that could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the
introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including
international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with
regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international
markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be unrealized.

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

Health care professionals and third party payors play a primary role in the recommendation and prescription of any products for

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

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the federal health 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 health care 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;

HIPAA, as amended by HITECH, imposes criminal and civil liability for executing a scheme to defraud any health care
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 health care benefits, items or
services;

the federal transparency requirements under the PPACA, commonly referred to as the Physician Payments Sunshine Act,
require manufacturers of drugs, devices, biologics and medical supplies to report to the Centers for Medicare and Medicaid
Services (CMS) payments and other transfers of value provided to physicians and teaching hospitals and ownership and
investment interests held by physicians and other healthcare providers and their immediate family members in certain
manufacturers and group purchasing organizations; and   

37

 
 
 
 
 
 
•

analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing
arrangements and claims involving health care 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 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 health care 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 health care 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, exclusion from government funded health care programs, such as
Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians 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 health care programs.

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.

In the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes

regarding the health care 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 products for which we obtain marketing approval.

For example, in March 2010, the PPACA was enacted to broaden access to health insurance, reduce or constrain the growth of

health care spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance
industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The PPACA revises the
definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states.
Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. New
provisions affecting compliance have also been enacted, which may affect our business practices with health care practitioners. Since its
enactment there have been judicial and Congressional challenges to certain aspects of the PPACA, and we expect there will be additional
challenges and amendments to it in the future. Although the full effect of the PPACA remains uncertain, it appears likely to continue the
pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating
costs. Further, other legislative changes have been adopted since the PPACA was enacted, such as the Budget Control Act of 2011 and the
American Taxpayer Relief Act of 2012, which have resulted in reduced reimbursement under the Medicare program.

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

activities for pharmaceutical products. In addition, there have been several recent Congressional inquiries and proposed bills designed to,
among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs,
and reform government program reimbursement methodologies for drug products. We are not 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.

38

 
 
Risks Related to Our Reliance on Third Parties

We rely on third-party manufacturers to produce our preclinical and clinical drug supplies, and we intend to rely on third parties to
produce commercial supplies of any approved product candidates.

We do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or
testing. We currently rely on third-party manufacturers for supply of our preclinical and clinical drug supplies. We expect that in the future
we will continue to rely on such manufacturers for drug supplies that will be used in clinical trials of our product candidates, and for
commercialization of any of our product candidates that receive regulatory approval.

The facilities used by our contract manufacturers to manufacture the product candidates must be approved by the FDA pursuant to

inspections that will be conducted only after we submit an NDA to the FDA, if at all. We are completely dependent on our contract
manufacturing partners for compliance with the FDA’s requirements for manufacture of finished pharmaceutical products. If our contract
manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA’s strict regulatory requirements of
safety, purity and potency, we will not be able to secure and/or maintain FDA approval for our product candidates. In addition, we have no
direct control over the ability of the contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel.
If our contract manufacturers cannot meet FDA standards, we may need to find alternative manufacturing facilities, which would
significantly impact our ability to develop, obtain regulatory approval for or market our product candidates. No assurance can be given that
our manufacturers can continue to make clinical and commercial supplies of product candidates, at an appropriate scale and cost to make it
commercially feasible.

In addition, we do not have the capability to package and distribute finished products to pharmacies and other customers. Prior to
commercial launch, we will enter into agreements with one or more pharmaceutical product packager/distributor to ensure proper supply
chain management once we are authorized to make commercial sales of our product candidates. If we receive marketing approval from the
FDA, we intend to sell pharmaceutical product packaged and distributed by such suppliers. Although we have entered into agreements with
our current contract manufacturers and packager/distributor for clinical trial material, we may be unable to maintain an agreement on
commercially reasonable terms, which could have a material adverse impact upon our business.

We rely on limited sources of supply for the drug substance for seladelpar, and any disruption in the chain of supply may cause delay in
developing and commercializing of seladelpar.

It is our expectation that only one supplier of drug substance and one supplier of drug product will be qualified by the FDA. If
supply from an approved vendor is interrupted, there could be a significant disruption in commercial supply of our products. An alternative
vendor would need to be qualified through a supplemental registration, which would be expensive and could result in further delay. The
FDA or other regulatory agencies outside of the U.S. may also require additional studies if a new drug substance or drug product supplier is
relied upon for commercial production. These factors could cause the delay of clinical trials, regulatory submissions, required approvals or
commercialization of our products, and cause us to incur additional costs. Furthermore, if our suppliers fail to deliver the required
commercial quantities of active pharmaceutical ingredient on a timely basis and at commercially reasonable prices, and we are unable to
secure one or more replacement suppliers capable of production at a substantially equivalent cost, the supply chain for our products may be
delayed, which could inhibit our ability to generate revenues.

Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization of our products.

We expect to increase the manufacturing batch sizes of our products in preparation of late stage clinical development and
commercial supplies. As the processes are scaled up they may reveal manufacturing challenges or previously unknown impurities that
could require resolution in order to proceed with our planned clinical trials and obtain regulatory approval for the commercial marketing of
our products. In the future, we may identify manufacturing issues or impurities that could result in delays in the clinical program and
regulatory approval for our products, increases in our operating expenses, or failure to obtain or maintain approval for our products.

39

 
Our reliance on third-party manufacturers entails risks, including the following:

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the inability to meet our product specifications and quality requirements consistently;

a delay or inability to procure or expand sufficient manufacturing capacity;

manufacturing and product quality issues related to scale-up of manufacturing;

costs and validation of new equipment and facilities required for scale-up;

a failure to comply with cGMP and similar foreign standards;

the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;

termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or
damaging to us;

the reliance on a limited number of sources, and in some cases, single sources for key materials, such that if we are unable
to secure a sufficient supply of these key materials, we will be unable to manufacture and sell our product candidates in a
timely fashion, in sufficient quantities or under acceptable terms;

the lack of qualified backup suppliers for those materials that are currently purchased from a sole or single source supplier;

operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or
operations, including the bankruptcy of the manufacturer or supplier;

carrier disruptions or increased costs that are beyond our control; and

the failure to deliver our products under specified storage conditions and in a timely manner.

Any of these events could lead to clinical study delays, failure to obtain regulatory approval or impact our ability to successfully

commercialize our products. Some of these events could be the basis for FDA or other regulatory authorities’ action, including injunction,
recall, seizure, or total or partial suspension of production.

We rely on third parties to conduct, supervise and monitor our clinical studies, and if those third parties perform in an unsatisfactory
manner, it may harm our business.

We rely on contract service providers (CSPs) including clinical research organizations, clinical trial sites, central laboratories and

other service providers to ensure the proper and timely conduct of our clinical trials. While we have agreements governing their activities,
we have limited influence over their actual performance. We have relied and plan to continue to rely upon CSPs to monitor and manage
data for our ongoing clinical programs for our product candidates, as well as the execution of nonclinical studies. We control only certain
aspects of our CSPs’ activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the
applicable protocol, legal, regulatory and scientific standards and our reliance on the CSPs does not relieve us of our regulatory
responsibilities.

We and our CSPs are required to comply with the FDA’s guidance, which follows the International Conference on Harmonization
Good Clinical Practice (ICH GCP), which are regulations and guidelines enforced by the FDA for all of our product candidates in clinical
development. The FDA enforces the ICH GCP through periodic inspections of trial sponsors, principal investigators and clinical trial sites.
If we or our CSPs fail to comply with the ICH GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA
may require us to perform additional clinical trials before approving our marketing applications. Our CSPs are not our employees, and we
cannot control whether or not they devote sufficient time and resources to our ongoing clinical and nonclinical programs. These CSPs may
also have relationships with other entities, including our competitors, for whom they may also be conducting clinical studies, or other drug
development activities that could harm our competitive position. We face the risk of potential unauthorized disclosure or misappropriation
of our intellectual property by CSPs, which may reduce our trade secret protection and allow our potential competitors to access and exploit
our proprietary technology. If our CSPs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines,
or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or
regulatory requirements or for any other reasons, our clinical trials may be

40

 
 
 
 
 
 
 
 
 
 
 
 
 
extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product
candidates. As a result, our financial results and the commercial prospects for our product candidates that we develop would be harmed, our
costs could increase, and our ability to generate revenues could be delayed.

Risks Related to Commercialization of Our Product Candidates

The commercial success of seladelpar and our other product candidates will depend upon the acceptance of these products by the
medical community, including physicians, patients and health care payors.

If any of our product candidates, including seladelpar, receive marketing approval, they may nonetheless not gain sufficient market

acceptance by physicians, patients, health care payors and others in the medical community. If these products do not achieve an adequate
level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance
of any of our product candidates, including seladelpar, will depend on a number of factors, including the following:

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demonstration of clinical safety and efficacy in our clinical trials;

the risk/benefit profile of our product candidates;

the relative convenience, ease of administration and acceptance by physicians, patients and health care payors;

the prevalence and severity of any side effects;

the safety of product candidates seen in a broader patient group, including its use outside the approved indications;

limitations or warnings contained in the FDA and other regulatory authorities approved label for the relevant product
candidate;

acceptance of the product by physicians, other health care providers and patients as a safe and effective treatment;

the potential and perceived advantages of product candidates over alternative treatments;

the timing of market introduction of competitive products;

pricing and cost-effectiveness;

the effectiveness of our or any future collaborators’ sales and marketing strategies;

our ability to obtain formulary approval;

our ability to obtain and maintain sufficient third-party coverage or reimbursement, which may vary from country to
country; and

the effectiveness of our or any future collaborators’ sales, marketing and distribution efforts.   

If any of our product candidates, including seladelpar, is approved but does not achieve an adequate level of acceptance by
physicians, patients and health care payors, we may not generate sufficient revenue and we may not become or remain profitable.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product
candidates, we may be unable to generate any revenue.

We currently do not have an organization for the sales, marketing and distribution of pharmaceutical products and the cost of
establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market any products that may
be approved, including seladelpar, we must build our sales, marketing, managerial and other non-technical capabilities or make
arrangements with third parties to perform these services. We may enter into strategic partnerships with third parties to commercialize our
product candidates, including seladelpar.

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If we are unable to build our own sales force or negotiate a strategic partnership for the commercialization of our product

candidates, we may be forced to delay the potential commercialization of seladelpar, or reduce the scope of our sales or marketing
activities. If we elect to increase our expenditures to fund commercialization activities ourselves, we will need to obtain additional capital,
which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we will not be able to bring seladelpar to
market or generate product revenue.

If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we
may not be able to generate sufficient product revenue and may not become profitable. We will be competing with companies that currently
have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform
marketing and sales functions, we may be unable to compete successfully against these more established companies.

In addition, there are risks involved with both establishing our own sales and marketing capabilities and 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.

If we obtain approval to commercialize any products outside of the U.S., a variety of risks associated with international operations could
materially adversely affect our business.

If our product candidates are approved for commercialization, we intend to enter into agreements with third parties to market those
product candidates outside the U.S., including for seladelpar. We expect that we will be subject to additional risks related to international
operations, including the following:

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different regulatory requirements for drug approvals in foreign countries;

reduced protection for intellectual property rights;

unexpected changes in tariffs, trade barriers and regulatory requirements;

economic weakness, including inflation, or political instability in particular foreign economies and markets;

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

foreign taxes, including withholding of payroll taxes;   

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

workforce uncertainty in countries where labor unrest is more common than in the U.S.;

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

business interruptions resulting from geopolitical actions, including war and terrorism, pandemics, or natural disasters
including earthquakes, typhoons, volcanic eruptions, floods and fires.

We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements
imposed by both the European Union and many of the individual countries in Europe with which we will need to comply. Many U.S.-based
biopharmaceutical companies have found the process of marketing their own products in Europe to be very challenging.

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If our competitors develop and market products that are more effective, safer or less expensive than our own, our commercial
opportunities will be negatively impacted.

The life sciences industry is highly competitive, and we face significant competition from other pharmaceutical, biopharmaceutical

and biotechnology companies and possibly from academic institutions, government agencies and private and public research institutions that
are researching, developing and marketing products designed to address treatments the we are seeking to treat. Our competitors generally
have significantly greater financial, manufacturing, marketing and drug development resources. Large pharmaceutical companies, in
particular, have extensive experience in the clinical testing of, obtaining regulatory approvals for, and marketing of, drugs. New
developments, including the development of other pharmaceutical technologies and methods of treating disease, occur in the
pharmaceutical and life sciences industries at a rapid pace.

These developments may render our product candidates obsolete or noncompetitive. Compared to us, potential competitors may

have substantially greater:

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research and development resources, including personnel and technology;

regulatory experience;

experience in pharmaceutical development and commercialization;

ability to negotiate competitive pricing and reimbursement with third-party payors;

experience and expertise in the exploitation of intellectual property rights; and

capital resources.

As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we do or may obtain

patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidates. The
competitors may also develop products that are more effective, better tolerated, more useful and less costly than our products and they may
also be more successful in manufacturing and marketing their products.

Formulary approval and reimbursement may not be available for seladelpar and our other product candidates, which could make it
difficult for us to sell our products profitably.

Obtaining formulary approval can be an expensive and time consuming process. We cannot be certain if and when we will obtain
formulary approval to allow us to promote our product candidates, including seladelpar, into our target markets. Failure to obtain timely
formulary approval will limit our commercial success.

Furthermore, market acceptance and sales of arhalofenate, seladelpar or any other product candidates that we develop, will depend

in part on the extent to which reimbursement for these products and related treatments will be available from government health
administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private
health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A
prevailing trend in the U.S. health care industry and elsewhere is cost containment. Government authorities and these third-party payors
have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party
payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for
medical products. We cannot be sure that reimbursement will be available for any product that we commercialize and, if reimbursement is
available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product for which we
obtain marketing approval. We cannot be sure that reimbursement will be available for seladelpar, or any other product candidates. Also,
reimbursement amounts may reduce the demand for, or the price of, our products. If reimbursement is not available, or is available only to
limited levels, we may not be able to successfully commercialize seladelpar, or any other product candidates that we develop.

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The availability of generic treatments may also substantially reduce the likelihood of reimbursement for any future products,

including seladelpar. The application of user fees to generic drug products will likely expedite the approval of additional generic drug
treatments. We expect to experience pricing pressures in connection with the sale of seladelpar and any other product candidate that we
develop, due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional
legislative changes.

In addition, there may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited

than the purposes for which the product is approved by the FDA or health authorities in other countries. 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 payments for new products, if applicable, may also not be sufficient to cover our
costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is
used, may be based on payments allowed for lower cost products that are already reimbursed, and may be incorporated into existing
payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government health care
programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may
be sold at lower prices than in the U.S. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting
their own reimbursement policies.

If we are unable to promptly obtain coverage and profitable payment rates from both government funded and private payors for any

of our product candidates, including seladelpar, it could have a material adverse effect on our operating results, our ability to raise capital
needed to commercialize products and our overall financial condition.

Even if we receive regulatory approval for seladelpar, we will be subject to ongoing FDA and other regulatory obligations and
continued regulatory review, which may result in significant additional expense and limit our ability to commercialize seladelpar.

Any regulatory approvals that we or potential collaboration partners receive for seladelpar or future product candidates, may also be

subject to limitations on the indicated uses for which the product may be marketed or contain requirements for potentially costly post-
marketing studies. In addition, even if approved, the labeling, packaging, adverse event reporting, storage, advertising, promotion and
recordkeeping for any product will be subject to extensive and ongoing regulatory requirements. The subsequent discovery of previously
unknown problems with a product, including AEs of unanticipated severity or frequency, may result in restrictions on the marketing of the
product, and could include withdrawal of the product from the market. Depending on any safety issues associated with our product
candidates that are approved, the FDA may require a REMS, thereby imposing certain restrictions on the sale and marketability of such
products or additional post-marketing requirements.  

Regulatory policies may change and additional government regulations may be enacted that could prevent or delay regulatory
approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative action, either in the U.S. or abroad. If we are not able to maintain regulatory compliance, we might not be
permitted to market seladelpar or future products, if any, and we may not achieve or sustain profitability.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization
of our product candidates.

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical studies, and
will face an even greater risk if we sell our product candidates commercially. An individual may bring a liability claim against us if one of
our product candidates causes, or merely appears to have caused, an injury. If we cannot successfully defend ourselves against product
liability claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in the following:

•

•

•

decreased demand for our product candidates;

impairment to our business reputation;

withdrawal of clinical study participants;

44

 
 
 
 
•

•

•

•

distraction of management’s attention from our primary business;

substantial monetary awards to patients or other claimants;

the inability to commercialize our product candidates; and

loss of revenues.

We do carry product liability insurance for our clinical studies. Further, we intend to expand our insurance coverage to include the

sale of commercial products if marketing approval is obtained for any of our product candidates. However, we may be unable to obtain this
product liability insurance on commercially reasonable terms and with insurance coverage that will be adequate to satisfy any liability that
may arise. On occasion, large judgments have been awarded in class action or individual lawsuits relating to marketed pharmaceuticals. A
successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our
insurance coverage, could decrease our cash and adversely affect our business.

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.

The success of our business depends primarily upon our ability to identify, develop and commercialize product candidates. Because
we have limited financial and managerial resources, we focus on product candidates for specific indications. As a result, we may forego or
delay pursuit of opportunities with other product candidates or other indications that later prove to have greater commercial potential. We
may focus our efforts and resources on product candidates that ultimately prove to be unsuccessful.

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 in cases in which it would have
been advantageous for us to retain sole development and commercialization rights.

Risks Related to Our Intellectual Property

If we are unable to obtain or protect intellectual property rights related to our products and product candidates, we may not be able to
compete effectively in our market.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property
related to our products and product candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex
legal and scientific questions and can be uncertain. The patent applications that we own, co-own or in-license may fail to result in issued
patents with claims that cover the products in the U.S. or in other countries. If this were to occur, early generic competition could be
expected against our product candidates in development. There is no assurance that all of the potentially relevant prior art relating to our
patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing based on a pending patent
application. Even if patents do successfully issue, third parties may challenge their validity, enforceability, scope or ownership, which may
result in such patents, or our rights to such patents, being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents
and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the
patent applications we hold or license with respect to our product candidates fail to issue or if their breadth or strength of protection is
threatened, it could dissuade companies from collaborating with us and threaten our ability to commercialize our products. We cannot offer
any assurances about which, if any, patents will issue or whether any issued patents will be found invalid or unenforceable, will be
challenged by third parties or will adequately protect our products and product candidates. Further, if we encounter delays in development
or regulatory approvals, the period of time during which we could market our products under patent protection could be reduced. Since
patent applications in the U.S. and most other countries are confidential for a period of time after filing, and some remain so until issued, we
cannot be certain that we or our licensors were the first to file any patent application related to our product candidates. Furthermore, if third
parties have filed such patent applications, an interference proceeding in the U.S. can be provoked by a third party or instituted by us to
determine who was the first to invent any of the subject matter covered by the patent claims of our applications. An unfavorable outcome
could require us to cease using the related technology or to attempt to license it from the prevailing party, which may not be available on
commercially reasonable terms or at all.

45

 
 
 
 
 
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality  agreements to protect
proprietary know-how that is not patentable, processes for which patents are difficult to enforce and other elements of our drug discovery
and development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we
expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have
access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances
that all such agreements have been duly executed, that such agreements provide adequate protection and will not be breached, that our
trade secrets and other confidential proprietary information will not otherwise be disclosed or that competitors will not otherwise gain
access to our trade secrets or independently develop substantially equivalent information and techniques. If we are unable to prevent
material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we
will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market,
which could materially adversely affect our business, results of operations and financial condition.

Further, the laws of some foreign countries do not protect patents and other proprietary rights to the same extent or in the same

manner as the laws of the U.S. As a result, we may encounter significant problems in protecting and defending our intellectual property
abroad. We may also fail to pursue or obtain patents and other intellectual property protection relating to our products and product
candidates in all foreign countries.

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts or
otherwise affect our business.

Our commercial success depends in part on our avoiding infringement and other violations of the patents and proprietary rights of
third parties. There is a substantial amount of litigation, both within and outside the U.S., involving patent and other intellectual property
rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter party
re-examination proceedings before the U.S. Patent and Trademark Office (U.S. PTO) and its foreign counterparts. Numerous U.S. and
foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our
collaborators are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued,
and as we gain greater visibility and market exposure as a public company, the risk increases that our product candidates or other business
activities may be subject to claims of infringement of the patent and other proprietary rights of third parties.

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents

or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent
applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in
the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent
jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process
or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless
we obtained a license under the applicable patents, or until such patents expire. Similarly, if any third-party patent were held by a court of
competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy,
the holders of any such patent may be able to block our ability to develop and commercialize the applicable product candidate unless we
obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at
all. In addition, we may be subject to claims that we are infringing other intellectual property rights, such as trademarks or copyrights, or
misappropriating the trade secrets of others, and to the extent that our employees, consultants or contractors use intellectual property or
proprietary information owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and
inventions.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further

develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve
substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful
infringement or other intellectual property claim against us, we may have to pay substantial damages, including treble damages and
attorneys’ fees for willful

46

 
infringement, obtain one or more licenses from third parties, pay royalties or redesign our affected products, which may be impossible or
require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it
would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from
third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We
may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further
develop and commercialize one or more of our product candidates, which could harm our business significantly. We cannot provide any
assurances that third-party patents do not exist that might be enforced against our products or product candidates, resulting in either an
injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation
to third parties.

We license certain key intellectual property from third parties, and the loss of our license rights could have a materially adverse effect
on our business.

We are a party to a number of technology licenses that are important to our business and expect to enter into additional licenses in

the future. For example:

1) We rely on an exclusive license to certain patents and know-how from Janssen Pharmaceutical NV (Janssen NV), which include

seladelpar and certain other PPARδ compounds (the “PPARδ Products”). Under the exclusive license with Janssen NV we have full control
and responsibility over the research, development and registration of any PPARδ Products and are required to use diligent efforts to conduct
all such activities. If we fail to comply with our obligations under our agreement with Janssen NV, including our obligations to expend
more than a de minimus amount of effort and resources on the research and/or development of at least one PPARδ product, to make any
payment called for under the agreement, not to disclose any non-exempt confidential information related to the agreement, or to use diligent
efforts to promote, market and sell any PPARδ Product under the agreement, such action would constitute a default under the agreement
and Janssen NV may have the right to terminate the license, in which event we would not be able to develop or market products covered by
the license, including in the case of the Janssen NV license, seladelpar, which would have a materially adverse effect on our business.

2) We rely on an exclusive license to certain patents, proprietary technology and know-how from DiaTex, which include

arhalofenate. During the term of the exclusive license with DiaTex we may perform research and development of compounds and products
for the treatment of human disease based on the patents, proprietary technology and know-how from DiaTex. If we fail to comply with our
obligations under our agreement with DiaTex, including our obligations to pay royalty payments during the development and
commercialization of arhalofenate, or if we are subject to a bankruptcy, DiaTex may have the right to terminate the license, in which event
we would not be able to develop or market products covered by the license, including in the case of the DiaTex license, arhalofenate, which
could have an adverse effect on our business.

We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights,
which could be expensive, time consuming and unsuccessful.

Competitors may infringe or otherwise violate our patents, the patents of our licensors or our other intellectual property rights. To

counter infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. In
addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors 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 patents do not cover the technology in question. An
adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted
narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third
party to bring counter-claims against us.

We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in
countries where the laws may not protect those rights as fully as in the U.S. Our business could be harmed if in a litigation if the prevailing
party does not offer us a license on commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property
rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.

47

 
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. There could also be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could have a material adverse effect on the price of our common stock.

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

Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over
the lifetime of the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural,
documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases
be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant
jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited
to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal
documents. If we or our licensors that control the prosecution and maintenance of our licensed patents fail to maintain the patents and
patent applications covering our product candidates, we may lose our rights and our competitors might be able to enter the market, which
would have a material adverse effect on our business.

Risks Related to Our Business Operations and Industry

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on principal members of our executive team listed under “Business — Executive Officers  of Registrant”

of this Annual Report on Form 10-K. While we have entered into employment agreements or offer letters with each of our executive
officers, any of them could leave our employment at any time, as all of our employees are “at will” employees. We do not maintain “key
person” insurance for any of our executives or other employees. Recruiting and retaining other qualified employees for our business,
including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our
industry, which is likely to continue. We also experience competition from universities and research institutions for the hiring of scientific
and clinical personnel. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to
attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for
similar personnel. In addition, failure of any of our clinical studies may make it more challenging to recruit and retain qualified personnel.
If we are unable to successfully recruit key employees or replace the loss of services of any executive or key employee, it may adversely
affect the progress of our research, development and commercialization objectives.

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, which could also adversely
affect the progress of our research, development and commercialization objectives.

We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our
operations.

As of February 28, 2018, we had 26 full-time employees. As our company matures, we expect to expand our employee base to

increase our managerial, clinical, scientific and engineering, operational, sales, and marketing teams. Future growth would impose
significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional
employees, consultants and contractors. Also, our management may need to divert a disproportionate amount of its attention away from our
day-to-day activities and

48

 
devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our
operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of
employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and
may divert financial resources from other projects, such as the development of product candidates. If our management is unable to
effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be
reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our
product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

Our internal computer systems, or those used by our contract 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 contract research organizations
and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism,
war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to
date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product
candidate development programs. For example, the loss of clinical study data from completed or ongoing clinical studies for a product
candidate could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To
the extent that any disruption or security breach was 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 of any product candidates could be delayed.

Risks Relating to Owning Our Common Stock

An active trading market for our common stock may not continue and the market price for our common stock may decline in value.

Our common stock is listed on the Nasdaq Capital Market under the symbol “CBAY”. Historically, trading volume for our common
stock has been limited. The historical trading prices of our common stock on the Nasdaq Capital Market may not be indicative of the price
levels at which our common stock will trade in the future, and we cannot predict the extent to which investor interest in us generally will
continue to support an active public trading market for our common stock or how liquid will be that public market.

Our stock price is volatile, and our stockholders’ investment in our stock could decline in value.

The historical trading price of our common stock has been volatile. Our stock price may continue to be subject to wide fluctuations

in response to a variety of factors, including:

•

•

•

•

•

•

•

•

adverse results or delays in preclinical testing or clinical trials;

inability to obtain additional funding;

any delay in filing an IND or NDA for any of our future product candidates and any adverse development or perceived
adverse development with respect to the FDA’s review of an IND or NDA;

failure to maintain our existing collaborations or enter into new collaborations;

failure of our collaboration partners to elect to develop or commercialize product candidates under our collaboration
agreements or the termination of any programs under our collaboration agreements;

failure by us or our licensors and collaboration partners to prosecute, maintain or enforce our intellectual property rights;

failure to successfully develop and commercialize our future product candidates;

changes in laws or regulations applicable to future products;

49

 
 
 
 
 
 
 
 
 
•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

inability to obtain adequate product supply for our future product candidates or the inability to do so at acceptable prices;

adverse regulatory decisions;

introduction of new products, services or technologies by our competitors;

failure to meet or exceed financial projections we may provide to the public;  

failure to meet or exceed the estimates and projections of the investment community;

the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;

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

announcements of significant or potential equity or debt sales by us;

announcements of clinical trial plans or results by us;

disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain
patent protection for our technologies;

additions or departures of key scientific or management personnel;

significant lawsuits, including patent or stockholder litigation;

changes in the market valuations of similar companies;

sales of our common stock by us or our stockholders in the future; and

trading volume of our common stock.

In addition, companies trading in the stock market in general have experienced extreme price and volume fluctuations that have

often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may
negatively affect the market price of our common stock, regardless of our actual operating performance.

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

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales, or sales, at any

level, by insiders that are reported on Form 4, could depress the market price of our common stock and could impair our ability to raise
capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market
price of our common stock.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans,
could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

We expect that significant additional capital will be needed in the future to continue our planned product development efforts, in

particular clinical trial, and operations. To the extent we raise additional capital by issuing equity securities, our stockholders may
experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at
prices and in a manner we determine from time to time. For example, in February 2017, we completed the issuance of 5,181,348 shares of
our common stock at a public offering price of $1.93 per share in an underwritten public offering for the net proceeds to us of $9.2 million,
in July 2017 we completed the issuance of 14,950,000 shares of our common stock at a public offering price of $6.50 per share in an
underwritten public offering for net proceeds to us of approximately $91.3 million. In addition, in December 2017 we filed a $200 million
shelf registration statement on Form S-3 with the SEC, and in February 2018 we completed the issuance of 13,340,000 shares of our
common stock at a public offering price of $10.80 per share in an underwritten public offering for net proceeds to us of approximately
$135.5 million. If in the future we sell common stock, convertible securities or other equity securities, investors may be materially diluted
by

50

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
subsequent sales. These sales may also result in new investors gaining rights superior to our existing stockholders. Pursuant to our equity
incentive plans, our management is authorized to grant stock options and other equity-based awards to our employees, directors and
consultants. The number of shares available for future grant under our equity incentive plans as of February 28, 2018, was 263,933 shares.   

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their
investment.

We do not anticipate paying cash dividends in the future. As a result, only appreciation of the price of our common stock, which

may never occur, will provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock. In
addition, our ability to pay cash dividends is currently prohibited without the prior consent of the lender pursuant to the terms of our 2015
loan and security agreements.

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

Our share price is volatile, and in the past, companies that have experienced volatility in the market price of their stock have been

subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could
result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to
our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and our bylaws may delay or prevent an acquisition of us. In

addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of
our management team. In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which
prohibits, with some exceptions, stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us.
Finally, our charter documents establish advance notice requirements for nominations for election to our board of directors and for
proposing matters that can be acted upon at stockholder meetings. Although we believe these provisions together provide for an opportunity
to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be
considered beneficial by some stockholders.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Our corporate office is located in Newark, California. We entered into a lease for our corporate office in November 2013 that
commenced on January 16, 2014, and expires at January 15, 2019 with an option to extend the lease for an additional three years. We
believe that we will be able secure facilities space to meet our requirements prior to the expiration of our current lease.

Item 3. Legal Proceedings

We are not a party to any legal proceedings.

Item 4. Mine Safety Disclosures

Not Applicable.

51

 
 
PART II

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

Market for Common Equity

Our common stock is listed on the Nasdaq Capital Market under the symbol “CBAY”. On February 28, 2018, the last reported sale

price of our common stock on the Nasdaq Capital Market was $14.89 per share. As of February 28, 2018, there were approximately 263
holders of record of our common stock, although there are a substantially greater number of “beneficial holders”, whose shares are held of
record by banks, brokers and other financial institutions in “street name.”

The following table sets forth the high and low sales prices per share of our common stock as reported on the  Nasdaq Capital

Market for the periods indicated. Such quotations represent inter-dealer prices without retail markup, markdown or commission and may
not necessarily represent actual transactions.

Year Ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Year Ended December 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

Low

1.86    $
3.04    $
2.59    $
2.39    $

High

Low

4.30    $
5.76    $
8.26    $
9.31    $

0.82  
1.33  
1.48  
1.15

1.60  
3.36  
5.44  
7.67

  $
  $
  $
  $

  $
  $
  $
  $

Dividend Policy

We have never declared or paid any cash dividends to our stockholders. Our board of directors will make any future decisions

regarding dividends. We currently intend to retain and use any future earnings, if any, for the development and expansion of our business
and do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has complete discretion on whether to pay
dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations
and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of
directors may deem relevant. Further, we may not pay dividends or redeem shares of our capital stock without the prior consent of the
lenders pursuant to the terms of our current loan and security agreement.

Item 6. Selected Financial Data

Not applicable

52

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

Forward-Looking Statements

Some of the statements under in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

are forward-looking statements. These forward-looking statements are based on management’s beliefs and assumptions and on
information currently available to our management and involve significant elements of subjective judgment and analysis. Words such as
“may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “potential,” “seek,”
“target,” “goal,” “intend,” variations of such words, and similar expressions are intended to identify forward-looking statements. Our
actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Factors that
might cause such a difference include those discussed under the caption “Special Note Regarding Forward Looking Statements” and in
“Risk Factors” and elsewhere in this Annual Report on Form 10-K. These and many other factors could affect our future financial and
operating results. We undertake no obligation to update any forward-looking statement to reflect events after the date of this Annual
Report.

Overview

CymaBay Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing and providing access to

innovative therapies for patients with liver and other chronic diseases with high unmet medical need.

Our lead product candidate, seladelpar, is a potent and selective agonist of PPARδ, a nuclear receptor that regulates genes involved

in bile acid/sterol, lipid and glucose metabolism and inflammation. We are currently developing seladelpar for the treatment of primary
biliary cholangitis (PBC), an autoimmune disease that causes progressive destruction of the bile ducts in the liver. We are also planning to
develop seladelpar for the treatment of nonalcoholic steatohepatitis (NASH), a prevalent and serious chronic liver disease caused by
excessive fat accumulation in the liver that results in inflammation and cellular injury that can progress to fibrosis and cirrhosis, and
potentially liver failure and death.

Data from two Phase 2 studies of seladelpar in patients with PBC have established seladelpar’s anti-cholestatic and anti-

inflammatory effects. In July 2017, we announced positive interim results from an ongoing low-dose Phase 2 study of seladelpar in patients
with PBC. In the first part of the study, patients with an inadequate response to ursodeoxycholic acid (UDCA), as characterized by a
persistent elevation in alkaline phosphatase (AP), or who were intolerant to UDCA, received either 5 mg or 10 mg of seladelpar once-daily.
A planned interim analysis of these two dose groups demonstrated after 12 weeks of treatment a significant AP reduction from baseline of
39% and 45% for the 5 mg and 10 mg groups, respectively. On seladelpar treatment, 45% of patients in the 5 mg and 82% of patients in the
10 mg dose groups, had AP values < 1.67 times the upper limit of normal (ULN). AP is a recognized biomarker of cholestasis, and reaching
a level of < 1.67 ULN after one year of treatment is the key component in the composite endpoint used for regulatory approval. In addition
to the reduction in AP, patients in both dose groups experienced decreases in other liver markers of cholestasis including gamma glutamyl
transferase and total bilirubin. Seladelpar also improved metabolic and inflammatory markers with patients experiencing decreases in low-
density lipoprotein-C and high sensitivity C-reactive protein. There were no serious adverse events and no safety transaminase signal was
observed at either dose. Instead, mean transaminase levels decreased over the course of treatment, further supporting seladelpar’s anti-
inflammatory activity. Consistent with prior studies, there was no signal for drug-induced pruritus.

In 2017, the study was amended to expand the number of patients in the 5 and 10 mg dose groups and to extend dosing to 52-weeks.
In addition, a 2 mg dose group was added in order to identify a minimally effective dose. We expect to report data on a subset of patients in
the study through 26-weeks of dosing in the first half of 2018 and a subset through 52-weeks of dosing in the second half of 2018. In the
first half of 2018, we also plan to conclude End of Phase 2 and Scientific Advice discussions with the FDA and European Medicines
Agency (EMA), respectively, in order to finalize the design of our Phase 3 study of seladelpar in patients with PBC which we intend to
initiate in the second half of 2018.

In November 2016, the FDA granted orphan drug designation to seladelpar for the treatment of PBC, and in September 2017, the

EMA’s Committee for Orphan Medicinal Products (COMP) similarly granted orphan drug

53

 
designation to seladelpar for the treatment of PBC. In October 2016, seladelpar received EMA PRIority MEdicines (PRIME) designation
for the treatment of PBC.

We believe that seladelpar could also have utility in the treatment of NASH. Seladelpar was found to reverse NASH pathology,
decrease fibrosis, inflammation, hepatic lipids and reverse insulin resistance in the foz/foz mouse which is a diabetic obese model of NASH.
We are currently planning to start a Phase 2 study of seladelpar in patients with NASH in the first half of 2018.

Our second product candidate, arhalofenate, is a dual-acting anti-inflammatory and uric acid lowering agent being developed for the

treatment of gout. In 2016, we entered into an exclusive licensing agreement granting Kowa Pharmaceuticals America, Inc. the rights to
develop and commercialize arhalofenate in the U.S. (including all possessions and territories). Arhalofenate has been studied in five Phase
2 clinical trials in patients with gout and consistently demonstrated the ability to reduce gout flares and reduce serum uric acid (sUA). Gout
flares are recurring and painful episodes of joint inflammation that are triggered by the presence of monosodium urate crystals that form as
a result of elevated sUA levels. We believe the potential for arhalofenate to prevent or reduce flares while also lowering sUA could
differentiate it from currently available treatments for gout and classify it as the first potential drug in what we believe could be a new class
of gout therapy referred to as Urate Lowering Anti-Flare Therapy (ULAFT). Arhalofenate has established a favorable safety profile in
clinical trials involving over 1,100 patients exposed to date. Under the terms of the agreement with Kowa, we received an up-front payment
of $5.0 million, and in January 2018 we received a $5.0 million milestone payment for the initiation of a study evaluating the
pharmacokinetics of arhalofenate in subjects with renal impairment. We are entitled to receive an additional milestone payment of
$5.0 million on the initiation of a Phase 3 study and up to an additional $190.0 million in payments based upon the achievement of specific
development and sales milestones. We are also eligible to receive tiered, double digit royalties on future sales of arhalofenate products.
Kowa will be responsible for all development and commercialization costs. We retain full development and commercialization rights for
the rest of the world and intend to partner arhalofenate in geographies outside the U.S. and its possessions and territories.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or 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.

Equity Financings

On July 25, 2014, we completed a public offering of 4,600,000 shares of our common stock at $5.50 per share which we refer to as
our 2014 public offering. Net proceeds to us in connection with the 2014 public offering were approximately $23.0 million after deducting
underwriting discounts, commissions and offering expenses.

On November 7, 2014, we filed a $100 million registration statement on Form S-3 with the SEC, which registration statement

included an at-the-market facility (ATM) with Cantor Fitzgerald & Co to sell up to $25 million of common stock under the registration
statement. We sold shares of common stock under the ATM with aggregate net proceeds to us of $4.5 million. We terminated the ATM in
March 2017.

On July 27, 2015, pursuant to our shelf registration statement on Form S-3, we completed the issuance of 8,188,000 shares of our

common stock at $2.81 per share which we refer to as our 2015 public offering. Net proceeds to us in connection with the 2015 public
offering were approximately $21.1 million after deducting underwriting discounts, commissions and other offering expenses.

On February 7, 2017, pursuant to our shelf registration statement on Form S-3, we completed the issuance of 5,181,348 shares of
our common stock at $1.93 per share which we refer to as our February 2017 public offering. Net proceeds to us in connection with the
February 2017 public offering were approximately $9.2 million after deducting underwriting discounts, commissions and other offering
expenses.

54

 
 
 
On May 11, 2017 we filed a $100 million shelf registration statement on Form S-3, which was declared effective on June 29, 2017,

and terminated our prior shelf registration statement. This new shelf registration statement included an at-the-market facility (New ATM) to
sell up to $25 million of common stock under the new registration statement. We terminated the New ATM in July 2017.

On July 24, 2017, pursuant to the $100 million shelf registration statement on Form S-3, we completed the issuance of 14,950,000
shares of our common stock at $6.50 per share, which we refer to as our July 2017 public offering. Net proceeds to us in connection with
the July 2017 public offering were approximately $91.1 million after deducting underwriting discounts, commissions and other offering
expenses.

On December 29, 2017 we filed a new $200 million shelf registration statement on Form S-3, which was declared effective, and

terminated our prior shelf registration statement.

On February 1, 2018, pursuant to a new $200 million shelf registration statement on Form S-3, we completed the issuance of
13,340,000 shares of our common stock at $10.80 per share, which we refer to as our February 2018 public offering. Net proceeds to us in
connection with the February 2018 public offering were approximately $135.5 million after deducting underwriting discounts, commissions
and other offering expenses.

Critical Accounting Policies and Use of Estimates

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

which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during
the reporting periods. We base our estimates on historical experience and on various other factors that we believe to be materially
reasonable under the circumstances, the results of which form our basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources, and evaluate our estimates on an ongoing basis. Actual results may materially
differ from those estimates under different assumptions or conditions.  

While our significant accounting policies are described in more detail in Note 2 of our financial statements included in this Annual

Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation and understanding
of our financial statements.

Revenue Recognition

We recognize revenue when all four of the following criteria have been met: (i) persuasive evidence of an arrangement exists,

(ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable and (iv) collectability is reasonably
assured. Revenue under collaboration and license arrangements is recognized based on the performance requirements of the
contract. Determinations of whether persuasive evidence of an arrangement exists and whether delivery has occurred or services have been
rendered are based on management’s judgments regarding the fixed nature of the fees charged for deliverables and the collectability of
those fees.

We generate revenue from collaboration and license agreements for the development and commercialization of

products. Collaboration and license agreements may include non-refundable upfront license fees, contingent consideration payments based
on the achievement of defined collaboration objectives and royalties on sales of commercialized products.

Our performance obligations under the collaboration and license agreement may include the license or transfer of intellectual

property rights, obligations to provide research and development services, delivery of related materials and obligations to participate on
certain development and/or commercialization committees with the collaborators.

If we determine that multiple deliverables in an arrangement exist, the consideration is allocated to one or more units of accounting
based upon the relative-selling-price of each element in an arrangement. The relative-selling-price used for each deliverable will be based
on vendor-specific objective evidence, if available, third-party

55

 
evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence
is available. We identify deliverables at the inception of the arrangement. Each deliverable is accounted for as a separate unit of accounting
if both of the following criteria are met: (1) the delivered item or items have value to the customer on a standalone basis and (2) for an
arrangement that includes a general right of return relative to the delivered items, delivery or performance of the undelivered items is
considered probable and substantially in our control. Non-refundable upfront payments received and allocated to separate units of
accounting are recognized as revenue when the four basic revenue recognition criteria, mentioned above, are met for each unit of
accounting.

We recognize payments that are contingent upon achievement of a substantive milestone in their entirety in the period in which the

milestone is achieved. Milestones are defined as events that can only be achieved based on our performance and there is substantive
uncertainty about whether the event will be achieved at the inception of the arrangement. Events that are contingent only on the passage of
time or only on counterparty performance are not considered milestones subject to this guidance. Further, the amounts received must relate
solely to prior performance, be reasonable relative to all of the deliverables and payment terms within the agreement and commensurate
with our performance to achieve the milestone after commencement of the agreement. Any contingent payment that becomes payable upon
achievement of events that are not considered substantive milestones are allocated to the units of accounting previously identified at the
inception of an arrangement when the contingent payment is received and revenue is recognized based on the revenue recognition criteria
for each unit of accounting.

Research and Development Expenses and Related Prepayments and Accruals

As part of the process of preparing our financial statements, we are required to estimate certain research and development expenses.
This process involves reviewing contracts, reviewing the terms of our license agreements, communicating with our vendors and applicable
personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost
incurred for the service either when we have prepaid or when we have not yet been invoiced or otherwise notified of actual cost. Although
certain of our vendors require us to prepay in advance of services rendered, the majority of our service providers invoice us monthly in
arrears for services performed. We make estimates of prepayments to amortize or expenses to be accrued as of each balance sheet date in
our financial statements based on facts and circumstances known to us at that time. Examples of estimated amortized or accrued research
and development expenses include fees to:

•

•

•

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

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

vendors in connection with preclinical development activities.

We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts
with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf. The financial
terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows and expense
recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of
clinical trial milestones. In either amortizing or accruing service fees, we estimate the time period over which services will be performed
and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from
our estimate, we adjust the related prepayment or accrual accordingly. Our understanding of the status and timing of services performed
relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any
particular period. Adjustments to prior period estimates have not been material for the years ended December 31, 2017, and 2016.

Stock-Based Compensation

We measure employee and director stock-based compensation cost at the grant date, based on the estimated fair-value of the
awards, and we recognize as an expense the portion that is ultimately expected to vest as an expense over the related vesting periods, net of
estimated forfeitures. We estimate the grant date fair-value based of stock options using the Black-Scholes option-pricing model and
recognize compensation expense over the service period using the straight-line attribution method. For performance-based stock options,
we evaluate the probability of achieving each performance-based condition at each reporting date. We begin to recognize the expense
when it is

56

 
 
 
 
deemed probable that a performance-based condition will be met using the accelerated attributed method over the requisite service period.

The Black-Scholes option pricing model requires the input of highly subjective assumptions. These variables include, but are not
limited to, our stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. We
estimate expected volatility based on our own historical volatility supplemented by a review of historical volatilities of industry peers. We
have, due to insufficient historical data, used the “simplified method” to determine the expected life of stock options granted with a service
condition. Because our employee stock options have characteristics significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect fair value estimates, in management’s opinion, the existing models may
not provide a reliable single measure of the fair value of our employee stock. In addition, management continually assesses the assumptions
and methodologies used to calculate the estimated fair value of stock-based compensation. Circumstances may change and additional data
may become available over time, which could result in changes to the assumptions and methodologies, and which could materially impact
our fair value determination, as well as our stock-based compensation expense.

We account for stock-based compensation arrangements with non-employees using a fair value approach. The fair value of these

options is measured using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each
of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. The compensation
costs of these arrangements are subject to remeasurement over the vesting terms as earned.

Warrant Liabilities

We have issued freestanding warrants to purchase shares of our common stock. These freestanding warrants are classified as

liabilities in the balance sheet and remeasured at each reporting period at fair value as they contain terms for redemption that are outside
our control and do not meet the criteria for equity classification. During the third quarter of 2017, we changed our valuation technique to
value our warrant liability using the Black-Scholes option pricing model, the inputs for which include: exercise price of the warrants,
market price of the underlying common shares, dividend yield, expected term, expected volatility, and a risk-free interest rate. Historically,
we used a binomial option pricing model to revalue the warrant liabilities. The inputs for the binomial model are similar to the Black-
Scholes model but can also incorporate other more complex inputs which in our case have previously included the expected timing,
probability and valuation impact of certain potential strategic events that could impact the value of certain features of these warrants.
During the third quarter of 2017, management concluded that no potential strategic events were expected to occur that could, upon their
announcement, significantly impact the warrant valuation prior to the warrants’ expiration dates that begin in late 2018 and end in early
2019. The need to model and value such events no longer exists and therefore using the Black-Scholes option pricing model to determine
the fair value of these warrants is considered to be a reasonable and appropriate valuation technique. We re-measure the fair value of all
warrants at each financial reporting date with any changes in fair value being recognized as a component of other income (expense), net in
the statements of operations and comprehensive income (loss). We will continue to re-measure the fair value of the warrant liabilities
until exercise or expiration of the related warrants.

Results of Operations

General

To date, we have not generated any income from operations. As of December 31, 2017, we have an accumulated deficit of $450.5

million, primarily as a result of expenditures for research and development and general and administrative expenses. While we will
generate revenue from our license arrangement with Kowa and may in the future generate revenue from a variety of other sources,
including additional milestone payments from Kowa and license fees and milestone payments in connection with other strategic
partnerships, arhalofenate and seladelpar are at a mid-level stage of development and our other product candidates are at the early stage of
development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial losses
from operations for the foreseeable future and there can be no assurance that we will ever

57

 
generate sufficient revenue to achieve and sustain profitability. Our results of operations for 2017 and 2016 are presented below:

Year Ended
December 31,

($ in thousands)
Collaboration Revenue
Operating expenses:

Research and development
General and administrative

Loss from operations
Interest expense, net
Other (expense) income, net
Net loss

2017

2016

Variance

  $

10,000     $

—     $

10,000  

18,938  
12,387  
(21,325 )    
(459 )    
(5,773 )    
(27,557 )   $

15,941  
9,645  
(25,586 )    
(1,161 )    
76  
(26,671 )   $

2,997  
2,742  
4,261  
702  
(5,849 )
(886 )

  $

Collaboration Revenue

Collaboration revenue for the year ended December 31, 2017 and 2016 was $10.0 million and none, respectively. Collaboration

revenue was recognized in 2017 upon the fulfillment of certain obligations and deliverables under our collaboration agreement with Kowa.
Specifically, collaboration revenue of $4.8 million was recognized in the first quarter of 2017 primarily upon transfer of the license and
related technical knowhow.  Additional collaboration revenue of $5.2 million was recognized in the fourth quarter of 2017 primarily due to
the achievement of a collaboration milestone upon Kowa’s initiation of a study to evaluate the pharmacokinetics of arhalofenate in subjects
with renal impairment and upon transfer of certain arhalofenate product to Kowa.

Research & Development Expenses

Conducting research and development is central to our business model. For the years ended December 31, 2017 and 2016, research

and development expenses were $18.9 million and $15.9 million, respectively. Research and development expenses are detailed in the table
below:

($ in thousands)
Seladelpar Phase 2 clinical studies
Seladelpar drug manufacturing
Seladelpar other studies
Arhalofenate and other projects
Total Project Costs
Internal Research and Development Costs
Total Research and Development

Year Ended
December 31,

2017

2016

6,919     $
5,042    
418    
(375 ) 
12,004    
6,934    
18,938     $

5,978  
3,100  
55  
615  
9,748  
6,193  
15,941

  $

  $

Our project costs consist primarily of:

expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our
clinical trials and a substantial portion of our preclinical activities;

the cost of acquiring and manufacturing clinical trial and other materials; and

other costs associated with development activities, including additional studies.

•

•

•

Internal research and development costs consist primarily of salaries and related fringe benefits costs for our employees (such as
workers compensation and health insurance premiums), stock-based compensation charges, travel costs, and overhead expenses. Internal
costs generally benefit multiple projects and are not separately tracked per project.

58

 
 
 
 
   
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
   
   
   
   
   
 
 
 
   
   
 
 
   
   
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total project costs increased by $2.3 million to $12.0 million from $9.7 million for the years ended December 31, 2017, and 2016,
respectively. Project costs for the year ended December 31, 2017 and 2016 primarily consist of consisted of PBC-related clinical trial and
drug manufacturing expenses for seladelpar. The increase was primarily due to increased manufacturing of seladelpar to support our
ongoing lower dose Phase 2 PBC study, our long-term safety extension PBC study, and our planned Phase 3 PBC study and other
seladelpar-related development activities. Internal research and development cost increased by $0.7 million for year ended December 31,
2017 as compared to December 31, 2016, primarily due to higher employee compensation related expenses incurred in support of our
expanding clinical development activities.

We expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we continue

product development for seladelpar. Since product candidates in later stages of clinical development generally have higher development
costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials, we
expect that our research and development expenses will increase in the future. For example, as a result of the favorable interim PBC
clinical trial results we announced in July 2017, we expanded and extended our ongoing PBC Phase 2 study and we intend to initiate a PBC
Phase 3 study of seladelpar in the second half of 2018 along with other NDA-enabling studies. Furthermore, we are currently evaluating
and planning for a potential Phase 2 clinical study in NASH in the first half of 2018. Accordingly, we expect to incur substantial costs to
prepare for and conduct these clinical trials and other seladelpar-related development activities.

General and Administrative Expenses

General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, audit

services, rent and other general operating expenses not otherwise included in research and development. General and administrative
expenses increased by $2.8 million, to $12.4 million from $9.6 million, for the years ended December 31, 2017 and 2016, respectively,
primarily due to the recognition of $2.6 million in severance benefits expense associated with the retirement of Dr. Van Wart, our former
chief executive officer. Accordingly, total estimated severance expenses consisted of $0.8 million in cash severance payments to be paid out
within 12 months of Dr. Van Wart’s separation date as well as $1.8 million in stock-based compensation to reflect the vesting acceleration
and an extension of time to exercise certain of his stock options.

Interest Expense, Net

Interest expense, net consists of interest expense due to our loan facility partially offset by interest income from our marketable

securities. Interest expense, net decreased by $0.7 million, to $0.5 million from $1.2 million, for the years ended December 31, 2017 and
2016, respectively, primarily due to higher interest income earned from our marketable securities in the second half of 2017. Interest
income rose because we invested a significant portion of the $91.1 million in proceeds received from our July 2017 public offering in
marketable securities.

Other Income (Expenses), Net

Other income (expense), net primarily includes gains and losses resulting from the remeasurement of our investor and lender

warrant liabilities at fair value. We use an option pricing model to revalue our warrant liabilities at each reporting date. A decline in the
value of our warrant liabilities results in the recognition of a remeasurement gain. Conversely, an increase in the value of our warrant
liabilities results in the recognition of a remeasurement loss. During the third quarter of 2017, we changed our valuation technique and
began to revalue our warrants using a Black-Scholes option pricing model. Historically, we used a binomial option pricing model to revalue
the warrant liabilities.

Other income, net reflected a loss of $5.8 million and a gain of $76,000 for the years ended December 31, 2017 and 2016,
respectively, in each case due to the remeasurement of our warrant liabilities at fair value. During the year ended December 31, 2017, the
loss recognized was due primarily to an increase in the price of our common stock from $1.73 at December 31, 2016 to $9.20 at
December 31, 2017. During the year ended December 31, 2016, the gain recognized was due primarily to a reduction in the expected term
and volatility of our investor warrants, which are approaching expiration in September 2018. The changes in these assumptions offset the
impact to the

59

 
model of a slight increase in the price of our common stock from $1.69 at December 31, 2015, to $1.73 at December 31, 2016.

Income Taxes

As of December 31, 2017, we had federal net operating loss carryforwards of $255.7 million and state net operating loss
carryforwards of $146.6 million to offset future taxable income, if any. In addition, we had federal research and development general tax
credit carry forwards of $7.7 million, a federal research and development Orphan Drug Credit carryforward of $6.0 million, and state
research and development tax credit carryforwards of $4.0 million. If not utilized, the federal net operating loss and tax credit carryforwards
will expire beginning in 2024 through 2037 and the state net operating loss carryforwards will expire beginning in 2028 through 2037. The
state tax credit will carry forward indefinitely. Current federal and state tax laws include substantial restrictions on the utilization of net
operating losses and tax credits in the event of an ownership change. Even if the carryforwards are available, they may be subject to annual
limitations, lack of future taxable income, or future ownership changes that could result in the expiration of the carryforwards before they
are utilized. At December 31, 2017, we recorded a 100% valuation allowance against our deferred assets of approximately $88.9 million as
our management believes it is more likely than not that they will not be fully realized.

On December 22, 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act (“the Act”). The Act reduces the US federal

corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that
were previously tax deferred, and creates new taxes on certain foreign sourced earnings. The SEC staff issued Staff Accounting Bulletin
No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which allows companies to record provisional
amounts during a measurement period not to extend beyond one year of the enactment date. Since the Act was passed late in the fourth
quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of
the deferred tax re-measurements to be provisional. However, in certain cases, we have made a reasonable estimate of the effects on our
existing deferred tax assets. Specifically, we remeasured certain deferred tax assets based on the rates at which they are expected to reverse
in the future, which is generally 21%. We expect to complete the remainder of our analysis within the measurement period in accordance
with SAB 118. The ultimate impact may differ from provisional amounts we have recorded. Adjustments, if any, are not expected to
impact to our statement of operations due to the full valuation allowance on our deferred tax assets.

Liquidity and Capital Resources

We have financed our operations primarily through the sale of equity securities, licensing fees, issuance of debt and collaborations

with third parties. As of December 31, 2017, cash, cash equivalents and marketable securities totaled $97.2 million, compared to
$17.0 million at December 31, 2016. Historical summaries of sales of our equity securities are noted below followed by overviews of
sources of liquidity from our licensing and debt arrangements.

Equity Financings

During January 2017, we sold 124,100 shares of our common stock for net proceeds of $158,000 under our ATM facility with

Cantor Fitzgerald & Co.

On February 7, 2017, pursuant to our 2014 shelf registration statement on Form S-3, we completed the issuance of 5,181,348 shares
of our common stock at a public offering price of $1.93 per share in an underwritten public offering, which we refer to as the February 2017
public offering. Net proceeds to us in connection with the February 2017 public offering were approximately $9.2 million after deducting
underwriting discounts, commissions and other offering expenses.

In March 2017, we terminated our ATM facility with Cantor Fitzgerald & Co. In June 2017, our new $100 million shelf registration

statement on Form S-3 was declared effective, terminating our prior registration statement.

On July 24, 2017, pursuant to our $100 million shelf registration statement on Form S-3, we completed the issuance of 14,950,000

shares of our common stock at a public offering price of $6.50 per share in an underwritten

60

 
public offering, which we refer to as the July 2017 public offering. Net proceeds to us in connection with the July 2017 public offering
were approximately $91.1 million after deducting underwriting discounts, commissions and other offering expenses.

On December 29, 2017, we filed a new $200 million shelf registration statement on Form S-3 and we terminated our $100 million

shelf registration statement.

On February 1, 2018, pursuant to our $200 million shelf registration statement on Form S-3, we completed the issuance of

13,340,000 shares of our common stock at a public offering price of $10.80 per share, which we refer to as our February 2018 public
offering. Net proceeds to us in connection with the February 2018 public offering were approximately $135.5 million after deducting
underwriting discounts, commissions and other offering expenses.

Licensing & Collaboration Fees

In 2016, we entered into an exclusive licensing agreement granting Kowa Pharmaceuticals America, Inc. the rights to develop and

commercialize arhalofenate in the U.S. (including all possessions and territories). Under the terms of the agreement with Kowa, we
received an up-front payment of $5 million, and in January 2018 we received a $5 million milestone payment for the initiation of a study
evaluating the pharmacokinetics of arhalofenate in subjects with renal impairment. We are entitled to receive an additional milestone
payment of $5 million on the initiation of a Phase 3 study and up to an additional $190 million in payments based upon the achievement of
specific development and sales milestones. We are also eligible to receive tiered, double digit royalties on future sales of arhalofenate
products. Kowa will be responsible for all development and commercialization costs. We retain full development and commercialization
rights for the rest of the world and intend to partner arhalofenate in geographies outside the U.S. and its possessions and territories.

Term Loan Facility

On August 7, 2015, we entered into a Loan and Security Agreement, pursuant to which we refinanced our previous term loan

facility with Oxford Finance LLC and Silicon Valley Bank, for an aggregate amount of up to $15 million, which we refer to as the 2015
term loan facility. The first $10 million tranche of this new loan facility was made available to us immediately upon the closing and was
used in part to retire all $4.1 million of our existing term loan debt outstanding on the closing date, and to settle closing costs with the
lenders. The remaining $5 million, referred to as the second tranche, was available to us until March 31, 2016, for draw down upon the
achievement of a specified milestone. On March 31, 2016, the $5 million second tranche expired unused as the second draw milestone was
not achieved.

The loan bears interest at 8.77%. We made 12 monthly interest only payments after the funding date and are now required to make

payments on a repayment schedule equal to 36 equal monthly payments of interest and principal. Upon maturity, the remaining balance and
a final payment equal to 6.50% of the original principal amount advanced are payable.

We are permitted to make voluntary prepayments of the term loans with a prepayment fee equal to 3% of the principal amount of

any term loans prepaid. We are required to make mandatory prepayments of the outstanding term loans upon the acceleration by the lenders
of such loans following the occurrence of an event of default, along with a payment of the final payment, the prepayment fee and any all
other obligations that are due and payable at the time of the prepayment.

Our obligations under the term loan facility are secured, subject to customary permitted liens and other agreed upon exceptions, by a

perfected first priority interest in all of our tangible and intangible assets, excluding our intellectual property. We also entered into a
negative pledge agreement with the lenders pursuant to which we have agreed not to encumber any of our intellectual property.

The 2015 term loan facility contains customary representations and warranties and customary affirmative and negative covenants

applicable to us, including, among other things, restrictions on dispositions, changes in business, management, ownership or business
locations, mergers or acquisitions, indebtedness, encumbrances, distributions,

61

 
investments, transactions with affiliates and subordinated debt. The representations and warranties contained in the 2015 loan facility were
made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to such agreement to allocate
risk and may be subject to limitations agreed upon by the parties; accordingly, they should not be relied upon by investors as to assertions of
factual matters. The 2015 term loan facility also includes customary events of default, including but not limited to the nonpayment of
principal or interest, violations of covenants, material adverse change, attachment, levy, restraint on business, bankruptcy, material
judgments and misrepresentations. Upon an event of default, the lenders may, among other things, accelerate the loans and foreclose on the
collateral. As of December 31, 2017, we were in compliance with the terms of the term loan covenants and there were no identified events
of default.

At the closing of the 2015 term loan facility, we also agreed to pay a facility fee of 1.00% of the 2015 term loan facility
commitment. In addition, we issued warrants exercisable for a total of 114,436 shares of our common stock to the lenders at an exercise
price of $2.84 per share, and with a term of ten years.

Cash Flows

The following table sets forth a summary of the net cash flow activity for each of the periods indicated below:

Net cash used in operating activities
Net cash (used in) provided by investing
   activities
Net cash provided by (used in) financing
   activities
Net increase in cash and cash equivalents

Year Ended
December 31,

2017

2016

  $

(19,632 )  $

(23,353 )

(67,528 ) 

27,128  

  $

99,719    
12,559     $

(986 )
2,789

Cash Flows from Operating Activities

Net cash used in operating activities for the year ended December 31, 2017, was $19.6 million primarily due to a net loss of $27.6

million resulting from our expanding drug development activities and also from an accounts receivable adjustment related to a $5.0 million
milestone due from Kowa, offset in part by a $5.8 million non-cash loss recorded to revalue our warrant liability, $4.9 million of stock-
based compensation, and other changes in operating assets and liabilities of $2.3 million.

Net cash used in operating activities for the year ended December 31, 2016, was $23.4 million primarily due to a net loss of $26.7
million, offset by $2.5 million of stock-based compensation, changes in operating assets and liabilities of $0.3 million, and other noncash
items of $0.5 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $67.5 million for the year ended December 31, 2017, as a result of net purchases of

marketable securities, as we sought to invest a portion of the proceeds from our 2017 equity financings.

Net cash provided by investing activities was $27.1 million for the year ended December 31, 2016, as a result of net maturities of

marketable securities that were used to fund our ongoing drug development and other operating activities.

Cash Flows from Financing Activities

Net cash provided by financing activities was $99.7 million for the year ended December 31, 2017, due to net proceeds of

$100.4 million received from equity financings in 2017, proceeds of $2.2 million received from issuance

62

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
of common stock pursuant to our equity award plans, and proceeds of $0.2 million received from warrant exercises, offset in part by
$3.1 million of principal repayments of our loan facility.

Net cash used in financing activities was $1.0 million for the year ended December 31, 2016, due to scheduled repayments of

principal on our facility loan.

Capital Requirements

We have incurred operating losses since inception and had an accumulated deficit of $450.5 million at December 31, 2017. As of

December 31, 2017, we had cash, cash equivalents and marketable securities of approximately $97.2 million. We believe these funds,
together with net proceeds of $135.5 million received in our February 2018 public offering, and a $5 million milestone payment received
pursuant to our license agreement with Kowa in January 2018, are sufficient to fund our current operating plan into 2021. However, we
expect to continue to incur substantial expenses related to our development activities for the foreseeable future as we continue product
development for seladelpar. Since product candidates in later stages of clinical development generally have higher development costs than
those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials, we expect that
our research and development expenses will increase in the future. For example, as a result of the favorable interim PBC clinical trial
results we announced in July 2017, we expanded and extended our ongoing PBC Phase 2 study and we intend to initiate a PBC Phase 3
study of seladelpar in the second half of 2018 along with other NDA-enabling studies. Furthermore, we are currently evaluating and
planning for a potential Phase 2 clinical study in NASH in the first half of 2018. Accordingly, we expect to incur substantial costs to
prepare for and conduct these clinical trials and other seladelpar-related development activities. We will therefore continue to require
additional financing to develop our products and fund future operating losses and will seek funds through equity financings, debt,
collaborative or other arrangements with existing and new corporate sources, or through other sources of financing. It is unclear if or when
any such financing transactions will occur, on satisfactory terms or at all. Our failure to raise capital as and when needed could have a
negative impact on our financial condition and our ability to pursue our business strategies. If adequate funds are not available to us, it
could have a material adverse effect on our business, results of operations, and financial condition.

Off Balance Sheet Arrangements

As of December 31, 2017, we had no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under the

Exchange Act) that create potential material risks for us and that are not recognized on our balance sheets.  

Contractual Obligations

The following table summarizes our long-term contractual obligations as of December 31, 2017:

(In thousands)
Contractual Obligations
Operating lease obligations
Facility term loan, including
   interest
Contractual Commitments

Payments Due by Period

Total

Less than
1 Year

1-3 Years

3-5 Years

  $

  $

228  

  $

228  

  $

6,989  
7,217  

  $

6,989  
7,217     $

—  

  $

—  
—     $

—  

—  
—

In addition, we rely on contract research organizations and other research support providers to perform clinical and preclinical

studies for us and we contract with firms to supply our drug compounds for use in our development activities. As of December 31, 2017,
under the terms of our agreements with these organizations, we are obligated to make future payments as services are provided of
approximately $20.5 million. These agreements are terminable by us upon written notice. Generally, we are only liable for actual effort
expended or cost incurred by the organizations at any point in time during the contract period through the notice period.

63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
     
   
 
 
   
 
 
 
 
 
   
   
   
 
We have license milestone obligation payments that are not included in the table above because we cannot determine when or if the
payments will occur. In the normal course of business, we enter into various firm purchase commitments and other contractual obligations,
which are cancelable within ninety days or less and are not included in the future contractual obligations table above.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

The disclosure required in this Item is included in Item 15, which information is incorporated by reference here.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports
under the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief
executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing
and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures

Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange

Act), our chief executive officer and principle financial officer have concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective at the reasonable assurance level.   

Management’s Annual Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control

over financial reporting is a process designed by, or under the supervision of, our President and Chief Executive Officer and our Vice
President, Finance to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures
that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our
assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Under the
supervision and with the participation of our management, including our President and Chief Executive Officer and Vice President,
Finance, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in
“Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Our management concluded that our internal control over financial reporting was effective as of December 31, 2017.

64

 
Limitations on the Effectiveness of Controls.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the controls are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are
designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.

Changes in Internal Controls. 

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2017,

that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers and Corporate Governance

Identification of Executive Officers and Directors

PART III

Reference is made to the information regarding executive officers appearing under the heading “Business — Executive Officers of
the Registrant” in Part I Item 1 of this Annual Report on Form 10-K, which information is hereby incorporated by reference. Reference is
made to the information regarding our directors and nominees for director appearing under the heading “Proposal 1 — Election of
Directors” to be included in our proxy statement for our 2018 annual meeting of stockholders, or 2018 Proxy Statement, which information
is hereby incorporated by reference.

Identification of Audit Committee and Audit Committee Financial Expert

Reference is made to the information regarding directors to be included under the headings “Information  Regarding the Board of
Directors and Corporate Governance — Information Regarding Committees of the Board of Directors — Audit Committee” in our 2018
Proxy Statement, which information is hereby incorporated by reference.

Material Changes to Procedures for Recommending Directors

Reference is made to the information regarding directors to be included under the heading “Information Regarding the Board of

Directors and Corporate Governance — Information Regarding Committees of the Board of Directors — Nominating and Corporate
Governance Committee” in our 2018 Proxy Statement, which information is hereby incorporated by reference.

Compliance with Section 16(a) of the Exchange Act

Reference is made to the information to be included under the heading “Section 16(a) Beneficial Ownership Reporting Compliance”

in our 2018 Proxy Statement, which information is hereby incorporated by reference.

Code of Conduct

Reference is made to the information to be included under the heading “Information Regarding the Board of Directors and
Corporate Governance — Code of Business Conduct and Ethics” in our 2018 Proxy Statement, which information is hereby incorporated
by reference. A copy of our code of business conduct and ethics can be found on

65

 
our website, http://ir.cymabay.com/governance-docs. The contents of our website are not a part of this Annual Report on Form 10-K.

We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a
provision of this Code of Business Conduct and Ethics by posting such information on our website, at the address and location specified
above.

Item 11. Executive Compensation

Reference is made to the information to be included under the heading “Executive Compensation” in our 2018 Proxy Statement,

which information is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership

The information required by this item will be set forth in our 2018 Proxy Statement under the caption “Security Ownership of

Certain Beneficial Owners and Management” and is incorporated herein by reference.

Equity Compensation Plan Information

Information concerning our equity compensation plans will be set forth in our 2018 Proxy Statement under the caption “Securities

Authorized for Issuance under Equity Compensation Plans — Equity Compensation Plan Information” and is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be set forth in our 2018 Proxy Statement under the captions “Transactions with Related

Persons” and “Information Regarding the Board of Directors and Corporate Governance — Independence of the Board of Directors” and is
incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information required by this item will be set forth in our 2018 Proxy Statement under the caption “Principal Accountant Fees

and Services” in the proposal under the caption “Ratification of Selection of Independent Registered Public Accounting Firm” and is
incorporated herein by reference.

66

 
Item 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of this report

1. Financial Statements

PART IV

Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2017 and 2016
Statements of Operations and Comprehensive Loss for the years ended December 31, 2017 and 2016
Statements of Stockholders’ Equity for the years ended December 31, 2017 and 2016
Statements of Cash Flows for the years ended December 31, 2017 and 2016
Notes to Financial Statements

Page
72
73
74
75
76
77

2. Financial Statement Schedules

Financial statement schedules have been omitted in this report because they are not applicable, not required under the instructions,

or the information requested is set forth in the financial statements or related notes thereto.

(b) List of Exhibits

The following exhibits are included herein or incorporated herein by reference:

Exhibit
No.

Description of Document

  3.1

  3.2

  4.1

  4.2

  4.3

  4.4

10.1*

10.2*

10.3*

10.4*

 Amended and Restated Certificate of Incorporation. (Filed with the SEC as Exhibit 3.1 to our Amendment No. 2 to
Registration Statement on Form 10, filed with the SEC on October 17, 2013, SEC File No. 000-55021.)

 Amended and Restated By-Laws. (Filed with the SEC as Exhibit 3.2 to our Amendment No. 2 to Registration Statement
on Form 10, filed with the SEC on October 17, 2013, SEC File No. 000-55021.)

 Reference is made to Exhibits 3.1 and 3.2.

 Form of Registration Rights Agreement. (Filed with the SEC as Exhibit 4.2 to our Amendment No. 2 to Registration
Statement on Form 10, filed with the SEC on October 17, 2013, SEC File No. 000-55021.)

 Amendment No. 1 to Registration Rights Agreement. (Filed with the SEC as Exhibit 4.4 to our Form 10-K, filed with the
SEC on March 31, 2014, SEC File No. 000-55021.)

 Form of 2013 Financing Warrant. (Filed with the SEC as Exhibit 4.3 to our Amendment No. 2 to Registration Statement
on Form 10, filed with the SEC on October 17, 2013, SEC File No. 000-55021.)

 2003 Equity Incentive Plan. (Filed with the SEC as Exhibit 10.1 to our Registration Statement on Form 10, filed with the
SEC on August 12, 2013, SEC File No. 000-55021.)

 Form of 2003 Equity Incentive Plan Stock Option Agreement. (Filed with the SEC as Exhibit 10.2 to our Registration
Statement on Form 10, filed with the SEC on August 12, 2013, SEC File No. 000-55021.)

 Form of 2003 Equity Incentive Plan Early Exercise Stock Option Agreement. (Filed with the SEC as Exhibit 10.2 to our
Registration Statement on Form 10, filed with the SEC on August 12, 2013, SEC File No. 000-55021.)

 2013 Equity Incentive Plan. (Filed with the SEC as Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC
on June 6, 2014, SEC File No. 000-55021.)

67

 
 
 
 
 
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
 
   
 
   
 
   
 
   
Exhibit
No.

10.5*

10.6*

10.7

10.8#

10.9#

10.10#

10.11#

10.12#

10.13

10.14*

10.15*

10.16*

10.17*

10.18*

10.19*

10.20*

 Form of Option Grant Notice and Option Agreement under the 2013 Equity Incentive Plan. (Filed with the SEC as Exhibit
10.26 to our Amendment No. 2 to Registration Statement on Form 10, filed with the SEC on October 17, 2013, SEC File
No. 000-55021.)

Description of Document

 Form of Incentive Award Grant Notice under the 2013 Equity Incentive Plan. (Filed with the SEC as Exhibit 10.22 to our
Form 10-K, filed with the SEC on March 31, 2014, SEC File No. 000-55021.)

 Form of CymaBay Indemnity Agreement.

 License and Development Agreement, dated June 30, 1998, between Metabolex, Inc. and DiaTex, Inc. 
(Filed with the SEC as Exhibit 10.16 to our Amendment No. 3 to Registration Statement on Form 10, filed with the SEC
on November 8, 2013, SEC File No. 000-55021.)

 First Amendment to License and Development Agreement, dated April 15, 1999, between Metabolex, Inc. and DiaTex, Inc.
(Filed with the SEC as Exhibit 10.17 to our Amendment No. 3 to Registration Statement on Form 10, filed with the SEC
on November 8, 2013, SEC File No. 000-55021.)

 Second Amendment to License and Development Agreement between CymaBay Therapeutics, Inc. and DiaTex, Inc., dated
December 23, 2016. (Filed with the SEC as Exhibit 10.28 to our Form 10-K, filed with the SEC on March 23, 2017, SEC
File No. 001-36500.)

  PPAR-δ License Agreement, dated June 20, 2006, by and between Metabolex, Inc. and Janssen Pharmaceutical NV. (Filed
with the SEC as Exhibit 10.1 to our Form 8-K, filed with the SEC on January 12, 2018, SEC File No. 001-36500.)

 Exclusive License Agreement, between CymaBay Therapeutics, Inc. and Kowa Pharmaceuticals America, Inc., dated
December 30, 2016. (Filed with the SEC as Exhibit 10.27 to our Form 10-K, filed with the SEC on March 23, 2017, SEC
File No. 001-36500.)

 Lease, dated November 8, 2013, between CymaBay Therapeutics, Inc. and BMR-Pacific Research Center, L.P. (Filed with
the SEC as Exhibit 10.27 to our Form 10-Q, filed with the SEC on November 25, 2013, SEC File No. 000-55021.)

 Separation Agreement, dated April 14, 2017, between CymaBay Therapeutics, Inc. and Harold Van Wart (Filed with the
SEC as Exhibit 10.1 to our Form 10-Q, filed with the SEC on August 10, 2017, SEC File No. 001-36500.)

 Offer Letter, dated December 6, 2013, between CymaBay Therapeutics, Inc. and Sujal Shah. (Filed with the SEC as
Exhibit 10.24 to our Form 10-K, filed with the SEC on March 31, 2014, SEC File No. 000-55021.)

 Amendment to Offer Letter, dated November 21, 2013, between CymaBay Therapeutics, Inc. and Charles A. McWherter.
(Filed with the SEC as Exhibit 10.26 to our Form 10-K, filed with the SEC on March 31, 2014, SEC File No. 000-55021.)

 Offer Letter, dated February 28, 2014, between CymaBay Therapeutics, Inc. and Pol Boudes. (Filed with the SEC as
Exhibit 10.27 to our Form S-1, filed with the SEC on April 8, 2014, SEC File No. 333-195127.)

 Amendment to Offer Letter, dated August 2, 2017, between CymaBay Therapeutics, Inc. and Daniel Menold (Filed with
the SEC as Exhibit 10.4 to our Form 10-Q, filed with the SEC on August 10, 2017, SEC File No. 001-36500.)

 Offer Letter, dated November 9, 2017, between CymaBay Therapeutics, Inc. and Paul Quinlan.

 Non-Employee Director Compensation Program

68

 
 
 
   
 
   
 
   
 
   
 
   
 
   
 
 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
Exhibit
No.

10.21*

10.22*

10.23*

10.24*

23.1

24.1

31.1

31.2

32.1

 Compensation Arrangements with certain Executive Officers. (Filed with the SEC under Item 5.02 of our Form 8-K, filed
with the SEC on January 29, 2016, SEC File No 001-36500.)

Description of Document

 Compensation Arrangements with certain Executive Officers. (Filed with the SEC under Item 5.02 of our Form 8-K, filed
with the SEC on January 24, 2017, SEC File No 001-36500.)

 Compensation Arrangements with certain Executive Officers. (Filed with the SEC under Item 5.02 of our Form 8-K, filed
with the SEC on May 3, 2017, SEC File No 001-36500.)

 Compensation Arrangements with certain Executive Officers. (Filed with the SEC under Item 5.02 of our Form 8-K, filed
with the SEC on November 1, 2017, SEC File No 001-36500.)

 Consent of Independent Registered Public Accounting Firm

 Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K).

 Certification of President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13-a-14(a) or Rule
15(d)-14(a) of the Exchange Act

 Certification of Vice President, Finance (Principal Financial and Accounting Officer) pursuant to Rule 13a-14(a) or Rule
15d-14(a) of the Exchange Act

 Certification of President and Chief Executive Officer (Principal Executive Officer) and Vice President, Finance
(Principal Financial and Accounting Officer) pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002

101.INS

 XBRL Instance Document

101.SCH

 XBRL Taxonomy Extension Schema Document

101.CAL

 XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 XBRL Taxonomy Extension Presentation Document

*
#

Indicates management contract or compensatory plan.
Portions of this exhibit have been omitted pursuant to a grant of confidential treatment, which portions were omitted and filed
separately with the Securities and Exchange Commission.  

69

 
 
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
CymaBay Therapeutics, Inc.
Index to Financial Statements

Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2017 and 2016
Statements of Operations and Comprehensive Loss for the years ended December 31, 2017 and 2016
Statements of Stockholders’ Equity for the years ended December 31, 2017 and 2016
Statements of Cash Flows for the years ended December 31, 2017 and 2016
Notes to Financial Statements

70

Page
72
73
74
75
76
77

 
 
 
Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of CymaBay Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of CymaBay Therapeutics, Inc. (“the Company”) as of December 31, 2017 and 2016,
and the related statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the
period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of
its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with U.S. generally
accepted accounting principles.  

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 1994.

Redwood City, California
March 15, 2018

71

 
 
 
 
 
 
 
 
 
 
 
 
CymaBay Therapeutics, Inc.
Balance Sheets
(In thousands, except share and per share amounts)

December 31,

2017

2016

23,054     $
74,156    
5,000    
1,208    
126    
103,544    
69    
634    
104,247     $

1,311     $
5,757    
6,091    
3,108    
43    
16,310    

2,990    
—    
19,300    

10,495  
6,499  
—  
1,369  
165  
18,528  
77  
754  
19,359  

899  
4,501  
1,145  
2,700  
66  
9,311  

6,098  
13  
15,422  

—  

—  

4    
535,503    
(44 )  
(450,516 )  
84,947    
104,247     $

2  
426,895  
(1 )
(422,959 )
3,937  
19,359

  $

  $

  $

  $

Assets
Current assets:

Cash and cash equivalents
Marketable securities
Receivable from collaboration
Prepaid expenses
Other current assets

Total current assets
Property and equipment, net
Other assets
Total assets

Liabilities and stockholders’ equity
Current liabilities:

Accounts payable
Accrued liabilities
Warrant liability
Facility loan
Accrued interest payable

Total current liabilities

Facility loan, less current portion
Other liabilities
Total liabilities

Stockholders’ equity:

Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no
   shares issued and outstanding
Common stock, $0.0001 par value: 100,000,000 shares authorized;
   44,408,796 and 23,447,003 shares issued and outstanding as of
   December 31, 2017 and 2016, respectively

Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity

See accompanying notes.

72

 
 
 
 
 
 
 
   
 
 
 
 
   
   
 
 
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
   
 
 
     
 
   
 
 
     
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
   
 
 
 
 
 
 
 
 
 
 
 
 
     
 
   
 
 
     
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CymaBay Therapeutics, Inc.
Statements of Operations and Comprehensive Loss
(In thousands, except share and per share information)

Collaboration revenue
Operating expenses:

Research and development
General and administrative

Total operating expenses
Loss from operations
Other income (expense):

Interest income
Interest expense
Other (expense) income, net

Net loss
Net loss
Other comprehensive income (loss):

Unrealized (loss) gain on marketable securities
Other comprehensive (loss) income

Comprehensive loss
Basic net loss per common share
Diluted net loss per common share

Weighted average common shares outstanding used to calculate basic
   net loss per common share

Weighted average common shares outstanding used to calculate
   diluted net loss per common share

Year Ended
December 31,

2017

2016

  $

10,000  

  $

—  

18,938    
12,387    
31,325    
(21,325 )  

621    
(1,080 )  
(5,773 )  
(27,557 )   $
(27,557 )   $

(43 )  
(43 )  
(27,600 )   $
(0.79 )   $
(0.79 )   $

15,941  
9,645  
25,586  
(25,586 )

176  
(1,337 )
76  
(26,671 )
(26,671 )

20  
20  
(26,651 )
(1.14 )
(1.14 )

34,903,960    

23,447,003  

34,903,960    

23,447,003

  $
  $

  $
  $
  $

See accompanying notes.

73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CymaBay Therapeutics, Inc.
Statements of Stockholders’ Equity
(In thousands, except share and per share information)

    Additional

    Accumulated      
Other

Total

Balances as of December 31, 2015

   23,447,003    $

2     $

Common Stock

Shares

Amount

Paid-in
Capital
424,422     $
2,473      
—      

    Comprehensive     Accumulated     Stockholders’  

Loss

Deficit
(21 )   $ (396,288 )   $

—      

(26,671 )    

Equity

28,115  
2,473  
(26,671 )

—      

—      

Stock-based compensation expense
Net loss
Net unrealized gain on marketable
   securities

Balances as of December 31, 2016
Issuance of common stock upon
   exercise of warrants
Issuance of common stock upon
   exercise of stock options
   and incentive awards
Stock-based compensation expense
Issuance of common stock, net of
   $7,047 issuance costs
Net loss
Net unrealized loss on marketable
   securities

Balances as of December 31, 2017

—      
   23,447,003     

—      
2      

—      
426,895      

20      
(1 )    

—      
(422,959 )    

20  
3,937  

99,207      

—      

1,058      

—      

—      

1,058  

607,138      
—      

—      
—      

2,196      
4,920      

—      
—      

—      
—      

2,196  
4,920  

   20,255,448     
—      

2      
—      

100,434      
—      

—      
—      

—      
(27,557 )    

100,436  
(27,557 )

—      
   44,408,796    $

—      
4     $

—      
535,503     $

(43 )    
—      
(44 )   $ (450,516 )   $

(43 )

84,947

See accompanying notes.

74

 
 
 
     
     
 
     
 
 
     
 
 
 
     
     
 
   
     
 
   
 
 
 
   
 
 
   
   
   
   
   
 
  
       
       
       
       
  
  
  
  
  
  
  
 
CymaBay Therapeutics, Inc.
Statements of Cash Flows
(In thousands)

Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization
Stock-based compensation expense
Net accretion and amortization of investments in marketable securities
Non-cash interest associated with debt discount accretion
Change in fair value of warrant liability
Changes in assets and liabilities:

Accounts receivable
Other current assets
Prepaid expenses
Other assets
Accounts payable
Accrued liabilities
Accrued interest payable
Net cash used in operating activities

Investing activities

Purchases of property and equipment
Purchases of marketable securities
Proceeds from maturities of marketable securities

Net cash (used in) provided by investing activities

Financing activities

Proceeds from issuance of common stock, net of issuance costs
Proceeds from issuance of common stock pursuant to equity award plans
Proceeds from issuance of common stock upon exercise of warrants
Repayment of facility loan principal

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

Supplemental disclosure
Cash paid for interest

Supplemental non-cash investing and financing activities
Issuance of common stock upon warrant exercises
Net change in accrued financing costs

See accompanying notes.

75

Year Ended
December 31,

2017

2016

  $

(27,557 )   $

(26,671 )

35    
4,920    
(199 )  
437    
5,773    

(5,000 )  
(98 )  
161    
120    
412    
1,387    
(23 )  
(19,632 )  

(27 )  
(98,385 )  
30,884    
(67,528 )  

100,436    
2,189    
231    
(3,137 )  
99,719    

12,559    
10,495    
23,054     $

666     $

827    
(144 )  

29  
2,473  
125  
476  
(75 )

—  
165  
(761 )
(13 )
(109 )
1,015  
(7 )
(23,353 )

(42 )
(22,906 )
50,076  
27,128  

—  
—  
—  
(986 )
(986 )

2,789  
7,706  
10,495  

866  

—  
144

  $

  $

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
   
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
   
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
   
 
 
 
 
 
 
 
 
 
     
 
   
 
   
   
   
 
 
 
 
     
 
   
 
 
     
 
   
 
 
 
 
 
 
 
NOTES TO FINANCIAL STATEMENTS

1. Organization and Description of Business

CymaBay Therapeutics, Inc. (the “Company” or “CymaBay”) is a clinical-stage biopharmaceutical company focused on developing

and providing access to innovative therapies for patients with liver and other chronic diseases with high unmet medical need. The
Company’s two key clinical development candidates are seladelpar (MBX-8025) and arhalofenate. Seladelpar is currently being developed
for the treatment of primary biliary cholangitis (PBC) and the Company is also planning to develop seladelpar for the treatment of
nonalcoholic steatohepatitis (NASH). Arhalofenate is being developed for the treatment of gout and has been out-licensed in the United
States. The Company was incorporated in Delaware in October 1988 as Transtech Corporation. The Company’s headquarters and
operations are located in Newark, California and it operates in one segment.

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or 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. The Company has irrevocably elected not to avail
itself of this exemption from new or revised accounting standards, and, therefore, is subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies.

Liquidity

The Company has incurred net operating losses and negative cash flows from operations since its inception. During the year ended

December 31, 2017, the Company incurred a net loss of $27.6 million and used $19.6 million of cash in operations. At December 31, 2017,
the Company had an accumulated deficit of $450.5 million. CymaBay expects to incur substantial research and development expenses as it
continues to study its product candidates in clinical trials. To date, none of the Company’s product candidates have been approved for
marketing and sale, and the Company has not recorded any revenue from product sales. As a result, management expects operating losses to
continue in future years. The Company’s ability to achieve profitability is dependent primarily on its ability to successfully develop, acquire
or in-license additional product candidates, continue clinical trials for product candidates currently in clinical development, obtain
regulatory approvals, and support commercialization activities for partnered product candidates. Products developed by the Company will
require approval of the U.S. Food and Drug Administration (FDA) or a foreign regulatory authority prior to commercial sale. The
regulatory approval process is expensive, time-consuming, and uncertain, and any denial or delay of approval could have a material adverse
effect on the Company. Even if approved, the Company’s products may not achieve market acceptance and will face competition from both
generic and branded pharmaceutical products.

As of December 31, 2017, the Company’s cash, cash equivalents and marketable securities totaled $97.2 million. The Company

believes these funds, together with net proceeds of $135.5 million received in the public offering in February 2018, and a $5 million
milestone payment received pursuant to the Company’s license agreement with Kowa in January 2018, are sufficient to fund the
Company’s current operating plan into 2021. The Company expects to incur substantial expenditures in the future for the development and
potential commercialization of its product candidates. Because of this, the Company expects its future liquidity and capital resource needs
will be impacted by numerous factors, including but not limited to, the repayment of the Company’s facility loan, the planned initiation of a
Phase 2 clinical trial in NASH, and most significantly, the timing and conduct of additional PBC development activities, including an
ongoing Phase 2 clinical trial, a planned Phase 3 clinical trial, and other NDA-enabling studies. The Company has obtained and expects to
obtain additional funding to develop its products and fund future operating losses, as appropriate, through equity offerings; debt financing;
its existing license and collaboration arrangement with Kowa; one or more possible licenses, collaborations or other similar arrangements
with respect to development and/or commercialization rights of its product candidates; or a combination of the above. It is unclear if or
when any such transactions will occur, on satisfactory terms or at all. The Company’s failure to raise capital as and when needed could
have a negative impact on its financial condition and its ability to pursue its business strategies. If adequate funds are not available to the
Company, it could have a material adverse effect on the Company’s business, results of operations, and financial condition.  

76

 
2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP), which requires management to make informed estimates and assumptions that impact the amounts
and disclosures reported in the financial statements and accompanying notes. Accounting estimates and assumptions are inherently
uncertain. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances.
The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes, and management must
select an amount that falls within that range of reasonable estimates. Actual results could differ materially from those estimates and
assumptions. The Company believes significant judgment is involved in determining and in estimating the valuation of stock-based
compensation, accrued clinical expenses, and equity instrument valuations. These estimates form the basis for making judgments about the
carrying values of assets and liabilities when these values are not readily apparent from other sources. Estimates are assessed each
reporting period and updated to reflect current information and any changes in estimates will generally be reflected in the period first
identified.

Fair Value of Financial Instruments

The Company’s financial instruments during the periods reported consist of cash and cash equivalents, marketable securities,
accounts receivable, prepaid expenses, other current assets, accounts payable, accrued interest payable, accrued expenses, the facility loan,
and warrant liabilities. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information.
These estimates may be subjective in nature and involve uncertainties and matters of significant judgment. The carrying amounts of
financial instruments such as cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, accounts payable,
accrued expenses, and accrued interest payable approximate the related fair values due to the short maturities of these instruments. Based
on prevailing borrowing rates available to the Company for loans with similar terms, the Company believes the fair value of the facility
loan, considering level 2 inputs, approximates its carrying value.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the

principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement
date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used
to measure fair value. This hierarchy maximizes the use of observable inputs and maximizes the use of unobservable inputs and is as
follows:

Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the
measurement date.

Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

Level 3—Inputs that are significant to the fair value measurement and are unobservable (i.e. supported by little market activity),
which requires the reporting entity to develop its own valuation techniques and assumptions.

77

 
 
 
The following tables present the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring

basis using the above input categories (in thousands):

Description
Cash equivalents:

Money market funds
Commercial paper
Total cash equivalents

Short-term investments:
Commercial paper
Corporate debt securities
Asset-backed securities
U.S. treasury securities
Total short-term investments
Total assets measured at fair value

Warrant liability
Total liabilities measured at fair value

Description
Cash equivalents:

Money market funds
Commercial paper
Corporate debt securities
Total cash equivalents

Short-term investments:
Commercial paper
Corporate debt securities
Total short-term investments

Total assets measured at fair value

Warrant liability
Total liabilities measured at fair value

As of December 31, 2017
(In thousands)

Level 1

Level 2

Level 3

Fair Value

12,822     $
—      
12,822      

—      
—      
—      
—      
—      
12,822     $

—     $
6,035      
6,035      

35,886      
19,760      
11,060      

7,450        

74,156      
80,191     $

—     $
—      
—      

—      
—      
—      

—      
—     $

—     $
—     $

—     $
—     $

6,091     $
6,091     $

12,822  
6,035  
18,857  

35,886  
19,760  
11,060  
7,450  
74,156  
93,013  

6,091  
6,091

As of December 31, 2016
(In thousands)

Level 1

Level 2

Level 3

Fair Value

9,456     $
—      
—      
9,456      

—      
—      

—      
9,456     $

—     $
—     $

—     $
599      
500      
1,099      

4,295      
2,204      

6,499      
7,598     $

—     $
—      
—      
—      

—      
—      

—      
—     $

—     $
—     $

1,145     $
1,145     $

9,456  
599  
500  
10,555  

4,295  
2,204  

6,499  
17,054  

1,145  
1,145

  $

  $

  $
  $

  $

  $

  $
  $

The Company estimates the fair value of its corporate debt, asset backed securities, and U.S. treasury securities by taking into

consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models,
including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate
fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads;
benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

There were no transfers between Level 1 and Level 2 during the periods presented.

As of December 31, 2017 and 2016, financial instruments measured using Level 3 inputs consisted of the Company’s warrants,
which are accounted for as liabilities. During the year, the Company changed its valuation technique and began to value its warrant liability
using a Black-Scholes option pricing model, the inputs for which include: exercise price of the warrants, market price of the underlying
common shares, dividend yield, expected term, expected volatility, and a risk-free interest rate. Changes to any of these inputs can have a
significant impact on the estimated fair value of the warrants.

78

 
 
 
 
 
 
 
 
 
   
   
   
 
   
       
         
       
 
   
   
     
       
       
       
 
   
   
   
   
     
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
 
   
       
         
       
 
   
   
   
     
       
       
       
 
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Historically, the Company used a binomial option pricing model to value its warrant liabilities. The inputs for the binomial model

are similar to the Black-Scholes model but also incorporate other more complex inputs that, in the Company’s case, have previously
included the expected timing, probability and valuation impact of certain potential strategic events. Management concluded that no
potential strategic events were expected to occur that, upon their announcement, could significantly impact the warrant liabilities valuation
prior to their expiration beginning in late 2018 and ending in early 2019.

The following tables set forth a summary of the changes in the fair value of our liabilities measured using Level 3 inputs (in

thousands):

Balance, beginning of period

Issuance of financial instrument
Change in fair value
Settlement of financial instrument

Balance, end of period

For the Twelve

  Months Ended December 31,

2017

2016

  $

  $

1,145     $
—      
5,773      
(827 )   
6,091     $

1,220  
—  
(75 )
—  
1,145

Cash, Cash Equivalents, and Marketable Securities

The Company considers all highly liquid investments with a remaining maturity of 90 days or less at the time of purchase to be cash

equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest-bearing, demand money market
accounts, corporate debt securities, and commercial paper.

The Company invests excess cash in marketable securities with high credit ratings that are classified in Level 1 and Level 2 of the

fair value hierarchy. These securities consist primarily of corporate debt, commercial paper, asset-backed securities, and U.S. treasury
securities and are classified as “available-for-sale.” The Company considers marketable securities as short-term investments if the maturity
date is less than one year from the balance sheet date. The Company considers marketable securities as long-term investments if the
maturity date is in excess of one year of the balance sheet date.    

Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method.

Realized gains and losses and declines in value judged to be other-than- temporary are included in interest income or expense in the
statements of operations and comprehensive loss. Unrealized holding gains and losses are reported in accumulated other comprehensive
loss in the balance sheets. To date, the Company has not recorded any impairment charges on its marketable securities related to other-than-
temporary declines in market value. In determining whether a decline in market value is other-than-temporary, various factors are
considered, including the cause, duration of time and severity of the impairment, any adverse changes in the investees’ financial condition,
and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value.

Concentration of Credit Risk

Cash, cash equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a
concentration of credit risk to the extent of the fair value recorded in the balance sheet. The Company invests cash that is not required for
immediate operating needs primarily in highly liquid instruments that bear minimal risk. The Company has established guidelines relating
to the quality, diversification, and maturities of securities to enable the Company to manage its credit risk. We are exposed to credit risk in
the event of a default by the financial institutions holding our cash, cash equivalents and investments and issuers of investments to the
extent recorded on the balance sheets.

79

 
 
 
 
 
 
 
 
 
   
 
   
   
   
 
 
 
Certain materials and key components that the Company utilizes in its operations are obtained through single suppliers. Since the

suppliers of key components and materials must be named in a new drug application (NDA) filed with the U.S. Food and Drug
Administration (FDA) for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material
from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any of its product candidates for
clinical trials.

Property and Equipment

Property and equipment is recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization is
calculated using the straight-line method, and the cost is amortized over the estimated useful lives of the respective assets, generally three
to seven years. Leasehold improvements are amortized over the shorter of the useful lives or the non-cancelable term of the related lease.
Maintenance and repair costs are charged as expense in the statements of operations and comprehensive loss as incurred.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable. An impairment loss is recognized if the estimated undiscounted future cash
flow expected to result from the use and eventual disposition of an asset is less than the carrying amount. While the Company’s current and
historical operating losses and cash flows are indicators of impairment, the Company believes the future cash flows to be received support
the carrying value of its long-lived assets. Accordingly, the Company has not recognized any impairment losses as of December 31, 2017.

Deferred Rent

The Company records its costs under facility operating lease agreements as rent expense. Rent expense is recognized on a straight-

line basis over the non-cancelable term of the operating lease. The difference between the actual amounts paid and amounts recorded as
rent expense is recorded as deferred rent in the accompanying balance sheets.

Revenue Recognition

The Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have

been rendered, (iii) the price is fixed or determinable, and (iv) collectability is reasonably assured. Payments received in advance of work
performed are recorded as deferred revenue and recognized when earned.

Collaboration and license agreements may include non-refundable upfront license fees, contingent consideration payments based on

the achievement of defined collaboration objectives and royalties on sales of commercialized products. The Company’s performance
obligations under collaboration and license agreements may include the license or transfer of intellectual property rights, obligations to
provide research and development services and related materials and obligations to participate on certain development and/or
commercialization committees with the collaborators.

If the Company determines that multiple deliverables in an arrangement exist, the consideration is allocated to one or more units of
accounting based upon the relative-selling-price of each element in an arrangement. The relative-selling-price used for each deliverable is
based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or
estimated selling price if neither vendor-specific or third-party evidence is available. The Company identifies deliverables at the inception
of the arrangement. Each deliverable is accounted for as a separate unit of accounting if both of the following criteria are met: (1) the
delivered item or items have value to the customer on a standalone basis and (2) for an arrangement that includes a general right of return
relative to the delivered items, delivery or performance of the undelivered items is considered probable and substantially in the Company’s
control. Non-refundable upfront payments received and allocated to separate units of accounting are recognized as revenue when the four
basic revenue recognition criteria are met for each unit of accounting.

80

 
The Company recognizes payments that are contingent upon achievement of a substantive milestone in their entirety in the period in

which the milestone is achieved. Milestones are defined as events that can only be achieved based on the Company’s performance and
there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement. Events that are contingent
only on the passage of time or only on counterparty performance are not considered milestones subject to this guidance. Further, the
amounts received must relate solely to prior performance, be reasonable relative to all of the deliverables and payment terms within the
agreement and commensurate with the Company’s performance to achieve the milestone after commencement of the agreement. Any
contingent payment that becomes payable upon achievement of events that are not considered substantive milestones are allocated to the
units of accounting previously identified at the inception of an arrangement when the contingent payment is received and revenue is
recognized based on the revenue recognition criteria for each unit of accounting.

Research and Development Expenses

Research and development expenses consist of costs incurred in identifying, developing, and testing product candidates. These

expenses consist primarily of costs for research and development personnel, including related stock-based compensation; contract research
organizations (CRO) and other third parties that assist in managing, monitoring, and analyzing clinical trials; investigator and site fees;
laboratory services; consultants; contract manufacturing services; non-clinical studies, including materials; and allocated expenses, such as
depreciation of assets, and facilities and information technology that support research and development activities. Research and
development costs are expensed as incurred, including expenses that may or may not be reimbursed under research and development
funding arrangements. Payments made prior to the receipt of goods or services to be used in research and development are recorded as
prepaid assets until the goods are received or services are rendered. Such payments are evaluated for current or long term classification
based on when they will be realized.

The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the

services received and efforts expended pursuant to contracts with multiple CROs and manufacturing vendors that conduct and manage these
activities on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in
uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the level of services
provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful
enrollment of subjects and the completion of clinical trial milestones. In amortizing or accruing service fees, the Company estimates the
time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended
in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company
will adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from the Company’s
estimates to the amounts actually incurred.

Stock-Based Compensation

Employee and director stock-based compensation is measured at fair value on the grant date of the award. Compensation cost is

recognized as expense on a straight-line basis over the vesting period for options and on an accelerated basis for stock options with
performance conditions, net of estimated forfeitures. For stock options with performance conditions, the Company evaluates the
probability of achieving performance conditions at each reporting date. The Company begins to recognize the expense when it is deemed
probable that the performance conditions will be met. The Company uses the Black-Scholes option pricing model to determine the fair
value of stock option awards. The determination of fair value for stock-based awards using an option-pricing model requires management
to make certain assumptions regarding subjective input variables such as expected term, dividends, volatility and risk-free rate. The
Company is also required to make estimates as to the probability of achieving the specific performance criteria. If actual results are not
consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or
decrease compensation expense, which could be material to the Company’s results of operations.

81

 
Equity awards granted to non-employees are valued using the Black-Scholes option pricing model. Stock-based compensation

expense for nonemployee services is subject to remeasurement as the underlying equity instruments vest and is recognized as an expense
over the period during which services are received.

Common Stock Warrant Liabilities

The Company’s outstanding common stock warrants issued in connection with certain equity and debt financings that occurred in

2013 through 2015 are classified as liabilities in the accompanying balance sheets because of certain contractual terms that preclude equity
classification. The Company estimates the fair value of common stock warrants at each reporting period until the earlier of the exercise of
the warrants, at which time the liability will be revalued and reclassified to stockholders’ equity, or expiration of the warrants. The
determination of fair value of these common stock warrants requires management to make certain assumptions regarding subjective input
variables such as timing, probability and valuation impact of certain potential strategic events, expected term, dividends, expected volatility
and risk-free interest rates. If actual results are not consistent with the Company’s assumptions and judgments used in making these
estimates, the Company may be required to increase or decrease other (expense) income, net, which could be material to the Company’s
results of operations.

Income Taxes

The Company utilizes the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and the tax bases of assets and liabilities and are measured using enacted
tax rates and laws that will be in effect when the differences are expected to reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is
more likely than not that all or part of a deferred tax asset will not be realized. When the Company establishes or reduces the valuation
allowance related to the deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such
determination is made.

The accounting guidance for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criteria for

the financial recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized,
a tax position must be more likely than not to be sustained upon examination based on the technical merits of the position.

The Company is required to file federal and state income tax returns in the United States. The preparation of these income tax
returns requires the Company to interpret the applicable tax laws and regulations in effect that could affect the amount of tax paid to these
jurisdictions.

In December 2017, Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118, Income Tax

Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) to address the accounting implications of recently enacted U.S. federal
tax reform. SAB 118 allows companies to record provisional amounts during a measurement period not to extend beyond one year of the
enactment date to address ongoing guidance and tax interpretations that are expected over the next 12 months.  The Company currently
considers its accounting of the impact of U.S. federal tax reform to be incomplete but has made a reasonable estimate of the effects on our
existing deferred tax assets. The Company expects to complete the remainder of the analysis within the measurement period in accordance
with SAB 118.  Adjustments, if any, are not expected to impact the statement of operations and comprehensive loss due to the full
valuation allowance on the Company’s deferred tax assets.

The Company records interest related to income tax reserves, if any, as interest expense, and any penalties would be recorded as
other expense in the statements of operations and comprehensive loss. There was no interest or penalties related to income tax reserves
during the years ended December 31, 2017 and 2016.

82

 
Comprehensive Loss

Comprehensive loss includes net loss and net unrealized gains and losses on marketable securities, which are presented in a single
continuous statement. Comprehensive loss is disclosed in the statements of stockholders’ equity, and is stated net of related tax effects, if
any.

Net Income (Loss) Per Common Share

Basic net loss per share of common stock is based on the weighted average number of shares of common stock outstanding

equivalents during the period. Diluted net loss per share of common stock is calculated as the weighted average number of shares of
common stock outstanding adjusted to include the assumed exercises of stock options and common stock warrants, if dilutive.

The calculation of diluted loss per share also requires that, to the extent the average market price of the underlying shares for the

reporting period exceeds the exercise price of the common stock warrants and the presumed exercise of such securities are dilutive to
earnings (loss) per share for the period, adjustments to net income or net loss used in the calculation are required to remove the change in
fair value of the common stock warrant liability for the period. Likewise, adjustments to the denominator are required to reflect the related
dilutive shares.

In all periods presented, the Company’s outstanding stock options were excluded from the calculation of net loss per share because

the effect would be antidilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share

amounts):

Numerator:

Net loss allocated to common stock—basic
Adjustment for revaluation of warrants
Net loss allocated to common stock—diluted

  $

  $

(27,557 )  $
—      
(27,557 )  $

(26,671 )
—  
(26,671 )

Year Ended
December 31,

2017

2016

Denominator:

Weighted average number of common
   stock shares outstanding - basic
Dilutive common stock warrants
Weighted average number of common
   stock shares outstanding - diluted
Net loss per share—basic
Net loss per share—diluted

  34,903,960       23,447,003  
—  

—      

  34,903,960       23,447,003  
(1.14 )
(1.14 )

(0.79 )  $
(0.79 )  $

  $
  $

The following table shows the total outstanding securities considered anti-dilutive and therefore excluded from the computation of

diluted net loss per share (in thousands):

Common stock warrants
Common stock options
Performance-based stock options
Incentive awards

83

Year Ended
December 31,

2017

2016

1,461     
4,055     
301     
130     
5,947     

1,667  
2,394  
327  
239  
4,627

 
 
 
 
 
 
 
 
 
 
   
 
   
 
       
 
   
 
   
       
   
   
 
       
 
 
   
 
 
 
 
 
 
 
 
 
 
 
   
 
   
   
   
   
 
   
 
Recent Accounting Pronouncements

Accounting Standards Update 2014-09

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers and related
amendments. Subsequently, the Financial Accounting Standards Board (“the FASB”) issued the following standards related to ASU 2014-
09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; and ASU No. 2016-12, Revenue
from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. This guidance outlines a new, and
single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes nearly all of
the existing revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step
analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those
goods or services.

The new revenue standard permits two methods of adoption: retrospectively to each prior reporting period presented (full

retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial
application (the modified retrospective method). The Company plans to adopt the new revenue standard in the first quarter of 2018 using
the modified retrospective method.

To date, the Company’s revenues have been derived from license and collaboration agreements. The consideration that the

Company is eligible to receive under such agreements includes upfront payments, milestone payments, and royalties. The Company has
assessed its contracts with customers under the five-step process and analyzed such contracts to determine the differences in the accounting
treatment under the new revenue standard compared to that of the current accounting standard. The new revenue standard differs from the
current accounting standard in many respects, such as in the accounting for variable consideration, including milestone payments and
royalties. The Company has substantially completed its assessment of the new revenue standard for the accounting of its license and
collaboration agreements and related financial statement disclosures. The impact of adopting the new revenue standard will not be material
and the Company does not expect to record any cumulative-effect adjustment to accumulated deficit upon adoption. The new standard will
require more robust disclosures than required by previous guidance, including disclosures related to disaggregation of revenue, discussion
of performance obligations, estimates of variable consideration, the judgments made in revenue recognition determinations, adjustments to
revenue which relate to activities from previous periods, any significant reversals of revenue, and costs to obtain or fulfill contracts.

Accounting Standards Update 2016-02

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires the recognition of assets and

liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements.
Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease
obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease
term. Subsequent measurement, including the presentation of expenses and cash flows, will depend on the classification of the lease as
either a finance or an operating lease. Initial costs directly attributable to negotiating and arranging the lease will be included in the asset.
Lessees will also be required to provide additional qualitative and quantitative disclosures regarding the amount, timing and uncertainty of
cash flows arising from leases. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods
therein. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its financial statements.

84

 
Accounting Standards Update 2016-09

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends

ASC Topic 718, Compensation – Stock Compensation (ASU 2016-09). This guidance simplifies the accounting for the taxes related to
stock based compensation, requiring excess tax benefits and deficiencies to be recognized as a component of income tax expense rather
than equity. This guidance also requires excess tax benefits and deficiencies to be presented as an operating activity on the statement of cash
flows and allows an entity to make an accounting policy election to either estimate expected forfeitures or to account for them as they
occur. The Company adopted ASU 2016-09 on January 1, 2017 following the modified retrospective approach. Under this guidance, on a
prospective basis, the Company will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (APIC).
Instead, the Company will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement. In
addition, the guidance eliminates the requirement that excess tax benefits be realized before companies can recognize them. The ASU
requires a cumulative-effect adjustment for previously unrecognized excess tax benefits in opening retained earnings in the annual period
of adoption. As of January 1, 2017, the Company had no material excess tax benefits. In addition and as provided for under this guidance,
the Company made an accounting policy election to recognize forfeitures as they occur. This policy election did not have a material impact
on the Company’s financial statements.

Accounting Standards Update 2017-09

In May 2017, FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718) - Scope of Modification Accounting

(“ASU 2017- 09”). The amendments included in this update provide guidance about which changes to the terms or conditions of a share-
based payment award require an entity to apply modification accounting. Under the new guidance, modification accounting is required only
if the fair value, the vesting conditions, or the classification of the awards (as equity or liabilities) changes as a result of the change in the
terms or conditions. The amendments in this update will be applied prospectively to an award modified on or after the adoption date. The
amendments in ASU 2017-09 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2017. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Accounting Standards Update 2017-11

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic

480); Derivatives and Hedging (Topic 815) (“ASU 2017-11”): (Part I) Accounting for Certain Financial Instruments with Down Round
Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities
and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception. The ASU allows companies to exclude a down
round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own
stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be
accounted for and classified as liabilities. A company will recognize the value of a down round feature only when it is triggered, and the
strike price has been adjusted downward. For equity-linked freestanding financial instruments, such as warrants, an entity will treat the
value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in
computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions,
entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU
2017-11is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is
permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company is evaluating the impact of the
revised guidance and its impact on the Company’s financial statements.

85

 
 
 
3. Marketable Securities

Marketable available-for-sale securities as of December 31, 2017 and 2016 consist of the following (in thousands):

As of December 31, 2017:
Commercial paper
Corporate debt securities
Asset-backed securities
U.S. treasury securities

As of December 31, 2016:
Commercial paper
Corporate debt securities

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

35,886    
19,785    
11,070    
7,459    
74,200     $

—    
—    
—    
—    
—     $

—    
(25 )  
(10 )  
(9 )  
(44 )   $

35,886  
19,760  
11,060  
7,450  
74,156

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

4,295    
2,205    
6,500     $

—    
—    
—     $

—    
(1 )  
(1 )   $

4,295  
2,204  
6,499

  $

  $

As of December 31, 2017 and 2016, the remaining contractual maturities of the Company’s commercial paper, corporate debt
securities, asset-backed securities, and U.S. treasury securities were less than 1 year.  There were no realized gains and losses for the years
ended December 31, 2017 and 2016. None of these investments have been in a continuous unrealized loss position for more than 12
months as of December 31, 2017 and 2016.

4. Certain Balance Sheet Items

Property and equipment consist of the following (in thousands):

Office and computer equipment
Purchased software
Furniture and fixtures
Leasehold improvements
Total
Less accumulated depreciation and amortization
Property and equipment, net

Accrued liabilities consist of the following (in thousands):

Accrued compensation
Accrued pre-clinical and clinical trial expenses
Accrued professional fees
Other accruals
Total accrued liabilities

86

  December 31,

    December 31,

2017

2016

  $

  $

177     $
83      
65      
65      
390      
(321 )   
69     $

177  
83  
38  
65  
363  
(286 )
77

  December 31,

    December 31,

2017

2016

  $

  $

2,416    $
2,929     
288     
124     
5,757    $

1,839  
1,623  
982  
57  
4,501

 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
 
 
   
 
 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
   
   
   
   
   
 
 
 
 
 
 
   
 
   
   
   
 
5. Collaboration and License Agreements

Kowa Pharmaceuticals America, Inc.

On December 30, 2016, the Company entered into a license agreement with Kowa Pharmaceuticals America, Inc. (“Kowa”).

Pursuant to the license agreement, the Company granted to Kowa an exclusive license, and right to sublicense, certain patent rights and
technology related to arhalofenate. Kowa will have exclusive rights to, among other things, develop, use, manufacture, sell and otherwise
exploit the licensed technology in the United States (including all possessions and territories). At Kowa’s option, the Company may also
facilitate the placement of arhalofenate product manufacturing orders under the terms of the Company’s existing contract manufacturing
agreements. In addition, the Company will complete specified in-process stability testing and non-clinical development services and will
participate on a Joint Advisory Committee (“JAC”). Finally, the Company will transfer to Kowa certain arhalofenate product on hand.

Under the license agreement, Kowa agreed to pay the Company a non-refundable up-front payment of $5 million upon contract

execution. Additionally, Kowa agreed to pay the Company $5 million upon initiation of a study evaluating the pharmacokinetics of
arhalofenate in subjects with renal impairment, an additional milestone payment of $5 million on initiation of a Phase 3 study, and up to
$190 million in payments based upon the achievement of other specific development and sales milestones. Finally, the Company will
receive tiered, double digit royalties on any product sales and a percentage of any revenue earned by Kowa from sublicensing.

The Company identified the following three performance deliverables under the license agreement: 1) transfer of intellectual
property rights, inclusive of the related technology know-how conveyance and contract manufacturing rights and privileges (“license and
know-how”), 2) the obligation to perform specific ongoing research and non-clinical development services, and 3) the delivery of
arhalofenate product on hand. The Company’s participation on the JAC was not determined to be a deliverable because of the Company’s
ability to elect to terminate its participation. The Company concluded that the license, the know-how and contract manufacturing rights and
privileges together represent a single deliverable, and therefore together should be accounted for as a single unit of accounting. The
research and development services and delivery of arhalofenate product each also represent separate deliverables, and therefore each should
be accounted for as separate units of accounting. There was no separate consideration identified in the agreement for the deliverables and
there was no right of return under the agreement.

The Company considered the provisions of the multiple-element arrangement guidance in determining whether the deliverables

outlined above have standalone value. The transfer of license and know-how has standalone value separate from the research and
development services and delivery of arhalofenate product, as the agreement allows Kowa to sublicense its rights to the acquired license to
a third party. Further, the Company believes that Kowa has research and development expertise with compounds similar to those licensed
under the agreement, and the Company has also granted Kowa the rights to either order arhalofenate product from the Company’s existing
contract manufacturers, or to enter into arrangements with other third parties to develop and manufacture arhalofenate product, thereby
allowing Kowa to realize the value of the license and know-how. The license and know-how revenue will be recognized upon the
substantial completion of the transfer of know-how. The research and development services will be recognized as revenue over the
estimated period services are delivered. The arhalofenate product will be recognized as revenue upon delivery.

The Company also determined the relative selling prices of the identified units of account in accordance with the multi-element

arrangement guidance. The Company considered but did not use Vendor Specific Objective Evidence (VSOE) of fair value or third-party
evidence (TPE) but instead selected management’s best estimate of selling price (BESP) due to the uniqueness of the Kowa license
arrangement and its lack of comparability to other licensing arrangements in the biopharmaceutical industry.

In the first quarter of 2017, the $5 million upfront consideration due upon contract initiation was paid and the Company allocated

this consideration to the three identified units of account using the relative selling price method, with revenue to be recognized based on the
satisfaction of all revenue recognition criteria for each unit of accounting. As the Company completed all activities necessary to transfer
the license and knowhow deliverable to Kowa and had satisfied all other revenue recognition criteria, $4.8 million of the upfront
consideration allocated to this deliverable was recognized as collaboration revenue in the first quarter of 2017. The Company also
recognized

87

 
 
 
 
immaterial revenue associated with the provision of the research and non-clinical development services deliverable. The remaining $0.2
million of upfront consideration was allocated to the arhalofenate product deliverable and was recognized as collaboration revenue upon
delivery of the drug product to Kowa and satisfaction of other revenue recognition criteria in the fourth quarter of 2017.  

The Company determined the future contingent payments related to the development activities do not meet the definition of a
milestone because the achievement of these events solely depends on Kowa’s performance. Under current revenue recognition rules, these
amounts must be allocated to the Kowa arrangements’ three identified units of account when they become billable under the contract and
recognized as revenue based on the satisfaction of the revenue recognition criteria for those respective units of accounting. The Company
also determined that the future contingent payments related to the U.S. sales milestones are recognizable as revenue upon achievement of
those specific sales milestones.

In the fourth quarter of 2017, Kowa became obligated under the agreement to pay the first $5 million contingent payment to the

Company upon Kowa’s initiation of a study evaluating the pharmacokinetics of arhalofenate in subjects with renal impairment.
Accordingly, this consideration was allocated to the arrangement’s three identified units of account and recognized as $5.0 million of
collaboration revenue in the fourth quarter of 2017. As this contingent payment was earned but was not paid until January 2018, the
Company reflected the amount due as a $5.0 million receivable from collaboration as of December 31, 2017.

As of December 31, 2017, no amounts have been recognized as collaboration revenue for the remaining contingent payments as no

amounts had been earned.

Janssen Pharmaceutical NV and Janssen Pharmaceuticals, Inc.

In June 2006, the Company entered into an exclusive worldwide, royalty-bearing license to seladelpar and certain other PPARδ

compounds (the “PPARδ Products”) with Janssen Pharmaceutical NV (Janssen NV), with the right to grant sublicenses to third parties to
make, use and sell such PPARδ Products. Under the terms of the agreement, the Company has full control and responsibility over the
research, development and registration of any PPARδ Products and is required to use diligent efforts to conduct all such activities. Janssen
NV has the sole responsibility for the preparation, filing, prosecution, maintenance of, and defense of the patents with respect to, the
PPARδ Products. Janssen NV has a right of first negotiation under the agreement to license a particular PPARδ Product from the Company
in the event that the Company elects to seek a third party corporate partner for the research, development, promotion, and/or
commercialization of such PPARδ Products. Under the terms of the agreement Janssen NV is entitled to receive up to an 8% royalty on net
sales of PPARδ Products.

In June 2010, the Company entered into two development and license agreements with Janssen Pharmaceuticals, Inc. (Janssen), a

subsidiary of Johnson and Johnson, to further develop and discover undisclosed metabolic disease target agonists for the treatment of Type
2 diabetes and other disorders and received a one-time nonrefundable technology access fee related to the agreements. The Company
received a termination notice from Janssen, effectively ending these development and licensing agreements in early April 2015. In
December 2015, the Company exercised an option pursuant to the terms of one of the original agreements to continue work to research,
develop and commercialize compounds with activity against an undisclosed metabolic disease target. Janssen granted the Company an
exclusive, worldwide license (with rights to sublicense) under the Janssen know-how and patents to research, develop, make, have made,
use, offer for sale and sell such compounds. The Company has full control and responsibility over the research, development and
registration of any products developed and/or discovered from the metabolic disease target and is required to use diligent efforts to conduct
all such activities. No amounts were incurred or accrued for this agreement as of and for the years ended December 31, 2017 and 2016.

88

 
 
 
 
 
 
DiaTex, Inc.

In June 1998, the Company entered into a license agreement with DiaTex, Inc. (DiaTex) relating to products containing halofenate,

its enantiomers, derivatives, and analogs (the licensed products). The license agreement provides that DiaTex and the Company are joint
owners of all of the patents and patent applications covering the licensed products and methods of producing or using such compounds, as
well as certain other know-how (the covered IP). As part of the license agreement, the Company received an exclusive worldwide license,
including as to DiaTex, to use the covered IP to develop and commercialize the licensed products. The Company also retained the right to
sub-license the covered IP. The license agreement contains a $2,000 per month license fee as well as a requirement to make additional
payments for development achievements and royalty payments on any sales of licensed products. DiaTex is entitled to up to $0.8 million for
the future development of arhalofenate, as well as royalty payments on commercial sales of products containing arhalofenate. No
development payments were made or due as of and for the years ended December 31, 2017 and 2016 and no royalties have been paid to
date. In December 2016, the agreement was amended by the parties to change the timing of a specified development milestone.

6. Facility Loans

2013 Term Loan Facility

On September 30, 2013, the Company entered into a facility loan agreement with Silicon Valley Bank and Oxford Finance LLC

(referred to herein as the lenders) for a total loan amount of $10.0 million of which the first tranche of $5.0 million was drawn as part of the
Company’s September 2013 financing, referred to here as the 2013 Term Loan Facility. The loan had a fixed interest rate of 8.75% payable
as interest only for twelve months and a thirty-six month loan amortization period thereafter, with a final interest payment of $0.3 million at
the end of the loan period. The second tranche of $5.0 million became available to the Company upon its February 24, 2015 announcement
of the achievement of positive Phase 2b data for the Company’s product candidate arhalofenate and remained available to the Company
until June 30, 2015. On June 30, 2015, the second tranche portion of the loan facility expired unused by the Company.

At the time the first $5 million tranche of the facility loan was drawn down, the Company issued warrants exercisable for a total of

121,739 shares of the Company’s common stock to the lenders at an exercise price of $5.00 per share. Upon issuance, the fair value of a
warrant liability was recorded and is being revalued at each balance sheet date until the warrants are exercised or expire.

2015 Term Loan Facility

On August 7, 2015, the Company entered into a Loan and Security Agreement pursuant to which it refinanced its existing 2013

Term Loan Facility with Oxford Finance LLC and Silicon Valley Bank, for an aggregate amount of up to $15 million, referred to here as
the 2015 Term Loan Facility. The first $10 million tranche of this new loan facility was made available to the Company immediately upon
the closing and was used in part to retire all $4.1 million of the Company’s existing debt outstanding under the 2013 Term Loan Facility,
and to settle accrued interest and closing costs with the lenders. The remaining $5 million, referred to as the second tranche, was made
available to the Company until March 31, 2016, for draw down upon the achievement of a specified milestone. Because the present value
of the future cash flows under the modified loan terms did not exceed the present value of the future cash flows under the previous loan
terms by more than 10%, the Company treated this refinancing as a modification. The remaining debt discount costs will be amortized over
the remaining term of the Loan and Security Agreement using the effective interest rate method. The $5.0 million second tranche expired
unused in March 2016 as the second draw milestone was not achieved.

The loan bears interest at 8.77%. The Company is required to make 12 monthly interest only payments after the funding date
followed by a repayment schedule equal to 36 equal monthly payments of interest and principal. Upon maturity, the remaining balance of
the first tranche and a final payment equal to 6.50% of the original principal amount advanced of the applicable tranche are payable.

89

 
At the closing, the Company also agreed to pay a facility fee of 1.00% of the 2015 Term Loan Facility commitment. In addition, the

Company issued warrants exercisable for a total of 114,436 shares of its common stock to the lenders at an exercise price of $2.84 per
share, and with a term of ten years. Upon issuance, the fair value of a warrant liability of $0.3 million was recorded in the accompanying
balance sheet and is being revalued at each balance sheet date until the warrants are exercised or expire.

The Company’s obligations under the term loan facility are secured, subject to customary permitted liens and other agreed upon

exceptions, by a perfected first priority interest in all of the Company’s tangible and intangible assets, excluding intellectual property. The
Company also entered into a negative pledge agreement with the lenders pursuant to which the Company has agreed not to encumber any
intellectual property.

The 2015 Term Loan Facility contains customary representations and warranties and customary affirmative and negative covenants

applicable to the Company, and also includes defined customary events of default that include but are not limited to a material adverse
change in the Company’s business, operations or condition (financial or otherwise), a material impairment of the prospect of repayment of
any portion of the term loan, or a material impairment in the perfection or priority of the collateral agent’s lien in the collateral or in the
value of such collateral. As of December 31, 2017, the Company was in compliance with the term loan covenants and there were no events
of default.

The term loan facility, debt discounts and final payment balances as of December 31, 2017 and 2016 are as follows (in thousands):

Principal payments due under the loan facility

Less: unamortized debt discount
Plus: accreted value of final payment

Term loan facility, net

December 31,

2017

2016

  $

  $

5,877     $
(296 )    
517      
6,098     $

9,014  
(599 )
383  
8,798

Future principal payments due under the loan facility are as follows (in thousands):

Year ending December 31:

2018
2019

Total future principal payments due under loan
   agreement

Principal
Payments

3,423  
2,454  

  $

5,877

7. Commitments and Contingencies

Operating Lease Commitments

Rent expense was $0.3 million for each of the years ended December 31, 2017 and 2016. The Company leases 8,894 square feet of

office space in Newark, California pursuant to a lease which commenced January 16, 2014 and expires on January 15, 2019.

Future minimum lease payments under operating lease commitments are as follows (in thousands):

Year ending December 31:

2018

Total future minimum payments

90

Lease
Payments

  $

228  
228

 
 
 
 
 
 
 
   
 
   
   
 
 
 
 
 
 
 
 
     
 
   
   
 
 
 
 
 
 
 
 
   
 
 
   
Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and

warranties and provide for general indemnification, including indemnification associated with product liability or infringement of
intellectual property rights. The Company’s exposure under these agreements is unknown because it involves future claims that may be
made against the Company that may be, but have not yet been, made. To date, the Company has not paid any claims or been required to
defend any action related to these indemnification obligations, and no amounts have been accrued in the accompanying balance sheets
related to these indemnification obligations.

The Company has agreed to indemnify its officers and directors for losses and costs incurred in connection with certain events or

occurrences, including advancing money to cover certain costs, subject to certain limitations. The maximum potential amount of future
payments the Company could be required to make under this indemnification is unlimited; however, the Company maintains insurance
policies that may limit its exposure and may enable it to recover a portion of any future amounts paid. Assuming the applicability of
coverage, the willingness of the insurer to assume coverage, and subject to certain retention, loss limits, and other policy provisions, the
Company believes the fair value of these indemnification obligations is not material. Accordingly, the Company has not recognized any
liabilities relating to these obligations as of December 31, 2017 and 2016. No assurances can be given that the covering insurers will not
attempt to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in which case the
Company may incur substantial liabilities as a result of these indemnification obligations.

8. Stockholders’ Equity

The Company is authorized to issue 10,000,000 shares of preferred stock as of December 31, 2017 and 2016, respectively. The

Company is authorized to issue 100,000,000 shares of common stock as of December 31, 2017 and 2016, respectively.  

Common Stock Issuances

On February 7, 2017, pursuant to a shelf registration statement on Form S-3, the Company completed the issuance of 5,181,348

shares of its common stock at $1.93 per share which the Company refers to as the February 2017 public offering. Net proceeds to the
Company in connection with the February 2017 public offering were approximately $9.2 million after deducting underwriting discounts,
commissions and other offering expenses.

On July 24, 2017, pursuant to a shelf registration statement on Form S-3, the Company completed the issuance of 14,950,000 shares

of our common stock at $6.50 per share, which the Company refers to as the July 2017 public offering. Net proceeds to the Company in
connection with the July 2017 public offering were approximately $91.1 million after deducting underwriting discounts, commissions and
other offering expenses.

On February 1, 2018, pursuant to a new $200 million shelf registration statement on Form S-3, the Company completed the
issuance of 13,340,000 shares of its common stock at $10.80 per share, which the Company refers to as the February 2018 public offering.
Net proceeds to the in connection with the February 2018 public offering were approximately $135.5 million after deducting underwriting
discounts, commissions and other offering expenses.

Common Stock Warrants

In connection with a 2013 financing and the Company’s private placement of common stock and warrants in September
2013, October 2013 and January 2014, the Company issued five-year warrants to purchase 1,741,788 shares of the Company’s common
stock at an exercise price of $5.75 per share (referred to as the 2013 financing warrants). The Company also issued seven-year warrants to
purchase 121,739 shares of the Company’s common stock to certain lenders at an exercise price of $5.00 per share in September 2013 and
in connection with the 2015 loan facility, the Company issued ten-year warrants to purchase 114,436 shares of its common stock to its
lenders at an exercise price of $2.84 per share (referred to as the lender warrants).

91

 
 
The 2013 financing warrants contain anti-dilution provisions that are contingent on the occurrence of a major transaction which
precludes them from being indexed to the Company’s common stock and also do not meet other criteria for equity classification. Such
provisions could also result in the settlement of the 2013 financing warrants for more shares of common stock than the Company has
authorized. Due to these provisions, the Company is required to account for the 2013 financing warrants and the lender warrants as
liabilities at fair value.

As of December 31, 2017 and 2016, the Company’s warrants were measured using Level 3 inputs. During the year, the Company
changed its valuation technique and began to value its warrant liability using a Black-Scholes option pricing model, the inputs for which
include: the exercise price of the warrants; the market price of the underlying common shares; a risk-free interest rate based on the rates for
U.S. Treasury zero-coupon bonds with maturities similar to those of the remaining contractual term of the warrants; an assumed dividend
yield of zero based on the Company’s expectation that it will not pay dividends in the foreseeable future; an expected term based on the
remaining contractual term of the warrants; and expected volatility based upon the Company’s historical volatility. The significant
unobservable input used in measuring the fair value of the common stock warrant liabilities is the expected volatility. Significant increases
in volatility would result in a higher fair value measurement.

Historically, the Company used a binomial option-pricing model to value its warrant liabilities. The inputs for the binomial model

are similar to the Black-Scholes model but also incorporate other more complex inputs that, in the Company’s case, have previously
included the expected timing, probability and valuation impact of certain potential strategic events. The significant unobservable inputs
used in measuring the fair value of the common stock warrant liabilities under the binomial lattice option-pricing model were expected
volatility and the probability and valuation impact of certain potential strategic events. Significant increases in volatility would result in a
higher fair value measurement and significant increases in the probability and valuation impact of certain potential strategic events
occurring would result in a significantly higher fair value measurement. Management concluded that no potential strategic events were
expected to occur that, upon their announcement, could significantly impact the warrant liabilities valuation prior to their expiration
beginning in late 2018 and ending in early 2019.

These warrants were recorded at fair value upon issuance and were revalued at fair value as of December 31, 2017 and 2016 using a

Black-Scholes model and binomial lattice option pricing model, respectively. The resulting increase in fair value of $5.8 million for the
year ended December 31, 2017 and decrease in fair value $0.1 million for the year ended December 31, 2016 were recorded as a
revaluation loss and gain, respectively, in other income (expense), net in the Company’s statement of operations and comprehensive loss.

As of December 31, 2017, 40,250 warrants were exercised for cash proceeds of $0.2 million and 166,193 warrants were cashless
exercised. No warrants were exercised for the year ended December 31, 2016. The 2013 financing warrants begin to expire in September
2018 and the lender warrants begin to expire in September 2020.

Shares of Common Stock Authorized for Issuance

As of December 31, 2017 and December 31, 2016, the Company had reserved shares of authorized but unissued common stock as

follows:

Common stock warrants
Equity incentive plan
Total reserved shares of common stock

December 31,
2017

December 31,
2016

1,460,955   
4,021,983   
5,482,938   

1,667,398  
3,456,771  
5,124,169

92

 
 
 
 
 
 
 
   
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
9. Stock Plan and Stock-Based Compensation

Stock Plan

In September 2013, the Company’s stockholders approved the 2013 Equity Incentive Plan (the “2013 Plan”), under which shares of
common stock are reserved for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock
awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards by the Company. These
awards may be granted to employees, members of the Board of Directors, and consultants. The 2013 Plan has a term of ten years and
replaced the 2003 Equity Incentive Plan, which had similar terms. The 2013 Plan permits the Company to (i) grant incentive stock options
to directors and employees at not less than 100% of the fair value of common stock on the date of grant; (ii) grant nonqualified options to
employees, directors, and consultants at not less than 85% of fair value; (iii) award stock bonuses; and (iv) grant rights to acquire restricted
stock at not less than 85% of fair value. Options generally vest over a four year period and have a term of ten years. Options granted to 10%
stockholders have a maximum term of five years and require an exercise price equal to at least 110% of the fair value on the date of grant.
The exercise price of all options granted to date has been at least equal to the fair value of common stock on the date of grant. The share
reserve under the 2013 Plan will automatically increase on January 1st of each year, for a period of not more than ten years, in an amount
equal to 5% of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year, unless the Board
determines otherwise prior to December 31st of such calendar year.

Stock Plan Activity

As of December 31, 2017, there were no shares available for grant under the 2013 Plan. In accordance with the provisions of the
2013 Plan, the number of shares available for issuance under the plan automatically increased by 2,220,439 shares on January 1, 2018.

The following table summarizes stock option activity:

Outstanding as of December 31, 2015

Options granted
Options exercised
Options forfeited
Options expired

Outstanding as of December 31, 2016

Options granted
Options exercised
Options forfeited
Options expired

Outstanding as of December 31, 2017

Vested and expected to vest as of
   December 31, 2017

Exercisable as of December 31, 2017

Shares
Subject to
Outstanding
Options
1,804,083     $
646,667      

—    

(14,319 )    
(42,043 )  
2,394,388      
2,224,801      
(472,169 )    
(82,578 )    
(9,001 )    
4,055,441     $

Weighted
Average
Exercise
Price of
Options

Weighted
Average
Remaining
Contractual
Term
(Years)

Aggregate
Intrinsic
Value (in
thousands)

7.41      
1.28      
0      
4.50      
25.01      
5.46      
4.79        
3.40        
1.91        
10.00        
5.40      

7.28     $

15,975  

4,055,441     $

1,973,842     $

5.40      

5.69      

7.28     $

5.35     $

15,975  

7,371

The total intrinsic value of options exercised was $2.5 million for the year ended December 31, 2017. No options were exercised

during the year ended December 31, 2016.

Vested and Unvested Awards

The total fair value of options vested including performance options, was $3.9 million and $2.2 million for the years ended

December 31, 2017 and 2016, respectively.

93

 
 
 
 
   
   
   
 
   
       
   
   
 
     
 
 
   
 
     
 
 
   
 
     
 
 
   
 
     
 
 
   
       
   
   
     
   
   
       
 
   
       
 
   
       
 
   
 
 
   
 
As of December 31, 2017, unamortized employee and non-employee stock-based compensation expense of $6.9 million is expected

to be recognized over a weighted average period of 2.7 years.

Performance Options

In July 2016, the Company granted 327,000 performance-based stock options (PSOs) to executives and senior officers. PSOs

represent a contingent right to purchase the Company’s common stock upon the achievement of specific conditions. Specifically, these
PSOs vest upon the achievement of certain clinical development and capital raising milestones that must occur before December 31, 2016.
In December 2016, the PSOs were modified by extending the term by one month to January 31, 2017.

The following table summarizes performance option activity:

Outstanding as of December 31, 2015

Options granted

Outstanding as of December 31, 2016

Options exercised

Outstanding as of December 31, 2017

Shares
Subject to
  Outstanding    
Options

    Weighted-
Average
Exercise
Price of
Options

—     $
327,000      
327,000      
(26,000 )   
301,000     $

—  
1.82  
1.82  
1.82  
1.82

Performance options outstanding as of December 31, 2017 had a weighted average remaining contractual term of 5.92 years and an

aggregate intrinsic value of $2.2 million.  

Upon achievement of the clinical development and capital raising milestones, related expense of $192,000 and $199,000 were

recognized for years ended December 31, 2017 and 2016, respectively. The modification to extend the term of the PSOs did not have a
material impact on the Company’s financial statements.  

Incentive Awards

In December 2013, January 2014, and April 2014, as permitted by the 2013 Plan, the Company issued certain incentive awards to

directors, employees and a consultant which are subject to 252,752 shares of the Company’s common stock and are exercisable at a
weighted average price of $5.21 per share when vested. The Company may determine at its option whether to settle exercised awards in
shares of common stock or in cash. Each recipient’s incentive award defines the number of common shares that may be acquired upon
exercise provided the Company chooses to settle in shares. For awards settled in cash, the Company must pay the recipient the excess of the
fair market value of the Company’s common stock on the date of exercise over the exercise price paid by the recipient multiplied by the
number of shares the recipient would be entitled to receive had the award been settled in shares of the Company’s common stock.

Pursuant to their terms, the incentive awards have a term of 10 years and were initially scheduled to vest 100% on the second

anniversary of their grant date. However, as a result of the approval by Company’s stockholders of a 500,000 share increase to the 2013
Plan’s share reserve in June 2014, the incentive awards were automatically modified to vest monthly over four years effective from their
grant date. The Company is recognizing the value of the incentive awards over the remaining four year vesting period.

The Company recorded $334,000 and $272,000 of stock based compensation expense in the years ended December 31, 2017 and

2016, respectively, pertaining to its incentive awards. Incentive awards outstanding totaled 129,776 as of December 31, 2017.

Options Granted to Nonemployees

The Company has issued options to purchase shares of common stock to certain scientific advisors and consultants. The stock

options have various exercise prices, a term of ten years, and vest over periods up to forty-

94

 
 
 
   
 
 
 
 
   
 
 
 
   
 
 
 
 
 
   
 
   
   
   
   
   
 
 
eight months. The Company granted to these advisors and consultants options to purchase 15,000 and 18,000 shares of common stock, in
2017 and 2016, respectively. As of December 31, 2017, options to purchase 21,041 shares of common stock remained unvested, and
compensation related to these stock options is subject to remeasurement each reporting period as the shares vest. In 2013, the Company
also issued an incentive award for 2,335 shares to a scientific advisor, of which was fully vested as of December 31, 2017. The Company
recorded $114,099 and $17,510 of expense in the years ended December 31, 2017 and 2016, respectively, related to these options and
awards.

Stock-Based Compensation Expense

Stock-based compensation expense, net of estimated forfeitures, included in the statements of operations and comprehensive loss is

as follows (in thousands):

Research and development
General and administrative
Total stock-based compensation expense

Year Ended
December 31,

2017

2016

  $

  $

1,301    $
3,619     
4,920    $

995  
1,478  
2,473

Valuation Assumptions

The following table presents the weighted-average assumptions the Company used in the Black-Scholes option-pricing model to

derive the grant date fair values of stock options and performance-based stock options along with the resulting estimated weighted-average
grant date fair values per share:

Expected term
Options
Performance options

Expected volatility

Options
Performance options

Risk-free interest rate

Options
Performance options
Expected dividend yield

Options
Performance options

Year Ended
December 31,

2017

2016

6.0 yrs  
—  

6.1 yrs  
5.1 yrs  

84 %   
—  

2.15 %   
—  

—  
—  

80 %
85 %

1.57 %
1.56 %

—  
—  

0.89  
1.20

Weighted-average grant date fair value per share

Options
Performance options

  $

3.36  
—  

  $
  $

Expected Term

The Company does not believe it can currently place reliance on its historical exercise and post-vesting termination activity to
provide accurate data for estimating the expected term. Therefore, for stock option grants made during the years ended December 31, 2017
and 2016, the Company has opted to use the simplified method for estimating the expected term, which is an average of the contractual
term of the options and its ordinary vesting period. The expected term represents the period of time that options are expected to be
outstanding.

95

 
 
 
 
 
 
 
 
 
 
   
 
   
 
 
 
 
 
 
 
 
 
 
   
   
     
 
 
 
   
 
   
   
   
   
   
   
   
   
   
   
   
   
   
   
     
 
     
 
   
   
   
   
   
   
   
   
   
 
Expected Volatility

As the Company has limited trading history for its common stock, the expected stock price volatility for the Company’s common

stock was estimated by considering the volatility rates of similar publicly traded peer entities within the life sciences industry. The
Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock
price becomes available.

Risk-Free Interest Rate

The risk-free interest rate assumption was based on U.S. Treasury instruments with constant maturities whose term was consistent

with the expected term of stock options granted by the Company.

Expected Dividend Yield

The Company has never declared or paid cash dividends and does not plan to pay cash dividends in the foreseeable future.

Consequently, the Company uses an expected dividend yield of zero.

Forfeitures

Prior to January 1, 2017, the Company recognized stock expense net of estimated forfeitures; however, in connection with the

adoption of ASU 2016-09, the Company elected to change its accounting policy to reflect the impact of forfeitures as they occur in 2017.
In making this policy change, the Company was required to record a cumulative effect of this change in retained earnings on January 1,
2017 which was not material.

10. 401(k) Plan

The Company provides a qualified 401(k) savings plan for its employees. All employees are eligible to participate, provided they
meet the requirements of the plan. While the Company may elect to match employee contributions, no such matching contributions have
been made through December 31, 2017 and 2016.

11. Income Taxes

No provision for U.S. income taxes exists due to tax losses incurred in all periods presented. All losses incurred were U.S. based.

Significant components of the Company’s deferred tax assets are as follows (in thousands):

Deferred tax assets:

Federal and state net operating loss carryforwards
Capitalized research and development
Federal and state tax credit carryforwards
Stock based compensation
Other

Total deferred tax assets
Valuation allowance
Net deferred tax assets

December 31

2017

2016

  $

  $

63,935     $
9,455      
13,529      
1,493      
438      
88,850      
(88,850 )   
—     $

88,111  
22,272  
8,141  
2,080  
974  
121,578  
(121,578 )

—

On December 22, 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act (“the Act”). The Tax Act contains, among

other things, significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat
rate of 21% for tax years beginning after December 31, 2017, limitation of the deduction for net operating losses to 80% of current year
taxable income and elimination of net operating loss carrybacks, implementing a territorial tax system, and requiring a mandatory one-time
tax on U.S. owned undistributed foreign earnings and profits known as the transition tax.

96

 
  
 
 
 
 
 
 
   
 
     
       
 
   
   
   
   
   
   
 
 
Pursuant to SAB 118, an entity may select between one of three scenarios to determine a reasonable estimate arising from the Tax

Act. The scenarios are (i) a final estimate which effectively closes the measurement window; (ii) a reasonable estimate leaving the
measurement window open for future revisions; and (iii) no estimate as the law is still being analyzed. The Company was able to provide a
reasonable estimate for the revaluation of deferred taxes. As such, the Company has recorded a $38.2 million reduction in deferred tax
assets for the revaluation of deferred taxes which was offset by a corresponding decrease to the Company’s full valuation allowance. The
ultimate impact of the Act may differ from provision amounts recorded.  Adjustments, if any, are not expected to impact to the statement of
operations and comprehensive loss due to the full valuation allowance on the Company’s deferred tax assets.                 

Realization of the net deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which is
uncertain. Based on the weight of available positive and negative objective evidence, management believes it more likely than not that the
Company’s deferred tax assets are not realizable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance.
The net valuation allowance decreased by $32.7 million during the year ended December 31, 2017 and increased $9.7 million during the
year ended December 31, 2016.

The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax provision (in

thousands):

Income tax benefit at federal statutory
   tax rate of 34%
Change in valuation allowance
Effect of change in enacted tax rates
State income taxes, net of federal benefit
Permanent items
Research credits
Income tax (benefit) expense

December 31

2017

2016

$

  $

(9,369 )  $
(32,709 )   
38,194      
5,094      
4,027      
(5,237 )   
—     $

(9,068 )
9,775  
-  
(458 )
196  
(445 )
—

Pursuant to Internal Revenue Code (“IRC”), Section 382 and 383, use of the Company’s U.S. federal and state net operating loss and

research and development income tax credit carryforwards may be limited in the event of a cumulative change in ownership of more than
50.0% within a three-year period. The Company completed an analysis under IRC Sections 382 and 383 through December 21, 2007 and
determined that the Company’s net operating losses and research and development credits were subject to limitations due to changes in
ownership through December 31, 2007. The net operating loss carryforwards reflected in the deferred tax assets at December 31, 2017 have
been adjusted to reflect Section 382 limitations resulting from that change. The Company has been in a net operating loss position since
2008. The Company has not performed any additional analysis for IRC Sections 382 and 383 and there is a risk that additional changes in
ownership could have occurred since December 31, 2007. If a change in ownership were to have occurred, additional net operating loss and
tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset
schedule with a corresponding reduction in the valuation allowance.

As of December 31, 2017, the Company has federal net operating loss carryforwards of $255.7 million and state net operating loss
carryforwards of $146.6 million to offset future taxable income, if any. In addition, the Company has federal research and development tax
credit carry forwards of $7.7 million, a federal research and development orphan drug tax credit carry forward of $6.0 million, and state
research and development tax credit carryforwards of $4.0 million. If not utilized, the federal net operating loss and tax credit carryforwards
will expire beginning in 2024 through 2037 and the state net operating loss carryforwards will expire beginning in 2028 through 2037.
Under the Act, federal net operating losses incurred in 2018 and future years may be carried forward indefinitely, but the deductibility of
such federal net operating losses is limited. It is uncertain to what extent various states will conform to the Act with regard to net operating
loss carry forwards. The state tax credit will carry forward indefinitely.

97

 
  
 
 
 
 
 
 
 
   
 
 
   
   
   
   
   
 
The following table summarizes activity related to the Company’s gross unrecognized tax benefits (in thousands):

Balances as of December 31, 2015

Increases related to prior year tax positions
Increases related to 2016 tax positions

Balances as of December 31, 2016

Increases related to prior year tax positions
Increases related to 2017 tax positions

Balances as of December 31, 2017

Total

2,127  
—  
159  
2,286  
—  
1,009  
3,295

  $

  $

  $

The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate assuming the Company
continues to maintain a full valuation allowance position. Based on prior year’s operations and experience, the Company does not expect a
significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change
during the next year for unexpected or unusual items for items that arise in the ordinary course of business.

The Company files income tax returns in the U.S. federal and California jurisdiction and is not currently under examination by

federal, state, or local taxing authorities for any open tax years. Due to net operating loss carryforwards, all years remain open for income
tax examination by tax authorities in the U.S. and states in which the Company files tax returns.

12. Related-Party Transactions

The Company paid a former member of its Board of Directors, who is also a member of its Scientific and Clinical Advisory Boards,

a total of $60,000 in each of the years ended December 31, 2017 and 2016 in monthly cash retainers.

13. Subsequent Events

On February 1, 2018, the Company closed an underwritten public offering of its common stock. The Company sold 13,340,000

shares of its common stock in the offering at a public offering price of $10.80 per share before underwriting discounts and commissions,
which resulted in net proceeds to the Company of $135.5 million after deducting underwriter’s discounts, commissions and other offering
expenses.

Item 16. Form 10-K Summary

None.

98

 
 
 
 
 
   
   
   
   
 
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its

behalf by the undersigned thereunto duly authorized.

SIGNATURES

March 15, 2018
Date

 CymaBay Therapeutics, Inc.

  Registrant

/s/ Sujal Shah
Sujal Shah
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sujal
Shah and Daniel Menold, as his true and lawful attorney-in-fact and agent, with full power of substitution for him, and in his name in any
and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, and any of them or his
or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the

Registrant in the capacities indicated on the date set forth below:

Name and Signature

/s/ Sujal Shah
Sujal Shah

/s/ Daniel Menold
Daniel Menold

/s/ Robert J. Wills
Robert J. Wills, Ph.D.

/s/ Carl Goldfischer
Carl Goldfischer, M.D.

/s/ Robert Booth

Robert Booth, Ph.D.

/s/ Kurt von Emster
Kurt von Emster, CFA

/s/ Caroline Loewy
Caroline Loewy

/s/ Evan A. Stein
Evan A. Stein, M.D., Ph D.

/s/ Paul F. Truex
Paul F. Truex

/s/ Robert J. Weiland

Robert J. Weiland

Title

President, Chief Executive Officer and Director
(Principal Executive Officer)

Vice President, Finance
(Principal Financial and Accounting Officer)

Director

Director

Director

Director

Director

Director

Director

Director

99

Date

March 15, 2018

March 15, 2018

March 15, 2018

March 15, 2018

March 15, 2018

March 15, 2018

March 15, 2018

March 15, 2018

March 15, 2018

March 15 2018

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INDEMNITY AGREEMENT

Exhibit 10.7

This Indemnity Agreement  (this “Agreement”) dated as of ________ __, 20__, is made by and between
CymaBay Therapeutics, Inc., a Delaware corporation (the “Company”), and _________________ (“Indemnitee”).

Recitals

A.

The Company desires to attract and retain the services of highly qualified individuals as directors,

officers, employees and agents.

B.

The  Company’s  bylaws  (the  “ Bylaws”)  require  that  the  Company  indemnify  its  directors  and
executive officers, and empowers the Company to indemnify its other officers, employees and agents, as authorized by
the  Delaware  General  Corporation  Law,  as  amended  (the “Code”), under which the Company is organized and such
Bylaws expressly provide that the indemnification provided therein is not exclusive and contemplates that the Company
may enter into separate agreements with its directors, officers, employees or agents to set forth specific indemnification
and advancement provisions.

C.

Indemnitee  does  not  regard  the  protection  currently  provided  by  applicable  law,  the  Bylaws,  the
Company’s other governing documents, and available insurance as adequate under the present circumstances, and the
Company has determined that Indemnitee and other directors, officers, employees and agents of the Company may not
be willing to serve or continue to serve in such capacities without additional protection.

D.

The  Company  desires  and  has  requested  Indemnitee  to  serve  or  continue  to  serve  as  a  director,
officer, employee or agent of the Company, as the case may be, and has proffered this Agreement to Indemnitee as an
additional inducement to serve in such capacity.

E.

Indemnitee is willing to serve, or to continue to serve, as a director, officer, employee or agent of the

Company, as the case may be, if Indemnitee is furnished the indemnity provided for herein by the Company.

Agreement

Now Therefore, in consideration of the mutual covenants and agreements set forth herein, the parties hereto,

intending to be legally bound, hereby agree as follows:

1.

Definitions.

(a)

Agent. For purposes of this Agreement, the term “Agent” of the Company means any

person who: (i) is or was a director, officer, employee, agent, or other fiduciary of the Company or a subsidiary of the
Company; or (ii) is or was serving at the request or for the convenience of, or representing the interests of, the
Company or a subsidiary of the Company, as

1.

 
 
a director, officer, employee, agent, or other fiduciary of a foreign or domestic corporation, partnership,  joint venture,
trust or other enterprise.

(b)

Change in Control .  For purposes of this Agreement, a “ Change in Control ” shall be

deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 20% or more of the total
voting power represented by the Company’s then outstanding Voting Securities, (ii) individuals who on the date of this
Agreement are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority
of the members of the Board (provided, however, that if the appointment or election (or nomination for election) of any
new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then
still in office, such new member shall be considered as a member of the Incumbent Board), or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the Company’s assets.

(c)

Expenses. For purposes of this Agreement, the term “Expenses” shall be broadly

construed and shall include, without limitation, all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys’, witness, or other professional fees and related disbursements, and other out-of-pocket
costs of whatever nature, actually and reasonably incurred by Indemnitee in connection with the investigation, defense
or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement, the Code or
otherwise. The term “Expenses” shall also include reasonable compensation for time spent by Indemnitee for which he
or she is not compensated by the Company or any subsidiary or third party: (i) for any period during which Indemnitee
is not an Agent, in the employment of, or providing services for compensation to, the Company or any subsidiary; and
(ii) if the rate of compensation and estimated time involved is approved by the directors of the Company who are not
parties to any action with respect to which Expenses are incurred, for Indemnitee while an Agent of, employed by, or
providing services for compensation to, the Company or any subsidiary.

(d)

Independent Counsel. For purposes of this Agreement, the term “Independent Counsel”

means a law firm, or a partner (or, if applicable, member) of such a law firm, that is experienced in matters of
corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party, or (ii) any other party to the proceeding giving rise to a claim
for

2.

 
indemnification hereunder. Notwithstanding the foregoing, the term “ Independent Counsel” shall not include any
person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The
Company will pay the reasonable fees and  expenses of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.

(e)

Liabilities. For purposes of this Agreement, the term “Liabilities” shall be broadly

construed and shall include, without limitation, judgments, damages, deficiencies, liabilities, losses, penalties, excise
taxes, fines, assessments and amounts paid in settlement, including any interest and any federal, state, local or foreign
taxes imposed as a result of the actual or deemed receipt of any payment under this Agreement.

(f)

Proceedings. For purposes of this Agreement, the term “proceeding” shall be broadly

construed and shall include, without limitation, any threatened, pending, or completed action, suit, claim, counterclaim,
cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative
hearing, or any other actual, threatened or completed proceeding, whether brought in the right of the Company or
otherwise and whether of a civil, criminal, administrative or investigative nature, and whether formal or informal in any
case, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness, or otherwise by
reason of: (i) the fact that Indemnitee is or was a director or officer of the Company; (ii) the fact that any action taken
by Indemnitee (or a failure to take action by Indemnitee) or of any action (or failure to act) on Indemnitee’s part while
acting as an Agent; or (iii) the fact that Indemnitee is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise,
and in any such case described above, whether or not serving in any such capacity at the time any liability or Expense is
incurred for which indemnification, reimbursement, or advancement of Expenses may be provided under this
Agreement. If the Indemnitee believes in good faith that a given situation may lead to or culminate in the institution of
a proceeding, this shall be considered a proceeding under this paragraph.

(g)

Subsidiary. For purposes of this Agreement, the term “subsidiary” means any

corporation, limited liability company, or other entity, of which more than 50% of the outstanding voting securities or
equity interests are owned, directly or indirectly, by the Company and one or more of its subsidiaries, and any other
corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the request of the Company as an Agent.

securities of the Company that vote generally in the election of directors.

(h)

Voting Securities.  For purposes of this Agreement, " Voting Securities" shall mean any

2.

Agreement to Serve. Indemnitee will serve, or continue to serve, as the case may be, as an Agent,

faithfully and to the best of his or her ability, at the will of such entity designated by the Company and at the request of
the Company (or under separate agreement, if such agreement exists), in the capacity Indemnitee currently serves such
entity, so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable

3.

 
provisions of the  governance documents of such  entity, or until such time as Indemnitee tenders his or her resignation in
writing; provided, however, that nothing contained in this Agreement is intended as an employment agreement between
Indemnitee and the Company or any of its subsidiaries or to create any right to continued employment of Indemnitee
with the Company or any of its subsidiaries in any capacity.

The Company acknowledges that it has entered into this Agreement and assumes the obligations imposed on

it hereby, in addition to and separate from its obligations to Indemnitee under the Bylaws, to induce Indemnitee to
serve, or continue to serve, as an Agent, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as an Agent.

3.

Indemnification.

(a)

Indemnification in Third Party Proceedings . Subject to Section 10 below, the Company

shall indemnify Indemnitee to the fullest extent permitted by the Code, as the same may be amended from time to time
(but, to the fullest extent of the law, only to the extent that such amendment permits Indemnitee to broader
indemnification rights than the Code permitted prior to adoption of such amendment), if Indemnitee is a party to or
threatened to be made a party to or otherwise involved in any proceeding, other than a proceeding by or in the right of
the Company to procure a judgment in its favor, for any and all Expenses and Liabilities (including all interest,
assessments and other charges paid or payable in connection with or in respect of such Expenses and Liabilities)
incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of such proceeding, if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, in the case of a criminal proceeding had no reasonable cause to believe that Indemnitee's
conduct was unlawful. The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law
for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification
provided by the Certificate of Incorporation of the Company, the Bylaws, vote of its stockholders or disinterested
directors, or applicable law.

(b)

Indemnification in Derivative Actions and Direct Actions by the Company . Subject to

Section 10 below, the Company shall indemnify Indemnitee to the fullest extent permitted by the Code, as the same
may be amended from time to time (but, fullest extent permitted by applicable law, only to the extent that such
amendment permits Indemnitee to broader indemnification rights than the Code permitted prior to adoption of such
amendment), if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding by
or in the right of the Company to procure a judgment in its favor, against any and all Expenses actually and reasonably
incurred by Indemnitee in connection with the investigation, defense, settlement, or appeal of such proceedings, if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company. No indemnification for Expenses shall be made under this Section 3(b) in respect of any
claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court competent jurisdiction to be
liable to the Company, unless and only to the extent that the  Chancery Court of the State of Delaware or any court in
which the proceeding was brought shall determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

4.

 
(c)

Fund Indemnitors. The Company hereby acknowledges that the Indemnitee  may have

certain rights to indemnification, advancement of Expenses or insurance, provided by  employers, funds or sponsors of
funds for which the Indemnitee may be associated and/or  certain of their  affiliates (collectively, the “Fund
Indemnitors”). In the event that the Indemnitee is, or is threatened to be made, a party to or a participant in any
proceeding to the extent resulting from any claim based on the Indemnitee’s service as an Agent , then the Company
shall (i) be an indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund
Indemnitors to advance Expenses or to provide indemnification for the same  Expenses or liabilities incurred by
Indemnitee are secondary), (ii) be required to advance reasonable Expenses incurred by Indemnitee, and (iii) be liable
for the full amount of all Expenses, judgments, penalties, fines , and amounts paid in settlement to the extent legally
permitted and as required by the terms of this Agreement and any provision of the Company’s Bylaws or  Certificate of
Incorporation (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee
may have against the Fund Indemnitors. The Company irrevocably waives, relinquishes and releases the Fund
Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery
of any kind in respect thereof. No advancement or payment by the Fund Indemnitors on behalf of Indemnitee with
respect to any claim for which Indemnitee has sought advancement on or  indemnification from the Company shall
affect the foregoing and the Fund Indemnitors shall have a right of contribution or be subrogated to the extent of such
advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Fund Indemnitors are
express third party beneficiaries of the terms of this Section.

4.

Indemnification of Expenses of Successful Party . Notwithstanding any other provision of this

Agreement, in circumstances where indemnification is not available under Section 3(a) or 3(b), as the case may be, to
the fullest extent permitted by law and to the extent that Indemnitee is a party to (or a participant in) any proceeding
and has been successful on the merits or otherwise in defense of any proceeding or in defense of any claim, issue or
matter therein, in whole or part, including the dismissal of any action without prejudice, the Company shall indemnify
Indemnitee against all Expenses and Liabilities in connection with the investigation, defense or appeal of such
proceeding. If Indemnitee is not wholly successful in such proceeding but is successful, on the merits or otherwise, as to
one or more but less than all claims, issues or matters in such proceeding, the Company shall indemnify Indemnitee
against all Expenses and Liabilities incurred by Indemnitee or on Indemnitee’s behalf in connection with or related to
each successfully resolved claim, issue or matter to the fullest extent permitted by law.

5.

Partial Indemnification; Witness Indemnification. If Indemnitee is entitled under any provision of

this Agreement to indemnification by the Company for some or a portion of any Expenses and Liabilities incurred by
Indemnitee in the investigation, defense, settlement or appeal of a proceeding, but is precluded by applicable law or the
specific terms of this Agreement to indemnification for the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Notwithstanding any other provision of
this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of
Indemnitee’s acting as an Agent, a witness or otherwise asked to participate in any proceeding to which Indemnitee is
not a party, Indemnitee

5.

 
shall be indemnified against all Expenses incurred by Indemnitee or on Indemnitee ’s behalf in connection therewith.

6.

Advancement of Expenses. To the extent not prohibited by law, the Company shall advance the

Expenses incurred by Indemnitee in connection with any proceeding, and such advancement shall be made within
twenty (20) days after the receipt by the Company of a statement or statements requesting such advances (which shall
include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection
with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to
waive any privilege accorded by applicable law shall not be included with the invoice) and upon request of the
Company, an undertaking to repay the advancement of Expenses if and to the extent that it is ultimately determined by
a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be
indemnified by the Company. Advances shall be unsecured, interest free and without regard to Indemnitee’s ability to
repay the Expenses. Advances shall include any and all Expenses incurred by Indemnitee pursuing an action to enforce
Indemnitee’s right to indemnification under this Agreement or otherwise and this right of advancement, including
expenses incurred preparing and forwarding statements to the Company to support the advances claimed. Indemnitee
acknowledges that the execution and delivery of this Agreement shall constitute an undertaking providing that
Indemnitee shall, to the fullest extent required by law, repay the advance (without interest) if and to the extent that it is
ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is
not entitled to be indemnified by the Company. The right to advances under this Section shall continue until final
disposition of any proceeding, including any appeal therein. This Section 6 shall not apply to any claim made by
Indemnitee for which indemnity is excluded pursuant to Section 10(b).

7.

Notice and Other Indemnification Procedures .

(a)

Notification of Proceeding . Indemnitee will notify the Company in writing promptly

upon being served with any summons, citation, subpoena, complaint, indictment, information or other document
relating to any proceeding or matter which may be subject to indemnification or advancement of Expenses covered
hereunder. The written notification to the Company shall include a description of the nature of the proceeding and the
facts underlying the proceeding. The failure of Indemnitee to so notify the Company shall not relieve the Company of
any obligation which it may have to Indemnitee under this Agreement or otherwise and any delay in so notifying the
Company shall not constitute a waiver by Indemnitee of any rights under this Agreement.

(b)

Request for Indemnification Payments . To obtain indemnification under this

Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification under the terms of this Agreement, and shall
request payment thereof by the Company.

Indemnitee for indemnification pursuant to the Section 7(b) hereof, a determination

(c)

Determination of Right to Indemnification Payments . Upon written request by

6.

 
with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following four
methods, which shall be at the election of the Board of Directors:  (1) by a majority vote of the disinterested directors,
even though less than a quorum, (2) by a committee of disinterested directors designated by a majority vote of the
disinterested directors, even though less than a quorum, (3) if there are no disinterested directors or if the disinterested
directors so direct, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be
delivered to the Indemnitee, or (4) if so directed by the Board of Directors, by the stockholders of the Company;
provided, however, that if there has been a Change in Control, then such determination shall be made by Independent
Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld).
For purposes hereof, disinterested directors are those members of the board of directors of the Company who are not
parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee. Indemnification
payments requested by Indemnitee under Section 3 hereof shall be made by the Company no later than sixty (60) days
after receipt of the written request of Indemnitee. Claims for advancement of  Expenses shall be made under the
provisions of Section 6 herein.

(d)

Application for Enforcement . In the event the Company fails to make timely payments
as set forth in Sections 6 or 7(c) above, Indemnitee shall have the right to apply to any court of competent jurisdiction
for the purpose of enforcing Indemnitee’s right to indemnification or advancement of Expenses pursuant to this
Agreement. In such an enforcement hearing or proceeding, the burden of proof shall be on the Company to prove that
indemnification or advancement of Expenses to Indemnitee is not required under this Agreement or permitted by
applicable law. Any determination by the Company (including its Board of Directors, a committee thereof, Independent
Counsel) or stockholders of the Company, that Indemnitee is not entitled to indemnification hereunder, shall not be a
defense by the Company to the action nor create any presumption that Indemnitee is not entitled to indemnification or
advancement of Expenses hereunder.

Indemnification of Certain Expenses . The Company shall indemnify Indemnitee against
all Expenses incurred in connection with any hearing or proceeding under this Section 7 unless the Company prevails in
such hearing or proceeding on the merits in all material respects.

(e)

8.

Assumption of Defense . In the event the Company shall be requested by Indemnitee to pay the

Expenses of any proceeding, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, or
to participate to the extent permissible in such proceeding, with counsel reasonably acceptable to Indemnitee. Upon
assumption of the defense by the Company and the retention of such counsel by the Company, the Company shall not
be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect
to the same proceeding, provided that Indemnitee shall have the right to employ separate counsel in such proceeding at
Indemnitee’s sole cost and expense. Notwithstanding the foregoing, if Indemnitee’s counsel delivers a written notice to
the Company stating that such counsel has reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense or the Company shall not, in fact, have employed counsel
or otherwise actively pursued the defense of such proceeding within a reasonable time, then in any such event the fees
and Expenses of Indemnitee’s counsel

7.

 
to defend such proceeding shall be subject to the indemnification and advancement of  Expenses provisions of this
Agreement.

9.

Insurance. To the extent that the Company maintains an insurance policy or policies providing
liability insurance for Agents or for agents of any other enterprise, Indemnitee shall be covered by such policy or
policies in accordance with its or their terms to the maximum extent of the coverage available for any such Agent
or agent under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof,
the Company has director and officer liability insurance in effect or otherwise potentially available, the Company shall
give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth
in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to
pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of
such policies.

10.

Exceptions.

(a)

Certain Matters. Any provision herein to the contrary notwithstanding, the Company

shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of any proceeding
with respect to: (i) remuneration paid to Indemnitee if it is determined by final judgment or other final adjudication that
such remuneration was in violation of law (and, in this respect, both the Company and Indemnitee have been advised
that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal
securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be
submitted to appropriate courts for adjudication, as indicated in Section 10(d) below); (ii) a final judgment rendered
against Indemnitee for an accounting, disgorgement or repayment of profits made from the purchase or sale by
Indemnitee of securities of the Company against Indemnitee or in connection with a settlement by or on behalf of
Indemnitee to the extent it is acknowledged by Indemnitee and the Company that such amount paid in settlement
resulted from Indemnitee's conduct from which Indemnitee received monetary personal profit, pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or other provisions of any federal,
state or local statute or rules and regulations thereunder; or (iii) a final judgment or other final adjudication that
Indemnitee’s conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct
(but only to the extent of such specific determination); or (iv) on account of conduct that is established by a final
judgment as constituting a breach of Indemnitee’s duty of loyalty to the Company or resulting in any personal profit or
advantage to which Indemnitee is not legally entitled. For purposes of the foregoing sentence, a final judgment or other
adjudication may be reached in either the underlying proceeding or action in connection with which indemnification is
sought or a separate proceeding or action to establish rights and liabilities under this Agreement.

(b)

Claims Initiated by Indemnitee . Any provision herein to the contrary notwithstanding,

the Company shall not be obligated to indemnify or advance Expenses to Indemnitee with respect to proceedings or
claims initiated or brought by Indemnitee against the Company or its Agents and not by way of defense, except (i) with
respect to proceedings brought to establish or enforce a right to indemnification or advancement under this Agreement
or under

8.

 
any other agreement, provision in the Bylaws or  Certificate of Incorporation or applicable law, or (ii) with respect to
any other proceeding initiated by Indemnitee that is either approved by the Board of Directors or Indemnitee’s
participation is required by applicable law. However, indemnification or advancement of  Expenses may be provided by
the Company in specific cases if the Board of Directors determines it to be appropriate.

(c)

Unauthorized Settlements. Any provision herein to the contrary notwithstanding, the

Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee under this Agreement
for any amounts paid in settlement of a proceeding effected without the Company’s written consent. Neither the
Company nor Indemnitee shall unreasonably withhold consent to any proposed settlement; provided, however, that the
Company may in any event decline to consent to (or to otherwise admit or agree to any liability for indemnification
hereunder in respect of) any proposed settlement if the Company is also a party in such proceeding and determines in
good faith that such settlement is not in the best interests of the Company and its stockholders.

(d)

Securities Act Liabilities. Any provision herein to the contrary notwithstanding, the

Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee or otherwise act in
violation of any undertaking appearing in and required by the rules and regulations promulgated under the Securities
Act of 1933, as amended (the “Act”), or in any registration statement filed with the SEC under the Act. Indemnitee
acknowledges that paragraph (h) of Item 512 of Regulation S-K currently generally requires the Company to undertake
in connection with any registration statement filed under the Act to submit the issue of the enforceability of
Indemnitee’s rights under this Agreement in connection with any liability under the Act on public policy grounds to a
court of appropriate jurisdiction and to be governed by any final adjudication of such issue. Indemnitee specifically
agrees that any such undertaking shall supersede the provisions of this Agreement and to be bound by any such
undertaking.

(e)

Prior Payments Any provision herein to the contrary notwithstanding, the Company shall

not be obligated pursuant to the terms of this Agreement to indemnify or advance Expenses to Indemnitee under this
Agreement for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or
other indemnity provision, expect with respect to any excess beyond the amount paid under any insurance policy or
indemnity policy.

11.

Nonexclusivity and Survival of Rights . The provisions for indemnification and advancement of

Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may at any
time be entitled under any provision of applicable law, the Company’s Certificate of Incorporation, Bylaws or other
agreements, both as to action in Indemnitee’s official capacity and Indemnitee’s action as an Agent, in any court in
which a proceeding is brought, and Indemnitee’s rights hereunder shall continue after Indemnitee has ceased acting as
an Agent and shall inure to the benefit of the heirs, executors, administrators and assigns of Indemnitee. The obligations
and duties of the Company to Indemnitee under this Agreement shall be binding on the Company and its successors
and assigns until terminated in accordance with its terms. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the
Company, expressly to assume and agree to perform this Agreement in the same

9.

 
manner and to the same extent that the Company would be required to perform if no such succession had taken place.

No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any
right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her
corporate status prior to such amendment, alteration or repeal. To the extent that a change in the Code, whether by
statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded
currently under the Company’s Certificate of Incorporation, Bylaws and this Agreement, it is the intent of the parties
hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or
remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy
shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, by Indemnitee
shall not prevent the concurrent assertion or employment of any other right or remedy by Indemnitee.

12.

Term. This Agreement shall continue until and terminate upon the later of: (a) five (5) years after

the date that Indemnitee shall have ceased to serve as an Agent; or (b) one (1) year after the final termination of any
proceeding, including any appeal then pending, in respect to which Indemnitee was granted rights of indemnification or
advancement of Expenses hereunder.

No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company
against an Indemnitee or an Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the
expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such
five-year period; provided, however, that if any shorter period of limitations is otherwise applicable to such cause of
action, such shorter period shall govern.

13.

Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to

the extent of such payment to all of the rights of recovery of Indemnitee, who, at the request and expense of the
Company, shall execute all papers required and shall do everything that may be reasonably necessary to secure such
rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce
such rights.

14.

Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be

interpreted and enforced so as to provide indemnification and advancement of Expenses to Indemnitee to the fullest
extent now or hereafter permitted by law.

15.

Severability. If any provision of this Agreement shall be held to be invalid, illegal or

unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this

10.

 
Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 14 hereof.

16.

Amendment and Waiver. No supplement, modification, amendment, or cancellation of this

Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall
such waiver constitute a continuing waiver.

17.

Notice. Except as otherwise provided herein, any notice or demand which, by the provisions

hereof, is required or which may be given to or served upon the parties hereto shall be in writing and, if by electronic
transmission, shall be deemed to have been validly served, given or delivered when sent, if by overnight delivery,
courier or personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and,
if mailed, shall be deemed to have been validly served, given or delivered three (3) business days after deposit in the
United States mail, as registered or certified mail, with proper postage prepaid and addressed to the party or parties to
be notified at the addresses set forth on the signature page of this Agreement (or such other address(es) as a party may
designate for itself by like notice). If to the Company, notices and demands shall be delivered to the attention of the
Secretary of the Company.

18.

Governing Law. This Agreement shall be governed exclusively by and construed according to the

laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed
entirely within Delaware.

19.

Counterparts. This Agreement may be executed in one or more counterparts, each of which shall
for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement.
Only one such counterpart need be produced to evidence the existence of this Agreement.

20.

Headings. The headings of the sections of this Agreement are inserted for convenience only and

shall not be deemed to constitute part of this Agreement or to affect the construction hereof.

21.

Entire Agreement. Subject to Section 11 hereof, this Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and
negotiations, written and oral, between the parties with respect to the subject matter of this Agreement; provided,
however, that this Agreement is a supplement to and in furtherance of the Company’s Certificate of Incorporation,
Bylaws, the Code and any other applicable law, and shall not be deemed a substitute therefor, and does not diminish or
abrogate any rights of Indemnitee thereunder.

22.

Contribution.  To the fullest extent permissible under applicable law, if the indemnification
provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines,
penalties, excise taxes, amounts paid or to

11.

 
be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this
Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such proceeding
in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or
transaction(s) giving cause to such p roceeding; and/or (ii) the relative fault of the Company and Indemnitee in
connection with such event(s) and/or transaction(s).

23.

Consent to Jurisdiction.  The Company and Indemnitee hereby irrevocably and unconditionally
(i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the
Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the
United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the
Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) agree
to appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, an agent in
the State of Delaware as such party's agent for acceptance of legal process in connection with any such action or
proceeding against such party with the same legal force and validity as if served upon such party personally within the
State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware
Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the
Delaware Court has been brought in an improper or inconvenient forum.

12.

 
 
 
IN WITNESS WHEREOF , the parties here to  have  entered  into  this Agreement  effective  as  of  the  date  first  above
written.

CYMABAY THERAPEUTICS, INC.

By:
Name:  
Title:

INDEMNITEE

Signature of Indemnitee

Print or Type Name of Indemnitee

 
   
   
   
 
 
 
 
 
 
 
 
 
Exhibit 10.19

November 9, 2017

Paul Quinlan
## ##### ######
########, ## #####

Dear Paul:

CymaBay Therapeutics, Inc. (the “Company”) is pleased to offer you employment as General Counsel on the following
terms:

1.

Position, Duties and Responsibilities.   Subject to the terms set forth herein, the Company
agrees  to  employ  you  in  the  position  of  General  Counsel  and  you  hereby  accept  such  employment  effective
immediately.  You  will  report  to  the  Company’s  Chief  Executive  Officer  (“CEO”)  and  will  perform  the  duties
customarily  associated  with  this  position  and  such  other  duties  as  are  assigned  to  you  by  the  CEO. You  will  devote
your  full  business  time  and  attention  to  the  business  affairs  of  the  Company,  except  for  reasonable  vacations  and
periods of illness or incapacity permitted by the Company’s general employment policies. The employment relationship
between  you  and  the  Company  shall  also  be  governed  by  the  general  employment  policies  and  practices  of  the
Company, including those relating to protection of confidential information and assignment of inventions, except that
when the terms of this letter agreement differ from or are in conflict with the Company’s general employment policies
or practices, this letter agreement shall control.

2.

Compensation and Employee Benefits .

2.1

Base  Salary.  Your  base  salary  will  be  three  hundred  and  seventy-five
thousand dollars ($375,000) on an annualized basis, less payroll deductions and required withholdings, paid according
to the Company’s regular payroll schedule and procedures. Subject to the other terms of this letter agreement, your base
salary may be modified by the Company in its sole discretion. Your salary will be effective as of December 4, 2017.

1.

 
 
 
 
 
 
2.2

Discretionary  Bonus.    You  will  be  eligible  to  participate  in  the
Company’s annual bonus program  pursuant to the terms of that program and you will be eligible to receive a bonus of
up  to thirty-five  percent  ( 35%)  of  your  annual  base  salary.  Your  actual  bonus,  if  any,  will  be  determined  by  the
Company’s Board of Directors, or the Compensation subcommittee thereof (the “Board”), in its sole discretion, based
upon its evaluation of your performance, the Company’s performance, and any other considerations it deems relevant.
You  must  be  employed  through  the  bonus  payment  date  to  be  eligible  for, and to earn,   any  such  bonus. Any  bonus
payment will be subject to payroll deductions and required withholdings.

2.3

Employee  Benefits.    You  will  be  entitled  to  all  employee  benefits,
including  vacation  accrual  of  twenty  (20)  days  per  year  and  health  and  disability  benefits  for  which  you  are  eligible
under the terms and conditions of the standard Company benefit plans which may be in effect from time to time and
provided  by  the  Company  to  its  senior  executive-level  employees  generally.  Currently,  such  benefits  include  twelve
paid  holidays,  as  well  as  paid  sick  leave  of  up  to  ten  days  per  year.  Notwithstanding  the  foregoing,  the  Company
reserves the right to adopt, amend or discontinue any employee benefit plan or policy, including changes required by
applicable law.

2.4

Stock  Options.    Subject  to  the  approval  of  the  Board  pursuant  to  the
Company’s  equity  incentive  plan  you  will  be  granted  a  stock  option  of two  hundred  and  fifty  thousand  (250,000)
shares  of  Company  common  stock  at  a  per  share  exercise  price  equal  to  the  per  share  fair  market  value  of  the
Company’s common stock on the date of grant as determined by the Board. Option grants are made at regular Board
meetings held approximately once each calendar quarter. Your option grant will be considered at the first regular Board
meeting following the execution of this letter agreement. The term of such stock option will be ten (10) years, subject to
earlier  expiration  in  the  event  of  the  termination  of  your  service  with  the  Company.    Such  stock  option  will  vest  as
determined by the Board, as long as you remain in continuous service with the Company and a portion of the shares
subject to your outstanding option may vest on an accelerated basis pursuant to Sections 7 or 8.  Except as provided
herein, such stock option will  be subject to the provisions of the equity incentive plan of the Company under which the
options are granted and the applicable form of stock option agreement thereunder (the “Plan Documents”).

3.

Other Activities During Employment .

3.1

Activities.  Except with the prior written consent of the CEO, you will not,
during  your  employment  with  the  Company,  undertake  or  engage  in  any  other  employment,  occupation  or  business
enterprise, other than ones in which you are a passive investor. You may engage in civic and not-for-profit activities so
long as such activities do not interfere with the performance of your job duties for the Company.

3.2

Investments and Interests.  Except as permitted by the first sentence of
Section 3.1 and by Section 3.3, during your employment you agree not to acquire, assume or participate in, directly or
indirectly,  any  position,  investment  or  interest  known  by  you  to  be  adverse  or  antagonistic  to  the  Company,  or  its
business or prospects, financial or otherwise.

2.

 
 
3.3

Noncompetition.  During the term of your employment by the Company,
except  on  behalf  of  the  Company,  you  will  not  directly  or  indirectly,  whether  as  an  officer,  director,  stockholder,
partner, proprietor, associate, representative, consultant, or in any capacity whatsoever engage in, become financially
interested in, be employed by or have any business connection with any other person, corporation, firm, partnership or
other entity whatsoever that competes with the Company anywhere in the world, in any line of business engaged in (or
planned  to  be  engaged  in)  by  the  Company; provided, however,  that  anything  above  to  the  contrary  notwithstanding,
you may own, as a passive investor, securities of any entity, so long as your direct holdings in any one such corporation
do not in the aggregate constitute more than one percent (1%) of the voting stock of such corporation.

4.

Company  Policies;  Confidential  Information  and  Inventions  Agreement . 

  You
acknowledge your obligations under the Company’s Employee Agreement on Confidential Information and Inventions,
a copy of which is attached as Exhibit A. You further acknowledge your obligation to abide by the Company’s rules,
policies and procedures.

5.

Immigration.  The Immigration Reform and Control Act of 1986 requires that every person
present  proof  to  the  Company  of  their  identity  and  eligibility  and/or  authorization  to  accept  employment  with  the
Company. In order to comply with this law you must provide appropriate documentation to prove both your identity
and legal eligibility to be employed at the Company.

6.

Your Representations and Warranties.

6.1

No  Breach  of  Contract .   You  represent  and  warrant  that  the  execution
and delivery of this letter agreement by you and the performance of your obligations hereunder will not conflict with or
breach any agreement, order or decree to which you are a party or by which you are bound. You warrant that you are
subject to no employment agreement or restrictive covenant preventing full performance of your duties under this letter
agreement.

No Conflict of Interest .  You warrant that you are not, to the best of your
knowledge and belief, involved in any situation that might create, or appear to create, a conflict of interest with your
loyalty to or duties for the Company.

6.2

6.3

Notification of Materials or Documents from Other Employers .  You
further  warrant  that  you  have  not  brought  and  will  not  bring  to  the  Company  or  use  in  the  performance  of  your
responsibilities at the Company any materials or documents of a former employer that are not generally available to the
public, unless you have obtained express written authorization from the former employer for their possession and use.

6.4

  You  also
understand that, as part of your employment with the Company, you are not to breach any obligation of confidentiality
that  you  have  to  former  employers,  and  you  agree  to  honor  all  such  obligations  to  former  employers  during  your
employment with the Company.

Notification  of  Other  Post-Employment  Obligations . 

3.

 
 
7.

Termination of Employment.

the
Company shall be at-will. Either you or the Company may terminate the employment relationship at any time, with or
without Cause, and with or without advance notice.

At-Will  Employment  Relationship. 

  Your  employment  with 

7.1

7.2

Termination for Cause.

(a)

If the Company terminates your employment at any time
for  Cause  (as  defined  below),  your  salary  shall  cease  on  the  date  of  termination  and  you  shall  not  be  entitled  to
severance pay, COBRA premium payments, pay in lieu of notice or any other such compensation other than payment of
accrued salary and vacation and such other benefits as expressly required by applicable law or the terms of applicable
benefit plans. The continued vesting of any Equity Awards held by you shall cease on your employment termination
date, and your right to exercise vested Equity Awards shall be governed by the Plan Documents.

(b)

Definition  of  Cause.  

  For  purposes  of  this  letter
agreement, “Cause” means the occurrence of any one or more of the following: (i) your conviction of, or plea of no
contest, with respect to any felony or any crime involving fraud, dishonesty or moral turpitude; (ii) your participation in
a fraud or act of dishonesty that results in material harm to the Company; (iii) your intentional material violation of any
contract  or  agreement  between  you  and  the  Company,  including  but  not  limited  to  this  letter  agreement  or  your
Employee Agreement on Confidential Information and Inventions, or your violation of any statutory duty that you owe
to the Company, but only if you do not correct any such violation within thirty (30) days after written notice thereof has
been provided to you (if such notice is reasonably practicable); or (iv) your gross negligence or willful neglect of your
job duties, as determined by the Board in good faith, but only if you do not correct such violation within thirty (30)
days after written notice thereof has been provided to you (if such notice is reasonably practicable).

for Good Reason.

7.3

Severance  Benefits  For  Termination  Without  Cause  or  Resignation

(a)

If  the  Company  terminates  your  employment  without
Cause and other than as a result of your death or disability, or if you resign your employment for Good Reason (defined
below), and provided such termination constitutes a “separation from service” (as defined under Treasury Regulation
Section 1.409A-1(h), without regard to any alternative definition thereunder, a “Separation from Service”), you will be
eligible to receive the severance benefits described in this Section 7.3.

(b)

You  will  be  eligible  to  receive,  subject  to  payroll
deductions and required withholdings and net of any amounts earned by you pursuant to any employment or consulting
arrangements  obtained  by  you  following  such  termination  (other  than  the  activities  described  in  the  last  sentence  of
Section 3.1), continuation for twelve (12) months of the greater of: (i) your base salary in effect as of such termination
date; or (ii) your base salary as set forth in Section 2.1. In addition, you will be eligible to receive your potential annual
discretionary bonus amount set forth in Section 2.2, determined as if all performance targets established by the Board
have been satisfied, pro-rated for the number of months elapsed in the year in which your

4.

 
 
employment terminates, but in no event will  you receive a bonus pro-rated for less than nine (9) months.  You agree to
notify the Company promptly of any amount earned by you from other employment or a consulting engagement while
you are receiving severance payments under this letter agreement.  

(c)

If  you  timely  elect  and  remain  eligible  for  continued
coverage of your group health insurance under COBRA, the Company will pay your premiums for COBRA coverage
for up to twelve (12) months following your Separation from Service, provided that such payments shall cease if you
obtain full-time employment, or cease to be eligible for COBRA, within such period. You agree to notify the Company
promptly if you obtain full-time employment while the Company is paying your COBRA premiums under this letter
agreement. On the 60th day following your Separation from Service, the Company will make the first payment under
this clause equal to the aggregate amount of payments that the Company would have paid through such date had such
payments commenced on the Separation from Service through such 60th  day,  with  the  balance  of  the  payments  paid
thereafter on the schedule described above. If you become eligible for coverage under another employer's group health
plan  or  otherwise  cease  to  be  eligible  for  COBRA  during  the  period  provided  in  this  clause,  you  must  immediately
notify the Company of such event, and all payments and obligations under this clause will cease.

You  will  receive  acceleration  of  vesting  of  all  of  your
then-outstanding  and  then-unvested  stock  option  grants  as  of  the  date  of  termination  as  to  the  number  of  shares  that
would have vested in their vesting schedules as if you had been in service for an additional nine (9) months as of your
Separation from Service.  

(d)

(e)

Your receipt of any severance benefits under this Section
7.3  is  contingent  upon  your  signing  and  making  effective  within  sixty  (60)  days  after  the  termination  date,  a  full,
general  release  of  all  claims  against  the  Company  in  a  form  acceptable  to  the  Company  containing  the  language  set
forth  in  the  Release Agreement  attached  as  Exhibit  B  on  or  after  the  termination  date.  The  base  salary  and  bonus
severance will be paid in substantially equal installments over the twelve (12) month period following your Separation
in Service according to the Company’s payroll procedures; provided, however, that no payments will be made to you
prior to the 60th day following your Separation from Service. On the first payroll pay day following the 60th day after
your Separation from Service, the Company will pay you the cash severance amounts you would have received on or
prior to such date in a lump sum in compliance with Code Section 409A and the effectiveness of the release, with the
balance of the cash payments being made as originally scheduled.

(f)

Definition  of  Good  Reason.     For  purposes  of  this  letter
agreement,  “Good  Reason”  shall  mean  any  one  of  the  following  events  that  occurs  without  your  consent:  (i)  the
material reduction in your responsibilities, authorities or functions as an employee of the Company (but not merely a
change in reporting relationships); (ii) a material reduction in your level of compensation (including base salary, fringe
benefits and target bonus under any corporate-performance based bonus or incentive programs); (iii) a material change
of your place of employment that results in an increase to your round trip commute of more than twenty (20) miles; or
(iv) the Company’s material breach of this letter agreement. Notwithstanding the foregoing, you must provide written
notice to the CEO of the Company within thirty (30) days

5.

 
 
after the date on which such event first occurs, and allow the Company thirty (30) days thereafter (the “Cure Period”)
during which the Company may attempt to rescind or correct the matter giving rise to Good Reason. If the Company
does not rescind or correct the conduct giving rise to Good Reason to your reasonable satisfaction by the expiration of
the Cure Period, your employment will then terminate with Good Reason as of such thirtieth day.

7.4

Voluntary or Mutual Termination .  You may voluntarily terminate your
employment  with  the  Company  at  any  time  without  Good  Reason.  If  you  terminate  without  Good  Reason  or  if  your
employment terminates as a result of your death or disability, your salary shall cease on the date of termination and you
shall not be entitled to severance, pay in lieu of notice or any other such compensation other than payment of accrued
salary  and  vacation  and  such  other  benefits  as  expressly  required  in  such  event  by  applicable  law  or  the  terms  of
applicable  benefit  plans.    The  continued  vesting  of  any  compensatory  equity  awards  held  by  you  shall  cease  on  the
termination  date,  and  your  right  to  exercise  vested  awards  (or  be  issued  shares  under  such  vested  awards)  shall  be
governed  by  the  terms  of  the  Company’s  applicable  compensatory  equity  plans  and  the  corresponding  award
agreements.

7.5

Application  of  Section  409A .    If  the  Company  (or,  if  applicable,  the
successor entity thereto) determines that the severance payments and benefits provided for in this letter agreement (the
“Agreement  Payments”)  constitute  “deferred  compensation”  under  Section  409A  of  the  Internal  Revenue  Code
(together, with any state law of similar effect, “Section 409A”) and you are a “specified employee” of the Company or
any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) (a “Specified Employee”), then, solely
to  the  extent  necessary  to  avoid  the  incurrence  of  the  adverse  personal  tax  consequences  under  Section  409A,  the
timing of the Agreement Payments shall be delayed as follows: on the earliest to occur of (i) the date that is six months
and one day after the termination date or (ii) the date of your death (such earliest date, the “Delayed Initial Payment
Date”), the Company (or the successor entity thereto, as applicable) shall (A) pay to you a lump sum amount equal to
the sum of the Agreement Payments that you would otherwise have received through the Delayed Initial Payment Date
if the commencement of the payment of the Agreement Payments had not been delayed pursuant to this Section 7.5 and
(B) commence paying the balance of the Agreement Payments in accordance with the applicable payment schedules set
forth  in  this  letter  agreement.    For  the  avoidance  of  doubt,  it  is  intended  that  (1)  each  installment  of  the Agreement
Payments provided in this letter agreement is a separate “payment” for purposes of Section 409A, (2) all Agreement
Payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under
of Treasury Regulation 1.409A-1(b)(4) and 1.409A-1(b)(9)(iii), and (3) the Agreement Payments consisting of COBRA
premiums also satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided
under Treasury Regulation 1.409A-1(b)(9)(v).

8.

Change in Control .

8.1

Definitions.

“Change  in  Control”  shall  mean  an  Ownership  Change
Event (as defined below) or a series of related Ownership Change Events (collectively, a “Transaction”) wherein the
stockholders of the Company immediately before the Transaction do not retain

(a)

6.

 
 
direct  or  indirect  beneficial  ownership  of  more  than  fifty  percent  (50%)  of  the  total  combined  voting  power  of  the
outstanding securities of the Company or, in the case of a Transaction described in Section 8.1(b)(iii), the corporation
or other business entity to which the assets of the Company were transferred (the “Transferee”), as the case may be. For
purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting
from ownership of the voting securities of one or more corporations or other business entities that own the Company or
the  Transferee,  as  the  case  may  be,  either  directly  or  through  one  or  more  subsidiary  corporations  or  other  business
entities.

(b)

An  “Ownership  Change  Event”  shall  be  deemed  to  have
occurred  if  any  of  the  following  occurs  with  respect  to  the  Company:  (i)  the  direct  or  indirect  sale  or  exchange  in  a
single  or  series  of  related  transactions  by  the  stockholders  of  the  Company  of  more  than  fifty  percent  (50%)  of  the
voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; or (iii) the sale, exchange
or transfer of all or substantially all of the assets of the Company.

8.2

Severance.    On  the  consummation  of  any  Change  in  Control  any
remaining unvested portion of your stock options will be accelerated such that fifty percent (50%) of your outstanding
and  then-unvested  options  become  fully  vested  and  exercisable  as  of  the  date  of  the  Change  in  Control  (the
“Acceleration”).  If  on  or  within  twelve  (12)  months  following  a  Change  in  Control,  the  Company  or  a  successor
corporation  terminates  your  employment  without  Cause  and  other  than  as  a  result  of  your  death  or  disability,  or  you
resign  for  Good  Reason  (a  “Change  in  Control  Termination”),  and  provided  that  such  termination  constitutes  a
Separation  from  Service,  then  subject  to  your  obligations  below,  and  in  lieu  of  any  severance  benefits  set  forth  in
Section 7.3 herein, you will be entitled to receive (collectively, the “Change in Control Severance Benefits”):

(a)

Subject  to  payroll  deductions  and  required  withholdings
and  net  of  any  amounts  earned  by  you  pursuant  to  any  employment  or  consulting  arrangements  obtained  by  you
following  such  termination  (other  than  the  activities  described  in  the  last  sentence  of  Section  3.1),  continuation  for
twelve (12) months of the greater of: (i) your base salary in effect as of such termination date; or (ii) your base salary as
set forth in Section 2.1. In addition, you will be eligible to receive 125% of your potential annual discretionary bonus
amount set forth in Section 2.2, determined as if all performance targets established by the Board have been satisfied.

You  will  receive  acceleration  of  vesting  of  all  of  your
then-outstanding  and  then-unvested  stock  option  grants  as  of  the  date  of  termination  such  that  the  remaining  fifty
percent (50%) of your unvested options following the Acceleration become fully vested and exercisable.

(b)

(c)

If  you  timely  elect  and  remain  eligible  for  continued
coverage of your group health insurance under COBRA, the Company will pay your premiums for COBRA coverage
for up to fifteen (15) months following your Separation from Service, provided that such payments shall cease if you
obtain full-time employment, or cease to be eligible for COBRA, within such period. You agree to notify the Company
promptly if you obtain full-time employment while the Company is paying your COBRA premiums under this letter
agreement. On the 60th day following your Separation from Service, the Company will make the first payment under
this clause equal to the aggregate amount of payments that the Company would

7.

 
 
have paid through such date had such payments commenced on the Separation from Service through such 60 th day,
with the balance of the payments paid thereafter on the schedule described above. If you become eligible for coverage
under another employer's group health plan or otherwise cease to be eligible for COBRA during the period provided in
this  clause,  you  must  immediately  notify  the  Company  of  such  event,  and  all  payments  and  obligations  under  this
clause will cease.  

As  a  precondition  of  receiving  the  Change  in  Control
Severance  Benefits,  you  must  first  sign  and  make  effective  on  or  after  the  termination  date  a  full,  general  release  of
claims  against  the  Company  in  a  form  acceptable  to  the  Company  containing  the  language  set  forth  in  the  Release
Agreement attached as Exhibit B.

(d)

8.3

Parachute Payments.

(a)

If  any  payment  or  distribution 

the  nature  of
compensation (within the meaning of Section 280G(b)(2) of the Code) to you or for your benefit, whether under this
letter agreement or otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the “Code”) (together with any interest or penalties imposed with respect to such
excise  tax,  the  “Excise  Tax”),  then  you  will  be  entitled  to  receive  from  the  Company  an  additional  payment  (the
“Gross-Up  Payment”)  in  an  amount  equal  to  (i)  all  Excise  Taxes  (including  any  interest  or  penalties  imposed  with
respect  to  such  taxes)  on  the  Payment  (the  “First  Reimbursement  Payment”),  (ii)  all  federal,  state  and  local  income
taxes and employment taxes on the First Reimbursement Payment, and (iii) all Excise Taxes (including any interest or
penalties imposed with respect to such taxes) on the First Reimbursement Payment.

in 

(b)

All determinations required to be made under this Section
8.3 including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by the nationally recognized certified public
tax accounting firm used by the Company or, if such firm declines to serve, such other nationally recognized certified
public tax accounting firm as you may designate (the “Accounting Firm”). The Accounting Firm may make reasonable
assumptions  and  approximations  concerning  applicable  taxes  and  may  rely  on  reasonable,  good-faith  interpretations
concerning the application of Sections 280G and 4999 of the Code. The Accounting Firm shall provide its calculations,
together  with  detailed  supporting  documentation,  to  the  Company  and  you  within  thirty  (30)  calendar  days  after  the
date on which your right to a Payment is triggered (if requested at that time by the Company or you) and/or at such
other times as requested by the Company or you. If the Accounting Firm determines that no Excise Tax is payable with
respect to a Payment, it shall furnish the Company and you with an opinion reasonably acceptable to you that no Excise
Tax will be imposed with respect to such Payment.  If the Accounting Firm determines that an Excise Tax is payable
with  respect  to  a  Payment,  it  shall  furnish  to  the  Company  and  you  an  opinion  reasonably  acceptable  to  you  of  the
amount  of  Excise  Tax  payable  with  respect  to  the  Payments  and  the  amount  of  Gross-Up  Payment  due  to  you.  The
Company  will  pay  the  Gross-Up  Payment  to  you  within  thirty  (30)  days  of  the  date  the  Company  receives  the
Accounting Firm’s opinion, but in no event later than the end of your tax year following your tax year in which you
pay  the  Excise  Tax.  The  Company  shall  bear  all  reasonable  expenses  with  respect  to  the  determinations  by  the
Accounting Firm required to be made hereunder. Any determination by the Accounting Firm shall be binding upon the
Company and you.

8.

 
 
9.

General Provisions.

9.1

Dispute Resolution.  To aid in the rapid and economical resolution of any
disputes which may arise under this letter agreement, the parties agree that any and all claims, disputes or controversies
of any nature whatsoever arising from or regarding the interpretation, performance, negotiation, execution, enforcement
or breach of this letter agreement, or your relationship with the Company, including statutory claims, shall be resolved
by  confidential,  final  and  binding  arbitration  conducted  before  a  single  arbitrator  with  Judicial  Arbitration  and
Mediation  Services,  Inc.  (“JAMS”)  in  San  Francisco,  California,  in  accordance  with  JAMS’  then-applicable
employment  arbitration  rules  (which  may  be  reviewed  at  www.jamsadr.com/rules-employment-arbitration/).  The
parties  acknowledge  that  by  agreeing  to  this  arbitration  procedure,  they  waive  the  right  to  resolve  any  such
dispute  through  a  trial  by  jury,  judge  or  administrative  proceeding.  The  parties  will  have  the  right  to  be
represented  by  legal  counsel  at  any  arbitration  proceeding.  The  arbitrator  shall:    (i)  have  the  authority  to  compel
adequate  discovery  for  the  resolution  of  the  dispute  and  to  award  such  relief  as  would  otherwise  be  available  under
applicable law in a court proceeding; and (ii) issue a written statement signed by the arbitrator regarding the disposition
of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential
findings  and  conclusions  on  which  the  award  is  based.  The  Company  shall  bear  all  JAMS’  arbitration  fees  and
administrative  costs  in  excess  of  the  amount  of  administrative  fees  (e.g.,  filing  fees)  that  you  would  otherwise  be
required to pay if the dispute were decided in a court of law. Nothing in this letter agreement shall prevent any party
from obtaining injunctive or other provisional relief in court to prevent irreparable harm pending the conclusion of any
arbitration proceeding.

9.2

Severability.  Whenever possible, each provision of this letter agreement
will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this letter
agreement  is  held  to  be  invalid,  illegal  or  unenforceable  in  any  respect  under  any  applicable  law  or  rule  in  any
jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction,
but such invalid, illegal or unenforceable provision will be reformed, construed and enforced in such jurisdiction so as
to render it valid, legal, and enforceable consistent with the intent of the parties insofar as possible.

9.3

Notices.  Any notices provided hereunder must be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal delivery by fax) or the next day after sending
by overnight courier, to the Company at its primary office location and to you at your address as listed on the Company
payroll.

Waiver.  If either party should waive any breach of any provisions of this
letter agreement, you or the Company shall not thereby be deemed to have waived any preceding or succeeding breach
of the same or any other provision of this letter agreement.

9.4

9.5

Entire  Agreement .    This  letter  agreement,  together  with  its  exhibits,
constitutes the entire and exclusive agreement between you and the Company, and it supersedes any prior agreement,
promise, representation, or statement, written or otherwise, between you and the Company with regard to this subject
matter.  It  is  entered  into  without  reliance  on  any  promise,  representation,  statement  or  agreement  other  than  those
expressly  contained  or  incorporated  herein,  and  it  cannot  be  modified  or  amended  except  in  a  writing  signed  by  you
and a duly authorized officer of the Company.

9.

 
 
Counterparts.    This  letter  agreement  may  be  executed  in  separate
counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will
constitute one and the same letter agreement.

9.6

convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

9.7

Headings.    The  headings  of  the  sections  hereof  are  inserted  for

9.8

Successors  and Assigns .    This  letter  agreement  is  intended  to  bind  and
inure to the benefit of and be enforceable by you, the Company and your and its respective successors, assigns, heirs,
executors and administrators, except that you may not assign any of your duties hereunder and you may not assign any
of your rights hereunder without the written consent of the Company.

Governing Law.  All questions concerning the construction, validity and
interpretation  of  this  letter  agreement  will  be  governed  by  the  law  of  the  State  of  California  as  applied  to  contracts
made and to be performed entirely within California.

9.9

Attorneys’ Fees.  If either party hereto brings any action to enforce your
or its rights hereunder, the prevailing party in such action shall be entitled to be paid by the other party such prevailing
party’s reasonable attorneys’ fees and costs incurred in such action.

9.10

Enclosed is your Employee Agreement on Confidential Information and Inventions, which you should read carefully.

To indicate your acceptance of the Company’s offer, please sign this letter agreement in the space provided below and
return it to me along with the signed Exhibit A. This offer shall expire on November 17, 2017 if not accepted prior to
such date.

Sincerely,

CymaBay Therapeutics, Inc.

By:

  /s/ Sujal Shah
  Sujal Shah
  President and Chief Executive Officer

Accepted and agreed:

/s/ Paul Quinlan
Paul Quinlan

Exhibit A - Employee Agreement on Confidential Information and Inventions
Exhibit B - Release Agreement

10.

 
 
 
   
 
 
 
 
 
 
Exhibit A

CymaBay Therapeutics, Inc.
7999 Gateway Blvd., Suite 130
Newark, CA 94560-1144
Phone 510 293-8800         Fax 510 293-9090

January 1, 2017

EMPLOYEE AGREEMENT ON CONFIDENTIAL
INFORMATION AND INVENTIONS

THIS AGREEMENT is between CymaBay Therapeutics, Inc. a Delaware Corporation (“the Company”), and Paul
Quinlan, (the “Employee”).

PURPOSE OF AGREEMENT

doing, it can protect its trade secrets and inventions, ideas, information, business, and good will.

I want to be employed by the Company, and the Company wants to employ me, provided that, in so

In consideration of this purpose, and the mutual promises in this Agreement, I agree with the

Company as follows:

1.

Term

My employment with the Company is an at-will relationship that may be terminated by
either the Company or me with or without cause for any reason whatsoever at any time upon notice to the other party.

(A)

earned by me as of the date of termination.

(b)

If my employment is terminated for any reason, I will be entitled only to the compensation

2.

Confidential Information.  I will hold in confidence and use only for the benefit of the

Company during the term of my employment and for five years after the termination of my employment all Confidential
Information of the Company, its Affiliates,  and all Confidential Information of companies or persons other than the
Company given to the Company under an agreement prohibiting its disclosure.  “Confidential Information” refers to
valuable technical or business information that is not known by the public.  By way of example, Confidential
Information may include information relating to: inventions or products, including unannounced products; research and
development activities; requirements and specifications of specific customers and potential customers; nonpublic
financial information; and quotations or proposals given to customers.

11.

 
 
 
 
 
 
 
 
 
 
 
 
 
These restrictions on disclosure do not apply if the information is or becomes publicly known

through no wrongful act on my part or the information is explicitly approved for release under such circumstances by
an officer of the Company.

3.

Disclosure and Assignment of Inventions .  I hereby assign to the Company my entire right,

title and interest in all inventions.  “Inventions” refer to (a) all technical or business innovations, whether or not
patentable or copyrightable, made by me during the term of my employment; and (b) all technical or business
innovations, whether or not patentable, based upon the Company's Confidential Information and made by me after
leaving the Company's employ.  I will keep adequate written records of all inventions made by me, such as notebooks,
sketches, program listings and the like, which are the property of the Company.  Notwithstanding the foregoing, I am
not required to assign to the Company, although I must disclose, any inventions: (a) for which no equipment, supplies,
facilities or Confidential Information of the Company were used and which was developed entirely on my own time;
(b) which at the time of conception or reduction to practice did not relate directly to the business of the Company or the
Company's actual or demonstrably anticipated research or development and (c) which did not result from any work I
performed for the Company.  The disclosure of such inventions must be made so that the parties can make a
determination whether such inventions do in fact qualify for exclusion from assignment to the Company.  The
Company will keep confidential any such information I disclose.  I will take all steps necessary to assist the Company
in securing any patents, copyrights or other protection for inventions which I am required to assign to the Company as
provided above.  If I am unable or unwilling, whether during my employment or after termination, to sign any papers
needed to apply for or pursue any patent or copyright registrations for inventions, I agree that the Company is my
attorney-in-fact for that purpose and can sign such papers as my agent and take any other actions necessary to pursue
these registrations.

4.

List of Inventions I Own .  I have attached as Exhibit A a list of inventions I own, which is

a complete list of all technical or business innovations I own either alone or jointly with others on the date of this
Agreement.  I agree that I will not incorporate any of these prior inventions into products being developed for the
Company without the prior knowledge and written consent of the Company.  Should the Company wish to use any of
my inventions in its business, the Company will negotiate with me for a purchase of or license to use such invention on
mutually agreeable terms.  If no such list is attached, or if no such inventions are listed thereon, I represent that I do not
own any inventions at the time of signing this Agreement.

5.

Tangible Materials.  All tangible materials that incorporate Confidential Information are the

Company's property, and I will give all of these materials and any other documents and materials which are the
property of the Company, including but not limited all notes of any research or other work which I have performed for
the Company and all biological materials created, used or held by me in the course of my work for the Company, back
to the Company at the termination of my employment or earlier upon the Company's request.

6.

Solicitation of Employees.  I understand that information about the Company's employees,

such as their skills, performance ratings, and salary histories, constitutes Confidential Information owned by the
Company.  I agree that, for a period of twelve (12)

12.

 
 
 
 
 
 
months after termination of my employment for any reason, I will not, either directly or indirectly, solicit, induce,
recruit or encourage any of the Company's employees to leave their employment, or take away such employees, or
attempt to do any of these things, whether on my own behalf or on behalf of any other person, since to do so would
necessarily involve using Confidential Information.

Termination.  In the event of termination of my employment for any reason, I agree that, as
requested by the Company, I will sign and deliver a “Termination Certification” in the form attached to this Agreement
as Exhibit B.  I also agree that the Company may give notice to my new employer of my duties under this Agreement.

8.

business activity (either for my own profit or for anyone else) that competes with the Company's business.

9.

Duty of Loyalty . During my employment with the Company, I will not engage in any

10.

Duties to Third Parties .  I represent that, to the best of my knowledge, compliance with

the terms of this Agreement will not violate any duty that I may have to anyone other than the Company (such as a
former employer) to keep such person's proprietary information in confidence or to refrain from using that person's
patents or copyrights.  If at any time during my employment with the Company, I am asked by the Company to perform
work which I believe may cause me to violate a duty I have to someone other than the Company, I will immediately
inform an officer of the Company so that an assessment of the situation may be made.  I also agree that I will not,
during my employment with the Company, bring onto the Company's premises, use or disclose to the Company any
proprietary information or trade secrets of any former employer or any other person without that person's consent.

11.

Miscellaneous.  This is the only agreement between the Company and myself about

confidential information and the ownership of inventions, and may not be modified, amended or terminated, in whole
or in part, except in a writing signed by me and by an officer of the Company.  Any later change in my title,
compensation or duties will not affect this Agreement.  This Agreement will survive termination of my employment for
any reason, and will continue for the benefit of and will be binding upon the successors, assigns, heirs and legal
representatives of the Company and myself.  Any waiver by the Company of a breach of any of the obligations of this
Agreement by me will not operate or be construed as a waiver of any other or subsequent breach by me.  In the event
any provision of this Agreement is held to be invalid, void or unenforceable, the remaining provisions will nevertheless
continue in full force and effect without being impaired or invalidated in any way.  The prevailing party in any legal
action brought by one party against the other and arising out of this Agreement shall be entitled, in addition to any other
rights and remedies it may have, to reimburse for its expenses, including court costs and reasonable attorney's
fees.  This Agreement will be governed by the laws of the State of California governing contracts between residents to
be performed in the State of California.

13.

 
 
 
 
 
 
CymaBay Therapeutics, Inc.

By:   /s/ Sujal Shah
  Sujal Shah
  President and Chief Executive Officer

  11-9-17
  Date

Employee

By:  /s/ Paul Quinlan
 Signature
 Paul Quinlan

 10 Nov 17
 Date

14.

 
 
 
 
 
 
   
 
 
  
 
 
 
 
 
 
 
 
   
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT A

List of Inventions I Own (see para. 4.)

None.

15.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT B

Termination Certificate

This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data,

notes, reports, proposals, lists, equipment, computer programs or listings, other documents or property or any
reproductions of any of these materials belonging to CymaBay Therapeutics, Inc., a Delaware corporation, its
subsidiaries, successors or assigns (collectively, the “Company”).

I further certify that I have complied with all the terms of the Company's Employee Confidential Information
and Inventions Agreement signed by me, including the reporting of any inventions and original works of authorship (as
defined in that agreement) conceived or made buy me (solely or jointly with others) covered by that agreement.

I further agree that, in compliance with the Employee Confidential Information and Inventions Agreement, I
will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to
inventions or products, including but not limited to unannounced products, research and development activities,
requirements and specifications of specific customers and potential customers, nonpublic financial information, and
quotations or proposals given to customers, including any information disclosed to the Company in confidence by any
third party.

I further agree that for twelve (12) months from this date, I will not solicit, induce, recruit or encourage any of

the Company's employees to leave their employment.

Signature

Printed Name

Date

16.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit B

Release Agreement

(To be signed on or after the Separation Date)

I  understand  that  my  employment  with  CymaBay  Therapeutics  (the  “Company”)  terminated  effective
_____________________, ____ (the “Separation Date”). The Company has agreed that if I choose to sign this Release
Agreement  (“Release”),  the  Company  will  provide  certain  severance  benefits  (minus  the  required  withholdings  and
deductions)  pursuant  to  the  terms  of  the  employment  agreement  dated  ________________  (as  amended,  the  “Letter
Agreement”). I understand that I am not entitled to such severance benefits unless I sign this Release, and it becomes
fully effective.

I  understand  that  this  Release,  together  with  the  Letter  Agreement,  constitutes  the  complete,  final  and
exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I
am not relying on any promise or representation by the Company that is not expressly stated therein.

I hereby confirm my obligations under my Employee Agreement on Confidential Information and Inventions

with the Company.

I hereby represent that I have been paid all compensation owed and for all hours worked, have received all the
leave  and  leave  benefits  and  protections  for  which  I  am  eligible,  pursuant  to  the  Family  and  Medical  Leave Act  or
otherwise, and have not suffered any on-the-job injury for which I have not already filed a claim.

In exchange for the consideration provided to me by this Release that I am not otherwise entitled to receive, I
hereby  generally  and  completely  release  Company  and  its  current  and  former  directors,  officers,  employees,
stockholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and
assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way
related to events, acts, conduct, or omissions occurring prior to my signing this Release. This general release includes,
but is not limited to: (a) all claims arising out of or in any way related to my employment with the Company or the
termination  of  that  employment;  (b)  all  claims  related  to  my  compensation  or  benefits  from  the  Company,  including
salary,  bonuses,  commissions,  vacation  pay,  expense  reimbursements,  severance  pay,  fringe  benefits,  stock,  stock
options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination,
and  breach  of  the  implied  covenant  of  good  faith  and  fair  dealing;  (d)  all  tort  claims,  including  claims  for  fraud,
defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory
claims,  including  claims  for  discrimination,  harassment,  retaliation,  attorneys’  fees,  or  other  claims  arising  under  the
federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age
Discrimination in Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment and Housing
Act (as amended).

17.

 
 
Nothing  in  this  Release  shall  prevent  me  from  filing,  cooperating  with,  or  participating  in  any  proceeding
before the Equal Employment Opportunity Commission, the Department of Labor, or the California Department of Fair
Employment and Housing, except that I hereby acknowledge and agree that I shall not recover any monetary benefits in
connection with any such proceeding.

I  acknowledge  that  I  am  knowingly  and  voluntarily  waiving  and  releasing  any  rights  I  may  have  under  the
ADEA (“ADEA  Waiver ”).  I  also  acknowledge  that  the  consideration  given  for  the ADEA  Waiver  is  in  addition  to
anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as
required by the ADEA, that:  (a) my ADEA Waiver does not apply to any rights or claims that arise after the date I sign
this  Release;  (b)  I  should  consult  with  an  attorney  prior  to  signing  this  Release;  (c)  I  have  twenty-one  (21)  days  to
consider this Release (although I may choose to voluntarily sign it sooner); (d) I have seven (7) days following the date
I sign this Release to revoke the ADEA Waiver; and (e) the ADEA Waiver will not be effective until the date upon
which the revocation period has expired unexercised, which will be the eighth day after I sign this Release.

I  acknowledge  that  I  have  read  and  understand  Section  1542  of  the  California  Civil  Code  which  reads  as
follows:  “A general release does not extend to claims which the creditor does not know or suspect to exist in his
or her favor at the time of executing the release, which if known by him or her must have materially affected his
or her settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section
and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder.

I  acknowledge  that  to  become  effective,  I  must  sign  and  return  this  Release  to  the  Company  so  that  it  is

received not later than twenty-one (21) days following the date it is provided to me.

I accept and agree to the terms and conditions stated above:

Date

Print Name

18.

 
 
 
 
 
 
 
 
 
Exhibit 10.20

CymaBay Therapeutics, Inc.

Non-Employee Directors Compensation Program

Our Non-Employee Director Compensation Program is intended to compensate our non-employee directors with a
combination of cash and equity.  Each non-employee director will receive an annual base cash retainer of $35,000 for
such service. The chairperson of our board of directors (provided he or she is not an employee) will receive an
additional annual base cash retainer of $20,000 for this service. In addition, we intend to compensate the members of
our board of directors for service on our committees as follows:

•

•

•

  The chairperson of our audit committee will receive an annual cash retainer of $17,500 for this service, and
each of the other members of the audit committee will receive an annual cash retainer of $9,000.

  The chairperson of our compensation committee will receive an annual cash retainer of $10,000 for such
service, and each of the other members of the compensation committee will receive an annual cash retainer
of $6,000.

  The chairperson of our nominating and corporate governance committee will receive an annual cash retainer
of $8,750 for this service, and each of the other members of the nominating and corporate governance
committee will receive an annual cash retainer of $4,000.

Cash payments described above are paid quarterly.

Further, concurrently with the grants under our annual grant program for employees, each non-employee director will
receive an annual equity award valued at approximately $100,000. If a new board member joins our board of directors,
the director will receive an initial equity award valued at approximately $200,000. Annual equity awards and equity
awards to new board members will be subject to vesting as determined by our Board or Compensation Committee on
the date of grant, generally vesting over 12 months for annual grants, and vesting over 36 months for initial grants.

 
 
 
 
 
 
 
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

(1)

(2)

Registration Statements (Form S-3 Nos. 333-222372 and 333-192617) of CymaBay Therapeutics, Inc., and

Registration Statements (Form S-8 Nos. 333-195211, 333-198289, 333-202941, 333-210453, and 333-216905) pertaining
to the Metabolex, Inc. 2003 Equity Incentive Plan, and the CymaBay Therapeutics, Inc. 2013 Equity Incentive Plan,

of our report dated March 15, 2018, with respect to the financial statements of CymaBay Therapeutics, Inc., included in this Annual Report
(Form 10-K) of CymaBay Therapeutics, Inc. for the year ended December 31, 2017.

Exhibit 23.1

/s/ Ernst & Young LLP

Redwood City, California
March 15, 2018

 
 
 
 
 
 
 
CERTIFICATIONS

Exhibit 31.1

I, Sujal Shah, certify that:

1.

2.

3.

4.

I have reviewed this Form 10-K of CymaBay Therapeutics, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

b)

c)

d)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):

a)

b)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.

Date: March 15, 2018

/s/ Sujal Shah

Sujal Shah
President and Chief Executive Officer
(Principal Executive Officer)

 
 
 
 
 
 
 
 
 
 
 
 
CERTIFICATIONS

Exhibit 31.2

I, Daniel Menold, certify that:

1.

2.

3.

4.

I have reviewed this Form 10-K of CymaBay Therapeutics, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

b)

c)

d)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):

a)

b)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.

Date: March 15, 2018

/s/ Daniel Menold

Daniel Menold
Vice President, Finance
(Principal Financial and Accounting Officer)

 
 
 
 
 
 
 
 
 
 
 
 
 
CERTIFICATION

Exhibit 32.1

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Sujal Shah., President and Chief Executive Officer
and Daniel Menold, Vice President, Finance of CymaBay Therapeutics, Inc. (the “Company”), hereby certifies that, to the best of his
knowledge:

1.

2.

The Company’s Annual Report on Form 10-K for the period ended December 31, 2017, to which this Certification is attached as
Exhibit 32.1 (the “Annual Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 15th day of March, 2018.

/s/ Sujal Shah
Sujal Shah
President and Chief Executive Officer
(Principal Executive Officer)

/s/ Daniel Menold
Daniel Menold
Vice President, Finance
(Principal Financial and Accounting Officer)

This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is
not to be incorporated by reference into any filing of CymaBay Therapeutics, 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 the Form 10-K), irrespective of any general
incorporation language contained in such filing.