Gemphire Therapeutics Inc
Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 Form 10-K(Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-37809 Gemphire Therapeutics Inc.(Exact name of Registrant as specified in its charter) Delaware 47‑2389984(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 17199 N. Laurel Park Drive, Suite 401, Livonia, MI 48152(Address of principal executive offices) (Zip Code) (734) 245‑1700(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: Title of Each Class Name of Exchange on Which RegisteredCommon stock, $0.001 par value The Nasdaq Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark whether 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 thepreceding 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 past90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ 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 becontained, 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 anyamendment to this Form 10-K. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerginggrowth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 ofthe Exchange Act. (Check one): Large accelerated filer ☐Accelerated filer ☒ Non-accelerated filer ☐Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial 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 12(b)-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒ The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $128 million based on the closing price on theNasdaq Global Market as of June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter. The number of outstanding shares of the registrant’s common stock, $0.001 par value, as of March 11, 2019 was 14,265,411. Table of ContentsGemphire Therapeutics Inc.FORM 10-KINDEX PART I Item 1: Business5Item 1A: Risk Factors52Item 1B: Unresolved Staff Comments92Item 2: Properties92Item 3: Legal Proceedings92Item 4: Mine Safety Disclosures92 PART II Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities92Item 6: Selected Financial Data92Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations94Item 7A: Quantitative and Qualitative Disclosures About Market Risk109Item 8: Financial Statements and Supplementary Data110Item 9: Changes In and Disagreements With Accountants on Accounting and Financial Disclosure138Item 9A: Controls and Procedures 138Item 9B: Other Information139 PART III Item 10: Directors, Executive Officers and Corporate Governance139Item 11: Executive Compensation142Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters155Item 13: Certain Relationships and Related Transactions and Director Independence158Item 14: Principal Accounting Fees and Services161 PART IV Item 15: Exhibits and Financial Statement Schedules162 SIGNATURES 166 2 Table of ContentsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSUnless the context requires otherwise, references in this Annual Report on Form 10-K (this “Report”) to "we," "us," "theCompany" and "our" refer to Gemphire Therapeutics Inc. This Report, including under the headings “Business,” "Risk Factors," and "Management's Discussion and Analysis ofFinancial Condition and Results of Operations," contains forward-looking statements. We may, in some cases, use words suchas "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should,""will," "would" or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomesto identify these forward-looking statements. Any statements contained herein that are not statements of historical facts maybe deemed to be forward-looking statements. Forward-looking statements in this Report include, but are not limited to,statements about: §our anticipated timing of regulatory submissions; commencement and completion of preclinicalstudies and clinical trials, meetings with the FDA and other regulatory authorities; and productapprovals and initiation of commercialization, if approved, for gemcabene or any other productcandidates we may pursue in the future;§our ability to successfully pursue any strategic alternatives;§the outcome of our ongoing preclinical toxicology studies related to our partial clinical hold withrespect to clinical trials of longer than six months in duration;§the outcome and timing of a decision by the FDA regarding whether to lift our partial clinicalhold;§the outcome of clinical trials of gemcabene and our ability to replicate positive results from acompleted clinical trial in a future clinical trial;§our expected clinical trial designs and regulatory pathways;§our expectation that the FDA will not require us to complete a cardiovascular outcomes trial priorto approval;§our expectations for the attributes of gemcabene or any other product candidate we may pursue inthe future, including pharmaceutical properties, mechanisms of action, efficacy, safety, dosingregimens and cost, as compared to other lipid-lowering therapies;§our ability to design an efficient development plan;§our expectations regarding our existing capital resources;§our plans to advance the late-stage clinical development of gemcabene across multiple targetindications, pursue oral combination opportunities for gemcabene, maximize the globalcommercial value of gemcabene and leverage the expertise and experience of our managementteam to evaluate future in-license acquisition opportunities;§our estimates regarding industry trends and market potential for gemcabene;§if approved, our ability to maintain regulatory approval of gemcabene and respond and adhere toregulatory requirements;3 Table of Contents§our ability to identify, in-license or acquire, develop and, if approved, successfully commercializebest-in-class products, including gemcabene or any other product candidates we may pursue in thefuture;§our ability to identify and execute on strategic alternatives, including in connection with ourDecember 2018 announcement that we are pursuing a review of strategic alternatives and anypotential transactions and partnerships we may pursue in the future;§our ability to out-license gemcabene to strategic partner(s) seeking to develop and/orcommercialize it;§our ability to enhance brand awareness among key thought leaders and physicians;§if approved, the rate and degree of market acceptance of gemcabene or any other productcandidates we may pursue in the future;§if approved, our ability to compete with other companies that are, or may be, developing or sellingproducts that may compete with gemcabene;§reimbursement policies, including any future changes to such policies or related governmentlegislation and our ability to sell gemcabene, if approved;§regulatory and legal developments in the United States and in foreign countries;§our ability to obtain and maintain intellectual property protection for gemcabene or any otherproduct candidates we may pursue in the future and not infringe upon the intellectual property ofothers;§our ability to fund our working capital requirements;§our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needsfor, or ability to, obtain additional financing;§the ability of any third parties with whom we collaborate for the development andcommercialization of gemcabene to successfully perform their assigned functions;§our ability to retain and recruit key scientific and management personnel;§our financial performance; and§our expectations regarding the period during which we qualify as an emerging growth companyunder the JOBS Act.These forward-looking statements reflect our management's beliefs and views with respect to future events and are based onestimates and assumptions as of the date of this Report and are subject to risks and uncertainties. We discuss many of theserisks in greater detail under "Risk Factors." Moreover, we operate in a very competitive and rapidly changing environment.New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact ofall factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differmaterially from those contained in any forward-looking statements we may make. Given these uncertainties, you should notplace undue reliance on these forward-looking statements.4 Table of ContentsExcept as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a resultof new information, future events or otherwise.In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. Thesestatements are based upon information available to us as of the date of this Report, and while we believe such informationforms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should notbe read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevantinformation. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. PART I ITEM 1.BUSINESSOverview We are a clinical‑stage biopharmaceutical company focused on developing and commercializing therapies for the treatmentof dyslipidemia, a serious medical condition that increases the risk of life-threatening cardiovascular disease, focused onorphan indications, as well as nonalcoholic fatty liver disease (NAFLD/NASH). Our product candidate, gemcabene, has beentested as monotherapy and in combination with statins and other drugs in more than 1,100 subjects, which we define ashealthy volunteers and patients, across 25 Phase 1 and Phase 2 clinical trials and has demonstrated promising evidence ofefficacy, safety and tolerability.We are pursuing gemcabene in dyslipidemia conditions where patients are unable to reach their lipid lowering goals,including patients already receiving maximally tolerated statin therapy. Within dyslipidemia, indications broadly includeFamilial Hypercholesterolemia (FH), Atherosclerotic Cardiovascular Disease (ASCVD), Severe Hypertriglyceridemia (SHTG)and Nonalcoholic Steatohepatitis (NASH). Within these broader indications are orphan diseases including HomozygousFamilial Hypercholesterolemia (HoFH), Familial Chylomicronemia Syndrome (FCS; TGs>880mg/dL), and Familial PartialLipodystrophy (FPL) which represent clear unmet clinical needs because current therapies are considered inadequate.Historically, clinical trials for these orphan indications are smaller and FDA approvals have previously been based onsurrogate endpoints (e.g., serum LDL-C or serum TGs). Consequently, we believe we can design efficient development plansto provide gemcabene as a treatment alternative for HoFH patients as well as FCS and FPL patients. If approved for one ormore of these indications, this could enable us to go to market initially by treating patients in the most severe segment of thedyslipidemia market, which could subsequently lead to trials in broader indications representing millions of individuals,such as SHTG and potentially ASCVD and NASH. This strategy of “orphan-first” trials can enhance brand awareness amongkey thought leaders and physicians and has the potential to provide a more rapid, less expensive path through trials andregulatory approvals. It also provides the potential for initiating sales with a small, focused sales force.We plan to develop gemcabene for multiple clinical indications given its: (1) promising clinical data and mechanism inthese indications; (2) cost‑effective manufacturing process; (3) convenient oral dosing; (4) viability as adjunct combinationtherapy; and (5) large commercial potential. During 2016 to 2018, we initiated and completed three Phase 2b clinical trialsfor gemcabene in HoFH, hypercholesterolemia, including Heterozygous Familial Hypercholesterolemic (HeFH) and ASCVDpatients on maximally tolerated statins, and SHTG. Previously we reported top line data from our 8 patient trial for HoFH(COBALT-1) in the second quarter of 2017, top line data from our 105 patient trial for hypercholesterolemia onhigh‑intensity statin therapy including HeFH and ASCVD patients (ROYAL-1) in the third quarter of 2017, and top line datafrom our 91 patient trial in SHTG patients (INDIGO-1) in the second quarter of 2018. As previously announced, all three ofthese trials achieved statistical significance for their primary endpoints.Gemcabene’s mechanism of action is multifaceted. In the liver gemcabene acts in two major ways to reduce levels ofcirculating LDL-C and triglycerides: 1) inhibition of the two metabolic pathways that synthesize precursors (i.e., cholesteroland fatty acids) of VLDL-C, LDL-C and triglycerides and 2) stimulation of a liver mechanism known as the remnant receptorpathway that removes particles that contain cholesterol and triglycerides from the blood. Gemcabene’s stimulation of thisremnant receptor pathway involves enhanced removal of an LDL-C precursor known as very low-density lipoproteinremnants. With regard to gemcabene’s anti-inflammatory properties, in human clinical trials and animal studies to date,gemcabene has been shown to significantly reduce plasma levels of CRP. Furthermore, in preclinical studies of dyslipidemiaas well as NASH, gemcabene inhibited production of a number of known pro-5 Table of Contentsinflammatory molecules (e.g., CRP, CCR2, CCR5, IL-6, TNF-alpha, MCP-1 and MIP1-beta) as well as pro-fibrotic factors(e.g., TIMP-1, MMP-2). Overall, gemcabene’s multifaceted mechanism of action provides the potential for safely addressingmultiple major risk factors in a broad array of adult and pediatric cardiometabolic patients who have an elevated risk ofcardiovascular or liver disease, even when taking conventional therapies.Cardiovascular disease is a major health concern, causing more deaths globally than any other disease. Dyslipidemia leads tocardiovascular disease and is generally an important predictor of cardiovascular events including heart attack and stroke.Dyslipidemia is generally characterized by an elevation of low-density lipoprotein cholesterol (LDL-C), or bad cholesterol,triglycerides, or fat in the blood, or both. It represents one of the largest therapeutic areas with annual worldwide drug sales ofapproximately $17 billion in 2015. We estimate more than 40% of Americans have elevated LDL-C or triglycerides, or both.Statins, such as atorvastatin, simvastatin or rosuvastatin, are standard of care for LDL-C lowering, while fibrates, prescriptionactive ingredient of fish oils (i.e. EPA) and niacin are standard of care for triglyceride lowering. Although these drugs arehighly prescribed and capable of reducing LDL-C and triglyceride levels, many patients are unable to effectively managetheir dyslipidemia with currently approved therapies and are in need of additional treatment options. For example,approximately 40% of patients on statins are unable to meet their LDL-C lowering goal and doubling a statin dose has beenshown to incrementally lower LDL-C levels by a nominal percentage (approximately 6% based on historical evidence), whileincreasing safety and tolerability concerns. An even higher percentage of patients with severe hypertriglyceridemia do notachieve triglyceride levels low enough to reduce the risk of developing co-morbidities such as pancreatitis. We believegemcabene possesses a differentiated product profile compared to other therapies in the market and in clinical development.Key Business DevelopmentsClinical and Research Program UpdatesIn late 2017 we announced the initiation of a Phase 2a investigator initiated trial to assess gemcabene in pediatric patientswith non-alcoholic fatty liver disease (NAFLD). The planned scope of this open-label, 12-week study was to evaluategemcabene 300 mg in 40 adolescent NAFLD patients, 12-17 years of age. The study enrolled 6 patients and in August 2018,the Data Safety Monitoring Board (DSMB) halted the trial early due to “unanticipated problems” in the first three patients.Specifically, the primary efficacy endpoint of alanine amino transferase (ALT) increased beyond baseline levels in two ofthese three patients. At baseline, i.e., prior to receiving gemcabene, and as outlined in study inclusion criteria, ALT for thesetwo patients were elevated 3–fold and 10-fold compared to ALT levels reported for healthy pediatric patients (~25 IU/L) ofsimilar age. In addition, all three patients had an increase in the secondary endpoint of liver fat fraction as measured bymagnetic resonance imaging–estimated proton density fat fraction (MRI-PDFF). All patients gained weight and hadincreased TGs during study treatment, in contrast to data in other gemcabene trials. Patients were instructed to self-administerthe test-agent daily, however compliance was compromised as assessed by return of unused tablets and measurement of blooddrug levels. One observation of increased ALT and two observations of increased liver fat were reported as Adverse Events(AEs) considered related to gemcabene. No events were reported as Serious Adverse Events (SAEs). The risk for increasedliver fat with gemcabene treatment is unknown at this time. The patients will continue to be monitored for 12 months post-final dose. We intend to work closely with the physicians and other KOLs to identify potential reasons for the unanticipatedproblems in the pediatric NAFLD study but cannot assure you that it will be possible to determine the reasons for theunexpected problems.In early 2018 we announced the initiation of a Phase 2 proof-of-concept trial treating FPL/NASH patients for 24 weeks,which is being conducted in an investigator-initiated study at the University of Michigan. In the third quarter of 2018, theprincipal investigator and DSMB for this trial reviewed the data from the pediatric trial as well interim data from the FPL trialand decided to continue the FPL trial. The principal investigator in the trial intends to closely monitor these patientsthroughout the study. In the fourth quarter of 2018 the FPL trial was fully enrolled and top-line data is expected in thesecond quarter of 2019. To date, there was one unrelated SAE of benign paroxysmal positional vertigo in IIT-GEM-602, andno deaths or withdrawals due to adverse events.As announced in third quarter of 2018, we completed and submitted to the FDA the results from our two year rodentcarcinogenicity studies. These studies were submitted as part of a request for the FDA to remove the partial clinical hold thatprevents us from conducting human studies of gemcabene that are greater than six months in duration. In response to oursubmission, the FDA did not lift the hold and requested that we provide additional data, including two preclinical studies,namely, a subchronic (13 week) study of gemcabene in PPARα knock-out mice and a study of gemcabene in in vitro PPARtransactivation assays using monkey and canine PPAR isoforms. We expect to submit this additional data to6 Table of Contentsthe FDA in the fourth quarter of 2019. In addition, the FDA informed us that an End of Phase 2 (EOP2) meeting to reach anagreement on the design of Phase 3 registration and long term safety exposure trials for our target indications in dyslipidemiawould not take place until the partial clinical hold is lifted.Pfizer License AgreementIn the third quarter of 2018, we announced that our gemcabene in-licensing agreement with Pfizer was renegotiatedproviding three additional years to for us to achieve our first commercial sale, by April 2024. As of today, this additionaltime is expected to provide sufficient time to achieve regulatory approval and initiate commercialization of gemcabene for atleast one indication.Review of Strategic AlternativesIn December 2018, we announced that our Board of Directors established a committee to oversee a review of strategicalternatives focused on maximizing stockholder value and that we had engaged Ladenburg Thalmann & Co. Inc. to act as ourstrategic financial advisor in this process. Despite undertaking this process, we may not be successful in completing atransaction, and, even if a strategic transaction is completed, it ultimately may not deliver the anticipated benefits or enhancestockholder value.Our StrategyOur goal is to become a leading cardiometabolic biopharmaceutical company that develops and commercializes best‑in‑classtherapies for disorders related to dyslipidemias. Our product candidate, gemcabene, has been found to have numerousnotable attributes that position it as a therapeutic potentially capable of benefiting multiple disease indications.The attributes of gemcabene include:·Cost‑effective, once‑daily, oral therapy·Promising safety and tolerability ·Pleiotropic MOA providing multiple biological benefits·Significant lipid‑lowering of LDL‑C, high‑sensitivity C‑reactive protein (hsCRP) and triglycerides (TGs) ·No drug‑drug interactions when combined with high‑intensity statin doses These attributes provide opportunities to pursue gemcabene for multiple clinical indications. Thus there are several potentialapproaches to clinical, regulatory, and commercialization plans for gemcabene. With the FDA decision in the third quarter of2018 to require additional preclinical studies in order to consider lifting the partial clinical hold on gemcabene andscheduling an EOP2 meeting, and the consequent delay in initiating our Phase 3 program, we recently refocused our nextstage of clinical trials to initially focus on rare/orphan disease indications and subsequently broader indications.Thus our strategy for gemcabene is:·Advance the late‑stage clinical development of gemcabene across multiple target indications, beginning withrare diseases within FH and SHTG populations and then expanding into broader indications. Our “orphan-first” strategy initially includes pursuing orphan indications such as HoFH, FCS, and FPL. Broader indicationsthat may be pursued later include SHTG, HeFH, ASCVD, and NASH. Advancing gemcabene for orphanindications has multiple potential advantages including: 1) smaller, less costly clinical trials, 2) clear unmetneed, 3) potential for expedited regulatory review and even Orphan Drug Designation (which gemcabene hasalready received from the FDA for HoFH), and 4) the likelihood of needing a small commercialization team toinitiate sales. ·Continue to build out our patent portfolio for gemcabene. We believe our patents and patent applicationsprovide us with a significant competitive advantage. As of February 2019, we had 47 issued patents and 95pending patent applications for gemcabene in the United States and internationally directed to formulations,compositions, methods of use and methods of manufacturing. We intend to aggressively prosecute and defendour patent portfolio and pursue new patents in order to ensure the long-term commercial success of gemcabene.7 Table of Contents·Maximize the global commercial value of gemcabene. We have retained all commercial and manufacturingrights to gemcabene. We intend to evaluate our strategic alternatives to collaborate with globalbiopharmaceutical companies for the development and commercialization of gemcabene. We believe we couldindependently commercialize gemcabene for the treatment of patients with HoFH, FPL, and FCS in the UnitedStates with a targeted sales force and would seek commercial partners outside of the United States. For largerindications such as SHTG, ASCVD, and NASH, we expect to assess partnership opportunities for Phase 3development and the worldwide commercialization of gemcabene.·Leverage the expertise and experience of our management team to evaluate future in‑licensing andacquisition opportunities. Across our leadership team, we have discovered and/or developed Lipitor, Lopid,Bempedoic Acid, ETC‑216, ACP‑501, and PNT‑2258, and commercialized many lipid-regulating and orphandrugs including Crestor, Myalept and Lynparza. Our team is well‑qualified to identify and in‑license or acquireclinical‑stage cardiometabolic assets, and we intend to evaluate these opportunities to diversify our pipelineand generate long‑term growth.We believe that oral, once‑daily gemcabene as an add‑on to statin and other existing therapies is differentiated by the abilityto lower multiple risk factors (LDL‑C, hsCRP and triglycerides) and, if approved, presents a significant opportunity acrossmultiple indications in dyslipidemia and NASH. These indications span from orphan indications including HoFH, FCS andFPL to more prevalent conditions, such as SHTG, HeFH, ASCVD and NASH in which therapies are required to reduceelevated levels of LDL‑C, triglycerides, inflammation or any combination thereof.Overview of Dyslipidemia and NASH MarketsAccording to the World Health Organization, cardiovascular disease is the number one cause of death in the world,responsible for 17.5 million, or approximately one in three, deaths in 2012. Cardiovascular disease is influenced by bothenvironment and genetics. Environmental factors include diet, smoking, excess weight and sedentary lifestyle. Geneticdefects can cause certain types of cardiovascular disease, such as familial hypercholesterolemia, a condition in whichmutations on one or more genes can result in elevated LDL‑C levels in patients. Cardiovascular burden in the US isexpanding at an alarming rate. The prevalence of CVD was 41.5% in 2015, due to the rising effects of obesity and the earlieronset of type 2 diabetes. It is estimated that 45% of the US population will have at least one cardiovascular condition by2035.Dyslipidemia is characterized by an elevation of LDL‑C, triglycerides or both. Dyslipidemia leads to cardiovascular diseaseand is generally an important predictor of cardiovascular events, including heart attack and stroke. It is estimated that71 million American adults, or approximately 33%, have high LDL‑C levels, which is a major risk factor for cardiovasculardisease. We estimate from 2015 data that over 33 million patients are prescribed statins, of which a little more than half, or19 million, are secondary prevention patients. Of these 19 million secondary prevention patients, approximately 10 millionare ASCVD patients who are not at their LDL-C goal. Furthermore, it is estimated that over 30% of American adults haveelevated triglycerides above 150 mg/dL, and high levels of triglycerides are even evident in patients with normal cholesterollevels. If untreated, elevated triglycerides levels may lead to more serious illnesses, such as atherosclerosis (plaque build‑upin the arteries) and severely elevated triglyceride levels may lead to pancreatitis (inflammation of the pancreas). Thedyslipidemia market has achieved approximately $17 billion in worldwide drug sales in 2015 and remains one of the largesttherapeutic markets.NASH is an advanced form of NAFLD in which a buildup of excess triglycerides in the liver (steatosis), usually in the contextof metabolic dysregulation, results in liver damage (hepatocyte ballooning) and increased inflammation. This condition canlead to hepatic fibrosis and cirrhosis and eventually hepatocellular carcinoma (HCC) in some patients. NASH is now thesecond most common cause for liver transplantation in the U.S. We believe there are currently no approved medications fortreating NASH in any market across the globe. Disease management chiefly involves lifestyle modification, some off-labelmedication use, and monitoring for disease progression. Off-label medications typically include antioxidant, antidiabetic,and lipid modifying agents. Despite the potentially serious liver complications, the natural progression of NASH is relativelyslow, and CV disease is the leading cause of death among NASH patients,8 Table of Contentspartly as a result of the disease and partly due to the common comorbidities in patients with NASH, including type 2 diabetesand obesity. Global Dyslipidemia Market2015 Worldwide Drug Sales of $16.9 Billion© 2016 DR/Decision Resources, LLC. All rights reserved. Reproduction, distribution, transmission or publication isprohibited. Reprinted with permission. DR/Decision Resources, LLC (“DR”) makes no representation or warranty as to theaccuracy or completeness of the data (“DR Material”) set forth herein and shall have, and accept, no liability of any kind,whether in contract, tort (including negligence) or otherwise, to any third party arising from or related to use of the DRMaterial by Gemphire Therapeutics Inc. Any use which Gemphire Therapeutics Inc. or a third party makes of the DRMaterial, or any reliance on it, or decisions to be made based on it, are the sole responsibilities of Gemphire TherapeuticsInc. and such third party. In no way shall any data appearing in the DR Material amount to any form of prediction offuture events or circumstances and no such reliance may be inferred or implied. Regulatory Precedents for Approval in Dyslipidemia IndicationsHistorical data suggest a linear relationship between LDL‑C and cardiovascular disease, showing that lower LDL‑C levelsreduces the risk of mortality and other cardiovascular events (for example, for about every 2mg/dL reduction in LDL-C, anadditional 1.2 % reduction in cardiovascular risk reduction is realized). The chart below by the Cholesterol TreatmentTrialists’ (CTT) Collaboration provides the foundation for this ‘LDL‑C hypothesis’. Lowering LDL‑C Decreases Cardiovascular RiskElevated LDL‑C lowering is the #1 Modifiable Risk Factor9 Table of ContentsSources: CTT Cholesterol Treatment Trialist’s Collaboration and Study Papers for each Trial; CV = Cardiovascular; MACE=MajorAdverse Cardiovascular Events; *A‑Z p=.14 and IDEAL p=.07 Key For LDL‑C Lowering Drug with Successful Trial Results: Gemfibrozil: HHS; Atorvastatin: IDEAL, TNT, PROVE‑IT, ASCOT‑LLA,SPARCL; Pravastatin: ALLHAT, CARE, PROSPER, LIPID, WOSCOPS; Simvastatin: A‑Z, HPS, 4S; Lovastatin: AFCAPS;Rosuvastatin: JUPITER; Ezetimibe: IMPROVE‑IT; Canakinumab: CANTOS; Vascepa: REDUCE-IT.Since 1987 the FDA has accepted LDL‑C lowering as a surrogate endpoint for reducing cardiovascular risk for traditionalapproval on over 15 lipid‑lowering drugs without requirements to initiate or complete a cardiovascular outcomes trial.Traditional approval may be based on surrogate endpoints such as LDL‑C and blood pressure that are known to predictclinical benefit, in contrast to accelerated approval based on surrogate endpoints that are only reasonably likely to predictclinical benefit and require confirmatory evidence of actual benefit after approval. With traditional approval based on LDL‑Creduction, the FDA does not have a regulatory mechanism to require any further efficacy trials and does not require sponsorsto conduct a post‑approval cardiovascular outcomes trial. Sponsors who have chosen to conduct cardiovascular outcomestrials before or after traditional approval, which is encouraged by the FDA, have voluntarily done so to seek additionalclaims.In approving drugs, the FDA considers the magnitude of effect in relation to the safety profile. Not only has the use of LDL‑Cas a surrogate marker to predict the risk of cardiovascular events been accepted by the FDA but the importance of LDL‑Clowering has also been recognized by clinical organizations such as American College of Cardiology, American HeartAssociation (AHA), National Cholesterol Education Program Adult Treatment Panel III (NCEP ATP‑III), AmericanAssociation of Clinical Endocrinologists, and National Lipid Association.There have also been several studies showing that certain LDL‑C lowering statin and non‑statin drugs did not in fact providecardiovascular benefits (e.g., Niacin in AIM‑HIGH trial) and/or showed unexpected safety concerns (e.g., ezetimibe inENHANCE with cancer). In addition, studies of a class of drugs known as cholesteryl ester transfer protein inhibitors (CETPi)with a different mechanism (i.e., increased high‑density lipoprotein cholesterol (HDL‑C) while sometimes lowering LDL‑C),has led to three drugs that failed to demonstrate efficacy in Phase 3 cardiovascular outcome trials. The first CETPi drug,Pfizer’s torcetrapib, lowered LDL‑C but showed increased cardiovascular event rates in patients due to off‑target effects inILLUMINATE, which we believe established a higher FDA standard for cardiovascular outcomes trials for the CETPi class.In patient populations such as HoFH and SHTG including FCS, we believe the FDA recognizes that an outcomes trial wouldbe difficult and as a result has established precedent drug approvals over time based on surrogate endpoints, LDL‑C forcardiovascular risk and triglycerides for pancreatitis risk, respectively. Recent examples include Juxtapid (2012), Kynamro(2013) and Repatha (2015) for HoFH and Vascepa (2012) for SHTG.In the case of more moderate hypertriglyceridemia which includes millions of patients with serum TGs between 150 mg/dLand 499 mg/dL, the FDA has required a cardiovascular outcome trial. Recently Vascepa was evaluated in the Phase 3REDUCE-IT trial for these patients and demonstrated significant reductions in MACE and serum TGs. There has been noFDA decision regarding Vascepa for this patient population.In broader dyslipidemia populations, such as HeFH and ASCVD, the FDA recently approved PCSK9 inhibitors based onLDL‑C as the surrogate endpoint and did not require the completion of cardiovascular outcomes trial in these high‑riskdyslipidemia patients. The FDA approved Praluent and Repatha based on LDL‑C reduction as an adjunct to maximallytolerated statin therapy (and diet), but did not approve these drugs for monotherapy or primary prevention patients, notingthat such approval may be premature in the absence of cardiovascular outcomes data.Collectively, recent approvals of new cardiovascular drugs, results from clinical trials of non‑statin product candidates, andour regulatory guidance that we received from the FDA regarding our development plans have provided us with someassurance that LDL‑C and/or TG lowering product candidates in development, such as gemcabene, will not be required toconduct cardiovascular outcomes trials in the United States and Europe prior to approval for our initial target indications.hsCRP - A Biomarker of InterestInflammation plays a significant role in the propagation of atherosclerosis and susceptibility to cardiovascular events. Of thewide array of inflammatory biomarkers that have been studied, hsCRP (or CRP) has received the most attention for10 Table of Contentsits use in risk reclassification of cardiovascular disease. At the 2015 European Society for Cardiology meeting, Merckpresented a post‑hoc analysis of the IMPROVE‑IT trial which confirmed the importance of lowering both LDL‑C and hsCRPlevels to below 70 mg/dL and 2 mg/L, respectively, with a 27% relative risk reduction in cardiovascular events occurring inpatients that were able to attain these target levels compared to those patients who achieved neither of these target levels. In2017, in the CANTOS trial, Novartis’ canakinumab demonstrated an outcomes benefit for mortality and other modifiable riskfactors for CV disease by lowering hsCRP (median hsCRP reduction of 37% led to a 15% reduction in cardiovascular relatedMACE) without affecting LDL-C. These findings support the potential for novel non‑statin therapies that can demonstrateclinical efficacy in both LDL‑C and hsCRP reduction. Gemcabene’s ability to substantially lower hsCRP in conjunction withLDL‑C may offer further benefit to the cardiovascular health of patients.Target Indications for GemcabeneOur target indications are summarized below with a total of approximately 14 million addressable dyslipidemia patients inthe United States who could be treated with gemcabene, and another six million patients with NASH in the U.S. That said, weare pursuing an “Orphan-First” strategy in our clinical trial and commercialization plans. This approach has the potential toprovide a more rapid, less expensive path through trials and regulatory approvals. It also provides the potential for initiatingsales with a small, focused sales force.Orphan IndicationsHomozygous Familial Hypercholesterolemia (HoFH)HoFH is a rare genetic disease that is usually caused by mutations in both alleles of the LDL receptor gene responsible forremoving LDL from the blood. As a result of having defective or deficient LDL receptor function, HoFH patients exhibitseverely high LDL-C levels, are at very high risk of experiencing premature cardiovascular events, such as a heart attack orstroke, and develop premature and progressive atherosclerosis. LDL‑C levels in HoFH patients are often in the range of500 mg/dL to 1,000 mg/dL, compared to a normal target range of 70 mg/dL to 100 mg/dL. Unless treated, most patients withHoFH do not survive adulthood beyond 30 years of age. There are approximately 300 to 2,000 HoFH patients in the UnitedStates and 6,000 to 45,000 patients in the rest of the world based on an estimated prevalence rate of one in 160,000 to one inone million.Current available treatments for HoFH generally include a combination of dietary intervention, statins, ezetimibe and otherapproved LDL‑C lowering therapies, including lipoprotein apheresis. However, even when combination therapies areutilized, many patients still have high LDL‑C levels and are still at high risk of cardiovascular disease. The FDA hasapproved two non‑statin therapies for HoFH, Juxtapid, marketed by Aegerion Pharmaceuticals, Inc. (Aegerion), and Kynamro,marketed by Sanofi. Although these drugs have demonstrated efficacy, they have significant safety and tolerability concerns,including boxed warnings for liver toxicity on the product labels. Recently, the FDA has also approved Amgen’s PCSK9inhibitor, Repatha, for HoFH patients, but this therapy has limitations due to its mechanism of action reliant on functionalLDL‑receptors. In clinical trials, Repatha has shown substantially less LDL‑C lowering from baseline in patients with HoFHcompared to LDL-C lowering in patients with other hypercholesterolemia indications.On February 6, 2014, gemcabene received Orphan Drug Designation by the FDA for treatment of HoFH. We believe thatpursuing the HoFH indication may enable gemcabene to reach the market sooner than for other indications due to:(1) approval pathway based on a single, small Phase 3 trial; (2) no requirement for cardiovascular outcomes trials; and(3) potential for priority review by the FDA in light of the unmet medical need in this orphan population. Furthermore, webelieve that gemcabene’s potential to treat patients in the most severe segment of the dyslipidemia market on top of statinsand other lipid‑lowering therapies (including ezetimibe, Repatha, and Praluent) will enhance brand awareness among keythought leaders and physicians.11 Table of ContentsFamilial Cholesterolemia Syndrome (FCS)FCS is a rare disease caused by a mutation in one or more genes of the lipoprotein lipase (LPL) complex, which breaks downtriglycerides. FCS can result from mutations in LPL gene itself, or from mutations in apoC-II, GPIHBP1, LMF1 factor 1, orapoA-V. When any part of the LPL complex is defective, there is a massive accumulation of chylomicrons in the blood.Diagnosis based on fasting triglyceride levels >880 mg/dL, and patients often experience recurrent abdominal pain and/orpancreatitis. FCS represents ~3000-5000 patients worldwide (~1000 in the US). There are currently no FDA-approvedtreatments for FCS.Familial Partial Lipodystrophy (FPL)FPL is a rare genetic disorder and orphan disease characterized by an abnormal distribution of fatty (adipose) tissue. As thebody is unable to store fat correctly, a buildup can occur around all vital organs and in the blood (hypertriglyceridemia). FPLcan also cause an abnormal buildup of fats in the liver (hepatic steatosis), which can result in an enlarged liver(hepatomegaly) and abnormal liver function. FPL can lead to loss of metabolic control and a variety of metabolicabnormalities, including diabetes, cardiovascular disease, hypertriglyceridemia and NASH. Broader IndicationsSevere Hypertriglyceridemia (SHTG)Elevated triglycerides are often caused by an inherited disorder or exacerbated by uncontrolled diabetes mellitus, obesity,hypothyroidism and sedentary habits. A recent scientific statement on “Triglycerides and Cardiovascular Disease” issued bythe American Heart Association based on a review of the pivotal role of triglycerides in lipid metabolism, reaffirmed thattriglycerides are not directly atherogenic, but represent an important biomarker of cardiovascular disease. Patients withsevere triglycerides greater than 500 mg/dL, or SHTG, have increased risk of developing pancreatitis, a painful andpotentially life‑threatening inflammation of the pancreas. Based on a 1.1% prevalence rate in the United States, as publishedby the American Heart Association, we estimate there are approximately 3.5 million patients with SHTG in the United Statesand 75 million patients in the rest of the world.Current available treatments for SHTG consist of dietary modifications to lower the intake of fatty foods and the use offibrates, prescription fish oils and niacin. These treatments are often inadequate in lowering triglyceride levels below500 mg/dL, the level at which patients are at an increased risk for developing pancreatitis. Due to the severely elevatedtriglyceride levels in this patient population, reducing triglyceride levels below 500 mg/dL may require reductions intriglyceride levels of 40% or more. Current therapies, even in combination, are often insufficient in achieving such a result.In addition, many of the existing treatments do not combine well with statins for treating SHTG.We believe that pursuing SHTG may enable gemcabene to reach a large population of patients with triglyceride levels above500 mg/dL and offer a convenient, oral, once‑daily dosing with no food effects that may have the potential to result in betterefficacy than standard of care, while being well‑tolerated with statins.Non-alcoholic Steatohepatitis (NASH)NAFLD (“fatty liver” where patients have fat in their liver, but no inflammation or liver damage) affects 10-30% ofAmericans. NASH is a severe form of fatty liver disease with the presence of hepatocyte ballooning, inflammation andfibrosis in the organ. In the United States, NASH affects up to approximately 2-5% of the population roughly at 6 millionadult NASH patients and 2 million pediatric NASH patients. The underlying cause of NASH is unclear, but it most oftenoccurs in persons who are middle-aged and overweight or obese. Many patients with NASH have elevated serum lipids,diabetes or pre-diabetes. Progression of NAFLD/NASH can lead to liver fibrosis, cirrhosis, hepatocellular carcinoma, liverfailure and liver-related death. Liver transplantation is currently the only treatment for advanced cirrhosis with liver failure. At this time, there are no approved treatments by the FDA for NAFLD/NASH. Based on the current understanding ofpathophysiological mechanisms associated with NASH, several compounds are in clinical development. The Clinical Trialswebsite lists many trials for NASH. These compounds target the regulation of dyslipidemia (e.g., acetyl CoA carboxylaseinhibitors, bile acid/fatty acid conjugates), inflammation (e.g., combined CCR2/CCRCR5 inhibitor) and/or12 Table of Contentsfibrosis (e.g., obeticholic acid). Recently, it was announced that obeticholic acid achieved statistically significantimprovement in liver fibrosis without worsening of NASH in a Phase 3 study.Gemcabene may be effective in treating patients for NASH given its mechanism of action around inflammation andtriglycerides, especially for obese and diabetic patients. If approved, we expect gemcabene to be used as an oral combinationwith statins and other drugs approved for NASH with complementary mechanisms.Atherosclerotic Cardiovascular Disease (ASCVD) and Heterozygous Familial Hypercholesterolemia (HeFH)ASCVD and HeFH patients are at elevated risk of experiencing a cardiovascular event. Herein we combine these two groupsof patients because historically they are frequently grouped together for the purposes of conducting clinical trials andseeking regulatory approvals.ASCVD represents patients who have experienced or are at risk of a cardiovascular event and are unable to meet their LDL-Clowering goal of less than 70 mg/dL with maximally tolerated statin therapy. This population also includes many patientswho, in addition to not being able to meet their LDL-C lowering goal, often have elevated triglyceride levels and maybenefit in reduction of both their elevated LDL-C and TG from gemcabene. We estimate that approximately 10 millionpatients in the United States and 200 million patients in the rest of the world have a need for additional therapies toeffectively and safely bring them closer to their LDL-C and triglyceride lowering goals.The HeFH patient population is generally comprised of individuals who have one defective gene that leads to elevated LDL-C levels at or above 190 mg/dL. These patients are prone to premature cardiovascular events. The incidence of patients withHeFH is estimated to be approximately one in 200 to one in 500, and, accordingly, we estimate there are approximately 0.5to 1.5 million patients with HeFH in the United States and 15 to 30 million in the rest of the world. Currently approved treatments for both ASCVD and HeFH include statins, ezetimibe, bile acid sequestrants, niacin, fibratesand injectable PCSK9 inhibitors. While these drugs have demonstrated efficacy in lipid-lowering in this population, they donot sufficiently address the patients with mixed dyslipidemia who need to lower both LDL-C and triglycerides.We believe that there is a meaningful number of underserved ASCVD/HeFH patients who are: (1) unable to reach LDL‑C andtriglyceride goals on maximally tolerated statin therapy; (2) require LDL‑C reduction beyond the 6% reduction observedwhen statin dose is doubled; or (3) unable to tolerate higher doses of statins. Nonetheless, if gemcabene is ultimatelyapproved for ASCVD/HeFH, it may potentially offer patients, especially cardiometabolic patients, a preferred well‑toleratedcombination therapy with a statin and/or ezetimibe that is convenient, oral, once‑daily, cost effective, and impacts multiplefactors, LDL-C, hsCRP and triglycerides, that all add to the residual cardiovascular risk in these patients. We believeobtaining approval for ASCVD/HeFH patient populations will enable gemcabene to reach a large market of patients with theinability to attain their LDL‑C goal using current therapies (including high‑intensity statins, ezetimibe and PCSK9inhibitors).Our Drug Product Candidate — GemcabeneOur drug product candidate, gemcabene, is a novel, once‑daily, oral therapy designed to target known lipid metabolicpathways to lower levels of LDL‑C, hsCRP and triglycerides. Gemcabene shares many of the attributes of statin therapy,including broad therapeutic applications, convenient route of administration and cost‑effective manufacturing process, butdoes not appear to increase the reporting of myalgia when added to statin therapy. Gemcabene has also shown additive LDL-C lowering in combination with stable low, moderate or high‑intensity statin therapy.We licensed global rights to gemcabene from Pfizer in April 2011. In the third quarter of 2018, the license with Pfizer wasrenegotiated providing three additional years for us to achieve our first commercial sale, by April 2024. We will continue toleverage the extensive preclinical, clinical, drug product development and manufacturing work previously conducted tofurther advance the development of gemcabene.Mechanism of ActionGemcabene mainly distributes to the liver where it has its effects as the active molecule. Gemcabene has a mechanism ofaction that involves: (1) enhancing the clearance of VLDL and (2) blocking the overall production of hepatic triglyceride13 Table of Contentsand cholesterol synthesis. Based on prior clinical trials, the combined effect for these mechanisms has been observed to resultin a reduction of plasma VLDL‑C, LDL‑C, triglycerides and hsCRP, as well as an elevation of HDL‑C.In mixed dyslipidemia patients in the INDIGO-1 clinical trial, in addition to reducing LDL-C, gemcabene was shown tosignificantly reduce the level of non-HDL cholesterol, a fraction of plasma that contains extremely atherogenic VLDL-remnants, as wells as VLDL-C, apoB, apoE and apoC-III. Reduction of non-HDL cholesterol is believed to reduce residualcardiovascular risk, the risk that still persists even though LDL-C may already be lowered. In addition, in INDIGO-1, in themixed dyslipidemia patients, inflammation (also considered to contribute to residual risk) was also reduced by gemcabene,evidenced by a reduction in both hsCRP and serum amyloid A (SAA).The pleiotropic actions of gemcabene are supported by the following preclinical and clinical observations:·ApoC‑III protein is known to be causal in cardiovascular disease. Gemcabene enhances VLDL clearance bydecreasing apoC-III messenger RNA (mRNA) expression, thereby reducing apoC‑III protein production and plasmalevels. ApoC‑III is a small protein (~9 kDa) that inhibits hepatic uptake of triglyceride‑rich particles such as VLDL.VLDL lipoproteins are catabolized to VLDL remnants in plasma. The VLDL remnants are either cleared from theplasma via remnant receptors or are further catabolized to LDL. The reduction in apoC-III exposes apolipoprotein E(apoE), a 35 kDa protein that is also present on the VLDL lipoproteins and VLDL remnants. ApoE is essential for thenormal catabolism of triglyceride‑rich particles. This favors the enhanced clearance of the VLDL remnants via ApoEremnant receptors and reduces the formation of LDL particles, while also breaking down triglycerides by lipoproteinlipase to deliver more fatty acids to muscle and adipose tissue. We observed in preclinical studies that gemcabenesignificantly clears VLDL in the plasma with corresponding reductions in the liver apoC‑III mRNA levels andapoC‑III plasma protein levels in rats. In a hypertriglyceridemic human clinical trial, gemcabene was shown tosignificantly decrease both apoC‑III and triglycerides. Reduction of Plasma ApoC‑III and TGReduction of Plasma ApoC‑III and TGin Humans ·Gemcabene reduces de novo lipogenesis by inhibiting both hepatic cholesterol and TG synthesis, whichlowers TG-rich lipoproteins (e.g., VLDLs) and their metabolic product (LDL) in the plasma. Gemcabene hasbeen shown to inhibit radiolabeled acetate incorporation into TG and cholesterol in primary rathepatocytes in culture and in the liver of mice, supporting gemcabene’s mechanism of14 Table of Contentsaction by inhibition of the synthesis of both fatty acids and cholesterol. Gemcabene may act as an inhibitorof Acetyl CoA Carboxylase (ACC), the rate‑limiting enzyme in fatty acid synthesis, subsequently leadingto a decreased hepatic triglyceride production.Gemcabene Inhibits de novo Synthesis of Both Cholesterol and TriglyceridesSource: Research Report 76100065 15 Table of ContentsThe diagram below depicts the novel mechanisms of gemcabene. We will continue to undertake preclinical studies to furtherclarify gemcabene’s involvement in various metabolic pathways.Gemcabene Novel Mechanism of Action·Gemcabene, which has been shown to lower plasma ApoB-lipoprotein concentrations in mice and inhumans, appears to regulate remnant receptor via SULF2 in the liver, as illustrated in the diagram below. Inthe left panel of the diagram, under normal conditions, the VLDL remnant receptor, also known assyndecan-1, a receptor containing heparin sulfate proteoglycan, has a high capacity to bind and removeVLDL and VLDL remnants from circulating blood. Under normal conditions, the intrahepatic levels of themRNA for the enzyme sulfatase-2 are low and likely allow syndecan-1 to maintain intact negativelycharged sulfate groups that bind the positively charged apoE of VLDL and VLDL-remnants. In the rightpanel, in a disease such as diabetes, the intrahepatic mRNA levels of the enzyme sulfatase 2 levels arehighly elevated and may cause reduced levels of sydecan-1 sulfation, and thereby lessen the capacity of thereceptor to bind and remove VLDL and VLDL remnants from the circulation. In diabetic mice, gemcabenehas been shown to markedly reduce elevated hepatic sulfatase-2 mRNA levels and plasma triglycerides. 16 Table of Contents·In addition, we believe gemcabene may result in the reduction of inflammation, inflammatory markers andtriglycerides (as a result of reduced apoC‑III production) in the plasma of a patient in an inflammatory state.C‑reactive Protein (CRP) is an inflammatory marker protein. CRP levels increase in response toinflammatory states and are associated with medical conditions such as atherosclerosis and othercardiovascular diseases, arthritis, hypertension, obesity, insulin resistance, and fatty liver disease. CRPexpression is regulated by proteins in the nucleus of cells known as nuclear hormone receptors (NHRs). Ininflammatory states, cytokines, such as interleukin‑6 (IL‑6) and interleukin (IL1‑β), activate NHRs, such asC/EPB‑β, C/EPB‑δ and nuclear factor kappa B (NF‑κB), and lead them to bind to the CRP promoter andincrease CRP mRNA production. Based on preclinical studies, gemcabene may inhibit the interaction ofthese NHRs on the CRP promoter and therefore reduce CRP mRNA production. Gemcabene has also beenshown in preclinical studies to inhibit tissue necrosis factor‑α (TNF‑α) induced expression of theinflammatory cytokine IL‑6 in human coronary artery endothelial cells and in a human hepatoma cell line.Overall, gemcabene may not only decrease the expression of CRP, but may also decrease the expression ofthe inflammatory cytokine IL‑6 resulting in a reduction of inflammation. Gemcabene has been shown toreduce the level of CRP in human clinical trials, to decrease inflammation in a mouse model of arthritis, in amouse model of NASH, and to decrease pain in a rat model of thermal hyperalgesia.·The apoC‑III promoter also contains a NF‑κB binding site, and as such, the apoC‑III gene may beupregulated under a chronic inflammatory state. Gemcabene’s ability to reduce apoC‑III mRNA levels mayresult from gemcabene inhibiting NF‑κB interaction with its binding site on the apoC‑III promoter. In vitrotransactivation assays in multiple species including humans and mice, gemcabene did not directly activatePPARs.Clinical Experience with GemcabeneGemcabene has been assessed in 25 Phase 1 and Phase 2 clinical trials. Across these trials, over 1,500 adult subjects haveparticipated, including healthy volunteers and patients with various underlying conditions (see summary table below). Ofthese subjects, over 1,100 have been exposed to at least one dose of gemcabene.We believe that gemcabene’s efficacy across the clinical and non-clinical trials support our development plan focusedinitially on orphan indications such as HoFH, FCS, and FPL disease with subsequent potential expansion into broaderindications such as HeFH and ASCVD, SHTG, as well as mixed dyslipidemia and possibly nonalcoholic steatohepatitis/non-alcoholic fatty liver disease (NASH/NAFLD).Across the company-sponsored clinical trials, gemcabene was observed to be well tolerated at single doses up to 1,500 mgand multiple doses up to 900 mg/day. Safety of the subjects in these trials was evaluated by AE monitoring, clinicallaboratory assessments, electrocardiograms (ECGs), physical examinations, and vital sign assessments. Across all trials, 10gemcabene treated healthy volunteers or patients reported a treatment‑emergent SAE, none of which were considered by theclinician to be related to gemcabene. No deaths occurred in any of the trials. AEs reported were generally mild to moderate inintensity with the most common events being headache, weakness, nausea, dizziness, upset stomach, infection and abnormalbowel movements. Gemcabene, when compared with placebo, was not associated17 Table of Contentswith an increased incidence of myalgia or liver enzyme elevations, whether as monotherapy or in combination with statintherapy. Elevated levels of liver enzymes, specifically alanine transaminase (ALT) and/or aspartate aminotransferase (AST),were observed in three patients (0.27% of gemcabene treated subjects). These three patients had ALT or AST levels more thanthree times the upper limit of normal (ULN)) returning to near baseline after cessation of treatment. Small mean increases inserum creatinine and blood urea nitrogen (BUN) have been observed in some trials. The increase in creatinine values wasreversible returning to baseline within approximately four weeks of cessation of gemcabene. No clinically meaningfulchanges were observed in physical examinations or vital signs, including blood pressure.In addition, gemcabene demonstrated promising clinical pharmacology attributes across 15 completed company-sponsoredPhase 1 trials in healthy subjects, such as once‑daily dosing, no meaningful drug‑drug interactions with high‑intensity statinsand no observed food effect. Gemcabene can be taken with or without food. Gemcabene was observed to: (1) be rapidlyabsorbed following oral administration with time of maximum concentration within two hours and (2) reach maximumplasma concentration (Cmax) and area under the curve over 24 hours (AUC0‑24) that were dose proportional following bothsingle‑ and multiple‑dose administration. Steady state concentrations were achieved within six days of repeated doseadministration. Average half‑life ranged from 32 to 41 hours. Gemcabene’s primary route of elimination was renal. Nosignificant drug‑drug interactions (DDIs) were observed with digoxin, a cardiovascular drug for the treatment of atrialfibrillation, statins (atorvastatin, simvastatin and rosuvastatin) used as background therapy in patients with HoFH, HeFH andmany SHTG patients. In addition, no significant DDIs were observed with oral contraceptives (such as ethinylestradiol/norethindrone) nor drugs that are probes for renal transporters including metformin, furosemide and rosuvastatin.There were no observed clinically relevant effects on QTc, a measure of cardiac rhythm, and no observed clinically relevanteffects on blood pressure. Trials in subjects with varying degrees of renal insufficiency (RI) and hepatic insufficiency (HI)showed that overall exposure and t1/2 increased incrementally with each relative increase in renal impairment and plasmaconcentration of gemcabene was unchanged in subjects with mild and moderate HI. No gemcabene dose adjustments wererecommended for patients with mild RI or mild/moderate HI; however, gemcabene should be dose adjusted in patientshaving moderately impaired renal function. The use of gemcabene should be avoided in subjects with severe RI or HI. Aniohexol trial conducted to evaluate the effect of gemcabene on GFR showed an historically observed increased serumcreatinine was most likely due to a hemodynamic change rather than a direct nephrotoxic etiology.Company-Sponsored Phase 2 Clinical TrialsGemcabene has been evaluated in ten company-sponsored Phase 2 trials across a diverse patient population. These trialsexplored safety, tolerability and efficacy using multiple doses of gemcabene as monotherapy and in combination with low‑,moderate‑ and high‑intensity statins. In company-sponsored Phase 2 trials, patients treated with gemcabene were observed tohave significantly lowered LDL‑C, hsCRP and triglycerides with results from the trials summarized in the table belowfollowed by text descriptions for a subset of these trials (indicated by underlined Trial Number):18 Table of ContentsSummary of Phase 2 Completed Clinical Trials with Gemcabene TrialNumberPatient / IndicationTrial ObjectivesDoses# PatientsDurationKey LipidandOtherEndpoints 1027-004Low HDL‑C andnormal or elevatedTG (includingSHTG)Double‑blind, placebo‑controlled,randomized trial to determine theefficacy and safety of gemcabenein patients with low HDL‑C andeither normal or elevatedtriglycerides150, 300,600, 900 mgGEM=129placebo=3212 weeksHDL‑C, TG,LDL‑C,hsCRP,apoB, Totalcholesterol1027‑012HypertensionDouble‑blind, placebo‑controlled,randomized trial to determine theeffect of gemcabene compared toquinapril900 mg(withquinapril20 mg)GEM=43quinapril=18placebo=4112 weeksSystolic BP,Diastolic BP1027‑014Healthy ObeseNon‑diabeticDouble‑blind, placebo‑controlled,randomized trial to determine theeffect of gemcabene on insulinsensitivity900 mgGEM=26placebo=274 weeksInsulinsensitivity1027‑015HypertensionDouble‑blind, placebo‑controlled,randomized trial to determine theeffect of gemcabene on bloodpressure900 mgGEM=234 weeksSystolic BP,Diastolic BP1027-018Hypercholesterol-emia (not at goal onstable statin)Double‑blind, placebo‑controlled,randomized trial to determine theefficacy and safety of gemcabeneon stable statin therapy300, 900 mg(with variouslow,moderate andhigh intensitystatins)GEM=42placebo=248 weeksLDL‑C,hsCRP,apoB, TG,HDL‑C,VLDL,TotalcholesterolA4141001Hypercholesterol-emiaDouble‑blind, placebo‑controlled,randomized trial to determine theefficacy and safety of gemcabeneas monotherapy or in combinationwith atorvastatin (after statinwashout)300, 600,900 mg(with 10, 40,80 mgatorvastatin)GEM=208atorvastatin=52placebo=178 weeksLDL‑C,hsCRP,apoB, TG,HDL‑C,TotalcholesterolA4141004OsteoarthritisDouble blind, placebo controlled,randomized trial to determine theefficacy and safety of gemcabenein patients with osteoarthritis of theknee150, 450,900 mg(withrofecoxib25 mg)GEM=242rofecoxib=7-9placebo=834 weeksPainassessment,CGIC,PGIC,SODAGEM-201(COBALT-1)HoFHOpen-label, dose-finding trialassessed the efficacy, safety, andtolerability of gemcabene inpatients with HoFH on stable, lipid-lowering therapy300, 600,900 mgGEM=812 weeksLDL‑C,hsCRP,apoB, TG,HDL‑C,VLDL,TotalcholesterolGEM-301(ROYAL-1)Hypercholesterolemiaon High-andModerate-IntensityStatinsDouble blind, placebo controlled,randomized trial to determinesafety and efficacy of gemcabeneon background high- andmoderate-intensity statin therapy.600 mgGEM=53Placebo=5212 weeksLDL‑C,hsCRP,apoB, TG,non-HDL‑C,VLDL,TotalcholesterolGEM-401(INDIGO-1)SevereHypertriglyceridemiaDouble blind, placebo controlled,randomized trial to determinesafety and efficacy of gemcabenein patients with severehypertriglyceridemia (TG > 500mg/dL).300, 600 mgGEM=30Placebo=6112 weeksTG, LDL‑C,hsCRP,apoB, non-HDL‑C,VLDL,TotalcholesterolSODA=Sequential occupational dexterity assessment, PGIC=Patients global impression of change, CGIC=Clinical global impression of change,GEM=gemcabene; TG=triglycerides.19 Table of ContentsGemcabene Phase 2 Trial in Patients with HoFH (GEM-201, COBALT-1)This Phase 2 open-label, dose-finding trial assessed the efficacy, safety, and tolerability of gemcabene in patients with HoFHon stable, lipid-lowering therapy. COBALT-1 was a 12-week, dose-escalation trial with n=8 patients with a diagnosis ofHoFH by genetic confirmation (including heterozygosity) or a clinical diagnosis based on either: (1) A history of anuntreated LDL-C concentration >500 mg/dL (12.92 mmol/L) together with either appearance of xanthoma before 10 years ofage, or evidence of heterozygous familial hypercholesterolemia in both parents; or (2) if history is unavailable, LDL-C >300mg/dL (7.76 mmol/L) on maximally tolerated lipid-lowering drug therapy. Successive escalating doses of 300mg, 600mg,900mg gemcabene were given every four weeks.Efficacy: Patients were administered oral gemcabene once daily, with dosage escalating from 300 mg to 600 mg and then900 mg every 4 weeks, for a total duration of 12 weeks. On various baseline aggressive lipid lowering therapies, the eight FHpatients had a mean baseline LDL-C level of 351 mg/dl prior to add-on gemcabene treatment. Treatment with gemcabene600 mg, the Company’s target commercial dose, resulted in an absolute reduction of 93 mg/dL for the overall population and92 mg/dL and 94 mg/dL for the HoFH and HeFH patients, respectively. The results for the primary endpoint of mean percentchange in LDL-C from baseline at each dose and related time point are presented below.As shown the table below, gemcabene impacted multiple secondary endpoints, showing reductions from baseline in totalcholesterol (TC), triglycerides (TG), non-HDL, apoB, apoE, high sensitivity C-Reaction Protein (hsCRP), and otherrelevant biomarkers. Importantly, gemcabene 600 mg showed a 34.7% reduction in hsCRP.Safety:Safety was assessed by adverse event (AE) monitoring, clinical laboratory assessments, electrocardiograms,physical examinations and vital signs. AEs were mild to moderate in intensity across all doses of gemcabene and20 Table of Contentsconsistent with previously reported AEs. The majority of AEs were gastrointestinal. There were no serious AEs or withdrawalsdue to AEs in the COBALT-1 trial. There was no evidence of hepatic or muscle injury in the trial.Gemcabene Phase 2 Trial in Patients with Hypercholesterolemia on High- and Moderate-Intensity Statin Therapy (GEM-301, ROYAL-1)ROYAL-1 was designed to largely address the safety of gemcabene in patients on the highest doses of statins. In patients withhypercholesterolemia, despite being on moderate and high-intensity statins, gemcabene produced significant reductions inboth atherogenic and inflammatory markers without evidence of increased muscle or liver toxicities. A total of 105hypercholesterolemic patients, including ASCVD or HeFH, were randomized 1:1 to either gemcabene 600 mg or placebowith 50 (24 gemcabene 600 mg; 26 placebo) patients on baseline high-intensity statins (atorvastatin 40 mg or 80 mg QD; orrosuvastatin 20 mg or 40 mg QD) and 55 (29 gemcabene 600 mg; 26 placebo) patients on baseline moderate-intensity (MI)statins (atorvastatin 10 mg or 20 mg QD; rosuvastatin 5 mg or 10 mg QD; or simvastatin 20 or 40 mg QD). Baseline LDL-Cwas 127 mg/dL and 134 mg/dL in the moderate and high-intensity statin stratum, respectively. The double-blind treatmentphase of the trial was 12 weeks.Efficacy: Top-line data for ROYAL-1 showed gemcabene produced a mean percent decrease of 17% in LDL-C (vs 5% forplacebo) and a median percent decrease of 40% in hsCRP (vs 6% for placebo). Gemcabene reduced LDL-C by 20% andhsCRP by 53% when added to moderate intensity statin therapy. Greater effects were observed in a cardiometabolicpopulation, patients with mixed dyslipidemia, who have a particularly high atherogenic particle burden. In the mixeddyslipidemia group of patients, gemcabene 600 mg demonstrated a placebo adjusted LDL-C reduction of 23% (p < 0.05).Consistent with the mechanism of action of gemcabene, patients with mixed dyslipidemia showed greater reductions in LDL-C, non-HDL-C, ApoB, ApoE and TG of 23%, 19%, 26%, 34% and 33%, respectively.Safety:Overall, gemcabene was well tolerated with a profile consistent with earlier trials. There were no SAEs and nodeaths reported in the trial. 33 of 54 patients (61.1%) in the gemcabene group and 24 of 51 patients (47.1%) in the placebogroup who reported at least one AE during the trial. The most prevalent AEs were those associated with infections. ReportedAEs were similar for the MI and HI statin stratums. There was no difference in myalgias between placebo and gemcabenegroups. There were no transaminase elevations > 3 x ULN and no clinically significant CK elevations.Gemcabene Phase 2 Trial in Patients with Hypercholesterolemia on Stable Statin Therapy (Trial 1027‑018)This Phase 2 double‑blind, placebo‑controlled, randomized trial in patients with hypercholesterolemia was designed toassess the efficacy and safety of gemcabene when added to stable statin therapy. A majority of the patients were on moderate‑to high‑intensity statin therapy for at least three months (high ≈20%, mod ≈60% and low ≈20%). Gemcabene wasadministered at 300 mg and 900 mg once‑daily for eight weeks. The primary endpoint was median percent change frombaseline in LDL‑C. Other endpoints included median percent change from baseline in hsCRP, apoB, total cholesterol,VLDL‑C and triglycerides at Week 8. A total of 66 patients were randomized and 61 patients were evaluated for efficacy.Baseline LDL‑C levels were similar across the treatment arms at approximately 150 mg/dL.Efficacy: As presented in the figure below, patients treated with gemcabene were observed to have significantly loweredLDL‑C from baseline at 300 mg and 900 mg by 25% (p=0.005) and 31% (p<0.001), respectively. Patients treated withgemcabene were also observed to have significantly lowered hsCRP, apoB and total cholesterol. At 900 mg, patients treatedwith gemcabene demonstrated significantly lowered hsCRP by 54% (p<0.001). At 300 mg and 900 mg, patients treated withgemcabene demonstrated significantly lowered apoB by 20% (p=0.033) and 24% (p=0.003), respectively. At 300 mg and900 mg, patients treated with gemcabene demonstrated significantly lowered total cholesterol by 18% (p=0.008) and 22%(p<0.001), respectively. It was further observed that all four (4) patients treated with 900 mg gemcabene on high‑intensitystatins have a mean LDL‑C reduction of 24%. We believe these results support the continued development of gemcabene for the treatment HoFH and HeFH indications onmaximally tolerated statins. Classification of statin dose intensity is defined in the 2013 ACC guidelines. 21 Table of ContentsMedian Percent Change from Baseline at Week 8 in Patients with Hypercholesterolemiaon Background Stable Statin TherapyLDL‑C Median Percent Change from Baseline at Week 8 in Patients with Hypercholesterolemiaon Background Stable Statin Therapy Placebo + Statin GEM300 mg + Statin GEM900 mg + Statinn 22 18 21Median Baseline LDL‑C 153.3 143.5 142.5Median Week 8 LDL‑C 137 101.5 103Median % Change −7.9% −24.8% −31.0%p‑Value vs. Placebo N/A 0.005 <0.001*N/A = not applicableSafety: Gemcabene was observed to be well tolerated. Patients taking either 300 mg or 900 mg of gemcabene were observedto have a safety profile similar to that of placebo (300 mg: 20%; 900 mg: 23%; placebo: 29%). One patient experienced anSAE in the gemcabene 900 mg treatment arm, which was not considered related to treatment. Three patients (placebo: 2,gemcabene 300 mg: 1) withdrew from the trial due to an AE, all of which were considered possibly related to treatment. AEsreported were generally mild to moderate in intensity. The most frequent AE in the placebo arm was infection (13%). Themost frequent AEs in the gemcabene treatment arms were headache (10%) and infection (10%). There were no meaningfulchanges in liver enzymes ALT and AST. One patient in the 300 mg gemcabene treatment arm had a single laboratoryassessment with a rise in creatine kinase of 5 × upper limit of normal (ULN). No clinically meaningful changes in physicalexaminations or vital signs from baseline to the end of the trial were observed for any patient.Gemcabene Phase 2 Trial in Patients with Hypercholesterolemia (Trial A4141001)This Phase 2 double‑blind, placebo‑controlled, randomized trial was designed to assess the efficacy and safety of gemcabeneadministered as monotherapy, atorvastatin monotherapy or gemcabene initiated simultaneously in combination withatorvastatin in the treatment of patients with hypercholesterolemia. When applicable, patients were washed out of statins andother lipid‑lowering therapies. Gemcabene was administered as monotherapy once‑daily at 300 mg, 600 mg or 900 mg or incombination with atorvastatin once‑daily at 10 mg, 40 mg and 80 mg. The primary endpoint was percent change in LDL‑Cfrom baseline at Week 8. Secondary endpoints included percent change in hsCRP, apoB, HDL‑C and triglycerides frombaseline at Week 8. A total of 277 patients were randomized and 255 patients with at least one post baseline assessment wereincluded in the efficacy analysis. Baseline LDL‑C levels for the evaluable patients after washout were similar acrosstreatment arms at approximately 175 mg/dL.22 Table of ContentsEfficacy: As presented in the figure below, patients treated with gemcabene were observed to have significantly loweredLDL‑C by 17% (p=0.0013), 26% (p=0.0001) and 29% (p=0.0001) as monotherapy at 300 mg, 600 mg and 900 mg,respectively. The LDL‑C lowering effect was seen within two weeks and was stable for the duration of the eight week trial. Itis important to note that the patients included in this trial were statin responsive (able to reach goal near or below100 mg/dL) at 10 mg, 40 mg and 80 mg atorvastatin monotherapy. While the trial demonstrated gemcabene providedadditional dose dependent LDL‑C lowering (statistically significant at 600 mg and 900 mg when compared to atorvastatinalone), the gemcabene treatment effect was less pronounced due to the patients already being at or below LDL‑C goal of100 mg/dL on atorvastatin monotherapy. Patients treated with gemcabene were observed to have lowered hsCRP by 26%(p=0.1612), 42% (p=0.0070) and 35% (p=0.0018) as monotherapy at 300 mg, 600 mg and 900 mg, respectively.Patients treated with gemcabene in combination with atorvastatin aggregated over the dose range were observed to havemean LDL‑C lowering of 50% (p=0.0852), 52% (p=0.0045) and 54% (p=0.0006) at 300 mg, 600 mg and 900 mg,respectively. Patients treated with gemcabene in combination with atorvastatin aggregated over the dose range wereobserved to have median hsCRP lowering of 47% (p=0.0237), 54% (p=0.0017) and 60% (p=0.0001) at 300 mg, 600 mg and900 mg, respectively.We believe these results support the continued development of gemcabene for the treatment HoFH, HeFH and ASCVDindications including mixed dyslipidemia.LDL‑C Mean Percent Change from Baseline in Patients with Hypercholesterolemia (with wash‑out of statins)Safety: Gemcabene was observed to be well tolerated. Patients taking any dose of gemcabene (300 mg, 600 mg or 900 mg)were observed to have a safety profile similar to that of atorvastatin monotherapy. A similar percentage of patientsexperienced an associated AE between placebo (18%), atorvastatin monotherapy arms (14%) compared to gemcabenemonotherapy (18%) and gemcabene plus atorvastatin treatment arms (17%). Three patients in the gemcabene plusatorvastatin arm experienced a SAE, none of which were considered related to treatment. 16 patients (placebo: 1, atorvastatinmonotherapy: 2, gemcabene monotherapy: 6, gemcabene plus atorvastatin: 7) withdrew from the trial due to AEs, nine(atorvastatin monotherapy: 2, gemcabene monotherapy: 4, gemcabene plus atorvastatin: 3) of which were consideredpossibly related to treatment. AEs reported were generally mild to moderate in intensity. 14 patients (placebo: 1, atorvastatinmonotherapy: 2, gemcabene monotherapy: 1, gemcabene plus atorvastatin: 10) reported an AE considered severe inintensity, one (gemcabene plus atorvastatin: 1) of which was considered possibly related to treatment. The most frequentlyoccurring AEs across all treatment arms were infection (8%), pain (6%) and headache (6%). Small mean increases in serumcreatinine and BUN were observed in the gemcabene monotherapy arms. One patient treated with 600 mg gemcabene plusatorvastatin had a clinically significant ALT elevation (>3 × ULN on two separate occasions) that returned to near normallevels while treatment continued. No other patient had a pre‑specified clinically significant lab abnormality in ALT, AST,creatine kinase or serum creatinine. No clinically meaningful23 Table of Contentschanges in physical examinations or vital signs from baseline to the end of the trial were observed for any patient. The AEsexperienced by more than 10% of patients in any treatment group are summarized below.Adverse Events by Body System Occurring With ≥ 10% of Patients inAny Treatment Group for Trial A4141001 Atorvastatin MonoGemcabene 300 mg +AtorvastatinGemcabene 600 mg +AtorvastatinGemcabene 900 mg +AtorvastatinAE Category PboN=1710 mgN=1740 mgN=1880 mgN=17MonoN=1610 mgN=1740 mgN=1880 mgN=18MonoN=1810 mgN=1840 mgN=1680 mgN=18MonoN=1710 mgN=1840 mgN=1680 mgN=18All Adverse EventsBody as a whole5 (29)4 (24)5 (28)4 (24)5 (31)3 (18)5 (28)4 (22)7 (39)7 (39)4 (25)4 (22)4 (24)5 (28)8 (50)10 (56)Asthenia0 (0)0 (0)1 (6)2 (11)0 (0)0 (0)0 (0)0 (0)1 (6)2 (11)0 (0)1 (6)1 (6)0 (0)1 (6)0 (0)Back Pain0 (0)0 (0)1 (6)0 (0)0 (0)0 (0)1 (6)1 (6)1 (6)2 (11)0 (0)2 (11)0 (0)0 (0)1 (6)0 (0)Headache0 (0)1 (6)3 (17)1 (6)1 (6)0 (0)1 (6)0 (0)1 (6)2 (11)1 (6)1 (6)1 (6)2 (11)0 (0)1 (6)Infection3 (18)1 (6)1 (6)0 (0)3 (19)1 (6)1 (6)1 (6)3 (17)2 (11)0 (0)0 (0)0 (0)2 (11)1 (6)3 (17)Pain0 (0)2 (12)1 (6)0 (0)0 (0)1 (6)3 (17)1 (6)2 (11)1 (6)1 (6)0 (0)0 (0)1 (6)1 (6)2 (11)Digestion2 (12)2 (12)5 (28)3 (18)3 (31)3 (18)4 (22)3 (17)4 (22)5 (28)3 (19)4 (22)4 (24)3 (17)0 (0)3 (17)Constipation1 (6)1 (6)3 (17)0 (0)0 (0)2 (12)1 (6)1 (6)1 (6)1 (6)1 (6)1 (6)1 (6)1 (6)0 (0)0 (0)Diarrhea1 (6)0 (0)0 (0)3 (18)2 (13)0 (0)1 (6)0 (0)1 (6)1 (6)1 (6)1 (6)0 (0)0 (0)0 (0)0 (0)Dyspepsia0 (0)1 (6)0 (0)0 (0)1 (6)1 (6)0 (0)1 (6)0 (0)1 (6)1 (6)2 (11)1 (6)0 (0)0 (0)0 (0)Flatulence1 (6)0 (0)1 (6)0 (0)2 (13)0 (0)1 (6)1 (6)1 (6)1 (6)0 (0)0 (0)0 (0)1 (6)0 (0)0 (0)Nausea0 (0)0 (0)1 (6)1 (6)2 (13)0 (0)2 (11)2 (11)0 (0)1 (6)1 (6)0 (0)3 (18)1 (6)0 (0)2 (11)Musculoskeletal1 (6)2 (12)3 (17)2 (12)0 (0)0 (0)2 (11)2 (11)0 (0)3 (17)3 (19)0 (0)0 (0)3 (17)0 (0)0 (0)Arthralgia0 (0)2 (12)2 (11)0 (0)0 (0)0 (0)1 (6)0 (0)0 (0)1 (6)2 (13)0 (0)0 (0)2 (11)0 (0)0 (0)Myalgia0 (0)1 (6)1 (6)1 (6)0 (0)0 (0)0 (0)1 (6)0 (0)2 (11)1 (6)0 (0)0 (0)1 (6)0 (0)0 (0) AE = adverse event; Mono = monotherapy; Pbo = placebo.Source: Report A4141001, Table 40 (Cowmeadow et al., 2003) Gemcabene Phase 2 Trial in Patients with Elevated Triglycerides (Trial 1027‑004)This Phase 2 double‑blind, placebo‑controlled, randomized trial was designed to assess the efficacy and safety of gemcabenein patients with low HDL‑C and either normal or elevated triglycerides. Gemcabene was administered at 150, 300, 600 and900 mg once‑daily for 12 weeks. The objectives of this trial were to evaluate percentage change from baseline in HDL‑C,LDL‑C, triglycerides and other lipids and apolipoprotein variables at Week 12. A total of 161 patients were randomized. Atbaseline, 67 patients were normotriglyceridemic (<200 mg/dL) and 94 patients were hypertriglyceridemic (≥200 mg/dL).Baseline triglycerides were approximately 370 mg/dL across the treatment arms with hypertriglyceridemia with theexception of the 600 mg treatment arm (580 mg/dL). A total of 155 patients (89 hypertriglyceridemic patients) had a postrandomization assessment to be evaluated for efficacy. Baseline LDL‑C levels for the evaluable patients, regardless of thetriglyceride stratum, were similar across the treatment arms at approximately 110 mg/dL.Efficacy: As presented in the figure below, patients with triglyceride levels greater than 200 mg/dL (hypertriglyceridemicpatients), treated with gemcabene at 150 mg and 300 mg were observed to have lowered triglycerides by 27% (p=0.002) and39% (p<0.001), respectively compared to baseline. Although patients treated with gemcabene at 600 mg and 900 mg wereobserved to have lower triglycerides, the lowering effect was not significant when compared to placebo. Therefore, theanticipated dose for treatment of patients with elevated triglyceride levels is 150 mg or 300 mg. Notably, patients treatedwith gemcabene were observed to have significantly lowered LDL‑C by 19% (p<0.001) and 20% (p<0.001) at 600 mg and900 mg, respectively, compared to baseline.A post‑hoc analysis of the nine patients with severe triglyceride levels (≥500 mg/dL; baseline means of two weeks prior andtime zero was approximately 600 mg/dL) treated with 150 mg and 300 mg suggest gemcabene has the potential to lowertriglycerides by as much as 60%.24 Table of ContentsWe believe these results support the continued development of gemcabene for the treatment SHTG and ASCVD patients withmixed dyslipidemia.Triglyceride Median Percent Change from Baseline at Week 12 in Patients with High to Severe HypertriglyceridemiaSafety: Gemcabene was observed to be well tolerated. Patients taking any dose of gemcabene (150 mg, 300 mg, 600 mg or900 mg) were observed to have a safety profile similar to that of placebo. Fewer patients experienced an associated AE in theplacebo arm (9%) compared to gemcabene treatment arms (17%). Three patients (placebo: 1, gemcabene: 2) experiencedSAEs, none of which were considered related to treatment. Six patients (placebo: 2, gemcabene: 4) withdrew from the trialdue to AEs, four (placebo: 1, gemcabene: 3) of which were considered possibly related to treatment. AEs reported weregenerally mild to moderate in intensity. Two patients (placebo: 1, gemcabene: 1) reported an AE considered severe inintensity. The most frequent AEs in the placebo arm were infection (16%), accidental injury (6%), back pain (6%), dyspepsia(6%), headache (6%) and sinusitis (6%). The most frequently observed AEs in the gemcabene arms were infection (12%),headache (7%) and asthenia (5%). Two patients had ALT values that met the definition of a clinically important laboratoryabnormality (placebo: 1, 600 mg gemcabene: 1). One patient had elevated BUN values considered clinically significant (600mg gemcabene: 1). All of these laboratory abnormalities were considered mild to moderate. No clinically meaningfulchanges in physical examinations or vital signs from baseline to the end of the trial were observed for any patient.Gemcabene Phase 2 Trial in Patients with Severe Hypertriglyceridemia (GEM-401, INDIGO-1)Trial GEM-401 was a 12-week, randomized, double-blind, placebo-controlled, parallel-group, multicenter trial designed toevaluate the efficacy, safety, and tolerability of gemcabene administered orally to patients with severe hypertriglyceridemia.Patients were required to be on a self-reported, stable, low-fat, low-cholesterol diet and if on a stable dose of statins and/orezetimibe (10 mg), statins and ezetimibe must have been started at least 12 weeks prior to the Screening Visit (S1). Patientswere eligible for enrollment if they had a mean fasting TG value ≥ 500 mg/dL to < 1500 mg/dL. A total of 91 patients wererandomized and treated (30 to the gemcabene 300 mg group, 30 to the gemcabene 600 mg group, and 31 in the placebogroup). Of these, 89 patients completed the trial.Baseline characteristics were similar between treatment groups and across statin strata with the exception of a higher numberof female patients in the placebo group. Mean baseline TG was slightly higher in the placebo group (658.33 mg/dL) than inthe gemcabene groups (641.17 mg/dL and 637.00 mg/dL in the 300 mg and 600 mg groups, respectively). There were47 patients on stable statins and 44 patients not on stable statin. 25 Table of Contents Efficacy: The median percent change in TG from baseline was ‑47.32% (p = 0.0063) versus a change of ‑27.30% withplacebo. In the gemcabene 300 mg group, treatment with gemcabene demonstrated a clinically significant,statistically non-significant TG lowering with a median percent change in TG from baseline of ‑32.95% (rankedANCOVA p = 0.2350). The table below presents the percent change in TG from baseline to the End of Study (EOS) forTrial GEM-401.Percent Change in Serum Triglycerides from Baseline to End of Trial for GEM-401 ANCOVA, FAS, LOCFLipid ParameterStatisticPlacebo(N = 31)Gemcabene300 mg QD(N = 30)Gemcabene600 mg QD(N = 30)TG Median baseline(mg/dL)658.33641.17637.00Median EOS(mg/dL)538.00477.00332.75Median Percent Change (%)‑27.30‑32.95‑47.32Ranked ANCOVA p-value 0.23500.0063Median difference estimate ‑7.63‑19.02a. Baseline = average of Screening Visits (S1 and S2) or (S2 and S3) and Trial Day 1 (pre-dose) values, with each given equal weight.b. EOS is the average of Week 10 and Week 12. If either Week 10 or Week 12 value is missing, then the single value (Week 10 or Week 12) isused. If both Week 10 and Week 12 values are missing, LOCF is applied.c. Ranked ANCOVA results are obtained from SAS using a model where the outcome is ranked, randomized treatment group and randomizedbaseline statin (yes or no) are included as factors, and outcome (ranked) at baseline is included as a covariate.d. Difference calculated gemcabene minus placebo. Estimates generated from Hodges-Lehmann method.ANCOVA = analysis of covariance; EOS = end of trial; FAS = full analysis set; LOCF = last observation carried forward; QD = once daily; TG= triglyceride. In patients in the baseline qualifying TG ≥ 880 mg/dL strata the median percent decrease from baseline in TG was -55.64%(n=6) in the gemcabene 600 mg group and -37.56% (n=6) in the gemcabene 300 mg group vs a median percent reduction of -36.98% (n=7) with placebo. The result of the ranked ANCOVA was not statistically significantly different than placebo foreither treatment group. The gemcabene 600 mg group showed a statistically significant median percent change from baselinein LDL-C as compared with the placebo group at Week 12 (‑7.94% vs 25.43%, p = 0.0244) and EOS (‑13.36% vs 14.73%,p = 0.0307). None of the median percent changes from baseline in LDL-C in the gemcabene 300 mg group were statisticallysignificantly different from placebo. It was also of interest to determine if the effects of gemcabene were consistent among patients with both isolated SHTG andmixed dyslipidemia and to determine the optimal patient population type of patients. Regardless of statin status, 34 patientshad LDL-C ≥ 100 mg/dL at baseline. In this patient population defined by baseline TGs of 530 mg/dL and LDL-C of 120mg/dL, gemcabene 600 mg showed a statistically significant change from baseline difference from placebo of -30% for TGs, -28% for LDL-C, -38% for non-HDL-C, -61% for VLDL-C, -28% for Apo B, and -43% for Apo E.Safety: In all patients, including those receiving statins, gemcabene was well-tolerated. Adverse events were reported byapproximately half of the patients in the gemcabene groups and by more than half of the patients in the placebo group. Themajority of these AEs were considered mild in severity. A total of 4 and 2 patients, respectively in the gemcabene 600 mgand 300 mg groups experienced AEs related to the trial drug, compared to 4 in the placebo group. There were no withdrawalsdue to Treatment Emergent Adverse Events (TEAEs), 1 SAE in a placebo patient, and no deaths. The patients whoexperienced potentially clinically significant post baseline laboratory abnormalities with consecutive occurrences,eventually saw their values return to or near their normal ranges. One patient in the gemcabene 600 mg group had aconfirmed transient increase in ALT > 3 x ULN and 1 subject in the gemcabene 600 mg group had confirmed transientincrease in serum creatinine > 0.3 mg/dL.Based on the results of these trials, we believe gemcabene has the potential to have a differentiated profile as an oralonce‑daily, well tolerated adjunct therapy with promising evidence of efficacy in lowering of LDL‑C, hsCRP andtriglycerides in a range of patients with dyslipidemias.26 abcdTable of ContentsNon-Company Sponsored Phase 2 Human TrialsTwo non-company sponsored Investigator-Initiated proof-of-concept Trials (IIT) are currently ongoing in Pediatric NAFLDand adult FPL.IIT-GEM-601 (NDA 133247) in Pediatric Non-Alcoholic Fatty Liver Disease (NAFLD)Investigator Initiated Trial GEM-IIT-601 (Investigational New Drug application [IND] 133247) is an open-label, 12-weekPhase 2a study evaluating gemcabene 300 mg in pediatric patients with non-alcoholic fatty liver disease (NAFLD). In 2018the study enrolled 6 of the planned 40 adolescent patients, 12-17 years in age. In August 2018, the Data Safety MonitoringBoard (DSMB) halted the trial early due to “unanticipated problems” in the first three patients. Specifically, the primaryefficacy endpoint of ALT increased beyond baseline levels in two of these three patients. At baseline and as outlined in studyinclusion criteria, ALT for these two patients were elevated 3–fold and 10-fold compared to ALT levels reported for healthypediatric patients (~25IU/L) of similar age. In addition, all three patients had an increase in the secondary endpoint of liverfat fraction as measured by MRI-PDFF. All patients gained weight and had increased TGs during study treatment, in contrastto data in other gemcabene trials. Patients were instructed to self-administer the test-agent daily, however compliance wascompromised as assessed by return of unused tablets and measurement of blood drug levels. One observation of increasedALT and two observations of increased liver fat were reported as AEs considered related to gemcabene. No events werereported as SAEs. The risk for increased liver fat with gemcabene treatment is unknown at this time. The patients willcontinue to be monitored for 12 months post-final dose.IIT-GEM-602 (NDA 137608) in Familial Partial Lipodystrophy (FPL)Gemcabene is being evaluated in an Investigator Initiated Trial GEM-IIT-602 in adult FPL patients with elevated TGs andNAFLD. It is an open-label, randomized, Phase 2 study to assess the efficacy and safety of 2 dosing regimens of gemcabene(300 mg QD for 24 weeks or 300 mg QD for 12 weeks followed by 600 mg QD for 12 weeks). In August 2018, the principalinvestigator and DSMB for this trial reviewed the data from the pediatric NAFLD trial as well as interim data from the FPLtrial and decided to continue the FPL trial. The principal investigator in the FPL trial intends to closely monitor thesepatients including MRI-PDFF scans reviewed at interim time points. Enrollment was completed in the fourth quarter of 2018with a total of five patients enrolled. Top-line data, including serum TGs and MRI-PDFF, is expected in the second quarter of2019. To date, there was one unrelated SAE of benign paroxysmal positional vertigo in the study, and no deaths orwithdrawals due to adverse events.Gemcabene Phase 1 Clinical TrialsGemcabene has been evaluated in ten completed Phase 1 trials in healthy volunteers. These trials explored safety,tolerability, pharmacokinetics, pharmacodynamics and dose response as monotherapy and in combination with27 Table of Contentshigh‑intensity statin doses and other drugs. The table below summarizes our completed Phase 1 trials. Select trials (shown asunderlined Trial Number in the table below) are described in more detail below.Summary of Phase 1 Clinical Trials of Gemcabene in Healthy VolunteersTrialNumber Trial ObjectiveDoses# VolunteersDuration1027‑001To evaluate safety, tolerability and pharmacokinetics (PK)of gemcabene25, 100, 300, 600, 1,050,1,500 mgGEM = 12Single Dose1027‑002To evaluate the effect of food on the PK of gemcabene450 mgGEM = 12Single Dose1027-003Double blind, placebo controlled, randomized trial toevaluate the PK and pharmacodynamics (PD) at multipledoses of gemcabene50, 150, 450, 750/600,900 mgGEM = 40placebo = 104 Weeks1027-008To determine the potential drug‑drug interactions ofsimvastatin with gemcabene900 mg (with 80 mgsimvastatin)GEM = 2015 Days1027‑009To evaluate the bioequivalence between a capsule andtablet formulation of gemcabene300 mgGEM = 16Single Dose1027‑010To evaluate the mass balance and metabolism ofgemcabene600 mgGEM = 6Single Dose1027‑011To determine the potential drug‑drug interactions ofdigoxin with gemcabene900 mg(with 0.25 mg digoxin)GEM = 1210 DaysA4141002Trial to determine the potential drug‑drug interactions ofatorvastatin with gemcabene300, 900 mg (with 80 mgatorvastatin)GEM = 2022 DaysA4141003To determine effect of gemcabene on QT interval900 mgGEM = 208 DaysA4141005To determine effect of gemcabene on the glomerularfiltration rate900 mg (with 3,235 mglohexol)GEM = 1210 DaysGEM-101To determine effect of mild, moderate and severe renalinsufficiency (RI) on gemcabene PK compared to normalvolunteers600 mgGEM = 28Single DoseGEM-102To determine effect of mild and moderate and hepaticinsufficiency (HI) on gemcabene PK compared to normalvolunteers600 mgGEM = 20Single DoseGEM-103Assess drug interaction effects of steady-state gemcabeneon SD furosemide, metformin, and rosuvastatin600 mg (with furosemide 20mg, metformin 500 mg and40 mg rosuvastatin)GEM = 3616 DaysGEM-104Assess steady state effects of gemcabene on the SD PK oforal contraceptive tablets in healthy female subjects600 mg (with combined 1/35ethinylestradiol/norethindrone)GEM = 168 DaysNote:One trial (A4141006; 23 volunteers) was stopped prior to completion as a result of discontinuation of the program. The trial wasdesigned to evaluate multiple fixed‑dose combinations of gemcabene with atorvastatin. Gemcabene Phase 1 Drug‑Drug Interaction Trials to Assess Pharmacokinetic Effects on Statins (Trials 1027‑008,A4141002, and GEM-103) The effect of steady-state gemcabene on circulating levels of 3 statins (i.e., simvastatin, atorvastatin, and rosuvastatin) wasassessed in 3 separate DDI trials (1027-008, A4141002, GEM-103). A forest plot of the overall results of these trials28 Table of Contentsis shown in the table below. Summaries of the results from the individual trials detailing effects on the analytes of each statinare presented in the subsequent sections. Forest Plot of Geometric Mean Ratio and 90% CI for Simvastatin HMG-CoA Reductase Inhibitor, Sum of ActiveAtorvastatin Metabolites, and Rosuvastatin Following Administration Alone and with Steady-State Gemcabene (Trials1027-008, A4141002, GEM-103) AUC0-24 = area under the plasma concentration-time curve from time 0 to 24 hours; AUCinf = area under the concentration‑time curveextrapolated to infinity; CI = confidence interval; Cmax = maximum plasma concentration; DDI = drug-drug interaction; HMG-CoA = 3-hydroxy-3-methyl-glutaryl-coenzyme A; LB = lower bound; UB = upper bound.Simvastatin Interaction Trial (1027-008)Trial 1027-008 was an open-label, multiple-dose, randomized, 2-way crossover trial in 20 healthy subjects designed toevaluate the oral administration of gemcabene 900 mg QD for 15 days on the PK of simvastatin 80 mg administered QDorally. Three analytes (simvastatin, simvastatin acid, and simvastatin HMG-CoA reductase inhibitor) were measured in thetrial. The determination of the clinical relevance of the drug interaction was based on the enzyme immunoassay (EIA) ofHMG-CoA reductase since this assay represents the activity of simvastatin.In summary the magnitude of the observed interaction was small, simvastatin acid and lactone changed in opposingdirections, and total HMG-CoA reductase activity either decreased or was within the equivalence boundaries; therefore, nosimvastatin dosing adjustments are required.Atorvastatin Interaction Trial (A4141002)Trial A4141002 was an open-label, 3-way crossover trial to evaluate the effect of steady-state gemcabene 300 mg and 900mg QD on the steady-state PK of atorvastatin. Twenty subjects received the following 3 orally-administered treatments:atorvastatin 80 mg QD orally for 5 days; atorvastatin 80 mg QD orally with gemcabene 300 mg QD orally for 11 days; andatorvastatin 80 mg QD orally with gemcabene 900 mg QD orally for 11 days. There were 6 analytes measured in the trial, thedetermination of the clinical relevance for the drug interaction was based on the sum total of the 3 acid analytes sincetogether these analytes represents the activity of atorvastatin.The mean ratio for the sum total of atorvastatin acid metabolites AUC0-24 following administration of steady-stateatorvastatin 80 mg QD during steady-state gemcabene 900 mg administration was 99.7% to atorvastatin alone. The 90% CIfor AUC0-24 was within the equivalence range of 80% to 125%. This trial demonstrates no clinically meaningful interactionof gemcabene on the PK of atorvastatin, therefore no atorvastatin dosing adjustments are required.29 Table of ContentsRosuvastatin Interaction Trial (GEM-103)Trial GEM-103 was an open-label, randomized, single-site, 2-sequence, 4-period, crossover trial in 36 subjects assessing theeffect of steady-state gemcabene on the single dose PK of metformin, furosemide, and rosuvastatin. Within the GEM-103trial, subjects received single dose rosuvastatin 40 mg orally alone (N = 36) and with steady-state gemcabene 600 mg QDorally (N = 34). Rosuvastatin was included as a substrate probe of BCRP transporter.The mean ratio for rosuvastatin Cmax and AUCinf following single dose administration of rosuvastatin 40 mg during steady-state gemcabene 600 mg QD administration were 165.43% and 146.89%, respectively, to rosuvastatin alone. The resultsindicate a weak interaction for the effect of gemcabene on rosuvastatin. The observed change in rosuvastatin is within therange of those observed with other drugs, such as dronedarone, itraconazole and ezetimibe, where there is norecommendation for dose adjustments for rosuvastatin in the rosuvastatin prescriber information. Although co‑administrationof gemcabene and rosuvastatin should be monitored; no dose adjustments in rosuvastatin are required.Conclusions from Drug-Drug Interaction Trials with StatinsThe combination of gemcabene with statins was assessed in both single dose (atorvastatin and rosuvastatin) and multipledose (simvastatin) clinical trials. There were mixed results on the analytes with some analytes showing induction and othersshowing inhibition; however, all the effects were weak and do not require a dose adjustment for the statins.Gemcabene Phase 1 Trials to Assess PK on Renal Insufficiency (RI) (GEM-101) Trial GEM-101 evaluated the PK profile of a single oral dose of 600 mg gemcabene in subjects with varying degrees of RIcompared to healthy matched control subjects with normal renal function. A total of 28 subjects completed the trial and wereplaced into each cohort. Results demonstrated that gemcabene Cmax and Tmax were similar across cohorts; however, overallexposure (AUC0-t, AUC0-∞) and t1/2 increased incrementally with each relative increase in renal impairment. The geometricmean ratio of gemcabene AUC0-∞ increased in mild, moderate, and severe renal impairment and was 137%, 192%, and 209%of the geometric mean AUC0-∞ for subjects with normal renal function, respectively. The geometric mean gemcabene Cmaxin mild, moderate, and severe impairment was 113%, 117%, and 88% of the Cmax seen in normal renal function subjects. Theresults of the linear regression between renal function measurement creatinine clearance (CLcr) and plasma gemcabene PKparameters indicate that there was a statistically significant correlation (based on p-values < 0.05) between the PK parametersAUC0-48, AUC0-t, AUC0-∞, apparent clearance (CL/F), CLr, and t1/2 and the renal function measurement CLcr. These results provide sufficient information to adjust the recommended dose of gemcabene based on baseline renal function.Based on the pharmacokinetics, no gemcabene dose adjustment is needed for subjects with mild RI. Treatment withgemcabene should be initiated at a dose of 300 mg per day or 600 mg every other day (QOD) in subjects having moderatelyimpaired renal function and increased only after evaluation of the effects on renal function and lipid levels at this dose. Theuse of gemcabene should be avoided in patients with severe RI (see table below).Proposed Recommended Gemcabene Dose in Renal ImpairmentRenal FunctionRecommended Dose and RegimenNormal CLcr ≥90 mL/min toMild RI eGFR ≥60 mL/min/1.73 m600 mg dailyModerate RI eGFR ≥30 to < 60 mL/min/1.73 m300 mg daily or 600 mg every other daySevere RI eGFR <30 mL/min/1.73 mDo not recommendCLcr = creatinine clearance, eGFR = estimated glomerular filtration rate, RI = renal insufficiency Effect on Subjects with Hepatic Impairment (HI) (GEM-102)Trial GEM-102 was an open-label, non-randomized trial to evaluate the PK, safety, and tolerability of a single oral dose of600 mg gemcabene in subjects with mild or moderate HI compared to healthy matched control subjects with normal hepaticfunction. A total of 20 subjects completed the trial. Results demonstrated that gemcabene non-compartment PK parameterswere similar across cohorts. The geometric mean ratio (90% CI) for gemcabene Cmax and AUC0-∞ did not change formoderate HI 86.1% (70.31 to 105.32) and 97.6% (72.83 to 130.67), respectively, compared to normal.30 222Table of ContentsPharmacokinetic exposure to gemcabene was unchanged in mild and moderate HI. Based on the pharmacokinetics, nogemcabene dose adjustment is needed for patients with mild or moderate HI. Gemcabene pharmacokinetics was not assessedin severe HI, and gemcabene use should be avoided in patients with severe HI.Gemcabene Preclinical StudiesAs part of a comprehensive nonclinical toxicology program, over 30 exploratory and definitive single and repeated‑dosetoxicity trials with gemcabene were conducted in mice, rats, dogs and monkeys. Gemcabene was well-tolerated in thesecompleted trials, including a 26‑week repeat dose trial in rats and monkeys and 52‑week repeat dose trial in monkeys. Thecompleted trials supported conducting clinical trials up to six months. We completed and submitted to the FDA the resultsfrom our two-year rodent carcinogenicity studies. These studies were submitted as part of a request from the FDA to removethe partial clinical hold limiting the conduct of human studies of gemcabene to less than six months in duration. In responseto our submission, the FDA did not lift the hold and requested that we provide additional data, including two preclinicalstudies, namely, a subchronic (13 week) study of gemcabene in PPARα knock-out mice and a study of gemcabene in in vitroPPAR transactivation assays using monkey and canine PPAR isoforms. The results of these two preclinical studies areexpected to be submitted to the FDA in the fourth quarter of 2019 as part of the request to lift the partial clinical hold.In multiple preclinical pharmacology trials, gemcabene was observed to lower plasma LDL‑C, triglycerides andanti‑inflammatory markers in diet‑induced and genetic preclinical models of dyslipidemia and NASH as also outlined below.In Vivo Preclinical Proof-of-Principle Trial for HoFHIn LDL‑receptor deficient mice, gemcabene at 60 mg/kg/day was observed to reduce LDL‑C up to 55% as monotherapy and72% in combination with statins. This dose in mice is equivalent to approximately a 450 mg gemcabene tablet per day inhumans. This LDL‑receptor deficient animal model has been reported in literature to be fairly predictive of HoFH therapies inpractice. For example, statin lowering of approximately 20% in LDL‑receptor deficient‑mice model correlates well to theapproximately 15% to 20% LDL‑C lowering observed in HoFH patients, and Juxtapid lowering of approximately 50% to80% in LDL‑receptor deficient‑rabbits model correlates well to the approximately 40% to 50% in HoFH patients.Gemcabene Preclinical HoFH Mice Model 31 Table of ContentsIn Vivo Proof of Principle for Hepatic Triglyceride ReductionGemcabene was studied in a chow-fed Sprague-Dawley rat model to explore the effects on fat content in the liver. The resultsof gemcabene 10 and 30 mg/kg/day doses in this rat model were similar to gemfibrozil. Gemcabene treatment significantlyreduced hepatic triglycerides by 74% in chow-fed Sprague-Dawley rats.Hepatic Lipids in Male Sprague-Dawley Rats Treated with Gemfibrozil or GemcabeneIn Vivo Proof of Concept for NASH (STAM Murine Model of NASH and Hepatocellular Carcinoma)Diabetes was induced in 40 of 48 male mice by a single subcutaneous injection of 200 µg streptozotocin solution 2 daysafter birth. At 4 weeks of age, all mice were fed a high fat diet to induce NASH. Interventions (Vehicle in non-diabetic mice,Vehicle, 30, 100 or 300 mg/kg/day gemcabene or 10mg/kg/day telmisartan in diabetic NASH mice) began at 6 weeks of age.Treatment effects were assessed at 9 weeks of age. Histological analyses of the liver were the key endpoints for thedetermination of an effect of gemcabene in this preclinical model of NASH. NASH is defined by the presence and pattern ofspecific histological abnormalities on liver biopsy. The NAFLD Activity Score (NAS) is a composite score that wasdeveloped as a tool to measure changes in NAFLD during therapeutic trials. The NAS is a composite score comprised of threecomponents that includes scores for steatosis, lobular inflammation and hepatocyte ballooning. NAS was defined as theunweighted sum of the scores for steatosis, lobular inflammation and hepatocyte ballooning. Steatosis grade is quantified asthe percentage of hepatocytes that contain fat droplets. The fibrosis stage of the liver is evaluated separately from NAS byhistological evaluation of the intensity of sirius red staining of collagen in the pericentral region of liver lobules. NAS of 0-2are not considered diagnostic for NASH, NAS of 3-4 are considered either not diagnostic, borderline or positive for NASH,while NAS of 5-8 are largely considered diagnostic for NASH. A treatment effect for NASH is based on differences in bothNAS and fibrosis levels.The gemcabene 30 and 300 mg/kg groups and telmisartan group (included as a positive control) showed significantreduction in NAS compared with the Vehicle in NASH group. Since gemcabene reduced steatosis and ballooning scores,32 Table of Contentsthe data suggested that gemcabene improved NASH pathology by inhibiting hepatocyte damage and ballooning cellformation.STAM Model NAFLD Activity Score (NAS)Sirius red-stained liver sections were evaluated to determine liver fibrosis. Liver sections from the Vehicle in NASH groupshowed increased collagen deposition in the pericentral region of liver lobule compared with the Vehicle in33 Table of ContentsNormal (non-diabetic) group. All gemcabene groups showed significant decreases in fibrosis area compared with the Vehiclein NASH group.STAM Model Fibrosis (Sirius Red-Positive Area)Additionally, hepatic gene expression and plasma markers indicative of inflammation (e.g., CRP and CCR2/CCR5), andlipid modulation (e.g., ApoC-III and ACC1) were significantly reduced as were other markers, as displayed in the table below.Gemcabene demonstrated proof of concept on NAS score and fibrosis, supporting further development in the clinic.Gene Expression Analysis Parameter(mean ± SD)Vehicle inNormal(n=8)Vehicle inNASH(n=8)Gemcabene30 mg/kg(n=8)Gemcabene100 mg/kg(n=8)Gemcabene300 mg/kg(n=8)Telmisartan10 mg/kg(n=7)TNF-α1.0 ± 0.33.6 ± 1.0 (p<0.0001)4.0 ± 1.8(NS)2.0 ± 0.8 (p<0.05)1.9 ± 0.7 (p<0.05)3.0 ± 1.2 (NS)NF-κB1.0 ± 0.11.3 ± 0.2 (p<0.001)1.3 ± 0.2(NS)0.9 ± 0.1(p<0.0001)0.8 ± 0.1(p<0.0001)1.1 ± 0.1 (p<0.05)CRP1.0 ± 0.21.0 ± 0.2 (NS)0.9 ± 0.2(NS)0.6 ± 0.1(p<0.0001)0.5 ± 0.1(p<0.0001)0.9 ± 0.1(p<0.0001)MCP-11.0 ± 0.43.6 ± 1.7 (p<0.001)3.2 ± 1.5(NS)1.7 ± 0.7 (p<0.01)1.6 ± 0.7 (p<0.01)2.1 ± 1.0 (p<0.05)α-SMA1.0 ± 0.33.1 ± 0.9 (p<0.0001)2.6 ± 0.6(NS)2.4 ± 0.9 (NS)2.5 ± 0.7 (NS)2.3 ± 0.7 (NS)MMP-21.0 ± 0.21.9 ± 0.7 (p<0.01)1.7 ± 0.5(NS)0.5 ± 0.2(p<0.0001)0.9 ± 0.2 (p<0.001)1.4 ± 0.7 (NS)TIMP-11.0 ± 0.312.9 ± 9.0(p<0.0001)9.9 ± 4.9(NS)3.8 ± 1.6 (p<0.01)4.4 ± 2.1(p<0.01)8.6 ± 5.1 (NS)MIP-1β1.0 ± 0.25.6 ± 2.0 (p<0.0001)5.4 ± 3.2(NS)2.3 ± 0.9 (p<0.01)2.8 ± 1.4 (p<0.05)3.9 ± 1.5 (NS)CCR51.0 ± 0.22.3 ± 0.7 (p<0.0001)2.4 ± 0.9(NS)1.4 ± 0.3 (p<0.01)1.3 ± 0.3 (p<0.01)1.5 ± 0.3 (p<0.05)CCR21.0 ± 0.23.5 ± 1.7 (p<0.0001)3.3 ± 1.0(NS)1.6 ± 0.4 (p<0.001)1.7 ± 0.7 (p<0.01)2.4 ± 0.8 (NS)ACC11.0 ± 0.20.9 ± 0.2 (NS)1.0 ± 0.1(NS)0.7 ± 0.1 (p<0.05)0.8 ± 0.1 (NS)0.7 ± 0.1 (p<0.01)ACC21.0 ± 0.20.5 ± 0.1 (p<0.0001)0.6 ± 0.2(NS)0.4 ± 0.1 (NS)0.5 ± 0.1 (NS)0.3 ± 0.1 (p<0.05)ApoC-III1.0 ± 0.20.7 ± 0.1 (p<0.001)0.7 ± 0.1(NS)0.5 ± 0.0 (p<0.01)0.4 ± 0.1(p<0.0001)0.8 ± 0.2 (NS)SREBP-11.0 ± 0.30.9 ± 0.2 (NS)0.9 ± 0.2(NS)0.9 ± 0.2 (NS)0.7 ± 0.1 (NS)0.7 ± 0.2 (NS)Sulf-21.0 ± 0.35.2 ± 1.2 (p<0.001)5.1 ± 1.1(NS)3.8 ± 0.7 (p<0.05)3.3 ± 0.9 (p<0.001)3.9 ± 0.9 (NS)PNPLA31.0 ± 0.40.3 ± 0.1 (p<0.0001)0.3 ± 0.1(NS)0.2 ± 0.1 (NS)0.2 ± 0.2 (NS)0.1 ± 0.0 (NS)ADH-41.0 ± 0.20.9 ± 0.3 (NS)0.8 ± 0.2(NS)0.6 ± 0.1 (p<0.05)0.5 ± 0.1 (p<0.001)0.6 ± 0.2 (p<0.01)LDL receptor1.0 ± 0.10.9 ± 0.2 (NS)0.9 ± 0.2(NS)0.9 ± 0.2 (NS)0.8 ± 0.1 (NS)0.7 ± 0.3 (NS) Compared to Vehicle Normal; Compared to Vehicle NASH; Abbreviations: ACC = Acetyl-CoA carboxylase; ADH = Alcohol dehydrogenase; C= cholesterol; CCR = C-C chemokine receptor; CRP = C-reactive protein; FA = Fatty acid; FFA = free fatty acid; HSPGs = heparan sulfateproteoglycans; LDL = low-density lipoprotein; MCoA = Malonyl-CoA; MCP = Monocyte chemotactic protein; MMP = Matrix metalloproteinase;34 abbbba b Table of ContentsMIP = Macrophage inflammatory protein; NAD = nicotinamide adenine dinucleotide; NF-κB = Nuclear factor-kappa B; PNPLA = Patatin-likephospholipase-containing domain; SMA = Smooth muscle actin; SPF = Specific pathogen-free; SREBP = Sterol regulatory element-bindingprotein; Sulf = Sulfatase; TIMP = Tissue inhibitor of metalloproteinase; TNF = Tumor necrosis factor. Gemcabene Clinical Development PlanIn June and September 2015, Gemphire received FDA feedback from its Type C meetings related to the development ofgemcabene for the treatment of patients with HoFH. The FDA indicated that historically LDL‑C has been accepted as asurrogate endpoint for cardiovascular risk reduction for lipid‑altering drugs to support traditional approval, includingpatients with HoFH. The FDA reiterated weighing the magnitude of LDL‑C reduction in light of the drug’s safety profile (e.g.,benefit/risk) when using a surrogate endpoint such as LDL‑C. Our IND for the treatment of dyslipidemia including HoFH wassubmitted to the FDA in December 2015 and is currently in effect.The future development programs for our targeted indications are described below. In addition to these trials, we expect toconduct a few additional clinical pharmacology Phase 1 trials to support registration.Target Orphan IndicationsHomozygous Familial Hypercholesterolemia (HoFH)The clinical development program for HoFH patients is expected to include the 25 completed Phase 1 and Phase 2trials. Additionally, we anticipate a clinical trial program to support HoFH registration. It is anticipated that the program willconsist of the following: 1) GEM-202 will be a 6-month double-blind, placebo‑controlled trial in HoFH patients older than12; 2) GEM-203 will be an open-label trial in patients on background LDL apheresis to assess PK and PD; and 3) GEM-204will be an open-label extension trial to GEM-202 and GEM-203. After EOP2 discussions with the FDA and other regulatory agencies, assuming the partial clinical hold is lifted, we will beable to better define the Phase 3 trials and long-term safety exposure needed for registration. Familial Chylomicronemia Syndrome (FCS)The clinical development program for adult patients with FCS (TGs > 880 mg/dL) is expected to include the 25 completedPhase 1 and Phase 2 clinical trials, including GEM‑401 (INDIGO-1), followed by Phase 3 registration trials. It is anticipatedthat the program will consist of the following: 1) GEM-402 will be a 6-month double-blind, placebo- controlled study in FCSpatients; and 2) GEM-403 an open-label extension trial to GEM-402. After completion of our two ongoing Phase 2 trials aswell as after the FDA decision on our partial clinical hold and EOP2 discussions with the FDA and other regulatory agencies,we believe we will be able to better define the Phase 3 registration trials and long‑term safety exposure needed forregistration.Familial Partial Lipodystrophy (FPL) DiseaseThe clinical development program for adult patients with FPL is expected to include the 25 completed and ongoing Phase 1and Phase 2 clinical trials, including the proof-of concept non-company sponsored IIT-GEM-602 in FPL, followed byPhase 3 registration trials.It is anticipated that the program will consist of the following: 1) GEM-701 will be a 6-month double-blind, placebo-controlled study in FCS patients; and 2) GEM-702 will be an open-label extension trial to GEM-701. After completion of ourtwo ongoing Phase 2 trials as well as after the FDA decision on our partial clinical hold and EOP2 discussions with the FDAand other regulatory agencies, we believe we will be able to better define the Phase 3 registration trials and long‑term safetyexposure needed for registration.Broader Target IndicationsThe Company may start Phase 3 trials in broader indications once the Phase 3 orphan trials progress. The decision tocommence trials in broader indications will depend on available resources, perhaps including the availability of strategicpartners, as well as market dynamics. Heterozygous Familial Hypercholesterolemia and Mixed Dyslipidemia Development The clinical development program for adult patients with hypercholesterolemia (including HeFH and ASCVD with mixeddyslipidemia and statin-intolerant patients) with elevated LDL‑C levels while on maximally tolerated35 Table of Contentshigh‑intensity statin therapy is expected to include the 25 completed Phase 1 and Phase 2 clinical trials followed by Phase 3registration trials. Current precedent for this high-risk population of patients is that a reduction in LDL-C is an acceptablesurrogate for registration. After results are available from the HoFH and FCS development programs, if pursued and completed, and followingdiscussions with the FDA and other regulatory agencies, we believe we will be able to better define the Phase 3 registrationtrials and long‑term safety exposure needed for registration.NASH/NAFLDThe clinical development program in NASH/NAFLD patients is expected to include the 25 completed Phase 1 and Phase 2trials. Two non-company sponsored proof-of concept Phase 2a trials were designed to collect within their secondary measuresfor proof-of-concept in NASH/NAFLD to determine the potential for a path forward in NASH/NAFLD for gemcabene. Asoutlined above, IIT-GEM-601 terminated early and will be unable to support development in NASH/NAFLD. IIT-GEM-602is ongoing and when complete a full assessment will be made in regard to a path forward in NASH/NAFLD as well as FPL. Additional TrialsRodent Studies in Response to FDA Partial Clinical Hold for Compounds in PPAR ClassPeroxisome proliferation‑activated receptor (PPAR) agonists are natural ligands or drugs which bind to PPARs and turn on oroff PPAR responsive genes in the cell nucleus. PPARs comprise three subtypes, PPARα, PPARγ and PPARβ (also referred toas PPARδ). When the PPARs are activated by natural or pharmaceutical molecules, those molecules can regulate (turn‑off orturn‑on) the transcription (making messenger RNA) of genes that regulate the storage and mobilization of lipids (fats),glucose metabolism, and inflammatory responses. PPARα and PPARγ are the molecular targets of a number of marketed drugsto treat metabolic syndrome including lowering triglycerides and cholesterol such as fibrate drugs and to treat diabetesmellitus and insulin resistance such as thiazolidinedione drugs.Beginning in 2004, the FDA began issuing partial clinical holds to all sponsors of PPARs or agents deemed to havePPAR‑like properties from preclinical trials. The FDA takes the position that preclinical data suggest PPAR agonists arecarcinogenic in rodents. In 2004, the FDA determined that gemcabene was a PPAR agonist and issued a partial clinical hold.Our current IND is held to the same partial clinical hold. The partial clinical hold permits clinical trials of up to six monthsfor gemcabene and also required us to conduct two‑year rat and mouse carcinogenicity trials before conducting clinical trialsof longer than six months. We completed and submitted to the FDA the results from our two-year rodent carcinogenicitystudies. The FDA did not lift the hold and requested that we provide additional data, including two preclinical studies,including, a subchronic (13 week) study of gemcabene in PPARα knock-out mice to confirm the liver finding observed in therodent carcinogenicity studies are the result of rodent PPAR transactivation. We believe the effects observed in rodents, specifically peroxisome proliferation, activation of PPARα specific genes,elevation of liver weight, and tumors, are likely rodent‑specific phenomena seen with PPARα agonists. Based on historicalnonclinical and clinical experience on these type of compounds, we believe rodents share little apparent relevance for humanrisk assessment. In a recently completed PPAR agonist receptor binding assays we observed little or no gemcabene directbinding to the mouse, rat, or human PPARα, PPARβ, or PPARγ receptors, whereas reference agents for each of the receptorsshowed the expected binding, including marketed PPARα agents, such as fibrates, including gemfibrozil. We believe thePPARα responses in rats and mice are secondary and perhaps related to the mobilization or formation of a naturally occurringmolecule that binds to PPARα in response to gemcabene administration. We expect to submit the results of the subchronicmouse study to the FDA in the fourth quarter of 2019.In the third quarter of 2018, the FDA requested a study of gemcabene in in vitro PPAR transactivation assays using monkeyand canine PPAR isoforms, which is now complete. The study showed no PPAR-α and PPAR δ agonist activities ofgemcabene in canine PPAR subtypes. The canine PPAR-γ receptor is identical to the human receptor. In the dog/humanPPAR-γ, low to medium level activation was observed at the highest concentrations for gemcabene. Gemcabene lackedPPAR-α, PPAR-δ, and PPAR-γ antagonism. The study showed no PPAR-α, PPAR-γ, and PPAR-δ agonist activities ofgemcabene in cynomolgus monkey PPAR subtypes. Additionally, gemcabene was also found to lack antagonist activityagainst these receptors. These results are similar to those observed in prior studies of mouse, rat, and human PPARtransactivation studies.36 Table of ContentsCardiovascular Outcomes TrialsWe believe it is well accepted that every 1.6 mg/dL lowering of LDL‑C results in a 1% lowering of cardiovascular diseaserisk. The FDA has not required any approved therapy targeting LDL‑C lowering, including non‑statin therapies, to initiate orcomplete a cardiovascular outcomes trial in connection with its approval of HoFH, HeFH and ASCVD therapies. Based onrecent drug approvals, we believe it is unlikely that the FDA will require us to initiate or complete a cardiovascular outcomestrial for any of the targeted indications, although we would plan to initiate a cardiovascular outcomes trial, for illustration inhigh‑risk ASCVD patients with mixed dyslipidemia, prior to NDA filing to pursue broader label indications related tocardiovascular disease risk reduction, if pursued. Notwithstanding our current expectations, the FDA could require us toinitiate or complete a cardiovascular outcomes trial as a condition to filing or approving an NDA for gemcabene.Regional Out-licensing Opportunities Gemphire is exploring regional partnering opportunities in China and will evaluate the feasibility for clinical collaborations.Recent regulatory changes in China favor US-China partnering, offering potentially faster regulatory times and preferencesfor innovative medications. There is an unmet need for alternative lipid-lowering therapies in China, considering the highprevalence of hypertriglyceridemia, large population size and a heightened sensitivity to statins. Gemphire may also exploreother regional out-licensing or partnership opportunities.Sales and Marketing Given our current stage of development, we have not yet established a commercial organization or distribution capabilities,nor have we entered into any partnership or co‑promotion arrangements with an established pharmaceutical company. Todevelop the appropriate commercial infrastructure to launch gemcabene in the United States, if approved, for the narrowerindications of HoFH, we may build out a specialty sales force to reach a concentrated number of approximately 50 lipidcenters and 500 lipidologists across the country. This would require additional financial and managerial resources. We mayco-promote the SHTG indication if pursued and approved with a partner or use a contract sales force along with our internalsales force and distributor(s). We may engage in partnering discussions with third parties from time to time. As we furtherdevelop and seek approval as well as launch commercial sales of gemcabene outside of the United States or for broaderpatient populations in the United States, including patients with NASH, HeFH, and ASCVD, if pursued and approved, wemay establish partnerships with one or more pharmaceutical company collaborators, depending on, among other things, theapplicable indications, the related costs and our available resources.Chemistry, Manufacturing and Controls (CMC)Gemcabene is a small molecule drug candidate that can be synthesized as a single polymorph crystalline monocalcium salt,using readily available raw materials and based on conventional chemical processes.We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely on contractmanufacturers to produce both the drug substance and drug product required for our preclinical studies and clinical trials. Allour contract manufacturers have updated cGMP certificates, all our drug products are being manufactured under current goodmanufacturing practices (cGMP), a quality system regulating CMC activities.Since 2015, we have been continuously manufacturing Gemcabene Immediate Release (IR) tablets under cGMP to supportall our on-going clinical trials. More specifically, drug substance and drug product manufacturing process and analyticalmethod development have been optimized and updated based on ICH/FDA guidelines. In addition, we now havesuccessfully manufactured multiple strengths of tablets under cGMP: 150mg, 300mg, and 600mg strengths. We haveobtained updated solid stability data for both the drug substance and drug product. We are currently planning and evaluatingour CMC strategies on the initiation of NDA registration batches.Our contract manufacturers are currently producing, and will produce in the future, our bulk drug substance and drug productfor use in our preclinical studies and clinical trials on a purchase order basis, and do not have any long-term arrangements.We will continue to identify and qualify any alternative API and drug product manufacturers to ensure our future commercialsupplies at the time of product launch. We plan to continue to rely upon contract manufacturers and, potentially,collaboration partners to manufacture commercial quantities of our drug substances and drug product candidates, if approvedfor marketing by the applicable regulatory authorities.37 Table of ContentsPfizer License Agreement In August 2018, we entered into an Amended and Restated License Agreement with Pfizer (the “Pfizer Agreement”), whichamended and restated in full the Company’s prior license agreement with Pfizer dated April 16, 2011. We agreed to make milestone payments totaling up to $37 million upon the achievement of certain milestones, including thefirst new drug application (or its foreign equivalent) in any country, regulatory approval in each of the United States, Europeand Japan, the first anniversary of the first regulatory approval in any country, and upon achieving certain aggregate saleslevels of gemcabene. Future milestone payments under the Pfizer Agreement, if any, are not expected to begin for at leastseveral years and extend over a number of subsequent years. In partial exchange for the rights granted by Pfizer under the prior license agreement, the Company agreed to issue shares ofits common stock to Pfizer representing 15% of the Company’s fully diluted capital at the close of its first arms‑lengthSeries A financing, which occurred on March 31, 2015. We have also agreed to pay Pfizer tiered royalties on a country‑by‑country basis based upon the annual amount of net salesas specified in the Pfizer Agreement until the later of: (i) five years after the first commercial sale in such country; (ii) theexpiration of all regulatory or data exclusivity for gemcabene in such country; and (iii) the expiration or abandonment of thelast valid claim of the licensed patents, including any patent term extensions or supplemental protection certificates in suchcountry. The royalty rates range from the high single digits to the mid-teens depending on the level of net sales. The royaltyrates are subject to reduction during certain periods when therapeutically-equivalent generic products represent a certainmarket share of prescription volume in the country. Under the Pfizer Agreement, the Company is obligated to usecommercially reasonable efforts to develop and commercialize gemcabene. The Pfizer Agreement will expire upon expiration of the last royalty term. On expiration (but not earlier termination), theCompany will have a perpetual, exclusive, fully paid-up, royalty-free license under the licensed patent rights and related datato make, use, develop, commercialize, import and otherwise exploit the clinical product candidate gemcabene. Either partymay terminate the Pfizer Agreement for the other party’s material breach following a cure period or immediately upon certaininsolvency events relating to the other party. Pfizer may immediately terminate the Pfizer Agreement in the event that (i) theCompany or any of its affiliates or sublicenses contests or challenges, or supports or assists any third party to contest orchallenge, Pfizer’s ownership of or rights in, or the validity, enforceability or scope of any of the patents licensed under thePfizer Agreement or (ii) the Company or any of its affiliates or sublicensees fails to achieve the first commercial sale in atleast one country by April 16, 2024. Intellectual Property Our patent estate includes patents and/or patent applications to forms of gemcabene, methods of using gemcabene, andmethods of manufacturing gemcabene. The patent estate includes patents licensed from Pfizer and additional patents andapplications that have been filed subsequent to obtaining the license that are entirely owned by Gemphire. Charles Bisgaier,a co-founder of Gemphire, is an inventor on thirteen of the pending fourteen patent families. As of December 31, 2018,Gemphire’s patent estate, including patents we own or license from third parties, on a worldwide basis, included 6 issued U.S.patents, 11 pending U.S. patent applications, 40 issued patents in foreign jurisdictions including Australia, Austria, Belgium,Bulgaria, Canada, Czech Republic, Denmark, Finland, France, Germany, Great Britain, Hungary, Ireland, Italy, Japan,Luxemburg, Mexico, Netherlands, Poland, Portugal, Romania, Spain, Sweden, Switzerland and the United Kingdom, and 85pending patent applications in foreign jurisdictions including Argentina, Australia, Brazil, Canada, China, Europe, HongKong, India, Israel, Japan, Mexico, New Zealand, Philippines, Korea, Russia, Singapore, South Africa, Taiwan and Thailand.Of our worldwide patents and pending applications, all relate to our product candidate gemcabene.U.S. Patent number 6,861,555, which was in‑licensed from Pfizer, includes claims directed to the calcium salt crystal form ofgemcabene that is used in our clinical formulations and will constitute the commercial product as well as other crystallineforms of gemcabene. This patent is expected to expire in 2021; however, we may select this patent for patent term extensionfrom the U.S. Patent and Trademark Office (USPTO) if such an extension is available. Given the expected length of theregulatory review, the expiry date of this patent may be adjusted to 2023, or possibly 2024. Furthermore, and importantly inour case, the FDA orphan designation for HoFH may provide us seven years of market exclusivity which would provideprotection for gemcabene in the United States for treating HoFH out to about 2028 or 2029. Related foreign patents, whichhave issued in jurisdictions including Canada, Denmark, Finland, France,38 Table of ContentsGermany, Great Britain, Ireland, Italy, the Netherlands, Sweden, Spain, Japan, and New Zealand, are expected to expire in2021, absent any adjustments or extensions.U.S. Patent Number 8,557,835, which was also in‑licensed from Pfizer, includes claims directed to pharmaceuticalcompositions comprised of combinations of gemcabene or gemcabene with statins, and methods of using the combinations,in a patient that does not reach sufficient LDL-C lowering on a statin alone. E.g., for treating several conditions includinghyperlipidemia. This patent is expected to expire in 2021, absent any extension. All related foreign patents are now expired.U.S. Patent No. 8,846,761, which is owned by Gemphire, includes claims directed to methods of reducing risk of pancreatitisfor patients with TG≥ 500 mg/dL with gemcabene treatment. This patent is expected to expire in 2032, absent any extension.Foreign patents have issued in Australia, Canada, Japan, Mexico and Europe. The European patent was validated into 21European countries and foreign counterpart patent applications are pending in China, Europe, Hong Kong and Mexico, andany patents issuing from such applications are expected to expire in 2031, absent any adjustments or extensions.U.S. Patent No. 10,028,926, which is owned by Gemphire is directed to treating patients on a stable dose, or a maximal dose,of statin to lower their LDL-C levels. This application is granted in Australia and Japan and related patent applications arepending in foreign jurisdictions including Canada, China, Europe, Hong Kong, Japan, Mexico and United States. Any patentthat may issue in this family, absent any patent term adjustment or extension, is expected to expire in 2033.U.S. patent application number 14/942,765 which is due to issue shortly, and owned by Gemphire, is directed to methods oflarge-scale manufacturing for making dicarboxyalkyl ethers. Foreign counterpart patent applications are pending inAustralia, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, Mexico, New Zealand, Korea, Russia, Singaporeand South Africa. Any patent issuing from this patent family is expected to expire in 2035.U.S. patent application number 15/971,491, is a continuation of PCT/US2016/060849, which is owned by Gemphire and isdirected to fixed dose combinations and modified release formulations of gemcabene and statins. Foreign counterpart patentapplications are pending in Australia, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, Mexico, New Zealand,Korea, Russia, Singapore and South Africa. Any patent issuing from this patent family is expected to expire in 2035.Two U.S. patent applications were filed as continuations of PCT/US2016/060837 and one as a divisional. U.S. patentapplication number 15/416,911, now U.S. 9,849,104, is directed to methods of treating NASH by administering gemcabeneas a monotherapy, U.S. Patent Application Number 15/424,620, is directed methods for treating Mixed Dyslipidemia byadministering gemcabene and a statin, and divisional U.S. Patent Application Number 15/814,118 directed to other aspectsof NASH. Any patent that may issue in either of these two families, absent any patent term adjustment or extension, isexpected to expire in 2037. Foreign counterpart patent applications are pending in Australia, Brazil, Canada, China, Europe,Hong Kong, India, Israel, Japan, Mexico, New Zealand, Philippines, Korea, Russia, Singapore, South Africa and Thailand.U.S. patent application number 15/445,118, is a continuation of PCT/US2017/019750, which is owned by Gemphire anddirected to the treatment of patients with homozygous familial hypercholesterolemia on stable, lipid loweringtherapy. Foreign counterpart patent applications are pending in Australia, Brazil, Canada, China, Europe, Hong Kong, India,Israel, Japan, Mexico, New Zealand, Philippines, Korea, Russia, Singapore, South Africa and Thailand. Any patent issuingfrom this patent family is expected to expire in 2037.U.S. patent application number 15/956,172, was parallel filed with PCT/US2018/028113, which is directed to a compositionand method of use of gemcabene. Foreign counterpart patent applications are pending in Argentina and Taiwan. Any patentissuing from this patent family is expected to expire in 2038.U.S. patent application number 15/977,226, was parallel filed with PCT/US2018/032351, which is directed to a compositionand method of use of gemcabene. Foreign counterpart patent applications are pending in Argentina and Taiwan. Any patentissuing from this patent family is expected to expire in 2038.39 Table of ContentsU.S. patent application number 15/956,232, was filed as a continuation-in-part of U.S. patent application number 15/445,118which is directed to treatment of patients with familial hypercholesterolemia on lipid-lowering therapy. Any patent issuingfrom this patent is expected to expire in 2037.In 2018, we also filed U.S. provisional patent applications 62/747,375 and 62/767,079 directed to composition of matter andmethods of synthesis which are pending. Additionally, we filed a PCT application (PCT/US2018/021093) directed to thetreatment of obesity symptoms. As background, the patent term is typically 20 years from the date of filing a non‑provisionalapplication. In the United States, a patent’s term may be lengthened several ways. First, patent term adjustment (PTA)compensates a patentee for administrative delays by the USPTO in granting a patent. Second, in certain instances, a patentterm extension (PTE) can be granted to recapture a portion of the term effectively lost as a result of the FDA regulatory reviewperiod, as provided under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as theHatch‑Waxman Act. This restoration period cannot be longer than five years for approval of a drug compound, and the totalpatent term, including the restoration period, must not exceed 14 years following FDA approval. Only one patent applicableto an approved drug is eligible for the PTE and the application for the extension must be submitted prior to the expiration ofthe patent and within 60 days from market approval. Independent of patent protection, in the United States, theHatch‑Waxman Act provides a five‑year period of non‑patent data exclusivity within the United States to the first applicantto gain approval of an NDA for a new chemical entity (NCE). Under this provision, gemcabene may be eligible for up to fiveyears of data and market exclusivity under the Hatch‑Waxman Act, because it is considered a NCE because the FDA has notpreviously approved any other drug containing the active ingredient of gemcabene. In Europe, under the Data ExclusivityDirective, pharmaceutical companies may receive up to 11 years to market their product without risk of competition. InJapan, under the Pharmaceuticals Act of Japan, the market authorization holder, based on the length of a required studyperiod reexamination, may have up to 10 years before a generic can enter the market.CompetitionOur industry is highly competitive and subject to rapid and significant innovation and change. The market for lipidregulating therapies is especially large and competitive. Our potential competitors include large pharmaceutical andbiopharmaceutical companies, specialty pharmaceutical and generic drug companies, academic institutions, governmentagencies and research institutions. Gemcabene, if approved, will face intense competition. Key competitive factors affectingits commercial success will include efficacy, safety, tolerability, reliability, convenience of dosing, price and reimbursement.Although there are currently no approved therapies for NASH, the market for NASH is continuing to evolve with many drugcandidates in late stage development.Statins are the most commonly used therapy to lower LDL‑C in the dyslipidemia market. They are used by patients withHoFH as well as HeFH and ASCVD. Branded statins include AstraZeneca’s Crestor (rosuvastatin), Merck’s Zocor(simvastatin) and Pfizer’s Lipitor (atorvastatin) among others. Generic statins are marketed by several companies includingApotex Inc., Mylan N.V. (Mylan), Dr. Reddy’s Laboratories Ltd. and Lupin Pharmaceuticals, Inc. (Lupin) among others.Non‑statin based therapies are also used to lower LDL‑C in dyslipidemia patients. Merck’s Zetia (ezetimibe) is a commonnon‑statin therapy that is often combined with statins for HoFH, HeFH and ASCVD patients. Merck’s Vytorin and Liptruzetare fixed‑dose combination therapies that combine ezetimibe with statins. Non‑statin therapies are combined with statins toimprove LDL‑C lowering or to offer other efficacy benefits, including Daiichi Sankyo Inc.’s (Daiichi Sankyo) Welchol, a bileacid sequestrant and niacin. Non‑statin therapies are also used to treat HoFH. These therapies include Aegerion’s Juxtapid, aonce‑daily oral microsomal triglyceride transfer protein (MTP) inhibitor and Ionis and Genzyme Corporation’s, a SanofiCompany (Genzyme), Kynamro, a once‑weekly injectable apoB antisense therapy. These agents have boxed warningsassociated with liver toxicity and significant tolerability issues on their labels. Amgen’s Repatha, an injectable PCSK9inhibitor, was recently approved for HoFH, HeFH and ASCVD, and Sanofi’s and Regeneron’s PCSK9 inhibitor, Praluent, wasrecently approved for HeFH and ASCVD.There are multiple product candidates in late stage development for HoFH, HeFH and ASCVD. Regeneron’s evinacumab(Phase 3) is in development for the treatment of HoFH. For hypercholesterolemia, including HeFH and ASCVD, drugs indevelopment include oral CETPi, Merck’s anacetrapib (recently discontinued Phase 3), Eli Lilly and Company’s evacetrapib(recently discontinued Phase 3), and Amgen/Dezima’s TA‑8995 (Phase 2), current Esperion’s oral product, Bempedoic Acid(Phase 3), The Medicines Company/Alnylam Pharmaceuticals, Inc.’s (Alnylam)40 Table of Contentsinjectable PCSK9 inhibitor, ALN‑PCSsc (Phase 3), Eli Lilly’s injectable PCSK9 inhibitor, LY3015014 (Phase 2), and Pfizer’sinjectable PCSK9 inhibitor bococizumab (recently discontinued Phase 3).For severe hypertriglyceridemia, fibrates, niacin and prescription fish oil are common therapies used to lower triglycerides.Examples of branded fibrates include AbbVie Inc.’s (AbbVie) Tricor and Trilipix, and an example of a branded niacinincludes AbbVie’s Niaspan, an extended‑release niacin. In addition, AbbVie markets combination therapies, such as Advicor(niacin extended release and lovastatin) and Simcor (niacin extended release and simvastatin). Prescribed generic versions offibrates, such as gemfibrozil, are manufactured by many companies including Impax Laboratories, Inc. (Impax), TevaPharmaceutical Industries Ltd. (Teva), Mylan and Lupin among others. Generic versions of niacins are manufactured bymany companies including Teva, Lupin and Zydus Pharmaceuticals (USA), Inc., among others. Commonly used prescriptionfish oils include GlaxoSmithKline plc’s (GlaxoSmithKline) Lovaza, AstraZeneca’s Epanova and Amarin’s Vascepa.Currently there are currently no approved therapies for NASH and older medications are written off label to treat the disease.There are currently more than thirty assets in various stages of development for NASH. Several drug candidates are in latestage development and may be approved for the NASH indication as soon as 2019/2020: OCALIVA (Obeticholic Acid) (FXRAgonist) being developed by Intercept Pharmaceuticals, Inc., Elafibranor (PPAR Agonist) being developed by Genfit SA,Selonsertib (formerly GS-4997) (ASK-1 Inhibitor) being developed by Gilead Sciences, Inc., GS-0976 (ACC Inhibitor) beingdeveloped by Gilead Sciences, Inc., Cenicriviroc (CVC) (CCR2/CCR5 Inhibitor) being developed by Tobira Therapeutics,Inc. (a wholly-owned subsidiary of Allergan plc), Emricasan (Caspase Inhibitor) being developed by ConatusPharmaceuticals Inc., Aramchol (Synthetic Fatty Acid/Bile Acid Conjugate) being developed by Galmed, GR-MD-02(Galectin-3 Inhibitor) being developed by Galectin Therapeutics, and MGL-3196 (THR Agonist) being developed byMadrigal. Recently, Intercept Pharmaceuticals, Inc., announced that obeticholic acid achieved statistically significantimprovement in liver fibrosis without worsening of NASH in a Phase 3 study and that it intends to file for regulatory approvalin the U.S. and Europe in the second half of 2019.Government RegulationGovernment authorities at the federal, state and local level in the United States and in other countries extensively regulate,among other things, the research, development, testing, manufacture (including any manufacturing changes), packaging,storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post‑approval monitoring and reporting,import and export of pharmaceutical products, such as those we are developing.United States — FDA RegulationFDA Approval ProcessIn the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug andCosmetic Act (FDC Act) and other federal and state statutes and regulations, govern, among other things, the research,development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution,post‑approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply withapplicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions by the FDA,including FDA refusal to approve pending New Drug Applications (NDAs), partial or full clinical holds, warning or untitledletters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civilpenalties and criminal prosecution.Pharmaceutical product development for a new product or certain changes to an approved product in the United Statestypically involves preclinical laboratory and animal tests, the submission of an Investigational New Drug (IND) applicationto the FDA, which must become effective before clinical trials may commence, and adequate and well‑controlled clinicaltrials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfactionof FDA pre‑market approval requirements typically takes many years and the actual time required may vary substantiallybased upon the type, complexity and novelty of the product or disease.Preclinical studies include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials toassess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical studies must complywith federal regulations and requirements, including good laboratory practices, or GLP. The results of preclinical studies aresubmitted to the FDA as part of an IND application along with other information, including product chemistry,manufacturing and controls, available clinical data, and a proposed clinical trial protocol. Long-term preclinical studies,such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.41 Table of ContentsOnce the IND is submitted, the sponsor must wait 30 calendar days before initiating any clinical trials. During this time, FDAhas an opportunity to review the IND for safety to assure that research subjects will not be subjected to unreasonable risk,unless before that time the FDA raises concerns or questions and places the trial on clinical hold. In such a case, the INDsponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under thesupervision of a qualified investigator. Clinical trials must be conducted: (1) in compliance with federal regulations; (2) incompliance with good clinical practice (GCP), an international standard meant to protect the rights and health of patients andto define the roles of clinical trial sponsors, administrators and monitors, and (3) under protocols detailing the objectives ofthe trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocolinvolving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.The FDA may order the temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if theFDA believes that the clinical trial is either not being conducted in accordance with FDA requirements or presents anunacceptable risk to the clinical trial patients. The clinical trial protocol and informed consent information for patients inclinical trials must also be submitted to an Institutional Review Board (IRB) for approval. An IRB must operate incompliance with FDA regulations. An IRB may also require the clinical trial at the site to be halted, either temporarily orpermanently, for failure to comply with the IRB’s requirements or may impose other conditions.Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases mayoverlap.·Phase 1 trials: The drug is initially introduced into healthy volunteers or patients, with the target disease orcondition. The drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effectsassociated with increasing doses, and, if possible, early evidence of effectiveness.·Phase 2 trials: The drug is administered to a limited patient population to determine the effectiveness of thedrug for a particular indication, dosage tolerance, optimum dosage and to identify common adverse effects andsafety risks.·Phase 3 trials: If the drug demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2trials, Phase 3 trials, including registration trials, are undertaken to obtain additional information about clinicalefficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, topermit the FDA to evaluate the overall benefit‑risk relationship of the drug and to provide adequate informationfor the labeling of the drug. In most cases, the FDA requires two adequate and well‑controlled Phase 3registration trials to demonstrate the efficacy of the drug. A single Phase 3 registration trial with otherconfirmatory evidence may be sufficient in rare instances where the study is a large multicenter trialdemonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effecton mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome andconfirmation of the result in a second trial would be practically or ethically impossible.After completion of the required clinical trials, an NDA is prepared and submitted to the FDA for approval, which is requiredbefore marketing of the product may begin in the United States. The NDA must include, among other things, the results of allpreclinical studies, clinical trials and other testing, a compilation of data relating to the product’s pharmacology, chemistry,manufacture and controls, and the proposed product labeling. The cost of preparing and submitting an NDA is substantial.The submission of most NDAs is additionally subject to a substantial application user fee and the manufacturer and/orapplicant under an approved NDA are also subject to annual product and establishment user fees.The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on theFDA’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is acceptedfor filing, the FDA begins an in‑depth review. The FDA has agreed to certain performance goals in the review of new drugapplications. Most such applications for standard review drug products are reviewed within ten to twelve months; mostapplications for priority review drugs are reviewed in six to eight months. Priority review can be applied to drugs that theFDA determines offer major advances in treatment, diagnosis, or prevention of diseases or42 Table of Contentsprovide a treatment where no adequate therapy exists. For biologics, priority review is further limited only for drugs intendedto treat a serious or life‑threatening disease relative to the currently approved products. The review process for both standardand priority review may be extended by the FDA for three additional months to consider certain late‑submitted information,or information intended to clarify information already provided in the submission.The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety orefficacy, to an advisory committee — typically a panel that includes clinicians and other experts — for review, evaluationand a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation ofan advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typicallyinspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or thefacilities at which the drug is manufactured. The FDA will not approve the product unless it is satisfactorily compliant withcGMP standards and the NDA contains data that provide substantial evidence that the drug is safe and effective in theindication studied.After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete responseletter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additionaltesting, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressedto the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed toreviewing such resubmissions in two or six months depending on the type of information included.An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.Even if the FDA approves a product, it may limit the approved indications for use for the product, require thatcontraindications, warnings or precautions be included in the product labeling, or require that post‑approval studies,including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval. As a condition of NDAapproval, the FDA may also require a Risk Evaluation and Mitigation Strategy (REMS) to help ensure that the benefits of thedrug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals,and Elements To Assure Safe Use (ETASU). Elements to assure safe use can include, but are not limited to, special training orcertification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use ofpatient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug.Moreover, product approval may require substantial post‑approval testing and surveillance to monitor the drug’s safety orefficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained orproblems are identified following initial marketing.Changes to some of the conditions established in an approved application, including changes in indications, labeling, ormanufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before thechange can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in theoriginal application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does inreviewing NDAs.Fast Track Designation and Accelerated ApprovalThe FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of aserious or life‑threatening disease or condition for which there is no effective treatment and which demonstrate the potentialto address unmet medical needs for the condition. Under the fast track program, the sponsor of a new product candidate mayrequest that the FDA designate the product candidate for a specific indication as a fast track drug concurrent with, or after, thefiling of the IND for the product candidate. The FDA must determine if the product candidate qualifies for fast trackdesignation within 60 days of receipt of the sponsor’s request.Under the fast track program and the FDA’s accelerated approval regulations, the FDA may approve a drug for a serious orlife‑threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon asurrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlierthan irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality orother clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack ofalternative treatments.In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition thatsubstitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measuredmore easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorouspost‑marketing compliance requirements, including the completion of Phase 4 or post‑approval clinical trials to43 Table of Contentsconfirm the effect on the clinical endpoint. Failure to conduct required post‑approval studies or confirm a clinical benefitduring post‑marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All promotionalmaterials for product candidates approved under accelerated regulations are subject to prior review by FDA.In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with theFDA, the FDA may initiate review of sections of a fast track drug’s NDA before the application is complete. This rollingreview is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaininginformation and the applicant pays applicable user fees. However, the FDA’s time period goal for reviewing an applicationdoes not begin until the last section of the NDA is submitted. Additionally, the fast track designation may be withdrawn bythe FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.Breakthrough Therapy DesignationThe FDA is also required to expedite the development and review of the application for approval of drugs that are intendedto treat a serious or life‑threatening disease or condition where preliminary clinical evidence indicates that the drug maydemonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Under thebreakthrough therapy program, the sponsor of a new product candidate may request that the FDA designate the productcandidate for a specific indication as a breakthrough therapy concurrent with, or after, the filing of the IND for the productcandidate. The FDA must determine if the product candidate qualifies for breakthrough therapy designation within 60 daysof receipt of the sponsor’s request. The FDA must take certain actions, such as holding timely meetings and providing advice,intended to expedite the development and review of an application for approval of a breakthrough therapy. Even if a productqualifies for this program, the FDA may later decide that the product no longer meets the conditions for qualification.Orphan DrugsUnder the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease orcondition — generally a disease or condition that affects fewer than 200,000 individuals in the U.S. Orphan DrugDesignation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identityof the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey anyadvantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDAapproval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to aseven‑year exclusive marketing period in the United States for that product, for that indication. During the seven‑yearexclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except inlimited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drugexclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug fora different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and awaiver of the NDA application user fee.Pediatric InformationUnder the Pediatric Research Equity Act (PREA), NDAs or supplements to NDAs must contain data to assess the safety andeffectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing andadministration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partialwaivers for submission of data, as well as deferrals for several reasons, including a finding that the drug is ready for approvalfor use in adults before pediatric studies are complete or that additional safety or effectiveness data needs to be collectedbefore the pediatric studies begin. Unless otherwise required by regulation, PREA does not apply to any drug for anindication for which orphan designation has been granted.The Best Pharmaceuticals for Children Act (BPCA) provides NDA holders a six‑month extension of any exclusivity — patentor non‑patent — for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination thatinformation relating to the use of a new drug in the pediatric population may produce health benefits in that population, theFDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requestedstudies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of thebenefits that designation confers.44 Table of ContentsSpecial Protocol AssessmentA company may reach an agreement with the FDA under the Special Protocol Assessment (SPA) process as to the requireddesign and size of clinical trials intended to form the primary basis of an efficacy claim and adequately addresses scientificand regulatory requirements indicating concurrence by FDA with the adequacy and acceptability to support the ability of afuture submitted application to meet regulatory requirements for approval. Under the FDC Act and FDA guidanceimplementing the statutory requirement, an SPA is generally binding upon the FDA except in limited circumstances, such asif the FDA identifies a substantial scientific issue essential to determining safety or efficacy after the clinical trial begins,public health concerns emerge that were unrecognized at the time of the protocol assessment, the sponsor and FDA agree tothe change in writing, or if the clinical trial sponsor fails to follow the protocol that was agreed upon with the FDA. Disclosure of Clinical Trial InformationSponsors of clinical trials of FDA‑regulated products, including drugs, are required to register and disclose certain clinicaltrial information. Information related to the product, patient population, phase of investigation, clinical trial sites andinvestigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligatedto discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until thenew product or new indication being studied has been approved. Competitors may use this publicly‑available information togain knowledge regarding the progress of development programs.Post‑Approval RequirementsOnce an NDA is approved, a product will be subject to certain post‑approval requirements. For instance, the FDA closelyregulates the post‑approval marketing and promotion of drugs, including standards and regulations for direct‑to‑consumeradvertising, off‑label promotion, industry‑sponsored scientific and educational activities and promotional activitiesinvolving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions ofthe approved labeling.Adverse Event (AE) reporting and submission of periodic reports is required following FDA approval of an NDA. The FDAalso may require post‑marketing testing, known as Phase 4 testing, REMS and surveillance to monitor the effects of anapproved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product.In addition, quality‑control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs afterapproval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDAand certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA,during which the FDA inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers mustcontinue to expend time, money and effort in the areas of production and quality‑control to maintain compliance withcGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply withregulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems aresubsequently discovered.The Hatch‑Waxman AmendmentsOrange Book ListingIn seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims coverthe applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then publishedin the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book.Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of anAbbreviated New Drug Application (ANDA). An ANDA provides for marketing of a drug product that has the same activeingredient in the same strength, route of administration and dosage form as the listed drug and has been shown to bebioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required toconduct, or submit results of, preclinical studies or clinical trials to prove the safety or effectiveness of their drug product.Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substitutedby pharmacists under prescriptions written for the original listed drug.The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’sOrange Book. Specifically, the applicant must certify that: (1) the required patent information has not been filed; (2) thelisted patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is45 Table of Contentssought after patent expiration; or (4) the listed patent is invalid or will not be infringed by the new product. The ANDAapplicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (orcarves out) any language regarding the patented method‑of‑use rather than certify to a listed method‑of‑use patent. If theapplicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patentsclaiming the referenced product have expired.A certification that the new product will not infringe the already approved product’s listed patents, or that such patents areinvalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA,the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has beenaccepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response tothe notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of aParagraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months,expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDAapplicant.The ANDA application also will not be approved until any applicable non‑patent exclusivity listed in the Orange Book forthe referenced product has expired.ExclusivityUpon NDA approval of a drug containing a New Chemical Entity (NCE), which is a drug substance that contains an activemoiety that has not been approved by the FDA in any other NDA, that moiety will receive five years of marketing exclusivityduring which the FDA cannot approve any ANDA seeking approval of a generic version of that moiety. Certain changes to adrug, such as the addition of a new indication to the package insert, may receive a three‑year period of exclusivity duringwhich the FDA cannot approve an ANDA for a generic drug that includes the change.If no Paragraph IV certification is made, an ANDA may not be filed until expiry of the NCE exclusivity period, however, if aParagraph IV certification is filed, the ANDA may be submitted one year before the NCE exclusivity period expires. If there isno listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed beforethe expiration of the exclusivity period.Patent Term ExtensionAfter NDA approval, owners of relevant drug patents may apply for up to a five year patent extension. The allowable patentterm extension is calculated as half of the drug’s testing phase — the time between IND application and NDA submission —and all of the review phase — the time between NDA submission and approval up to a maximum of five years. The time canbe shortened if the FDA determines that the applicant did not pursue approval with due diligence. The extension may notextend the patent beyond 14 years from market approval.For patents that might expire during the application phase, the patent owner may request an interim patent extension. Aninterim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patentextension granted, the post‑approval patent extension is reduced by one year. The director of the USPTO must determine thatapproval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensionsare not available for a drug for which an NDA has not been submitted.Prescription Drug Marketing ActAs part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs tophysicians. The Prescription Drug Marketing Act (PDMA) imposes requirements and limitations upon the provision of drugsamples to physicians, as well as prohibits states from licensing distributors of prescription drugs unless the state licensingprogram meets certain federal guidelines that include minimum standards for storage, handling and record keeping. Inaddition, the PDMA sets forth civil and criminal penalties for violations.United States — Anti‑Kickback, False Claims Laws and Other Healthcare LawsIn addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws havebeen applied to restrict certain general business and marketing practices in the pharmaceutical industry in recent46 Table of Contentsyears. These laws include anti‑kickback statutes, false claims statutes and other statutes pertaining to health care fraud andabuse.The federal Anti‑Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting orreceiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or orderof any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs.The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (PPACA)amended the intent element of the federal Anti‑Kickback Statute so that a person or entity no longer needs to have actualknowledge of the statute or specific intent to violate it in order to be in violation. This statute has been interpreted to applyto arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managerson the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain commonactivities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practicesthat involve remuneration intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if theydo not qualify for an exemption or safe harbor. Violations of the Anti‑Kickback Statute are punishable by penalties includingimprisonment, criminal fines, civil monetary penalties, damages, disgorgement and exclusion from participation in federalhealthcare programs.Federal false claims laws, including the civil False Claims Act, prohibit any person or entity from knowingly presenting, orcausing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, afalse statement to have a false claim paid. This includes claims made to programs where the federal government reimburses,such as Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off theFederal Supply Schedule. Recently, several pharmaceutical and other healthcare companies have been prosecuted underthese laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to setMedicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation thatthe customers would bill federal programs for the product. In addition, certain marketing practices, including off‑labelpromotion, may also violate false claims laws. Additionally, PPACA amended the federal Anti‑Kickback Statute such that aviolation of that statute can serve as a basis for liability under the federal civil False Claims Act. The majority of states alsohave statutes or regulations similar to the federal Anti‑Kickback Statute and False Claims Act, which apply to items andservices reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.Other federal statutes pertaining to healthcare fraud and abuse include the Civil Monetary Penalties Statute, which prohibitsthe offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offeror/payor knows or should know islikely to influence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and thehealthcare fraud provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which prohibitsknowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain bymeans of false or fraudulent pretenses, representations, or promises any money or property owned by or under the control ofany healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items, or services.For example, several pharmaceutical and other healthcare companies have been prosecuted under these laws for, among otherthings, allegedly inflating drug prices they report to pricing services, which in turn were used by the government to setMedicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation thatthe customers would bill federal programs for the product. In addition, certain marketing practices undertaken bypharmaceutical companies, including off‑label promotion, may violate false claims laws.Pursuant to PPACA, the Centers for Medicare & Medicaid Services (CMS) has issued a final rule that requires manufacturersof certain prescription drugs, devices, biologics, and medical supplies for which payment is available under Medicare,Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to collect and report information onpayments or transfers of value to physicians and teaching hospitals, as well as investment interests held by physicians andtheir immediate family members. The first reports were due in 2014 and must be submitted on an annual basis. The reporteddata were posted by CMS in searchable form on a public website on September 30, 2014 and will be posted on an annualbasis. Failure to submit required information may result in civil monetary penalties.In addition, several states now require prescription drug companies to report expenses relating to the marketing andpromotion of drug products and to report gifts and payments to individual physicians in these states. Other states prohibitvarious other marketing‑related activities. Still other states require the posting of information relating to clinical studies andtheir outcomes. In addition, California, Connecticut, Nevada and Massachusetts require pharmaceutical companies toimplement compliance programs and/or marketing codes. Several additional states are considering similar proposals.47 Table of ContentsCompliance with these laws is difficult and time consuming, and companies that do not comply with these state laws mayface civil penalties.Other federal and state requirements include the following:·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (the HITECHAct) and its implementing regulations, which imposes obligations, including mandatory contractual terms, oncertain people and entities with respect to safeguarding the privacy, security and transmission of individuallyidentifiable health information; and·State and foreign laws also govern the privacy and security of health information in some circumstances, manyof which differ from each other in significant ways and often are not preempted by HIPAA, thus complicatingcompliance efforts.United States Healthcare ReformCurrent and future legislative proposals to further reform healthcare or reduce healthcare costs may result in lowerreimbursement for our products. The cost containment measures that payors and providers are instituting and the effect of anyhealthcare reform initiative implemented in the future could significantly reduce our revenues from the sale of our products.For example, in March 2010, PPACA was signed into law. PPACA has begun to, and will likely continue to, substantiallychange healthcare financing and delivery by both governmental and private insurers, and significantly impact thepharmaceutical industry. The PPACA, among other things: established an annual, nondeductible fee on any entity thatmanufactures or imports certain specified branded prescription drugs and biologic agents; revised the methodology by whichrebates owed by manufacturers to the state and federal government for covered outpatient drugs under the Medicaid DrugRebate Program are calculated; increased the minimum Medicaid rebates owed by most manufacturers under the MedicaidDrug Rebate Program; extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled inMedicaid managed care organizations; implemented a new Medicare Part D coverage gap discount program; expanded theentities eligible for discounts under the Public Health Services pharmaceutical pricing program; created a new PatientCentered Outcomes Research Institute; and provided incentives to programs that increase the federal government’scomparative effectiveness research.In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. In August 2011,President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint SelectCommittee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committeedid not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, triggering thelegislation’s automatic reduction to several government programs. This includes reductions to Medicare payments toproviders of 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2025 unless additionalCongressional action is taken. Additionally, in January 2013, President Obama signed into law the American TaxpayerRelief Act of 2012, which, among other things, reduced Medicare payments to several providers and increased the statute oflimitations period for the government to recover overpayments to providers from three to five years.With President Donald J. Trump currently in office, we expect that additional state and federal healthcare reform measuresmay be adopted in the future, including the possible repeal and replacement of PPACA and related legislation, regulationsand programs. Any new state and federal healthcare reform measures could limit the amounts that federal and stategovernments will pay for healthcare products and services, which could result in reduced demand for our products oradditional pricing pressure. We are unsure of the ways in which PPACA will continue to be challenged, repealed, amended orreplaced in the months and years to come.Review and Approval of Drug Products in the European UnionIn order to market any product outside of the United States, a company must also comply with numerous and varyingregulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, amongother things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not itobtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreignregulatory authorities before it can commence clinical trials or marketing of the product in those countries or48 Table of Contentsjurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional producttesting and additional administrative review periods. The time required to obtain approval in other countries andjurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one countryor jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in onecountry or jurisdiction may negatively impact the regulatory process in others.Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has beenimplemented through national legislation of the member states. Under this system, an applicant must obtain approval fromthe competent national authority of a European Union member state in which the clinical trial is to be conducted.Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a favorable opinion.Clinical trial application must be accompanied by an investigational medicinal product dossier with supporting informationprescribed by the European Clinical Trials Directive and corresponding national laws of the member states and furtherdetailed in applicable guidance documents.To obtain marketing approval of a drug under European Union regulatory systems, an applicant must submit a marketingauthorization application (MAA) either under a centralized or decentralized procedure.The centralized procedure provides for the grant of a single marketing authorization by the European Commission that isvalid for all European Union member states. The centralized procedure is compulsory for specific products, including formedicines produced by certain biotechnological processes, products designated as orphan medicinal products, advancedtherapy products and products with a new active substance indicated for the treatment of certain diseases. For products with anew active substance indicated for the treatment of other diseases and products that are highly innovative or for which acentralized process is in the interest of patients, the centralized procedure may be optional.Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at theEuropean Medicines Agency (EMA) is responsible for conducting the initial assessment of a drug. The CHMP is alsoresponsible for several post‑authorization and maintenance activities, such as the assessment of modifications or extensionsto an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe forthe evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation isto be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by theCHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and inparticular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMPis given within 150 days.The decentralized procedure is available to applicants who wish to market a product in various European Union memberstates where such product has not received marketing approval in any European Union member states before. Thedecentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of anapplication performed by one member state designated by the applicant, known as the reference member state. Under thisprocedure, an applicant submits an application based on identical dossiers and related materials, including a draft summaryof product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states.The reference member state prepares a draft assessment report and drafts of the related materials within 210 days after receiptof a valid application. Within 90 days of receiving the reference member state’s assessment report and related materials, eachconcerned member state must decide whether to approve the assessment report and related materials.If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to publichealth, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to the EuropeanCommission, whose decision is binding on all member states.Data and Market Exclusivity in the European UnionIn the European Union, NCEs qualify for eight years of data exclusivity upon marketing authorization and an additional twoyears of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union fromreferencing the innovator’s data to assess a generic (abbreviated) application for eight years, after which generic marketingauthorization can be submitted, and the innovator’s data may be referenced, but not approved for two years. The overallten‑year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketingauthorization (MA) holder obtains an authorization for one or more new therapeutic indications49 Table of Contentswhich, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit incomparison with existing therapies. Even if a compound is considered to be a NCE and the sponsor is able to gain theprescribed period of data exclusivity, another company nevertheless could also market another version of the drug if suchcompany can complete a full MAA with a complete database of pharmaceutical test, preclinical studies and clinical trials andobtain marketing approval of its product.Data and Market Exclusivity in JapanJapan has no established system for data exclusivity or marketing exclusivity. However, the Pharmaceuticals Act of Japan(PAA) provides for a re‑examination system after drug approval. This system imposes an obligation on the MA holder tocontinue to collect clinical data after market approval during a study period. The MA holder must apply for reexamination tothe Minster of Health Labor and Welfare within three months of the expiration of the study period. During the study andreexamination period no generic drug may be approved, effectively providing a form of market exclusivity. The study periodis determined by the drug category. The study period for an orphan drug is 10 years from MA, the study period for an NCE iseight years from MA, and for an improvement (new indication, formulation, etc.) the study period is four to six years fromMA.Patent Term Extension in JapanThe term of a patent that covers the approved drug may be extended for the shorter of five years, or the period during whichthe patent could not be worked (exploited) due to obtaining regulatory approval. This period is calculated from the later ofthe patent registration date (grant date) or the clinical trial start date to the regulatory approval date.Regulatory Exclusivity in ChinaChina has a six-year regulatory exclusivity period for NCE and Orphan drugs, such as gemcabene, which begins at the date ofmarket approval. Foreign RegulationIn order to market any product outside of the United States, we would need to comply with numerous and varying regulatoryrequirements of other countries regarding safety and efficacy and governing, among other things, clinical trials, marketingauthorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, wewould need to obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we cancommence clinical trials or marketing of the product in those countries. The approval process varies from country to countryand can involve additional product testing and additional administrative review periods. The time required to obtainapproval in other countries might differ from and be longer than that required to obtain FDA approval. Regulatory approvalin one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in onecountry may negatively impact the regulatory process in others.Pharmaceutical Coverage, Pricing and ReimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtainregulatory approval. Sales of any of our product candidates, if approved, will depend, in part, on the extent to which the costsof the products will be covered by third‑party payors, including government health programs such as Medicare andMedicaid, commercial health insurers and managed care organizations. The process for determining whether a payor willprovide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that thepayor will pay for the drug product once coverage is approved. Third‑party payors may limit coverage to specific drugproducts on an approved list, or formulary, which might not include all of the approved drugs for a particular indication.In order to secure coverage and adequate reimbursement for any product that might be approved for sale, we may need toconduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost‑effectiveness of theproduct, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Our product candidatesmay not be considered medically necessary or cost‑effective. A payor’s decision to provide coverage for a drug product doesnot imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for adrug product does not assure that other payors will also provide coverage or adequate50 Table of Contentsreimbursement for the drug product. Third‑party reimbursement may not be sufficient to enable us to maintain price levelshigh enough to realize an appropriate return on our investment in product development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugshave been a focus in this effort. Third‑party payors are increasingly challenging the prices charged for medical products andservices and examining the medical necessity and cost‑effectiveness of medical products and services, in addition to theirsafety and efficacy. If these third‑party payors do not consider our products to be cost‑effective compared to other availabletherapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of paymentmay not be sufficient to allow us to sell our products at a profit. The U.S. government, state legislatures and foreigngovernments have shown significant interest in implementing cost containment programs to limit the growth ofgovernment‑paid health care costs, including price controls, restrictions on reimbursement and requirements for substitutionof generic products for branded prescription drugs. Adoption of such controls and measures and tightening of restrictivepolicies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals such as the productcandidates that we are developing and could adversely affect our net revenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may bemarketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studiesthat compare the cost‑effectiveness of a particular product candidate to currently available therapies. For example, theEuropean Union provides options for its member states to restrict the range of drug products for which their national healthinsurance systems provide reimbursement and to control the prices of medicinal products for human use. European Unionmember states may approve a specific price for a drug product or may instead adopt a system of direct or indirect controls onthe profitability of the company placing the drug product on the market. Other member states allow companies to fix theirown prices for drug products but monitor and control company profits. The downward pressure on health care costs ingeneral, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected tothe entry of new products. In addition, in some countries, cross‑border imports from low‑priced markets exert competitivepressure that may reduce pricing within a country. There can be no assurance that any country that has price controls orreimbursement limitations for drug products will allow favorable reimbursement and pricing arrangements for any of ourproducts.The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the governmentand third‑party payors fail to provide coverage and adequate reimbursement. In addition, the emphasis on managed care inthe United States has increased and we expect will continue to increase the pressure on drug pricing. Coverage policies,third‑party reimbursement rates and drug pricing regulation may change at any time. In particular, the PPACA containsprovisions that may reduce the profitability of drug products, including, for example, increased rebates for drugs sold toMedicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certainMedicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health careprograms. Even if favorable coverage status and adequate reimbursement level status are obtained for one or more productsfor which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented inthe future.EmployeesIn September 2018, our board of directors approved a workforce reduction to reduce costs and conserve cash resources inlight of the delay in our Phase 3 trials resulting from the FDA’s request for additional animal data in connection with theaddressing the partial clinical hold on gemcabene. The workforce reduction included 5 employees, which representedapproximately 33% of our workforce at such time, and was completed in the fourth quarter of 2018. As of March 11, 2019, we had 9 employees, all of whom are full‑time, four of whom hold Ph.D. or M.D. degrees, 5 of whomwere engaged in research and development activities and 4 of whom were engaged in business development, finance,information systems, facilities, human resources or administrative support. None of our employees are represented by a laborunion or subject to a collective bargaining agreement. We consider our relationship with our employees to be good.Corporate InformationWe were formed in Michigan as Michigan Life Therapeutics, LLC (MLT) in November 2008. In October 2014, weincorporated a new entity under the name Gemphire Therapeutics Inc. in Delaware. MLT then merged with and into51 Table of ContentsGemphire, with Gemphire as the surviving entity. The purpose of the merger was to change the jurisdiction of ourincorporation from Michigan to Delaware and to convert from a limited liability company to a corporation. Our principalexecutive offices are located at 17199 N. Laurel Park Dr., Suite 401, Livonia, MI 48152, and our telephone number is (734)245-1700. Our corporate website address is www.gemphire.com. Information contained on or accessible through our websiteis not a part of this Report, and the inclusion of our website address in this Report is an inactive textual reference only. ITEM 1A. RISK FACTORS Our business, prospects, financial condition or results of operations could be materially adversely affected by any of the risksand uncertainties set forth below, as well as in any amendments or updates reflected in subsequent filings with the Securitiesand Exchange Commission (SEC). In assessing these risks, you should also refer to other information contained in thisReport, including our financial statements and related notes. Risks Related to the Development of Gemcabene or Any Future Product Candidate We currently depend entirely on the success of gemcabene, our only product candidate. We may never receive marketingapproval for, or successfully commercialize, gemcabene for any indication. We currently have only one product candidate, gemcabene, in clinical development, and our business depends on itssuccessful clinical development, regulatory approval and commercialization. The research, testing, manufacturing, labeling,approval, sale, marketing and distribution of a drug product are subject to extensive regulation by the FDA and otherregulatory authorities in the United States and other countries, where regulations differ from country to country. We are notpermitted to market gemcabene in the United States until we receive approval of a new drug application (NDA) from the FDAor in any foreign countries until we receive the requisite approval from such countries. We have not submitted an NDA to theFDA or comparable applications to other regulatory authorities or received marketing approval for gemcabene. Beforeobtaining regulatory approval for the commercial sale of gemcabene for a particular indication, we must demonstrate throughpreclinical testing and clinical trials that gemcabene is safe and effective for use in that target indication. This process cantake many years and may be followed by post‑marketing studies and surveillance, which will require the expenditure ofsubstantial resources beyond our current cash and cash equivalents. Of the large number of drugs in development in theUnited States, only a small percentage of drugs successfully complete the FDA regulatory approval process and arecommercialized. Accordingly, even if we are able to complete development of gemcabene, we cannot assure you thatgemcabene will be approved or commercialized. The FDA has imposed a partial clinical hold on the clinical development of gemcabene which limits human trials to 6months of drug exposure, and this partial clinical hold has, and may continue to, significantly delay our expectedinitiation of Phase 3 trials, or, if never lifted, may prevent us from continuing the development of gemcabene. As mentioned earlier, in August 2018 we announced that the FDA, following submission of our two-year carcinogenicitystudy, requested additional preclinical studies, including a 13 week PPAR-alpha knockout mouse study with gemcabene.The FDA stated that we cannot proceed to our EOP2 meeting or begin our Phase 3 trials, which require more than 6 months ofdrug exposure, until this partial clinical hold is lifted. This request has delayed the timeline for our EOP2 meeting and start ofPhase 3 trials by more than one year. We are currently conducting all studies requested and will resubmit our application tothe FDA to lift the clinical hold. We cannot assure you that the studies will be completed on time by third party vendors whoare involved or that the results will prove satisfactory for the FDA to lift the hold. It is possible that the FDA may requestadditional studies and information prior to lifting the hold which would significantly delay the time and cost to initiatingPhase 3 trials and future development of gemcabene. If the FDA decisions further delay our clinical plans, this couldjeopardize our ability to commercialize gemcabene by April 2024, as required by the Pfizer Agreement. Finally, we cannotassure you that the partial clinical hold will ever be lifted in which case gemcabene will never receive NDA approval or becommercialized. Obtaining approval of an NDA is an extensive, lengthy, expensive and uncertain process, and the FDA may delay, limit ordeny approval of gemcabene for many reasons, including: ·the data collected from preclinical studies and clinical trials of gemcabene may not be sufficient to support thesubmission of an NDA or removal of the partial clinical hold;52 Table of Contents·we may not be able to demonstrate to the satisfaction of the FDA that gemcabene is safe and effective for anyindication;·the results of clinical trials may not meet the level of statistical significance or clinical significance required by theFDA for approval;·the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;·the FDA may not find the data from preclinical studies and clinical trials sufficient to demonstrate that gemcabene’sclinical and other benefits outweigh its safety risks;·the FDA may disagree with our interpretation of data from preclinical studies or clinical trials;·the FDA may not accept data generated at our clinical trial sites;·the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisorycommittee may recommend against approval of our application or may recommend that the FDA require, as acondition of approval, additional preclinical studies or clinical trials, limitations on approved labeling ordistribution and use restrictions;·the FDA may require development of a risk evaluation and mitigation strategy (REMS) as a condition of approval;·the FDA may identify deficiencies in the manufacturing processes or facilities of third party manufacturers withwhich we enter into agreements for clinical and commercial supplies; or·the FDA may change its approval policies or adopt new regulations. The results of previous clinical trials may not be predictive of future results, and the results of our current and plannedclinical trials may not satisfy the requirements of the FDA or non‑U.S. regulatory authorities. The results from the prior preclinical studies and clinical trials for gemcabene discussed elsewhere in this report may notnecessarily be predictive of the results of future preclinical studies or clinical trials. Even if we are able to complete ourplanned clinical trials of gemcabene according to our current development timeline, the results from our prior clinical trialsof gemcabene may not be replicated in these future trials. Many companies in the pharmaceutical and biotechnologyindustries (including those with greater resources and experience than us) have suffered significant setbacks in late‑stageclinical trials after achieving positive results in early stage development, and we cannot be certain that we will not facesimilar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trialswere underway or safety or efficacy observations made in clinical trials, including previously unreported AEs. Moreover,preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believedtheir product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless have failed to obtainFDA approval. If we fail to produce positive results in our clinical trials of gemcabene, the development timeline andregulatory approval and commercialization prospects for gemcabene and our business and financial prospects, would beadversely affected. Further, gemcabene may not be approved even if it achieves its primary endpoint in Phase 3 registration trials. The FDA ornon‑U.S. regulatory authorities may disagree with our trial design and our interpretation of data from preclinical studies andclinical trials. In addition, any of these regulatory authorities may change requirements for the approval of a productcandidate even after reviewing and providing comments or advice on a protocol for a pivotal clinical trial that has thepotential to result in approval by the FDA or another regulatory authority. Furthermore, any of these regulatory authoritiesmay also approve our product candidate for fewer or more limited indications than we request or may grant approvalcontingent on the performance of costly post‑marketing clinical trials. We reported top line data from our 8 patient trial for HoFH (COBALT-1) in the second quarter of 2017 and top line data fromour 105 patient trial for hypercholesterolemia on high‑intensity statin therapy including HeFH and ASCVD patients(ROYAL-1) in the third quarter of 2017, and we reported top line data from our 91 patient trial in SHTG patients (INDIGO-1)in the second quarter of 2018. We announced the initiation of an investigator-initiated Phase 2a clinical trial in the fourthquarter of 2017 to study gemcabene in adult FPL patients with top line data expected in the second quarter of 2019. Weannounced the initiation of an investigator-initiated Phase 2a clinical trial in the first quarter of 2018 to study gemcabene inpediatric NAFLD patients, which was terminated in August 2018 due to unanticipated problems. If we are successful in the clinical development of gemcabene for one or more of our targeted indications, we plan toeventually seek regulatory approvals of gemcabene initially in the United States, Canada and Europe, and we may seekapprovals in other geographies. Before obtaining regulatory approvals for the commercial sale of any product candidate forany target indication, we must demonstrate with substantial evidence gathered in preclinical studies and adequate andwell‑controlled clinical studies, and, with respect to approval in the United States, to the satisfaction of the FDA, that the53 Table of Contentsproduct candidate is safe and effective for use for that target indication. We cannot assure you that the FDA or non‑U.S.regulatory authorities would consider our planned clinical trials to be sufficient to serve as the basis for approval ofgemcabene for any indication. The FDA and non‑U.S. regulatory authorities retain broad discretion in evaluating the resultsof our clinical trials and in determining whether the results demonstrate that gemcabene is safe and effective. If we arerequired to conduct clinical trials of gemcabene in addition to those we have planned prior to approval, such as acardiovascular outcomes trial, we will need substantial additional funds, our development pathway will be delayed, and wecannot assure you that the results of any such outcomes trial or other clinical trials will be sufficient for approval. If clinical trials of gemcabene or any future product candidate fail to demonstrate safety and efficacy to the satisfaction ofregulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays incompleting, or ultimately be unable to complete, the development and commercialization of such product candidate. Before obtaining marketing approval from regulatory authorities for the sale of gemcabene, we must complete preclinicaldevelopment (including, but not limited to, a subchronic (13 week) study of gemcabene in PPARα knock-out mice and astudy of gemcabene in in vitro PPAR transactivation assays using monkey and canine PPAR isoforms), and supportivepharmacology studies and Phase 2 and Phase 3 clinical trials to demonstrate the safety and efficacy in humans. Preclinical development and extensive clinical trials will also be required before obtaining marketing approval fromregulatory authorities for any other product candidate we may pursue in the future. Clinical testing is expensive, difficult todesign and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinicaltrials can occur at any stage of development. We, or our future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that couldresult in increased development costs, delay, limit or prevent our ability to receive marketing approval or commercializegemcabene or any other product candidate we may pursue in the future, including: ·regulators or institutional review boards (IRBs) may not authorize us or our investigators to commence a clinicaltrial or conduct a clinical trial at a prospective trial site;·government or regulatory delays and changes in regulatory requirements, policy and guidelines may require us toperform additional clinical trials or use substantial additional resources to obtain regulatory approval;·we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trialprotocols with prospective trial sites;·clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, toconduct additional clinical trials or abandon product development programs;·the number of patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trialsmay be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than weanticipate;·our third‑party contractors may fail to comply with regulatory requirements or meet their contractual obligations tous in a timely manner, or at all;·our patients or medical investigators may be unwilling to follow our clinical trial protocols;·we might have to suspend or terminate clinical trials for various reasons, including a finding that the participants arebeing exposed to unacceptable health risks;·the cost of clinical trials may be greater than we anticipate;·the supply or quality of any product candidate or other materials necessary to conduct clinical trials may beinsufficient or inadequate; and·the product candidate may have undesirable side effects or other unexpected characteristics, causing us or ourinvestigators, regulators or IRBs to suspend or terminate the trials. If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatoryapprovals could be delayed or prevented. We or our future collaborators may not be able to initiate or continue clinical trials for gemcabene or any future productcandidate if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as requiredby the FDA or analogous regulatory authorities outside the United States. Orphan indications, in particular,54 Table of Contentshave small populations, and it may be difficult for us to locate and enroll sufficient patients in trials for orphan‑designatedindications. Patient enrollment can be affected by many factors, including: ·severity of the disease under investigation;·availability and efficacy of medications already approved for the disease under investigation;·eligibility criteria for the trial in question;·competition for eligible patients with other companies conducting clinical trials for product candidates seeking totreat the same indication or patient population;·our payments for conducting clinical trials;·perceived risks and benefits of the product candidate under study;·efforts to facilitate timely enrollment in clinical trials;·patient referral practices of physicians;·the ability to monitor patients adequately during and after treatment;·proximity and availability of clinical trial sites for prospective patients; and·events that impact our clinical trial sites Two investigator-initiated Phase 2a clinical trials of gemcabene commenced in late 2017 or early 2018. The pediatricNAFLD trial was terminated prematurely in the third quarter of 2018 and treatments were stopped after only 6 patients hadbeen enrolled due to “unanticipated problems” (see details below). The patients will continue to be followed by theinvestigator and final results are expected to become available in the second half of 2019 from the investigator. In the Phase2a adult FPL trial, patient enrollment was completed in fourth quarter 2018 and topline data are expected to be available inthe second quarter of 2019 from the principal investigator. Note, however, that for the FPL study we cannot assure you thatour timing assumptions are correct given the above factors. Our inability to fully enroll and complete the pediatric NAFLDtrial will likely have an impact on our future plans in this patient population including potentially abandoning additionaltrials altogether. If unforeseen events arise in the adult FPL trial this could cause significant delays or may require us toabandon future clinical trials in this indication altogether. Further delays in our clinical trials or modifications to any futuretrial plans may result in additional increased development costs for our product candidates and cause our stock price todecline. We or others could discover that gemcabene or any product candidate we may pursue in the future lacks sufficient efficacy,or that it causes undesirable side effects that were not previously identified, which could delay or prevent regulatoryapproval or commercialization. Because gemcabene has been tested in relatively small patient populations and for limited durations to date, it is possiblethat our clinical trials have or will indicate an apparent positive effect of gemcabene that is greater than the actual positiveeffect, if any, or that additional and unforeseen side effects may be observed as its development progresses. The discoverythat gemcabene lacks sufficient efficacy, or that it causes undesirable side effects, including side effects not previouslyidentified in our previously completed clinical trials, such as the unanticipated problems that occurred in connection withthe pediatric NAFLD study, could cause us or regulatory authorities to interrupt, delay or discontinue clinical trials andcould result in the denial of regulatory approval by the FDA or other non‑U.S. regulatory authorities for any or all targetedindications. See “—Gemphire’s Phase 2a clinical trial of gemcabene in Pediatric NAFLD was terminated by the Data andSafety Monitoring Board (DSMB) of the principal investigator following the occurrence of unanticipated problems. This trialtermination and the unanticipated problems could have negative impacts on the clinical development of gemcabene” below.Across all human trials conducted to date, the most common adverse events reported have been headache, weakness, nausea,dizziness, upset stomach, infection, abnormal bowel movements, myalgia and abnormal kidney function tests. The discovery that gemcabene or any future product candidate lacks sufficient efficacy or that it causes undesirable sideeffects that were not previously identified could delay or prevent regulatory approval and prevent us from commercializingsuch product candidate and generating revenues from its sale. In addition, if we receive marketing approval for gemcabeneand we or others later discover that it is less effective, or identify undesirable side effects caused by gemcabene: ·regulatory authorities may withdraw their approval of the product;·we may be required to recall the product, change the way this product is administered, conduct additional clinicaltrials or change the labeling or distribution of the product (including REMS);55 Table of Contents·additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the product;·we may be subject to fines, injunctions or the imposition of civil or criminal penalties;·we could be sued and held liable for harm caused to patients;·the product may be rendered less competitive and sales may decrease; or·our reputation may suffer generally both among clinicians and patients. Any one or a combination of these events could prevent us from achieving or maintaining market acceptance of the affectedproduct or could substantially increase the costs and expenses of commercializing the product, which in turn could delay orprevent us from generating significant, or any, revenues from the sale of the product. Gemphire’s Phase 2a clinical trial of gemcabene in Pediatric NAFLD was terminated by the Data and Safety MonitoringBoard (DSMB) of the principal investigator following the occurrence of unanticipated problems. This trial terminationand the unanticipated problems could have negative impacts on the clinical development of gemcabene. We announced on August 10, 2018 that the DSMB at Emory University School of Medicine overseeing the investigator-ledopen label Phase 2a proof-of-concept trial evaluating gemcabene in pediatric patients with non-alcoholic fatty liver disease(NAFLD) recommended that the trial be terminated due to unanticipated problems. Data on the first three patients whounderwent 12 weeks of treatment showed that all three experienced an increase in liver fat content, as measured by MRI-PDFF. Two of the three patients also demonstrated increases in ALT; however, their baseline ALT levels were elevated priorto receiving gemcabene. The increase in liver fat was deemed an unanticipated problem by the trial investigator because itwas an unexpected consistent pattern of worsening of the disease, rather than improvement, creating risk to the patients,which the investigator believed was likely due to the drug. Additional data that has come to light subsequently showed thatduring the trial the patients were not fully compliant with taking gemcabene and their life styles could have potentiallyimpacted the findings. In addition to the first three patients, another 3 patients enrolled in the trial were taken off gemcabeneand early termination visits were conducted. The DSMB recommended additional follow-up of the study subjects to gatheradditional safety data and this activity remains underway. The DSMB will provide us with a written report of their findings inthe future, likely the second half of 2019, once all the patient results have been collated and analyzed. Gemphire intends to work closely with the physicians at the clinical trial site, and other KOLs to analyze all of the results andidentify potential reasons for these unanticipated problems in the pediatric NAFLD study but cannot assure you that it willbe able to determine the reasons for the unanticipated problems. Following the termination of the pediatric NAFLD trial in August 2018, the investigator of the ongoing Phase 2a FPL studyconducted interim analyses of the patients enrolled at that point in her trial including MRI-PDFF scans and looking for signsof undesirable side effects before continuing the study. In consultation with her DSMB the principal investigator decided tocontinue the FPL study and completed enrollment in fourth quarter of 2018. Top-line results are expected in the secondquarter of 2019. We cannot assure you that the unanticipated problems observed in the pediatric NAFLD trial will not be seen in the FPL orfuture trials or that serious adverse events (SAEs) will not occur in future trials. We also cannot assure you that theunanticipated problems observed in the pediatric NAFLD trial will not result in the FDA requesting additional analyses ofour previously completed clinical trials, including the three Phase 2b trials in dyslipidemia completed in 2017 and 2018. If gemcabene is associated with adverse effects or undesirable side effects in preclinical testing or clinical trials or hascharacteristics that are unexpected in preclinical testing or clinical trials, we may need to consider protocol amendments,petition the FDA for Special Protocol Assessment (SPA), a process in which sponsors ask to meet with FDA to reachagreement on the design and size of clinical studies, modify the scope of our Phase 3 programs to pursue more focusedindications in which the undesirable side effects or other characteristics may be less prevalent, less severe or provide a betterunderstanding from a risk benefit perspective, or abandon the development of the compound. In pharmaceuticaldevelopment, many compounds that initially show promise in early-stage testing are later found to cause adverse effects thatprevent further development of the compound. If we fail to receive regulatory approval for any of our planned indications for gemcabene or fail to develop additionalproduct candidates, our commercial opportunity will be limited.56 Table of Contents We initially focused on the development of gemcabene for our target indications in cardiovascular diseases and expandedour program to include a clinical trial to support an indication for gemcabene in NASH and/or nonalcoholic fatty liverdisease (NAFLD). However, in August 2018, the pediatric NAFLD trial was terminated due to unanticipated problems, and wecannot assure you that we will continue the development of gemcabene for this indication or that other unanticipatedproblems will not arise in pursuing certain indications. We cannot assure you that we will be able to obtain regulatoryapproval of gemcabene for any indication, or successfully commercialize gemcabene, if approved. If we do not receiveregulatory approval for, or successfully commercialize, gemcabene for one or more of our targeted or other indications, ourcommercial opportunity will be limited. We may pursue clinical development of additional product candidates, including product candidates that we acquire orin‑license. Acquiring, in‑licensing, developing, obtaining regulatory approval for and commercializing additional productcandidates will require substantial additional funding and are prone to the risks of failure inherent in drug productdevelopment. We cannot assure you that we will be able to successfully advance any additional product candidates throughthe development process. Even if we obtain FDA approval to market additional product candidates, we cannot assure you that any such productcandidates will be successfully commercialized, widely accepted in the marketplace or more effective than othercommercially available alternatives. If we are unable to successfully develop and commercialize additional productcandidates, our commercial opportunity will be limited. Changes in regulatory requirements or FDA guidance, or unanticipated events during our clinical trials, may result inchanges to clinical trial protocols or additional clinical trial requirements, such as the initiation or completion of acardiovascular outcomes trial, which could result in increased costs to us and could delay our development timeline. Changes in regulatory requirements or FDA guidance, or unanticipated events during our clinical trials, may force us toamend clinical trial protocols or the FDA may impose additional clinical trial requirements. Amendments to our clinical trialprotocols would require resubmission to the FDA and IRBs for review and approval, and may adversely impact the cost,timing or successful completion of a clinical trial. If we experience delays completing, or if we terminate, any of our Phase 2or Phase 3 trials, or if we are required to conduct additional clinical trials, such as a cardiovascular outcomes trial prior toapproval, the commercial prospects for gemcabene may be harmed and our ability to generate product revenue will bedelayed. For cardiovascular disease related indications, if the FDA requires us to conduct a cardiovascular outcomes trial sooner thanplanned, we may not be able to identify and enroll the requisite number of patients in that trial. Even if we are successful inenrolling patients in a cardiovascular outcomes trial, we may not ultimately be able to demonstrate that lowering LDL‑Clevels using gemcabene provides patients with an incremental lowering of cardiovascular disease risks, and our failure to doso may delay or prejudice our ability to obtain FDA approval for gemcabene. Although the validity of lipid‑lowering effects(including LDL‑C reduction) as a surrogate endpoint for cardiovascular benefit continues to be debated in the medicalcommunity, given historical precedent and recent FDA guidance, our current development timeline for gemcabene does notcontemplate the completion of a cardiovascular outcomes trial prior to approval. Such trial would be costly andtime‑consuming and, regardless of the outcome, would adversely affect our development timeline and financial condition. We cannot be certain what efficacy endpoints the FDA may require in a Phase 3 clinical trial of nonalcoholic steatohepatitis(NASH) related indications or for approval of gemcabene; we also cannot be certain if we will be able to gain acceleratedapproval based on surrogate endpoints. If we obtain accelerated approval of gemcabene based on a surrogate endpoint, wewill likely be required to conduct a post-approval clinical outcomes trial to confirm the clinical benefit of gemcabene. There can be no assurance that our review of strategic alternatives will result in any additional stockholder value, andspeculation and uncertainty regarding the outcome of our review of strategic alternatives may adversely impact ourbusiness, financial condition and results of operations. In December 2018, we announced that we had retained Ladenburg Thalmann & Co. as a financial advisor to assist us in ourevaluation of a broad range of strategic alternatives focused on maximizing shareholder value. There can be no assurancesthat the strategic alternatives process will result in the announcement or consummation of any strategic57 Table of Contentstransaction, or that any resulting plans or transactions will yield additional value for stockholders. Any potential transactionwould be dependent on a number of factors that may be beyond our control, including, among other things, marketconditions, industry trends, the interest of third parties in a potential transaction and the availability of financing. If we fail tosuccessfully complete a strategic transaction, we may not be able to otherwise source adequate liquidity to fund ouroperations, meet our obligations, and continue as a going concern. The process of exploring strategic alternatives could adversely impact our business, financial condition and results ofoperations. We expect to incur substantial expenses associated with identifying and evaluating potential strategicalternatives, and may incur substantial expenses associated with consummating a strategic alternative, if any isconsummated, including those related to equity compensation, severance pay, legal, accounting and financial advisory fees,the payment of potential liabilities related to early termination of pre-existing contracts (e.g., lease) and other fees andpayments that may be payable in the event of a strategic transaction, such as the success fee under our Loan Agreement withSVB. In addition, the process may be time consuming and disruptive to our business operations, could divert the attention ofmanagement and the Board from our business, could require that we make changes to our headcount, may negatively impactour ability to attract, retain and motivate key employees, and could expose us to potential litigation in connection with thisprocess or any resulting transaction. Further, speculation regarding any developments related to the review of strategicalternatives and perceived uncertainties related to our future could cause our stock price to fluctuate significantly. We may not be successful in arranging regional partnering opportunities to realize regulatory approval andcommercialization of gemcabene outside of the U.S. Even if we are successful in out-licensing gemcabene, the regulatoryapprovals may not be obtained and the licensees or partners may not be effective at marketing gemcabene. Our current strategy for addressing the need for expertise in obtaining foreign approvals and marketing in foreign markets isto out-license rights to our drugs in markets outside the United States. However, we may not be successful in finding partnerswho will be willing to invest in our drugs outside the United States or our partners may be unable to obtain the necessaryregulatory approvals, which may cause us to delay or abandon our plan to out-license gemcabene. Any such delay or abandonment, or any failure to receive one or more foreign approvals, may have an adverse effect on thebenefits otherwise expected from marketing in foreign countries. Even if we are successful in obtaining one or more businesspartners to commercialize our products in foreign markets, we will be dependent upon their effectiveness in selling andmarketing our products in those foreign markets. These partners may face stiff competition, government price regulations,generic versions of our drug products, violations of our intellectual property rights and other negative events or mayotherwise be ineffective in commercializing our products, any of which could reduce the market potential for our productsand our success in those markets. We have not generated any revenue and may never be profitable. Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenuefrom our development stage product candidate, gemcabene, and we do not currently have any other products or productcandidates. We do not know when, or if, we will generate any revenue. We do not expect to generate significant revenueunless or until we obtain marketing approval of, and commercialize, gemcabene. Our ability to generate revenue depends ona number of factors, including our ability to: ·successfully complete preclinical carcinogenicity studies to remove the partial clinical hold to allow us to completelonger term registration trials for marketing approval of gemcabene;·obtain favorable results from and complete the clinical development of gemcabene for our planned indications,including successful completion of our Phase 2 and Phase 3 trials for these indications;·submit an application to regulatory authorities for gemcabene and receive marketing approval in the United Statesand foreign countries;·contract for the manufacture of commercial quantities of gemcabene, if approved, at acceptable cost levels;·establish sales and marketing capabilities to effectively market and sell gemcabene, if approved, in the United Statesand the European Union, alone or with a pharmaceutical partner; and·achieve market acceptance of gemcabene in the medical community and with third‑party payors. 58 Table of ContentsEven if gemcabene is approved for commercial sale in one or all of the initial indications that we are pursuing, it may notgain market acceptance or achieve commercial success. In addition, we anticipate incurring significant costs associated withcommercializing gemcabene. Moreover, some of the indications we are targeting are small enough to be eligible for orphandrug designation, and our potential patient market is relatively smaller than other drugs, and therefore the price ofgemcabene may need to be higher than other drugs. We may not achieve profitability soon after generating product revenue,if ever, and may be unable to continue operations without continued funding. We depend on intellectual property licensed from Pfizer for gemcabene, and the termination of this license would harm ourbusiness. Pfizer granted us a worldwide exclusive license to certain patent rights and a non-exclusive royalty bearing right and licenseto certain related data to make, use, develop, commercialize, import and otherwise exploit the clinical product candidategemcabene. Under the license agreement, as amended and restated in August 2018, either party may terminate the licenseagreement for the other party’s material breach following a cure period or immediately upon certain insolvency eventsrelating to the other party. Pfizer may immediately terminate the license agreement in the event that (i) the Company or anyof its affiliates or sublicensees contests or challenges, or supports or assists any third party to contest or challenge, Pfizer’sownership of or rights in, or the validity, enforceability or scope of, any of the patents licensed under the license agreementor (ii) the Company or any of its affiliates or sublicensees fails to achieve the first commercial sale in at least one country byApril 16, 2024. Furthermore, upon termination of the license agreement by Pfizer for any of the foregoing reasons, we grantPfizer, pursuant to the license agreement, a non-exclusive, fully paid-up, royalty free, worldwide, transferrable, perpetual andirrevocable license to use any intellectual property rights arising from the development or commercialization of gemcabeneby the Company and any trademarks identifying gemcabene and agree to transfer regulatory filings and approvals to Pfizer orpermit Pfizer to cross-reference and rely on such regulatory filings and approvals for gemcabene. Disputes may arise between us and Pfizer regarding intellectual property subject to this license agreement, including withrespect to: ·the scope of rights granted under the license agreement and other interpretation‑related issues;·whether and the extent to which our technology and processes infringe on intellectual property of Pfizer that is notsubject to the licensing agreement;·the amount and timing of milestone and royalty payments;·the rights of Pfizer under the license agreement;·our right to sublicense patent and other rights to third parties under collaborative development relationships; and·the ownership of inventions and know‑how resulting from the joint creation or use of intellectual property by Pfizerand us and our partners. Any disputes with Pfizer may prevent or impair our ability to maintain our current licensing arrangement. We depend on theintellectual property and the historical preclinical and clinical data package licensed from Pfizer to develop andcommercialize gemcabene. Termination of our license agreement could result in the loss of significant rights and would harmour ability to further develop and commercialize gemcabene. In addition, Pfizer retains the right to make, use and importgemcabene solely for internal research purposes. The development of gemcabene or pursuit of any future product candidate for broad patient populations will be morecostly and commercial pricing for any approved indication would likely be lower. Recently we decided to pursue initially development of gemcabene for the treatment of patients with orphan diseaseindications including HoFH, FCS, and FPL. Trials for larger indications including SHTG, and potentially HeFH/ASCVD andNASH/NAFLD may be initiated subsequent to initiating one or more trials for an orphan indication. Expanding ourdevelopment and commercialization of gemcabene or any future product candidate in these or other broader patientpopulations would be more costly and take longer to complete and would be subject to development and commercializationrisks that may not be applicable to orphan indications such as HoFH, FCS, or FPL. Specifically, these broader indications will likely involve clinical trials with larger numbers of patients possibly taking thedrug for longer periods of time. In addition, we believe that the FDA and, in some cases, the European Medicines Agency(EMA) may require a clinical outcomes trial demonstrating a reduction in cardiovascular events either prior to59 Table of Contentsor after the submission of an application for marketing approval for the broader LDL‑C indications such as HeFH/ASCVD.Clinical outcomes trials are particularly expensive and time consuming to conduct because of the larger number of patientsrequired to establish that the drug being tested has the desired effect. It may also be more difficult for us to demonstrate thedesired outcomes in these trials than to achieve validated surrogate endpoints. In addition, in considering approval ofgemcabene for broader patient populations with less severely elevated lipid levels, the FDA and other regulatory authoritiesmay place greater emphasis on the side effect and risk profile of the drug in comparison to the drug’s efficacy and potentialclinical benefit than in smaller, more severely afflicted patient populations. These factors may make it more difficult for us toachieve marketing approvals of gemcabene for these broader patient populations. Moreover, if we pursue and are able to successfully develop and obtain marketing approval of gemcabene and any futureproduct candidate in broader patient populations, we likely will not be able to obtain the same pricing level that we expectto obtain for orphan indications. The pricing of some drugs intended for orphan populations is often related to the size of thepatient population, with smaller patient populations often justifying higher prices. If the pricing is lower in broader patientpopulations, we may not be able to maintain higher pricing in the population of more severely afflicted patients. This wouldlead to a decrease in revenue from sales to more severely afflicted patients and could make it more difficult for us to achieveor maintain profitability. We do not have drug research or discovery capabilities and will need to acquire or license product candidates from thirdparties to expand our product candidate pipeline. We currently have no drug research or discovery capabilities. Accordingly, if we are to expand our product candidatepipeline beyond gemcabene, we will need to acquire or license product candidates from third parties. We will face significantcompetition in seeking to acquire or license promising product candidates. Many of our competitors for such promisingproduct candidates may have significantly greater financial resources and more extensive experience in preclinical testingand clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products, and thus, maybe a more attractive option to a potential licensor than us. If we are unable to acquire or license additional promising productcandidates, we will not be able to expand our product candidate pipeline. If we are able to acquire or license other product candidates, such license agreements will likely impose various obligationsupon us, and our licensors may have the right to terminate the license thereunder in the event of a material breach or, in somecases, at will. A termination of future licenses could result in our loss of the right to use the licensed intellectual property,which could adversely affect our ability to develop and commercialize a future product candidate, if approved, as well asharm our competitive business position and our business prospects. We may expend our limited resources to pursue a particular indication and fail to capitalize on indications that may bemore profitable or for which there is a greater likelihood of success. Because we have limited financial and managerial resources, we are currently focusing only on development programs thatwe identify for specific indications for gemcabene. As a result, we may forego or delay pursuit of opportunities for otherindications, or with other potential product candidates that later prove to have greater commercial potential. Our resourceallocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Ourspending on current and future research and development programs for specific indications or future product candidates maynot yield any commercially viable product. If we do not accurately evaluate the commercial potential or target market forgemcabene, we may not gain approval or achieve market acceptance of that candidate, and our business and financial resultswill be harmed. Risks Related to Our Financial Position and Need for Additional Capital We have incurred only losses since inception. We expect to incur losses for the foreseeable future and may never achieve ormaintain profitability. Since inception, we have incurred only operating losses. Our net losses were $23.6 million, $33.4 million and $14.6 millionfor the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, we had an accumulateddeficit of $84.1 million. We have financed our operations primarily through the issuance and sale of common stock andwarrants in public offerings and a private placement, proceeds from our term loan facility with Silicon Valley Bank (SVB)(which was pre-paid and terminated in January 2019) and, prior to our IPO, the issuance of60 Table of Contentspreferred stock and convertible notes in private placements. We have devoted substantially all of our financial resources andefforts on research and development, including clinical development of gemcabene. We expect that it will be a number ofyears, if ever, before we have a product candidate ready for commercialization. We expect to continue to incur significantexpenses and increased operating losses for the foreseeable future. To become and remain profitable, we must develop and eventually commercialize a product with market potential. This willrequire us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials,obtaining regulatory approval for a product candidate, manufacturing, marketing and selling any drug for which we mayobtain regulatory approval and satisfying any post‑marketing requirements. We are in the early stages of most of theseactivities. We may never succeed in these activities and, even if we do, we may never generate revenues that are significant orlarge enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Ourfailure to become and remain profitable would decrease the value of the company and could impair our ability to raisecapital, maintain our research and development efforts, expand our business or continue our operations. A decline in thevalue of our company could also cause you to lose all or part of your investment. Our recurring operating losses have raised substantial doubt regarding our ability to continue as a going concern. Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. As a result, for thefiscal year ended December 31, 2018, our independent registered public accounting firm has issued its report on our financialstatements and has expressed substantial doubt about our ability to continue as a going concern. We have no current sourceof revenue to sustain our present activities, and we do not expect to generate revenue until and unless the FDA or otherapplicable regulatory authorities approve gemcabene and we successfully commercialize gemcabene. Accordingly, ourability to continue as a going concern will require us to obtain additional financing to fund our operations. Uncertaintysurrounding our ability to continue as a going concern may make it more difficult for us to obtain financing for thecontinuation of our operations and could result in the loss of confidence by investors, suppliers, contractors and employees. We will need substantial additional capital in the future. If additional capital is not available, we will have to delay,reduce or cease operations. We believe that cash on hand will be sufficient to fund our operations into the third quarter of 2019, but we will need to raiseadditional capital to continue to fund the further development of gemcabene and our operations thereafter, includingsubmission of the additional information requested by the FDA to lift the partial clinical hold. Our future capitalrequirements may be substantial and will depend on many factors including: ·the scope, size, rate of progress, results and costs of researching and developing gemcabene and initiating andcompleting our preclinical studies and clinical trials;·the cost, timing and outcome of our efforts to obtain marketing approval for gemcabene in the United States andother countries, including to fund the preparation and filing of an NDA with the FDA for gemcabene and to satisfyrelated FDA requirements and regulatory requirements in other countries;·the number and characteristics of any additional product candidates we develop or acquire, if any;·our ability to establish and maintain collaborations on favorable terms, if at all;·the timing and amount of milestone and royalty payments;·the amount of revenue, if any, from commercial sales, should any product candidate receive marketing approval;·the costs associated with commercializing gemcabene or any future product candidates, if we receive marketingapproval, including the cost and timing of developing sales and marketing capabilities or entering into strategiccollaborations to market and sell gemcabene or any future product candidates;·the cost of manufacturing gemcabene or any future product candidates and any product we successfullycommercialize; and·the costs associated with general corporate activities, such as the cost of filing, prosecuting and enforcing patentclaims and making regulatory filings. Changing circumstances may cause us to consume capital significantly faster than we currently anticipate. Because theoutcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to61 Table of Contentssuccessfully complete the development, regulatory approval and commercialization of gemcabene and any future productcandidates. Additional financing may not be available when we need it or may not be available on terms that are favorable tous. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if webelieve we have sufficient funds for our current or future operating plans. If adequate funds are unavailable to us on a timelybasis, or at all, we may not be able to continue the development of gemcabene or any future product candidate, orcommercialize gemcabene or any future product candidate, if approved. Raising additional capital may cause dilution to our stockholders and restrict our operations or require us to relinquishrights 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 acombination of equity and debt financings as well as potential strategic collaborations and licensing arrangements. We donot have any committed external sources of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interestwill be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rightsas a common stockholder. Debt financing or preferred equity financing, if available, may involve agreements that includecovenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capitalexpenditures or declaring dividends. If we raise funds through strategic collaborations or marketing, distribution, or licensing arrangements with third parties, wemay have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidatesor to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we maybe required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights todevelop and market product candidates that we would otherwise prefer to develop and market ourselves. This may reduce thevalue of our common stock. To the extent outstanding options are ultimately exercised or the number of shares available for future grant under our equityincentive plans each year are increased, investors will sustain further dilution. Consummating a strategic transaction may cause dilution to our stockholders, restrict our operations or require us torelinquish rights to our technologies or product candidates. In December 2018, we announced that we engaged Ladenburg Thalmann & Co as a financial advisor to assist us inevaluating a broad range of strategic alternatives. A transaction committee of independent board members was formed toevaluate the various alternatives. There is no certainty that such a strategic event will occur. However, if something doesoccur, it will likely cause stockholder dilution and will likely require us to alter our strategic plans, potentially includingchanges to clinical and out-licensing plans for gemcabene. It may also lead to changes in management and personnel withinthe company, which could cause us to incur severance costs and other unplanned expenditures. Risks Related to Government Regulation Gemcabene is subject to a partial clinical hold with respect to clinical trials of longer than six months in duration until theFDA determines to release such hold, which may lead to a significant delay in the commencement of long-term clinicaltrials by us or the failure of gemcabene to obtain marketing approval. In 2004, the FDA determined that gemcabene was a potential peroxisome proliferator‑activated receptor (PPAR) agonist. As aresult, the FDA imposed a partial clinical hold, which restricts us from conducting clinical trials for gemcabene beyond sixmonths in duration and required us to conduct two‑year rat and mouse carcinogenicity studies. The FDA has issued thesenotices to all sponsors of product candidates with PPAR properties based on preclinical studies. We submitted the results ofour two‑year rat and mouse carcinogenicity studies to the FDA, together with results from a short-term, 8 day study where, inPPAR-α knockout mice, gemcabene did not induce known markers of peroxisome proliferation, providing evidence thatgemcabene works through PPAR-α. In response the FDA has requested that, as part of a complete response, we provideadditional data including a subchronic (13 week) study in PPAR-α knock-out mice and PPAR transactivation assays usingmonkey and canine PPAR isoforms, to further understand the human relevance of the preclinical findings. We completed thein vitro PPAR-α transactivation study, and62 Table of Contentswe have initiated the CRO-related activities to conduct the PPAR-α knockout mouse study. We expect to submit the requestto the FDA to lift the partial clinical hold in the fourth quarter of 2019. The future clinical development of gemcabene may be delayed due to these clinical restrictions and additional oversight bythe FDA, as occurred when the FDA requested the additional data beyond the results of our two‑year rat and mousecarcinogenicity studies. If the results of the subchronic (13 week) study in PPAR-α knock-out mice and the PPARtransactivation assays using monkey and canine PPAR isoforms do not address FDA concerns related to the partial clinicalhold, our Phase 3 long-term safety exposure registration trials of longer than six months could be further delayed or the FDAmay never release the partial clinical hold. Also, the findings in our preclinical studies could impact the NDA review, and, ifapproved, labeling and use of gemcabene. Even if we receive marketing approval for gemcabene or any product candidate we may pursue in the future in the UnitedStates, we may never receive regulatory approval to market such product candidate outside of the United States. In addition to the United States, we intend to seek regulatory approval to market gemcabene in Canada and Europe andpotentially other markets. If we pursue additional product candidates in the future, we may seek regulatory approval of suchproduct candidates outside the United States. In order to market any product outside of the United States, however, we mustestablish and comply with the numerous and varying safety, efficacy and other regulatory requirements of these othercountries. Approval procedures vary among countries and can involve additional product candidate testing and additionaladministrative review periods. The time required to obtain approvals in other countries might differ from that required toobtain FDA approval. The marketing approval processes in other countries may include all of the risks detailed aboveregarding FDA approval in the United States as well as other risks. In particular, in many countries outside of the UnitedStates, products must receive pricing and reimbursement approval before the product can be commercialized. Obtaining thisapproval can result in substantial delays in bringing products to market in such countries. Marketing approval in one countrydoes not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one country mayhave a negative effect on the regulatory process in others. Failure to obtain marketing approval in other countries or anydelay or other setback in obtaining such approval would impair our ability to market gemcabene or any future productcandidate in such foreign markets. Any such impairment would reduce the size of our potential market, which could have anadverse impact on our business, results of operations and prospects. Even if we obtain marketing approval for gemcabene or any product candidate we may pursue in the future, such productcandidate could be subject to post‑marketing restrictions or withdrawal from the market, and we may be subject tosubstantial penalties if we fail to comply with regulatory requirements or experience unanticipated problems with aproduct candidate following approval. Any product candidate for which we, or our future collaborators, obtain marketing approval in the future, as well as themanufacturing processes, post‑approval studies and measures, labeling, advertising and promotional activities for such drug,among other things, will be subject to continual requirements of and review by the FDA and other regulatory authorities.These requirements include submissions of safety and other post‑marketing information and reports, registration and listingrequirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance ofrecords and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even ifmarketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses forwhich the drug may be marketed or to the conditions of approval, including the requirement to implement a REMS, whichcould include requirements for a restricted distribution system. The FDA may also impose requirements for costly post‑marketing studies or clinical trials and surveillance to monitor thesafety or efficacy of a product candidate. The FDA and other agencies, including the Department of Justice, closely regulateand monitor the post‑approval marketing and promotion of drugs to ensure that they are manufactured, marketed anddistributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDAimposes stringent restrictions on manufacturers’ communications regarding off‑label use and if we, or our futurecollaborators, do not market a product candidate for which we, or they, receive marketing approval for only their approvedindications, we, or they, may be subject to warnings or enforcement action for off‑label promotion. Violation of the FederalFood, Drug, and Cosmetic Act (FDC Act) and other statutes, including the False Claims Act, relating to the promotion andadvertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraudand abuse laws and state consumer protection laws. 63 Table of ContentsIn addition, later discovery of previously unknown AEs or other problems with our product candidate or its manufacturers ormanufacturing processes, or failure to comply with regulatory requirements, may yield various results, including: ·litigation involving subjects taking our drug;·restrictions on such drugs, manufacturers or manufacturing processes;·restrictions on the labeling or marketing of a drug;·restrictions on drug distribution or use;·requirements to conduct post‑marketing studies or clinical trials;·warning letters or untitled letters;·withdrawal of the drugs from the market;·refusal to approve pending applications or supplements to approved applications that we submit;·product recall or public notification or medical product safety alerts to healthcare professionals;·fines, restitution or disgorgement of profits or revenues;·suspension or withdrawal of marketing approvals;·damage to relationships with any potential collaborators;·unfavorable press coverage and damage to our reputation;·refusal to permit the import or export of drugs;·product seizure; or·injunctions or the imposition of civil or criminal penalties. We may seek to avail ourselves of mechanisms to expedite and/or reduce the cost for development or approval ofgemcabene or any other product candidate we may pursue in the future, such as fast track designation or Orphan Drugdesignation, but such mechanisms may not actually lead to a faster or less expensive development or regulatory review orapproval process. We may seek fast track designation, priority review, Orphan Drug designation, or accelerated approval for gemcabene or anyother product candidate we may pursue in the future. For example, if a drug is intended for the treatment of a serious orlife‑threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, thedrug sponsor may apply for FDA fast track designation. However, the FDA has broad discretion with regard to thesemechanisms, and even if we believe a particular product candidate is eligible for any such mechanism, we cannot assure youthat the FDA would decide to grant it. Even if we do obtain fast track or priority review designation or pursue an acceleratedapproval pathway, we may not experience a faster and/or less costly development process, review or approval compared toconventional FDA procedures. The FDA may withdraw a particular designation if it believes that the designation is no longersupported by data from our clinical development program. A breakthrough therapy designation by the FDA for a product candidate may not lead to a faster development orregulatory review or approval process, and it may not increase the likelihood that a product candidate will receivemarketing approval. Depending on the results of our clinical trials, we may seek a breakthrough therapy designation for gemcabene or any otherproduct candidate we may pursue in the future. A breakthrough therapy is defined as a drug that is intended, alone or incombination with one or more other drugs, to treat a serious or life‑threatening disease or condition, and preliminary clinicalevidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinicallysignificant endpoints. For drugs that are designated as breakthrough therapies, interaction and communication between theFDA and the sponsor can help to identify the most efficient path for clinical development while minimizing the number ofpatients placed in ineffective control regimens. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe a productcandidate meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not tomake such designation. We cannot be sure that our evaluation of a product candidate as qualifying for breakthrough therapydesignation will meet the FDA’s requirements. In any event, the receipt of a breakthrough therapy designation for a productcandidate may not result in a faster development process, review or approval compared to conventional FDA procedures anddoes not assure ultimate approval by the FDA. In addition, even if one or more product candidate qualifies as a breakthroughtherapy, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the timeperiod for FDA review or approval will not be shortened.64 Table of Contents The uncertainty associated with pharmaceutical reimbursement and related matters may increase the difficulty and cost forus and our future collaborators to obtain marketing approval of our product candidate and affect its pricing. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes andproposed changes regarding the healthcare system that could prevent or delay marketing approval of a product candidate,restrict or regulate post‑approval activities and affect our ability, or the ability of our future collaborators, to profitably sellany drug for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reformmeasures that may be adopted in the future, may result in more rigorous coverage criteria and cause downward pressure onthe price that we, or our future collaborators, may receive for any approved drug. For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended bythe Health Care and Education Reconciliation Act (collectively, the PPACA). This is a sweeping law intended to broadenaccess to health insurance, reduce or constrain the growth of healthcare spending, improve healthcare quality, enhanceremedies against fraud and abuse, add new transparency requirements for certain components of the health care and healthinsurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Amongthe provisions of the PPACA of importance to gemcabene and any future product candidates are: ·an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs andbiologic agents, apportioned among these entities according to their market share in certain government healthcareprograms;·an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;·a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program arecalculated for drugs that are inhaled, infused, instilled, implanted or injected;·extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolledin Medicaid managed care organizations;·expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaidcoverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentiallyincreasing a manufacturer’s Medicaid rebate liability;·a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point‑of‑salediscounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period,as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;·expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and·a new Patient‑Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparativeclinical effectiveness research, along with funding for such research. There have been judicial and Congressional challenges and amendments to certain aspects of the PPACA, and we expectthere will be additional challenges and amendments to, and attempts to repeal, the PPACA in the future. In addition, otherlegislative changes have been proposed and adopted since the PPACA was enacted. These new laws have resulted inadditional reductions in Medicare and other healthcare funding and otherwise may affect the prices we may obtain for anyproduct candidate for which marketing approval is obtained. Any reduction in reimbursement from Medicare or othergovernment‑funded programs may result in a similar reduction in payments from private payors. Moreover, recently there hasbeen heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. Theimplementation of cost containment measures or other healthcare reforms may prevent us from being able to generaterevenue, attain profitability or commercialize our drugs. Legislative and regulatory proposals have been made to expand post‑approval requirements and restrict sales andpromotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will beenacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes onthe marketing approvals of a product candidate, if any, may be. In addition, increased scrutiny by the U.S. Congress of theFDA’s approval process may significantly delay or prevent marketing approval, as well as subject us and our futurecollaborators to more stringent drug labeling and post‑marketing testing and other requirements. 65 Table of ContentsGovernments outside of the United States tend to impose strict price controls, which may adversely affect our revenues fromthe sales of a drug, if any. In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject togovernmental control. In these countries, pricing negotiations with governmental authorities can take considerable time afterthe receipt of marketing approval for a drug. To obtain reimbursement or pricing approval in some countries, we, or our futurecollaborators, may be required to conduct a clinical trial that compares the cost‑effectiveness of our drug to other availabletherapies. If reimbursement of our drug is unavailable or limited in scope or amount, or if pricing is set at unsatisfactorylevels, our business could be harmed. Our relationships with healthcare providers and third‑party payors will be subject to applicable fraud and abuse and otherhealthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages,reputational harm and diminished profits and future earnings, among other penalties and consequences. Healthcare providers and third‑party payors will play a primary role in the recommendation and prescription of any productcandidate for which we obtain marketing approval. Our current and future arrangements with third‑party payors andcustomers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrainthe business or financial arrangements and relationships through which we market, sell and distribute any product candidatefor which we obtain marketing approval. Restrictions and obligations under applicable federal and state healthcare laws andregulations include the following: ·the federal Anti‑Kickback Statute prohibits, among other things, persons and entities from knowingly and willfullysoliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce orreward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any goodor service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;·the federal false claims and civil monetary penalties laws, including the civil False Claims Act imposes criminal andcivil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowinglypresenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent ormaking a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;·the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) imposes criminal and civil liabilityfor, among other things, executing a scheme to defraud any healthcare benefit program or making false statementsrelating to healthcare matters;·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and itsimplementing regulations, also imposes obligations, including mandatory contractual terms, on certain people andentities with respect to safeguarding the privacy, security and transmission of individually identifiable healthinformation;·the federal Physician Payments Sunshine Act under the PPACA requires certain manufacturers of drugs, devices,biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s HealthInsurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Serviceswithin the U.S. Department of Health and Human Services information related to physician payments and othertransfers of value and physician ownership and investment interests; and·analogous state and foreign laws and regulations, such as state anti‑kickback and false claims laws, may apply tosales or marketing arrangements and claims involving healthcare items or services reimbursed by non‑governmentalthird‑party payors, including private insurers, and some state laws require pharmaceutical companies to comply withthe pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgatedby the federal government in addition to requiring drug manufacturers to report information related to payments tophysicians and other health care providers or marketing expenditures. Certain state and foreign laws also govern theprivacy and security of health information in ways that differ from each other and often are not preempted byHIPAA, thus complicating compliance efforts. Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcarelaws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that ourbusiness practices may not comply with current or future statutes, regulations or case law involving applicable fraud andabuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any othergovernmental regulations that may apply to us, we may be subject to significant civil, criminal and66 Table of Contentsadministrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare andMedicaid, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and futureearnings, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities withwhom we expect to do business is found to not be in compliance with applicable laws, they may be subject to criminal, civilor administrative sanctions, including exclusions from government funded healthcare programs. Defending against any suchactions can be costly, time‑consuming and may require significant financial and personnel resources. Therefore, even if weare successful in defending against any such actions that may be brought against us, our business may be impaired. We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti‑corruption laws, andanti‑money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete indomestic and international markets. We can face criminal liability and other serious consequences for violations whichcan harm our business. We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S.Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’sOffice of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic briberystatute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti‑briberyand anti‑money laundering laws in the countries in which we conduct activities. Anti‑corruption laws are interpreted broadlyand prohibit companies and their employees, agents, contractors, and other partners from authorizing, promising, offering, orproviding, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. Wemay engage third parties for clinical trials outside of the United States, to sell our products abroad once we enter acommercialization phase, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals.We have direct or indirect interactions with officials and employees of government agencies or government‑affiliatedhospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of ouremployees, agents, contractors, and other partners, even if we do not explicitly authorize or have actual knowledge of suchactivities. Our violations of the laws and regulations described above may result in substantial civil and criminal fines andpenalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraudlitigation, reputational harm, and other consequences. Our employees may engage in misconduct or other improper activities, including violating applicable regulatory standardsand requirements or engaging in insider trading, which could significantly harm our business. We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentionalfailures to comply with the regulations of the FDA and applicable non‑U.S. regulators, provide accurate information to theFDA and applicable non‑U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United Statesand abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales,marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended toprevent fraud, misconduct, kickbacks, self‑dealing and other abusive practices. These laws and regulations restrict or prohibita wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and otherbusiness arrangements. Employee misconduct could also involve the improper use of, including trading on, informationobtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is notalways possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activitymay be ineffective in controlling unknown or unmanaged risks or losses or in protecting us from governmentalinvestigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any suchactions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions couldhave a significant impact on our business, including the imposition of significant civil, criminal and administrativepenalties, damages, fines, exclusion from government funded healthcare programs such as Medicare and Medicaid,disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings, andthe curtailment or restructuring of our operations. 67 Table of ContentsThe FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off‑labeluses. If we are found to have improperly promoted off‑label uses, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescriptionproducts, such as gemcabene, if approved. In particular, a product may not be promoted for uses that are not approved by theFDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval forgemcabene or any future product candidate for a certain indication, physicians may nevertheless prescribe gemcabene orsuch future product candidate to their patients in a manner that is inconsistent with the approved label. If we are found tohave promoted such off‑label uses, we may become subject to significant liability. The federal government has levied largecivil and criminal fines against companies for alleged improper promotion and has enjoined several companies fromengaging in off‑label promotion. The FDA has also requested that companies enter into consent decrees or permanentinjunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage thepromotion of gemcabene or any future product candidate, if approved, we could become subject to significant liability,which would adversely affect our business and financial condition. Tax matters, including the changes in corporate tax rates, disagreements with taxing authorities and imposition of newtaxes could impact our results of operations and financial condition. We are subject to income and other taxes in the U.S. and our operations, plans and results are affected by tax and otherinitiatives. On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “TCJA”) was signed into law by President Trump.The TCJA made significant changes to corporate income taxation, including reduction of the corporate income tax rate froma top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of earnings(except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxableincome and generally eliminating net operating loss carrybacks, allowing net operating losses to carryforward withoutexpiration, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination ofU.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investmentsinstead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits(including changes to the orphan drug tax credit and changes to the deductibility of research and experimental expendituresthat will be effective in the future). Notwithstanding the reduction in the corporate income tax rate, the overall impact of anynew federal tax law is uncertain and our business and financial condition could be adversely affected. The impact of any taxreform on holders of our common stock is likewise uncertain and could be adverse. We are also subject to regular reviews, examinations, and audits by the Internal Revenue Service and other taxing authoritieswith respect to our taxes. Although we believe our tax estimates are reasonable, if a taxing authority disagrees with thepositions we have taken, we could face additional tax liability, including interest and penalties. There can be no assurancethat payment of such additional amounts upon final adjudication of any disputes will not have a material impact on ourresults of operations and financial position. We also need to comply with new, evolving or revised tax laws and regulations. The enactment of or increases in tariffs, orother changes in the application or interpretation of the TCJA, or on specific products that we may ultimately sell or withwhich our products compete, may have an adverse effect on our business or on our results of operations. Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to perform normalbusiness functions on which the operation of our business may rely, which could negatively impact our business. The ability of the FDA to review and approve new products can be affected by a variety of factors, including governmentbudget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory,regulatory, and policy changes. Average review times at the FDA have fluctuated in recent years as a result. Disruptions at theFDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessarygovernment agencies, which would adversely affect our business. In addition, government funding of the SEC and other government agencies on which our operations may rely is subject tothe political process, which is inherently fluid and unpredictable. For example, over the last several years, includingbeginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies,68 Table of Contentssuch as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop criticalactivities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely reviewand process our regulatory submissions, which could have a material adverse effect on our business. Further, in ouroperations as a public company, future government shutdowns could impact our ability to access the public markets andobtain necessary capital in order to properly capitalize and continue our operations. Risks Related to the Commercialization of Gemcabene or Any Future Product Candidate We face substantial competition, which may result in others discovering, developing or commercializing products before ormore successfully than we do. The development and commercialization of new drug products is highly competitive. We expect to face competition withrespect to gemcabene, if approved, and will face competition with respect to any product candidates that we may seek todevelop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies,biotechnology companies, universities and other research institutions and government agencies worldwide. The lipid‑lowering therapies market is highly competitive and dynamic and dominated by the sale of statin treatmentsincluding the cheaper generic versions of statins. Our success will depend, in part, on our ability to obtain a share of themarket for our planned indications. Other pharmaceutical companies may develop lipid‑lowering therapies for the sameindications that compete with gemcabene, if approved, that do not infringe the claims of our patents, pending patentapplications or other proprietary rights which could adversely affect our business and results of operations. Lipid‑loweringtherapies currently on the market that would compete with gemcabene, if approved, include the following: ·statins, such as Crestor marketed by AstraZeneca, Livalo marketed by Kowa Pharmaceuticals America, Inc. (Kowa),Zocor marketed by Merck & Co., Inc. (Merck), Lipitor marketed by Pfizer, and their generic versions;·cholesterol absorption inhibitors, such as Zetia, marketed by Merck;·apoB antisense Kynamro marketed by Genzyme Corporation, a Sanofi company, and MTTP inhibitor Juxtapidmarketed by Aegerion Pharmaceuticals, Inc.;·combination therapies, such as Vytorin and Liptruzet, both marketed by Merck;·other lipid‑lowering monotherapies, including: fibrates, such as TriCor and Trilipix, both marketed by AbbVie Inc.(AbbVie), and Lipofen marketed by Kowa; niacin, such as Niaspan marketed by AbbVie; bile acid sequestrants, suchas Welchol, marketed by Daiichi Sankyo Inc.; combination therapies, such as Advicor and Simcor, both of which aremarketed by AbbVie; Pemafibrate (PPARalpha agonist) being marketed by Kowa; and the generic versions of thesedrugs;·prescription fish oils, such as Lovaza marketed by GlaxoSmithKline, Epanova marketed by AstraZeneca andVascepa marketed by Amarin Corporation plc;·PCSK9 inhibitors, such as Praluent, developed by Sanofi‑Aventis U.S. LLC, and Regeneron Pharmaceuticals, Inc.and Repatha marketed by Amgen Inc;·Anti-inflammatory agents such as canakinumab, developed by Novartis; Several other pharmaceutical companies have other lipid‑lowering therapies in development that may be approved formarketing in the United States or outside of the United States. Based on publicly available information, we believe thecurrent therapies in development that would compete with gemcabene include: ·for HoFH, RGEN‑1500 being developed by Regeneron Pharmaceuticals, Inc. MGL-3196 developed by MadrigalPharmaceuticals (Madrigal) for HoFH, and ALN‑PCSsc being developed by The Medicines Company and AlnylamPharmaceuticals, Inc.;·for HeFH and ASCVD, drugs include: oral cholesteryl ester transfer protein inhibitors, such as anacetrapib beingdeveloped by Merck and TA‑8995 being developed by Amgen/Dezima; ATP citrate lyase inhibitor, ETC‑1002developed by current Esperion; PCSK9 inhibitors, such as ALN‑PCSsc (inclisiran) being developed by TheMedicines Company and Alnylam Pharmaceuticals, Inc.; apoA antisense agent AKCEA-APO(a)-LRx beingdeveloped by Akcea and Novartis; apabetalone (RVX-208) being developed by Resvelogix; and MGL-3196developed by Madrigal (HeFH only);·for SHTG, ISIS‑APOCIII-LRX being developed by Ionis Pharmaceuticals, Inc. (formerly Isis Pharmaceuticals, Inc.);CaPre (long-chain omega-3 phospholipid) being developed by Acasti.; pemafibrate being developed by KOWA.69 Table of Contents This means that there is significant competition for investigational sites and patients to enroll in clinicalstudies. Additionally, since some drug candidates may be further along in development, approval of such drug candidatescould lead to the FDA and other global health authorities to request and/or require changes to ongoing or future clinical trialdesigns that could impact timelines and cost. The biomarkers and pathogenesis of NASH are less understood than the dyslipidemia market and for that reason there aremany mechanisms of action under investigation to better understand how to effectively treat the disease. Currently accepteddiagnosis of NASH is confirmed through a liver biopsy which is invasive, time consuming and costly. Future growth andevolution of the NASH market may rely on development of less invasive technologies to increase diagnoses rates to broadenthe drug treated patient population. Several companies have late stage assets (Phase 3 or outcomes studies) well under waywith projected market approval dates in NASH as soon as 2019/2020. For NASH, the market is currently evolving with noapproved therapies for the indication across the globe. Current thought leader opinions are pointing to a multiplemechanistic approach to effectively treat NASH. Several pharmaceutical companies have NASH therapies in development that may be approved for marketing in the UnitedStates or outside of the United States. Based on publicly available information, we believe the current therapies indevelopment that would compete with gemcabene in NASH include but are not limited to: ·OCALIVA (Obeticholic Acid) (FXR Agonist) being developed by Intercept Pharmaceuticals, Inc.;·Elafibranor (PPAR Agonist) being developed by Genfit SA;·Selonsertib (formerly GS-4997) (ASK1 Inhibitor) being developed by Gilead Sciences, Inc.;·GS-0976 (ACC Inhibitor) being developed by Gilead Sciences, Inc.;·GS-9674 (FXR Agonist) being developed by Gilead;·Cenicriviroc (CVC) (CCR2/CCR5 Inhibitor) being developed by Tobira Therapeutics, Inc. (a wholly-ownedsubsidiary of Allergan plc);·Emricasan (Caspase Inhibitor) being developed by Conatus Pharmaceuticals Inc.·Aramchol (Synthetic Fatty Acid/Bile Acid Conjugate) being developed by Galmed;·MN-001 (5-lipoxygenase Inhibitor) being developed by MediciNova;·VK2809 (THR-Beta Agonist) being developed by Viking;·BMS-986036 (GFG21) being developed by BMS;·Lanifibranor (PPAR Pan Agonist) being developed by Inventiva;·GR-MD-02 (Galectin-3 Inhibitor) being developed by Galectin Therapeutics; and·MGL-3196 (THR Agonist) being developed by Madrigal. Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we aredeveloping or that would render our product candidates obsolete or non‑competitive. Our competitors may also render ourtechnologies obsolete by advances in existing technological approaches or the development of new or different approaches,potentially eliminating the advantages in our drug discovery process. Our competitors may also obtain marketing approvalfrom the FDA or other regulatory authorities for their products more rapidly than we may obtain approval for ours, whichcould result in our competitors establishing a strong market position before we are able to enter the market. Many of our competitors have significantly greater name recognition, financial resources and expertise in research anddevelopment, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketingapproved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result ineven more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companiesmay also prove to be significant competitors, particularly through collaborative arrangements with large and establishedcompanies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel,establishing clinical trial sites and patient registration for clinical trials and entering into strategic transactions, as well as inacquiring technologies complementary to, or necessary for, our programs. We lack experience commercializing products, which may have an adverse effect on our business. If gemcabene or any product candidate we may pursue in the future receives marketing approval, we will need to transitionfrom a company with a development focus to a company capable of supporting commercial activities, and we70 Table of Contentsmay not be successful in making that transition. We have never filed an NDA, and have not yet demonstrated an ability toobtain marketing approval for, or to commercialize, any product candidate. As a result, our clinical development andregulatory approval process, and our ability to successfully commercialize any approved products, may involve moreinherent risk, take longer, and cost more than it would if we were a company with experience obtaining marketing approvalfor and commercializing a product candidate. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and marketgemcabene, if approved, or any other product candidate we may pursue, we may not be successful in commercializing suchproduct candidate if and when approved. We do not have a global sales or marketing infrastructure and have no capabilities in place at the present time for the sale,marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product for which weretain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource part or allof these functions to other third parties. There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements withthird parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming andcould delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force andestablish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarilyincurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain orreposition our sales and marketing personnel. Factors that may inhibit our efforts to commercialize gemcabene or any future product candidate on our own include: ·our inability to recruit and retain adequate numbers of effective sales and marketing personnel;·the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians toprescribe our product candidate;·the lack of complementary products to be offered by sales personnel, which may put us at a competitivedisadvantage relative to companies with more extensive product lines;·unforeseen costs and expenses associated with creating an independent sales and marketing organization; and·inability to obtain sufficient coverage and reimbursement from third‑party payors and governmental agencies. If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues orthe profitability of these product revenues to us are likely to be lower than if we were to market and sell a product that wedevelop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and marketany product candidate or may be unable to do so on terms that are favorable to us. We likely will have little control over suchthird parties, and any of them may fail to devote the necessary resources and attention to sell and market a drug effectively. Ifwe do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, wewill not be successful in commercializing gemcabene or any future product candidate. Even if gemcabene or any future product candidate receives marketing approval, it may fail to achieve the degree ofmarket acceptance by physicians, patients, healthcare payors and others in the medical community necessary forcommercial success. Even if gemcabene or any future product candidate receives marketing approval, it may nonetheless fail to gain sufficientmarket acceptance by physicians, patients, healthcare payors and others in the medical community. If such product candidatedoes not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not becomeprofitable. The degree of market acceptance of a product candidate, if approved for commercial sale, will depend on a numberof factors, including: ·efficacy and potential advantages compared to alternative treatments;·the ability to offer our product for sale at competitive prices;·the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;·any restrictions on the use of our product together with other medications;·interactions of our product with other medicines patients are taking;71 Table of Contents·inability of certain types of patients to take our product;·demonstrated ability to treat patients and, if required by any applicable regulatory authority in connection with theapproval for target indications, to provide patients with incremental cardiovascular disease benefits, as comparedwith other available therapies;·the relative convenience and ease of administration of gemcabene, including as compared with other treatmentsavailable for approved indications;·the prevalence and severity of any adverse side effects;·limitations or warnings contained in the labeling approved by the FDA;·availability of alternative treatments already approved or expected to be commercially launched in the near future;·the effectiveness of our sales and marketing strategies;·our ability to increase awareness through marketing efforts;·guidelines and recommendations of organizations involved in research, treatment and prevention of various diseasesthat may advocate for alternative therapies;·our ability to obtain sufficient third‑party coverage and adequate reimbursement;·the willingness of patients to pay out‑of‑pocket in the absence of third‑party coverage; and·physicians or patients may be reluctant to switch from existing therapies even if potentially more effective, safe orconvenient If the FDA or a comparable foreign regulatory authority approves generic versions of gemcabene or any future productcandidates that receive marketing approval, or such authorities do not grant our product candidates appropriate periodsof data exclusivity before approving generic versions of our products, the sales of our products could be adversely affected. Once an NDA is approved, the product covered thereby becomes a “reference listed drug” in the FDA’s publication,“Approved Drug Products with Therapeutic Equivalence Evaluations.” Manufacturers may seek approval of generic versionsof reference listed drugs through submission of abbreviated new drug applications (ANDAs) in the United States. In supportof an ANDA, a generic manufacturer need not conduct clinical studies. Rather, the applicant generally must show that itsproduct has the same active ingredient(s), dosage form, strength, route of administration and conditions of use or labeling asthe reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning it is absorbed inthe body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than thereference listed drug and companies that produce generic products are generally able to offer them at lower prices. Thus,following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listeddrug may be typically lost to the generic product. The FDA may not approve an ANDA for a generic product until any applicable period of non‑patent exclusivity for thereference listed drug has expired. The FDC Act provides a period of five years of non‑patent exclusivity for a new drugcontaining a new chemical entity (NCE). Specifically, in cases where such exclusivity has been granted, an ANDA may notbe filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certificationthat a patent covering the reference listed drug is either invalid or will not be infringed by the generic product, in which casethe applicant may submit its application four years following approval of the reference listed drug. It is unclear whether theFDA will treat the active ingredients in our product candidates as NCEs and, therefore, afford them five years of NCE dataexclusivity if they are approved. If any product we develop does not receive five years of NCE exclusivity, it maynonetheless be eligible for three years of exclusivity, which means that the FDA may approve generic versions of suchproduct three years after its date of approval. Manufacturers may seek to launch these generic products following theexpiration of the applicable marketing exclusivity period, even if we still have patent protection for our product. Competition that gemcabene or any future product candidates may face from generic versions of our products couldmaterially and adversely impact our future revenue, profitability and cash flows and substantially limit our ability to obtain areturn on the investments we have made in any such product candidate. Even if we are able to commercialize gemcabene or any future product candidate, the profitability of such productcandidate will likely depend in significant part on third‑party reimbursement practices, which, if unfavorable, would harmour business. 72 Table of ContentsOur ability to commercialize a drug successfully will depend in part on the extent to which coverage and adequatereimbursement will be available from government health administration authorities, private health insurers and otherorganizations. Government authorities and third‑party payors, such as private health insurers and health maintenanceorganizations, decide which medications they will pay for and establish reimbursement levels. Government authorities andthird‑party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particularmedications. Increasingly, third‑party payors are requiring that drug companies provide them with predetermined discountsfrom list prices and are challenging the prices charged for medical products. We cannot be sure that coverage will beavailable for any product candidate that we commercialize and, if coverage is available, whether the level of reimbursementwill be adequate. Assuming we obtain coverage for gemcabene, if approved, by a third‑party payor, the resultingreimbursement payment rates may not be adequate or may require co‑payments that patients find unacceptably high. Patientswho are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely onthird‑party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use aproduct candidate, if approved, unless coverage is provided and reimbursement is adequate to cover all or a significantportion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Ifreimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize anyproduct candidate for which we obtain marketing approval. There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limitedthan the purposes for which a product candidate is approved by the FDA or similar regulatory authorities outside the UnitedStates. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate thatcovers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for a newproduct, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement ratesmay vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursementlevels already set for lower cost medicines and may be incorporated into existing payments for other services. Net prices forproducts may be reduced by mandatory discounts or rebates required by government healthcare programs or private payorsand by any future relaxation of laws that presently restrict imports of medicines from countries where they may be sold atlower prices than in the United States. Third‑party payors often rely upon Medicare coverage policy and payment limitationsin setting their own reimbursement policies. However, no uniform policy requirement for coverage and reimbursement fordrug products exists among third‑party payors in the United States. Therefore, coverage and reimbursement for drug productscan differ significantly from payor to payor. As a result, the coverage determination process is often a time‑consuming andcostly process that will require us to provide scientific and clinical support for the use of our products to each payorseparately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the firstinstance. Our inability to promptly obtain coverage and profitable payment rates from both government‑funded and private payors forany approved products that we develop could have an adverse effect on our operating results, our ability to raise capitalneeded to commercialize products and our overall financial condition. Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization ofany product candidate that we may develop. We face an inherent risk of product liability exposure related to the testing of our product candidate in human clinical trialsand will face an even greater risk if we commercially sell any products that we may develop. Product liability claims mightbe brought against us by patients, healthcare providers or others selling or otherwise coming into contact with gemcabene orany future product candidate during product testing, manufacturing, marketing or sale. For example, we may be sued onallegations that a product candidate caused injury or that the product is otherwise unsuitable. Any such product liabilityclaims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in theproduct, including as a result of interactions with alcohol or other drugs, negligence, strict liability, and a breach ofwarranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselvesagainst claims that our product candidate caused injuries, we could incur substantial liabilities. Regardless of merit oreventual outcome, liability claims may result in: ·decreased demand for any product candidate that we are developing;·injury to our reputation and significant negative media attention;·withdrawal of clinical trial participants;·increased FDA warnings on product labels;73 Table of Contents·significant costs to defend the related litigation;·substantial monetary awards to trial participants or patients;·distraction of management’s attention from our primary business;·loss of revenue; and·the inability to commercialize any product candidate that we may develop. Any product liability or clinical trial insurance coverage that we do obtain may not be adequate to cover all liabilities thatwe may incur. We may need to increase our insurance coverage as we expand clinical trials and if we successfullycommercialize gemcabene or any other product candidate we may pursue in the future. Insurance coverage is increasinglyexpensive, and we may not be able to obtain product liability insurance on commercially reasonable terms or in an amountadequate to satisfy any liability that may arise. If we or our third‑party manufacturers fail to comply with environmental, health and safety laws and regulations, we couldbecome subject to fines or penalties or incur costs that could have an adverse effect on the success of our business. Our research and development activities involve the controlled use of potentially hazardous substances, including chemicaland biological materials, by ourselves and our third‑party manufacturers. Our manufacturers are subject to federal, state andlocal laws and regulations in the United States and abroad governing laboratory procedures and the use, manufacture,storage, handling and disposal of medical and hazardous materials. Although we believe that our manufacturers’ proceduresfor using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completelyeliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any suchcontamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materialsand interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized withfines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical orhazardous materials. Although we maintain workers’ compensation insurance to cover us for costs and expenses we mayincur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequatecoverage against potential liabilities. Compliance with applicable environmental, health and safety laws and regulations isexpensive, and current or future environmental regulations may impair our research, development and production efforts,which could harm our business, prospects, financial condition or results of operations. Federal legislation and actions by state and local governments may permit reimportation of drugs from foreign countriesinto the United States, including foreign countries where the drugs are sold at lower prices than in the United States, whichcould adversely affect our operating results. We may face competition for gemcabene, if approved, from cheaper lipid‑lowering therapies sourced from foreign countriesthat have placed price controls on pharmaceutical products. The Medicare Modernization Act contains provisions that maychange U.S. importation laws and expand pharmacists’ and wholesalers’ ability to import cheaper versions of an approveddrug and competing products from Canada, where there are government price controls. These changes to U.S. importationlaws will not take effect unless and until the Secretary of Health and Human Services certifies that the changes will pose noadditional risk to the public’s health and safety and will result in a significant reduction in the cost of products to consumers.The Secretary of Health and Human Services has so far declined to approve a reimportation plan. Proponents of drugreimportation may attempt to pass legislation that would directly allow reimportation under certain circumstances.Legislation or regulations allowing the reimportation of drugs, if enacted, could decrease the price we receive for any productwe may develop and adversely affect our future revenues and prospects for profitability. Risks Related to our Dependence on Third Parties We will be unable to directly control all aspects of our clinical trials due to our reliance on clinical research organizations(CROs) and other third parties that assist us in conducting clinical trials. We will rely on CROs to conduct part or all of our preclinical studies and clinical trials for any product candidate, includingour Phase 2 and Phase 3 trials for gemcabene. As a result, we will have limited control over the conduct, timing andcompletion of these clinical trials and the management of data developed through the clinical trials.74 Table of ContentsCommunicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties incoordinating activities. Outside parties may: ·have staffing difficulties;·fail to comply with contractual obligations;·experience regulatory compliance issues;·changes in priorities or become financially distressed; or·form relationships with other entities, some of which may be our competitors. These factors may adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject usto unexpected cost increases that are beyond our control. Moreover, the FDA and other global health authorities require us to comply with standards, commonly referred to as goodclinical practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported resultsare credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. Ourreliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Problems with the timeliness or quality of the work of any CRO may lead us to seek to terminate our relationship with anysuch CRO and use an alternative service provider. Making this change may be costly and may delay our clinical trials, andcontractual restrictions may make such a change difficult or impossible to effect. If we must replace any CRO that isconducting our clinical trials, our clinical trials may have to be suspended until we find another CRO that offers comparableservices. The time that it takes us to find alternative organizations may cause a delay in the commercialization of gemcabeneor may cause us to incur significant expenses to replicate data that may be lost. Although we do not believe that any CRO onwhich we may rely will offer services that are not available elsewhere, it may be difficult to find a replacement organizationthat can conduct our clinical trials in an acceptable manner and at an acceptable cost. Any delay in or inability to completeour clinical trials could significantly compromise our ability to secure regulatory approval of gemcabene and preclude ourability to commercialize gemcabene, thereby limiting or preventing our ability to generate revenue from its sales. We rely completely on third parties to supply and manufacture our preclinical and clinical drug supplies for gemcabene,and we intend to rely on third parties to produce commercial supplies of gemcabene and preclinical, clinical andcommercial supplies of any future product candidate. We do not currently have, nor do we plan to acquire, the infrastructure or capability to internally manufacture our clinicaldrug supply of gemcabene, or any future product candidates, for use in the conduct of our preclinical studies and clinicaltrials, and we lack the internal resources and the capability to manufacture any product candidates on a clinical orcommercial scale. The process of manufacturing drug products is complex, highly regulated and subject to several risks. Forexample, the facilities used by our contract manufacturers to manufacture the active pharmaceutical ingredient (or drugsubstance) and final drug product for gemcabene, or any future product candidates, must be inspected by the FDA and othercomparable foreign regulatory agencies in connection with our submission of an NDA or relevant foreign regulatorysubmission to the applicable regulatory agency. In addition, the manufacturing of drug substance or product is susceptible toproduct loss due to contamination, equipment failure, improper installation or operation of equipment, or vendor or operatorerror. Moreover, the manufacturing facilities in which gemcabene or any future product candidates are made could beadversely affected by equipment failures, labor shortages, natural disasters, power failures or other factors. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers to complywith current good manufacturing practices (cGMP) for manufacture of both active drug substances and finished drugproducts. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and thestrict regulatory requirements of the FDA or applicable foreign regulatory agencies, we will not be able to secure and/ormaintain regulatory approval for our products. In addition, we have no direct control over our contract manufacturers’ abilityto maintain adequate quality control, quality assurance and qualified personnel. Failure to satisfy the regulatoryrequirements for the production of those materials and products may affect the regulatory clearance of our contractmanufacturers’ facilities generally. If the FDA or a comparable foreign regulatory agency does not approve these facilities forthe manufacture of gemcabene or any future product candidates, or if it withdraws its approval in the future, we may need tofind alternative manufacturing facilities, which would adversely impact our ability to develop,75 Table of Contentsobtain regulatory approval for or market gemcabene or such future product candidates. Furthermore, all of our contractmanufacturers are engaged with other companies to supply and/or manufacture materials or products for such companies,which exposes our manufacturers to regulatory and sourcing risks for the production of such materials and products. To theextent practicable, we attempt to identify more than one supplier, but some raw materials are available only from a singlesource or only one supplier has been identified, even in instances where multiple sources exist. We have relied upon third‑party manufacturers for the manufacture of our product candidate for preclinical and clinicaltesting purposes and intend to continue to do so in the future, including for commercial purposes. If our third partymanufacturers are unable to supply drug substance and/or drug product on a commercial basis, we may not be able tosuccessfully produce and market gemcabene, if approved, or could be delayed in doing so. For instance, we rely on onesupplier for the drug substance for gemcabene. The manufacturer of the drug substance for gemcabene will need tomanufacture batches of the drug substance that will serve as the validation batches that will be reviewed by the FDA inconnection with its review of the NDA for gemcabene and as the supply of gemcabene, if approved and successfullylaunched commercially. If there is any delay or problem with the manufacture of these batches of drug substance or if there isa delay in producing finished product from these batches, the approval of gemcabene may be delayed or any potential launchof gemcabene may be adversely affected. We will rely on comparison of product specifications (identity, strength, quality,potency) to demonstrate equivalence of the current drug substance and/or drug product to the drug substance and/or drugproduct used in previously completed preclinical and clinical testing. If we are unable to demonstrate such equivalence, wemay be required to conduct additional preclinical and/or clinical testing of our product candidate. These and other problems with any manufacturer may lead us to seek to terminate our relationship with any suchmanufacturer and use an alternative manufacturer. Making this change may be costly, time consuming and difficult toeffectuate, and may delay our research and development activities. If we must replace any manufacturer, our research anddevelopment activities may have to be suspended until we find another manufacturer that offers comparable services. Thetime that it takes us to find alternative organizations may cause a delay in the development and commercialization ofgemcabene or any future product candidate. We may form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may notrealize the benefits of such alliances or licensing arrangements. We may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensingarrangements with third parties that we believe will complement or augment our development and commercialization effortswith respect to gemcabene and any future product candidates that we may develop. Any of these relationships may require usto incur non‑recurring and other charges, increase our near and long‑term expenditures, issue securities that dilute ourexisting stockholders or disrupt our management and business. Our likely collaborators include large and mid‑sizepharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. If we enter intoany such arrangements with any third parties, we will likely have limited control over the amount and timing of resourcesthat our collaborators dedicate to the development or commercialization of gemcabene or any future product candidate. Ourability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform thefunctions assigned to them in these arrangements. We cannot be certain that, following a strategic transaction or license, wewill achieve the revenue or specific net income that justifies such transaction. Collaborations involving gemcabene or any future product candidate pose the following risks to us: ·collaborators have significant discretion in determining the efforts and resources that they will apply to thesecollaborations;·collaborators may not perform their obligations as expected;·collaborators may not pursue development and commercialization or may elect not to continue or renewdevelopment or commercialization programs based on clinical trial results, changes in the collaborator’s strategicfocus or available funding or external factors such as an acquisition that diverts resources or creates competingpriorities;·collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trialor abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a productcandidate for clinical testing;·collaborators could independently develop, or develop with third parties, products that compete directly orindirectly with our product candidate if the collaborators believe that competitive products are more likely to76 Table of Contentsbe successfully developed or can be commercialized under terms that are more economically attractive than ours;·a collaborator with marketing and distribution rights to one or more product candidates may not commit sufficientresources to the marketing and distribution of any such product candidate;·collaborators may not properly maintain or defend our intellectual property rights or may use our proprietaryinformation in such a way as to invite litigation that could jeopardize or invalidate our proprietary information orexpose us to potential litigation;·collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation andpotential liability;·disputes may arise between the collaborators and us that result in the delay or termination of the research,development or commercialization of our product candidate or that result in costly litigation or arbitration thatdiverts management attention and resources;·we may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo achange of control;·collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue furtherdevelopment or commercialization of the applicable product candidates;·collaborators may learn about our discoveries and use this knowledge to compete with us in the future;·the results of collaborators’ preclinical or clinical studies could harm or impair other development programs;·there may be conflicts between different collaborators that could negatively affect those collaborations andpotentially others;·the number and type of our collaborations could adversely affect our attractiveness to future collaborators oracquirers;·collaboration agreements may not lead to development or commercialization of our product candidate in the mostefficient manner or at all. If a present or future collaborator of ours were to be involved in a business combination,the continued pursuit and emphasis on our product development or commercialization program under suchcollaboration could be delayed, diminished or terminated; and·collaborators may be unable to obtain the necessary marketing approvals. If future collaboration partners fail to develop or effectively commercialize gemcabene or any future product candidate forany of these reasons, such product candidate may not be approved for sale and our sales of such product candidate, ifapproved, may be limited, which would have an adverse effect on our operating results and financial condition. If we are not able to establish new collaborations on commercially reasonable terms, we may have to alter ourdevelopment and commercialization plans. We face significant competition in attracting collaborators. Whether we reach a definitive agreement for collaboration willdepend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions ofthe proposed collaboration and the proposed collaborator’s evaluation of a number of factors related to the associatedproduct candidate. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA orsimilar regulatory authorities outside the United States, the potential market for the product candidate, the costs andcomplexities of manufacturing and delivering such product candidate to patients, the potential of competing products, theexistence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to suchownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator mayalso consider alternative product candidates or technologies for similar indications that may be available to collaborate onand whether such a collaboration could be more attractive than the one with us. Much of the potential revenue from future collaborations may consist of contingent payments, such as payments forachieving regulatory milestones or royalties payable on sales of our product candidate, if approved. The milestone androyalty revenue that we may receive under these collaborations will depend upon our collaborators’ ability to successfullydevelop, introduce, market and sell new our product candidate, if approved. In addition, collaborators may decide to enterinto arrangements with third parties to commercialize products developed under collaborations related to our productcandidate, which could reduce the milestone and royalty revenue received, if any. We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms withpotential collaborators. Collaborations are complex and time‑consuming to negotiate and document. In addition, there havebeen a significant number of recent business combinations among large pharmaceutical companies that have resulted in areduced number of potential future collaborators.77 Table of Contents We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, wemay have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay itsdevelopment program or one or more of our other development programs, delay its potential commercialization or reduce thescope of any sales or marketing activities, or increase our expenditures and undertake development or commercializationactivities at our own expense. If we elect to increase our expenditures to fund development or commercialization activitieson our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we donot have sufficient funds, we may not be able to further develop our product candidate or bring it to market and generateproduct revenue. Risks Related to our Intellectual Property If we are unable to adequately protect our proprietary technology or maintain issued patents sufficient to protectgemcabene or any future product candidate, others could compete against us more directly, which would have an adverseimpact on our business, results of operations, financial condition and prospects. Our commercial success will depend in part on our success obtaining and maintaining issued patents and other intellectualproperty rights in the United States and elsewhere and protecting our proprietary technology. If we do not adequately protectour intellectual property and proprietary technology, competitors may be able to use our technologies and erode or negateany competitive advantage we may have, which could harm our business and ability to achieve profitability. We licensedpatents relating to our current product candidate, gemcabene, from Pfizer. Pursuant to the license agreement, we areresponsible for filing, prosecuting and maintaining the patent rights in Pfizer’s name at our own cost and expense. Inconnection with this obligation, we are granted the first right to control the enforcement of the license patents against anythird‑party infringement actions. Risks related to our Pfizer license are discussed elsewhere in this “Risk Factors” sectionunder “We depend on intellectual property licensed from Pfizer for gemcabene, and the termination of this license wouldharm our business.” The termination of this license could result in the loss of significant rights, which would harm ourbusiness. As of February 21, 2019 our patent estate, including patents we own or license from third parties, on a worldwide basis,included 6 issued U.S. patents, 11 pending U.S. patent applications, 40 issued patents in foreign jurisdictions includingCanada, France, Germany, Great Britain, Ireland, Italy, Mexico and Spain and 85 pending patent applications in foreignjurisdictions including Australia, Canada, China, Europe, Hong Kong, Japan and Mexico. Our worldwide patents andpending applications all relate to our product candidate, gemcabene. Our patents that claimed the gemcabene composition ofmatter which were in‑licensed from Pfizer, have all expired; however, our clinical formulation comprises a specific calciumsalt crystal form of gemcabene, which form is claimed in U.S. Patent Number 6,861,555. This patent, which was in‑licensedfrom Pfizer, is expected to expire in 2021, absent any patent term extension. Our current patent estate includes fourteenpatent families that have claims directed to methods of treatment using gemcabene. These patent families include, forexample, U.S. Patent Number 8,557,835, licensed from Pfizer that has claims directed to pharmaceutical compositionscomprised of combinations of gemcabene with statins and methods of using a combination of gemcabene on top of a statin ina patient that does not reach sufficient LDL-C lowering on a statin alone, for treating several conditions includinghyperlipidemia. U.S. Patent Number 8,557,835 is expected to expire in 2021, absent any patent term extension. All relatedforeign patents are now expired. Additionally, U.S. Patent Number 8,846,761 are owned by us. U.S. Patent Number 8,846,761is directed to methods of decreasing a subject’s risk for developing pancreatitis by administering gemcabene and is expectedto expire in 2032, absent any patent term extension. Any foreign patent in this family that may issue, is expected to expire in2031, absent any patent term extension. U.S. Patent No 10,028,926, is directed to methods of decreasing a patient’s risk fordeveloping coronary heart disease or preventing, delaying or reducing the severity of a secondary cardiovascular event byadministering gemcabene with a statin. Related patent applications are pending in foreign jurisdictions including Australia,Canada, China, Europe, Japan and Mexico. Any patent that may issue in this family, absent any patent term adjustment orextension, is expected to expire in 2033. U.S. Patent No. 9,849,104 is directed to methods of stabilizing NAFLD or NAS of ≥2 or reducing hepatic fibrosis. U.S. Patent No. 9,849,104 is expected to expire in 2036 and the two pending U.S. patentapplications, without any extensions will also expire in 2036. Any foreign patent in this family that may issue, is expected toexpire in 2036, absent any patent term extension. In 2017, U.S. patent application 14/942,765 and 14 foreign non-provisional patent applications on methods of large-scale manufacturing for making dicarboxyalkyl ethers, any patentissuing from this patent family is expected to expire in 2035. 78 Table of ContentsIn 2017 we also filed two PCT applications one for methods of treating mixed dyslipidemia using gemcabene in combinationwith statins and treatment of NASH using gemcabene as a monotherapy (PCT/US2016/060837), and the other relating tofixed dose combinations and modified release formulations of gemcabene and statins (PCT/US2016/060849). Two U.S.Patent Applications were filed as continuations of PCT/US2016/060837, U.S. Patent Application Number 15/416,911, nowU.S. 9,849,104, is directed to methods of treating NASH by administering gemcabene as a monotherapy, U.S. PatentApplication Number 15/424,620, is directed methods for treating Mixed Dyslipidemia by administering gemcabene and astatin, and one divisional U.S. Patent Application Number 15/814,118 directed to other aspects of NASH. With the PCTapplication, 14 foreign non-provisional applications were filed. Any patent that may issue from these families, absent anypatent term adjustment or extension, is expected to expire in 2037. The patent prosecution process is expensive and time‑consuming, and we and our current or future licensors, licensees orcollaboration partners may not be able to prepare, file and prosecute all necessary or desirable patent applications at areasonable cost or in a timely manner. It is also possible that we or our licensors will fail to identify patentable aspects ofinventions made in the course of development and commercialization activities before it is too late to obtain patentprotection on them. Our and our licensors’ patent applications cannot be enforced against third parties practicing thetechnology claimed in such applications unless and until a patent issues from such applications, and then only to the extentthe issued claims cover the technology. We cannot assure you that any of our patents have, or that any of our pending patent applications will mature into issuedpatents that will include, claims with a scope sufficient to protect gemcabene or any future product candidate. Others havedeveloped technologies that may be related or competitive to our approach, and may have filed or may file patentapplications and may have received or may receive patents that overlap or conflict with our patent applications, either byclaiming the same methods or formulations or by claiming subject matter that could dominate our patent position. The patentpositions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factualquestions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtain cannot bepredicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated, or circumvented. U.S.patents and patent applications may also be subject to interference proceedings, ex parte reexamination, or inter partesreview proceedings, supplemental examination and challenges in district court. Patents may be subjected to opposition,post‑grant review, or comparable proceedings lodged in various national and regional patent offices. These proceedingscould result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more ofthe claims of the patent or patent application. In addition, such interference, re‑examination, opposition, post‑grant review,inter partes review, supplemental examination or revocation proceedings may be costly. Thus, any patents that we may ownor exclusively license may not provide any protection against competitors. Furthermore, an adverse decision in aninterference proceeding can result in a third‑party receiving the patent right sought by us, which in turn could affect ourability to develop, market or otherwise commercialize gemcabene. Furthermore, the issuance of a patent, while presumed valid, is not conclusive as to its validity or its enforceability and itmay not provide us with adequate proprietary protection or competitive advantages against competitors with similarproducts. Competitors may also be able to design around our patents. Other parties may develop and obtain patent protectionfor more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of anytechnical knowledge or trade secrets by consultants, vendors, former employees and current employees. The laws of someforeign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we mayencounter significant problems in protecting our proprietary rights in these countries. If these developments were to occur,they could have a material adverse effect on our sales. Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers whodo not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtainevidence of infringement in a competitor’s or potential competitor’s product. Any litigation to enforce or defend our patentrights, if any, even if we were to prevail, could be costly and time‑consuming and would divert the attention of ourmanagement and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and thedamages or other remedies awarded if we were to prevail may not be commercially meaningful. In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, heldunenforceable, or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us,including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If, in anyproceeding, a court invalidated or found unenforceable our patents covering gemcabene or any future product candidate,79 Table of Contentsour financial position and results of operations would be adversely impacted. In addition, if a court found that valid,enforceable patents held by third parties covered gemcabene or any future product candidate, our financial position andresults of operations would also be adversely impacted. The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that: ·any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficientto protect gemcabene;·any of our pending patent applications will result in issued patents;·we will be able to successfully commercialize gemcabene or any future product candidate, if approved, before ourrelevant patents expire;·we were the first to make the inventions covered by each of our patents and pending patent applications;·we were the first to file patent applications for these inventions;·others will not develop similar or alternative technologies that do not infringe our patents;·any of our patents will be valid and enforceable;·any patents issued to us will provide a basis for an exclusive market for our commercially viable products, willprovide us with any competitive advantages or will not be challenged by third parties;·we will develop additional proprietary technologies or product candidates that are separately patentable; or·that our commercial activities or products will not infringe upon the patents of others. Patents have a limited lifespan. The natural expiration of a patent is generally 20 years after its effective filing date. Variousextensions may be available; however, the life of a patent, and the protection it affords, is limited. Given the extensive periodof time between patent filing and regulatory approval for a product candidate, the time during which we can market a productcandidate under patent protection is limited, and our patent may expire before we obtain such approval. Without patentprotection for gemcabene or any future product candidates, we may be open to competition from generic versions of ourproduct candidates, which may affect the profitability of our product candidates. If we do not obtain protection under the Hatch‑Waxman Act and similar foreign legislation by extending the patent termsand obtaining data exclusivity for our product candidate, our business may be materially harmed. Depending upon the timing, duration of regulatory review, and date of FDA marketing approval of gemcabene or any futureproduct candidate, if any, one of our U.S. patents may be eligible for patent term restoration under the Drug PriceCompetition and Patent Term Restoration Act of 1984, referred to as the Hatch‑Waxman Act. The Hatch‑Waxman Actprovides for a patent restoration term of up to five years as compensation for the time the product is under FDA regulatoryreview (patent term extension). The duration of patent term extension is calculated based on the time spent in the regulatoryreview process. Our basic U.S. composition of matter patent for gemcabene has expired. We plan to seek patent termextension for one of our patents related to gemcabene. However, we may not be granted an extension because of, for example,failing to apply within the applicable deadline, expiration of relevant patents prior to obtaining approval, or otherwisefailing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection affordedcould be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less thanwe request, our revenue could be reduced, possibly materially. In addition, we believe that gemcabene is a NCE in the United States and may be eligible for data exclusivity under theHatch‑Waxman Act. A single‑ingredient drug can be classified as a NCE if the FDA has not previously approved any othernew drug containing the same active ingredient. Under sections 505(c)(3)(E)(ii) and 505(j)(5)(F)(ii) of the FDC Act, asamended, a NCE that is granted marketing approval may, even in the absence of patent protections, be eligible for five yearsof data exclusivity in the United States following marketing approval. During the data exclusivity period, if granted, the FDAis precluded from approving 505(b)(2) applications or abbreviated new drug applications submitted by another company thatreferences the FDA’s findings of safety and efficacy for the approved NDA. In the European Union, NCEs qualify for eightyears of data exclusivity upon marketing authorization and an additional two years of market exclusivity. This dataexclusivity, if granted, prevents regulatory authorities in the European Union from reviewing a generic application for eightyears, after which generic marketing authorization can be approved but the generic drug may not be marketed during thetwo‑year marketing exclusivity period. However, gemcabene may not be considered to be a NCE for these purposes or beentitled to the period of data exclusivity. If we are not able to gain or exploit the period of data exclusivity, we may facesignificant competitive threats to our commercialization of gemcabene from other manufacturers, including themanufacturers of generic alternatives. Further, even if our compound is considered to be a NCE and we are able to gain theprescribed period of data exclusivity, another company80 Table of Contentsnevertheless could gain marketing approval for the same compound if they independently generate preclinical and clinicaldata and get market approval through the NDA process without benefit of our data. If we fail to maintain orphan drug exclusivity for gemcabene for HoFH, we will have to rely on data and marketingexclusivity for HoFH that is not based on an orphan drug designation, if any, and on our intellectual property rights. As part of our business strategy, in the United States we have obtained orphan drug designation for gemcabene for thetreatment of HoFH. We may submit an application to the FDA for other orphan drug designations for gemcabene such as forthe treatment of TG greater than approximately 750 mg/dL (F) or Familial Partial Lipodystrophy under the Orphan Drug Act,the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, defined, inpart, as a patient population of fewer than 200,000 in the United States. In the United States, the company that first obtains FDA approval for a designated orphan drug for the specified rare diseaseor condition receives orphan drug marketing exclusivity for that drug for a period of seven years. This orphan drugexclusivity prevents the FDA from approving another application, including a full NDA, to market the same drug for thesame orphan indication, except in very limited circumstances. For purposes of small molecule drugs, the FDA defines “samedrug” as a drug that contains the same active pharmaceutical ingredient (API) and is intended for the same use as the drug inquestion. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader thanthe indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the UnitedStates may be lost if the FDA later determines that the request for designation was materially defective or if the manufactureris unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits forlife‑threatening or chronically debilitating conditions affecting not more than five in 10,000 people in the European Union.Orphan drug designation from the EMA provides ten years of marketing exclusivity following drug approval, subject toreduction to six years if the designation criteria are no longer met. Even if we are able to obtain and maintain orphan drug exclusivity for gemcabene for HoFH, the designation may noteffectively protect it from competition for HoFH because different drugs can be approved for the same condition. Moreover,even with an orphan drug designation, the FDA can subsequently approve a different formulation of the same API for thesame condition if the FDA concludes that the later formulation of the API is safer, more effective or makes a majorcontribution to patient care. Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protectgemcabene and any product candidate we may pursue in the future. In 2011, the United States enacted wide‑ranging patent reform legislation with the America Invents Act (AIA). An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first‑to‑file”system for deciding which party should be granted a patent when two or more patent applications are filed by differentparties claiming the same invention. A third party that files a patent application in the U.S. Patent and Trademark Office(USPTO) after that date but before us could therefore be awarded a patent covering an invention of ours even if we had madethe invention before it was made by the third party. This will require us to be cognizant going forward of the time frominvention to filing of a patent application, but circumstances could prevent us from promptly filing patent applications onour inventions. Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patentinfringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies toall of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTOproceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third partycould potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though thesame evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a thirdparty may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if firstchallenged by the third party as a defendant in a district court action. The AIA and its implementation could increase theuncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issuedpatents.81 Table of Contents Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years, such as Association for MolecularPathology v. Myriad Genetics, Inc. (Myriad I), Mayo Collaborative Services v. Prometheus Laboratories, Inc. and AliceCorporation Pty. Ltd. v. CLS Bank International, either narrowing the scope of patent protection available in certaincircumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regardto our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value ofpatents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws andregulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or toenforce our existing patents and patents that we might obtain in the future. We may not be able to protect or practice our intellectual property rights throughout the world. In jurisdictions where we have not obtained patent protection, competitors may use our intellectual property to develop theirown products and further, may export otherwise infringing products to territories where we have patent protection, but whereit is more difficult to enforce a patent as compared to the U.S. Competitor products may compete with gemcabene, ifapproved, or any future product candidate in jurisdictions where we do not have issued or granted patents or where our issuedor granted patent claims or other intellectual property rights are not sufficient to prevent competitor activities in thesejurisdictions. The legal systems of certain countries, particularly certain developing countries, make it difficult to enforcepatents and such countries may not recognize other types of intellectual property protection, particularly that relating topharmaceuticals. This could make it difficult for us to prevent the infringement of our patents or marketing of competingproducts in violation of our proprietary rights generally in certain jurisdictions. Proceedings to enforce our patent rights inforeign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States,and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions.If we, or our licensors, encounter difficulties in protecting, or are otherwise precluded from effectively protecting, theintellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished andwe may face additional competition from others in those jurisdictions. Many countries have compulsory licensing laws underwhich a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceabilityof patents against government agencies or government contractors. In these countries, the patent owner may have limitedremedies, which could materially diminish the value of such patent. If we, or any of our licensors, are forced to grant a licenseto third parties with respect to any patents relevant to our business, our competitive position in the relevant jurisdiction maybe impaired and our business and results of operations may be adversely affected. We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which couldbe expensive, time consuming and unsuccessful. Competitors may infringe our patents and other intellectual property rights. To counter infringement or unauthorized use, wemay be required to file infringement claims, which can be expensive and time consuming. In addition, in an infringementproceeding, a court may decide that a patent of ours is invalid or unenforceable, or may refuse to stop the other party fromusing the technology on the grounds that our patents do not cover the technology in question. An adverse result in anylitigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore,because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk thatsome of our confidential information could be compromised by disclosure during this type of litigation. Moreover, there canbe no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, whichtypically last for years before they are concluded. Litigation proceedings may fail and, even if successful, may result in substantial costs and distraction of our managementand other employees. We may not be able to prevent, alone or with our collaborators, misappropriation of our proprietaryrights, particularly in countries where the laws may not protect those rights as fully as in the United States. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings ordevelopments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverseeffect on the price of our common stock.82 Table of Contents Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcomeof which would be uncertain and could have an adverse effect on the success of our business. Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market andsell gemcabene and any other product candidate we may pursue in the future and use our proprietary technologies withoutinfringing the proprietary rights and intellectual property of third parties. The biotechnology and pharmaceutical industriesare characterized by extensive litigation regarding patents and other intellectual property rights. We may in the futurebecome party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respectto our medicines and technology, including interference or derivation proceedings, post‑grant reviews, inter partes reviews,or other procedures before the USPTO or other similar procedures in foreign jurisdictions. Third parties may assertinfringement claims against us based on existing patents or patents that may be granted in the future. If we are found toinfringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continuedeveloping and marketing our medicines and technology. However, we may not be able to obtain any required license oncommercially reasonable terms or at all. Even if we were able to obtain a license, it could be non‑exclusive, thereby givingour competitors and other third parties access to the same technologies licensed to us. We could be forced, including by courtorder, to cease developing and commercializing the infringing technology or medicine. In addition, we could be found liablefor substantial monetary damages, potentially including treble damages and attorneys’ fees, if we are found to have willfullyinfringed. A finding of infringement could prevent us from commercializing a product candidate or force us to cease some ofour business operations, which could harm our business. Alternatively, we may need to redesign our infringing products,which may be impossible or require substantial time and monetary expenditure. Claims that we have misappropriated theconfidential information or trade secrets of third parties could have a similar negative impact on our business. The cost to us of any litigation or other proceeding relating to patent or other proprietary rights, even if resolved in our favor,could be substantial and may result in substantial costs and distraction of our management and other employees. Some of ourcompetitors may be able to sustain the costs of complex patent litigation more effectively than we can because they havesubstantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or otherproceedings could delay our research and development efforts and limit our ability to continue our operations. We may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed allegedtrade secrets of their former employers. Our employees and consultants have been previously employed at other biotechnology or pharmaceutical companies,including our competitors or potential competitors. Although we are not aware of any claims currently pending against us,we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets orother proprietary information or intellectual property of the former employers of our employees. Litigation may be necessaryto defend against these claims. Even if we are successful in defending against these claims, litigation could result insubstantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying moneyclaims, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product couldhamper or prevent our ability to commercialize gemcabene, which would adversely affect our commercial developmentefforts. If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of anyproduct we may pursue could be significantly diminished. We may rely upon trade secrets, know‑how and continuing technological innovation to develop and maintain ourcompetitive position. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with ouremployees, consultants, outside scientific collaborators, sponsored researchers, contract manufacturers, vendors and otheradvisors to protect our trade secrets and other proprietary information. These agreements may not effectively preventdisclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure ofconfidential information. In addition, we cannot guarantee that we have executed these agreements with each party that mayhave or have had access to trade secrets. Moreover, because we acquired certain rights to gemcabene from Pfizer, we must rely on Pfizer’s practices, and those of itspredecessors, with regard to parties that may have had access to trade secrets related thereto. Any party with whom83 Table of Contentsthey or we have executed such an agreement may breach that agreement and disclose our proprietary information, includingour trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a partyillegally disclosed or misappropriated a trade secret is difficult, expensive and time‑consuming, and the outcome isunpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect tradesecrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would haveno right to prevent them, or those to whom they disclose such trade secrets, from using that technology or information tocompete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or otherthird‑party, our competitive position would be harmed. We have registration for three United States trademarks and for one European Union trademark. We have registrations for three United States trademarks, “Gemphire”, the Gemphire logo and “Advancing a class on top ofstatins”, and a registration of “Gemphire Therapeutics Inc.” in the European Union. If we do not secure and maintainregistrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwisewould, which could affect our business. We have also not yet registered trademarks for any product candidate in anyjurisdiction. When we file trademark applications for a product candidate, those applications may not be allowed forregistration, and registered trademarks may not be obtained, maintained or enforced. During trademark registrationproceedings in the United States and foreign jurisdictions, we may receive rejections. We are given an opportunity torespond to those rejections, but we may not be able to overcome such rejections. In addition, in the USPTO and incomparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademarkapplications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against ourtrademarks, and our trademarks may not survive such proceedings. In addition, any proprietary name we propose to use with gemcabene or any future product candidate in the United Statesmust be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDAtypically conducts a review of proposed drug names, including an evaluation of potential for confusion with other drugnames. If the FDA objects to any proposed proprietary drug name for any product candidate, we may be required to expendsignificant additional resources in an effort to identify a suitable substitute proprietary drug name that would qualify underapplicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. If we register any of our trademarks, our trademarks or trade names may be challenged, infringed, circumvented or declaredgeneric or determined to infringe on other marks. We may not be able to protect our rights to these trademarks and tradenames or may be forced to stop using these names, which we need for name recognition by potential partners or customers inour markets of interest. If we are unable to establish name recognition based on our trademarks and trade names, we may notbe able to compete effectively and our business may be adversely affected. 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 reducedor eliminated for noncompliance with these requirements. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural,documentary, fee payment or other provisions during the patent application process. In addition, periodic maintenance andannuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over thelifetime of the patent. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means inaccordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of thepatent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event,our competitors might be able to enter the market, which would have an adverse effect on our business. Risks Related to Our Operations, Employee Matters and Managing Growth We are dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel,we may not be able to successfully implement our business strategy. We are highly dependent on our management, scientific and medical personnel. We have entered into employmentagreements with our executive officers, but any employee may terminate his or her employment with us. The loss of theservices of any of our executive officers, other key employees or consultants and other scientific and medical advisors in84 Table of Contentsthe foreseeable future, might impede the achievement of our research, development and commercialization objectives. Werely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development andcommercialization strategy. Our consultants and advisors may be employed by employers other than us and may havecommitments under consulting or advisory contracts with other entities that may limit their availability to us. Recruiting andretaining qualified scientific personnel and business and commercial personnel will also be critical to our success. We maynot be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceuticaland biotechnology companies for similar personnel. We also experience competition for the hiring of scientific personnelfrom universities and research institutions. Failure to succeed in clinical trials may also make it more challenging to recruitand retain qualified scientific personnel. We recently implemented a reduction in force that may have an adverse impact on our drug development activities, andattrition that may occur following this reduction could disrupt our operations. In addition, we may not achieve anticipatedbenefits and savings from the reduction or be able to implement or benefit from any additional cost containment measuresin the future. In September 2018, our board of directors approved a workforce reduction to reduce costs and conserve cash resources inlight of the delay in our Phase 3 trials resulting from the FDA’s request for additional data following the completion of twoyear carcinogenicity studies conducted in connection with the partial clinical hold on gemcabene. The workforce reductionincluded 5 employees, which represented approximately 33% of our workforce at such time, and was completed in the fourthquarter of 2018. The reduction in force, which included two of our executive officers, and any attrition that may occur following thisreduction, has resulted in the loss of institutional knowledge and expertise and in the reallocation and combination of certainroles and responsibilities across the organization, all of which could adversely affect our operations and our drugdevelopment activities. Our efforts to improve our managerial, operational and financial systems and manage our operationsmay be made more challenging given the reduction in force. As a result, our management may need to divert adisproportionate amount of its attention away from our day-to-day strategic and operational activities, and devote asubstantial amount of time to managing these organizational changes. Further, the reduction in force may yield unintended consequences, such as reduced employee morale and attrition beyondour intended reduction in force, which may result in us seeking contract support at unplanned additional expense. We maynot achieve anticipated benefits from the reduction in force. Due to our limited resources, we may not be able to effectivelymanage our operations or recruit and retain qualified personnel when and if needed, which may have an adverse impact onour drug development activities, result in weaknesses in our infrastructure and operations, risks that we may not be able tocomply with legal and regulatory requirements, loss of business opportunities, loss of employees and reduced productivityamong remaining employees. If our management is unable to effectively manage this transition and reduction in force orsuccessfully implement any additional cost containment measures, our expenses may be more than expected, we may utilizecash more quickly than expected and we may not be able to implement our business strategy or continue the development ofgemcabene. We may need to develop and expand our company, and we may encounter difficulties in managing this development andexpansion, which could disrupt our operations. As of March 11, 2019, we had nine full‑time employees and, if we secure additional funding and receive a favorable decisionfrom the FDA regarding our partial clinical hold, we may need to increase our number of employees and the scope of ouroperations as we further the clinical development of gemcabene beyond Phase 2 trials and continue to operate as a publiccompany. To manage any anticipated development and potential expansion, we must continue to implement and improveour managerial, operational and financial systems, maintain adequate facilities and continue to recruit and train qualifiedpersonnel. Also, our management may need to divert a disproportionate amount of its attention away from its day‑to‑dayactivities and devote a substantial amount of time to managing these development activities. Due to our limited resources,we may not be able to manage the expansion of our operations or hire additional personnel. This may result in weaknesses inour infrastructure, and give rise to operational mistakes, loss of business opportunities, loss of employees and reducedproductivity among remaining employees. Any physical expansion of our operations may lead to significant costs and maydivert financial resources from other projects, such as the development of gemcabene. If our management is unable toeffectively manage our expected development and future expansion, our expenses may increase more than expected, ourability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Ourfuture financial performance and our ability to commercialize gemcabene or any85 Table of Contentsfuture product candidate, if approved, and compete effectively will depend, in part, on our ability to effectively manage thefuture development and expansion of our company. A variety of risks associated with operating internationally for us and our collaborators could adversely affect ourbusiness. In addition to our U.S. operations, we may pursue international operations in the future and would face risks associated withsuch global operations, including possible unfavorable regulatory, pricing and reimbursement, legal, political, tax and laborconditions, which could harm our business. We plan to conduct clinical trials outside of the United States. We are subject tonumerous risks associated with international business activities, including: ·compliance with differing or unexpected regulatory requirements for gemcabene or any other product candidate;·different medical practices and customs affecting acceptance of gemcabene, if approved, or any other approvedproduct in the marketplace;·language barriers;·the interpretation of contractual provisions governed by foreign law in the event of a contract dispute;·difficulties in staffing and managing foreign operations, and an inability to control commercial or other activitieswhere we are relying on third parties;·workforce uncertainty in countries where labor unrest is more common than in the United States;·potential liability under the Foreign Corrupt Practice Act of 1977 or comparable foreign regulations;·production shortages resulting from any events affecting raw material supply or manufacturing capability abroad;·foreign government taxes, regulations and permit requirements;·U.S. and foreign government tariffs, trade restrictions, price and exchange controls and other regulatoryrequirements;·economic weakness, including inflation, natural disasters, war, events of terrorism or political instability inparticular foreign countries;·fluctuations in currency exchange rates, which could result in increased operating expenses and reduced revenues;·compliance with tax, employment, immigration and labor laws, regulations and restrictions for employees living ortraveling abroad;·changes in diplomatic and trade relationships; and·challenges in enforcing our contractual and intellectual property rights, especially in those foreign countries that donot respect and protect intellectual property rights to the same extent as the United States. Our business and operations would suffer in the event of system failures or unplanned events. Despite the implementation of security measures, our internal computer systems and those of our current and futurecontractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism,war and telecommunication and electrical failures. While we are not aware of any such material system failure, accident orsecurity breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a materialdisruption of our development programs and our business operations. For example, the loss of clinical trial data fromcompleted or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our coststo recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to,our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability andthe further development and commercialization of our product candidates could be delayed. Furthermore, any unplanned event, such as flood, fire, explosion, tornadoes, earthquake, extreme weather condition, medicalepidemics, power shortage, telecommunication failure or other natural or manmade accidents or incidents that result in usbeing unable to fully utilize the facilities, may have an adverse effect on our ability to operate our business, particularly on adaily basis, and have significant negative consequences on our financial and operating conditions. Loss of access to thesefacilities may result in increased costs, delays in the development of our product candidates or interruption of our businessoperations. 86 Table of ContentsRisks Related to our Common Stock The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses of ourcommon stock. The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response tovarious factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussedin this “Risk Factors” section and elsewhere in this report, these factors include: ·adverse results or delays in preclinical studies, clinical trials, regulatory decisions or the development status ofgemcabene or any product candidates we may pursue in the future;·decisions to initiate a clinical trial, not initiate a clinical trial, or terminate an existing clinical trial;·adverse regulatory decisions, including failure to receive regulatory approval for gemcabene;·changes in applicable laws, rules or regulations;·disputes with Pfizer regarding our licensed rights to gemcabene;·adverse developments concerning our manufacturers, suppliers, collaborators and other third parties;·our failure to commercialize gemcabene or any product candidates we may pursue in the future;·the success of competitive drugs;·additions or departures of key scientific or management personnel;·unanticipated safety concerns related to the use of gemcabene or any product candidates we may pursue in thefuture;·our announcements or our competitor’s announcements regarding new products, enhancements, significantcontracts, acquisitions or strategic partnerships and investments;·changes in the structure of healthcare payment systems;·the size and growth of our target markets;·our failure, or companies perceived to be similar to us, to meet external expectations or management guidance;·fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similarto us;·publication of research reports about us or our industry, recommendations, earning results or estimates or withdrawalof research coverage by securities analysts;·changes in the market valuations of similar companies;·changes in general economic, political and market conditions in any of the regions in which we conduct ourbusiness;·changes in our capital structure or dividend policy, future issuances of securities, sales of large blocks of commonstock by our stockholders or our incurrence of additional debt;·trading volume of our common stock;·changes in accounting practices and ineffectiveness of our internal controls;·disputes, litigation or developments relating to proprietary rights;·timing of milestones and royalty payments; and·other events or factors, many of which are beyond our control. In addition, the stock market in general, Nasdaq, and the stock of biopharmaceutical companies in particular, haveexperienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operatingperformance of these companies. Broad market and industry factors may negatively affect the market price of our commonstock, regardless of our actual operating performance. In the past, securities class action litigation has often been institutedagainst companies following periods of volatility in the market price of a company’s securities. This type of litigation, ifinstituted, could result in substantial costs and a diversion of management’s attention and resources, which would harm ourbusiness, operating results or financial condition. Our common stock may be delisted from the Nasdaq Global Market if we are unable to maintain compliance with Nasdaq'scontinued listing standards. Nasdaq imposes, among other requirements, continued listing standards including minimum bid, public float andstockholders’ equity requirements. The price of our common stock must trade at or above $1.00 to comply with the minimumbid requirement and we must maintain stockholders’ equity of $10 million for continued listing on the Nasdaq GlobalMarket. If our stock trades at closing bid prices of less than $1.00 for a period in excess of 30 consecutive87 Table of Contentsbusiness days or if our stockholders’ equity falls below $10 million, Nasdaq could send a deficiency notice to us for notremaining in compliance with the continued listing standards. Recently, our common stock has traded at closing bid pricesbelow $1.00. If the closing bid price of our common stock fails to meet Nasdaq’s minimum closing bid price requirement fora period in excess of 30 consecutive days, if we fail to meet the shareholder equity requirement, or if we otherwise fail to meetany other applicable requirements of the Nasdaq Global Market and we are unable to regain compliance, Nasdaq may make adetermination to delist our common stock. Any delisting of our common stock could adversely affect the market liquidity ofour common stock and the market price of our common stock could decrease. Furthermore, if our common stock were delistedit could adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss ofconfidence by investors. Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may bebeneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove ourcurrent management. Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change incontrol of us that stockholders may consider favorable, including transactions in which you might otherwise receive apremium for your shares. These provisions could also limit the price that investors might be willing to pay in the future forshares of our common stock, thereby depressing the market price of our common stock. In addition, because our board ofdirectors is responsible for appointing the members of our management team, these provisions may frustrate or prevent anyattempts by our stockholders to replace or remove our current management by making it more difficult for stockholders toreplace members of our board of directors. Among other things, these provisions: ·establish a classified board of directors such that not all members of the board are elected at one time;·allow the authorized number of our directors to be changed only by resolution of our board of directors;·limit the manner in which stockholders can remove directors from the board;·establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings andnominations to our board of directors;·require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by ourstockholders by written consent;·prohibit stockholders from calling special meetings;·authorize our board of directors to issue preferred stock without stockholder approval, which preferred stock mayinclude rights superior to the rights of the holders of common stock, and which could be used to institute ashareholder rights plan, or so‑called “poison pill,” that would work to dilute the stock ownership of a potentialhostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and·require the approval of the holders of at least two‑thirds of the votes that all our stockholders would be entitled tocast to amend or repeal certain provisions of our charter or bylaws. Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DelawareGeneral Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock frommerging or combining with us for a period of three years after the date of the transaction in which the person acquired inexcess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. An active trading market for our common stock may not be maintained. Our common stock is currently traded on the Nasdaq Global Market, but we can provide no assurance that we will be able tomaintain an active trading market for our shares on the Nasdaq Global Market or any other exchange in the future. If there isno active market for our common stock, it may be difficult for our stockholders to sell shares without depressing the marketprice for the shares or at all. If securities analysts do not publish research or reports about our business or if they publish negative evaluations of ourstock, the price of our stock could decline. If one or more of the analysts covering our business downgrade their evaluations of our stock or publish inaccurate orunfavorable research about our business, the price of our stock could decline. If one or more of these analysts cease to coverour stock, we could lose visibility in the market for our stock, which in turn could cause our stock price and trading volumeto decline. 88 Table of ContentsOur executive officers, directors, and their affiliates exercise significant control over our company, which will limit yourability to influence corporate matters and could delay or prevent a change in corporate control. As of December 31, 2018, our officers, directors, and their respective affiliates had beneficial ownership, in the aggregate, ofapproximately 17% of our outstanding common stock. These stockholders, if they act together, may be able to influence our management and affairs and control the outcome ofmatters submitted to our stockholders for approval, including the election of directors, amendments of our organizationaldocuments, and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction.Some of these stockholders acquired some or all of their shares of common stock for substantially less than the currenttrading price of our common stock, and these stockholders may have interests, with respect to their common stock, that aredifferent from yours. In addition, this concentration of ownership might adversely affect the market price of our commonstock, have the effect of delaying, deferring or preventing a change of control of our company, or discourage a potentialacquirer from making a tender offer or otherwise attempting to obtain control of us. We are an “emerging growth company” and a “smaller reporting company” and we cannot be certain if the reducedreporting requirements applicable to such companies could make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growthcompany, we may take advantage of exemptions from various reporting requirements that are applicable to other publiccompanies that are not “emerging growth companies,” including exemption from compliance with the auditor attestationrequirements of Section 404 of the Sarbanes‑Oxley Act of 2002 (Sarbanes‑Oxley Act), reduced disclosure obligationsregarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements ofholding a non‑binding advisory vote on executive compensation and stockholder approval of any golden parachutepayments not previously approved. Under the JOBS Act, emerging growth companies can also delay adopting new or revisedaccounting standards until such time as those standards apply to private companies. We have irrevocably elected not to availourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new orrevised accounting standards as other public companies that are not emerging growth companies. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifthanniversary of the closing of the IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in whichwe are deemed to be a large accelerated filer, which means the market value of our common stock that is held bynon‑affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billionin non‑convertible debt during the prior three‑year period. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,”which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduceddisclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If someinvestors find our common stock less attractive as a result, there may be a less active trading market for our common stockand our stock price may be more volatile. We incur increased costs as a result of operating as a public company, and our management is required to devotesubstantial time to compliance initiatives. As a public company, and particularly after we are no longer an “emerging growth company” or a “smaller reportingcompany,” we incur significant legal, accounting and other expenses that we did not incur as a private company. TheSarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the stockexchange upon which our common stock is listed and other applicable securities rules and regulations impose variousrequirements on public companies, including establishment and maintenance of effective disclosure and financial controlsand corporate governance practices. Our management and other personnel devote a substantial amount of time to thesecompliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and makesome activities more time‑consuming and costly. However, these rules and regulations are often subject to varyinginterpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve overtime as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regardingcompliance matters and higher costs necessitated by ongoing revisions to disclosure and89 Table of Contentsgovernance practices. Stockholder activism, the current political environment and the current high level of governmentintervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead toadditional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. We are subject to Section 404 of the Sarbanes‑Oxley Act and the related rules of the SEC that generally require ourmanagement and independent registered public accounting firm to report on the effectiveness of our internal control overfinancial reporting. However, for so long as we remain an “emerging growth company” as defined in the JOBS Act or a“smaller reporting company”, we intend to take advantage of certain exemptions from various reporting requirements that areapplicable to public companies that are not emerging growth companies and/or smaller reporting companies, including, butnot limited to, for emerging growth companies, not being required to comply with the auditor attestation requirements ofSection 404 of the Sarbanes‑Oxley Act. Once we are no longer an “emerging growth company” and if our public float isabove $75 million as of the last business day of our most recently completed second fiscal quarter or, if before such date, weopt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independentregistered public accounting firm on the effectiveness of our internal control over financial reporting. To achieve compliance with Section 404, we engaged in a process to document and evaluate our internal control overfinancial reporting, which is both costly and challenging. In this regard, we need to continue to dedicate internal resources,hire additional finance and accounting personnel, potentially engage outside consultants and adopt a detailed work plan toassess and document the adequacy of internal control over financial reporting, continue steps to improve control processes asappropriate, validate through testing that controls are functioning as documented and implement a continuous reporting andimprovement process for internal control over financial reporting. During the course of our review and testing, we mayidentify deficiencies and be unable to remediate them before we must provide the required reports. We or our independentregistered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal controlover financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financialinformation and cause the trading price of our stock to fall. Furthermore, if we have a material weakness in our internalcontrol over financial reporting, we may not detect errors on a timely basis and our financial statements may be materiallymisstated. In addition, as a public company we are required to timely file accurate quarterly and annual reports with the SEC under theExchange Act. In order to report our results of operations and financial statements on an accurate and timely basis, we willdepend on CROs to provide timely and accurate notice of their costs to us. Any failure to report our financial results on anaccurate and timely basis could result in sanctions, lawsuits, delisting of our shares from Nasdaq or other adverseconsequences that would materially harm our business. We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our capital stock and,consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our commonstock. We have never declared or paid any cash dividend on our capital stock and do not currently intend to do so in theforeseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansionof our business. Therefore, the success of an investment in shares of our common stock will depend upon any futureappreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintainthe price at which you purchased them. Our issuance of the common stock in connection with the IPO may have resulted in an “ownership change” at the time ofissuance, or has increased the risk that we could experience an ownership change in the future. Any ownership changewould significantly limit our ability to utilize our net operating loss carryforwards and certain other tax attributes. As of December 31, 2018, we had approximately $20.0 million in U.S. federal and state net operating loss carryforwards thatwe can use in certain circumstances to offset any future taxable income and thus reduce any federal and state income taxliability. The federal net operating losses incurred prior to January 1, 2018 will begin to expire in 2034 if not utilized.Federal net operating losses incurred after December 31, 2017 will not expire. The state net operating losses will begin toexpire in 2026. We also had net tax credit carryforwards of $2.6 million and $0.1 million available to reduce future taxliabilities, if any, for U.S. federal and state purposes, respectively. Our ability to utilize these net operating losses and90 Table of Contentstax credit carryforwards to offset future taxable income and tax liability may be significantly limited if we have experiencedor if we experience in the future an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, asamended, or the Code. In general, an ownership change will occur if there is a cumulative change in our ownership by“5‑percent shareholders” (as defined in the Code) that exceeds 50 percentage points over a rolling three‑year period. Acorporation that experiences an ownership change will generally be subject to an annual limitation on the corporation’ssubsequent use of net operating loss carryovers that arose from pre‑ownership change periods and use of losses that aresubsequently recognized with respect to assets that had a built‑in‑loss on the date of the ownership change. The amount ofthe annual limitation generally equals the value of the corporation immediately before the ownership change multiplied bythe long‑term tax‑exempt interest rate (subject to certain adjustments). To the extent that the limitation in apost‑ownership‑change year is not fully utilized, the amount of the limitation for the succeeding year will be increased. We do not expect to have experienced an ownership change as a result of our issuance of common stock in connection withthe IPO. Nevertheless, the rules regarding the determination of whether an ownership change exists are complicated and aresubject to differing interpretations, and it is possible that such issuances might be treated as having resulted in an ownershipchange. We have not completed a study to assess whether an ownership change for purposes of Section 382 has occurred, orwhether there have been multiple ownership changes since our inception, due to the significant costs and complexitiesassociated with such study. Even if there was no ownership change as a result of such issuance, the issuance of stock pursuantto the IPO will be taken into account in determining the cumulative change in our ownership for Section 382 purposes. As aresult, the IPO has materially increased the risk that we could experience an ownership change in the future. If we experience, or have experienced, an ownership change, we may not be able to fully utilize our net operating losses,resulting in additional income taxes and a reduction in our stockholders’ equity. As described below, tax reform legislationhas significantly revised the rules applicable to the utilization of net operating losses for tax years either beginning or endingafter January 1, 2018. Our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forumfor certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. Our amended and restated bylaws provide that, subject to limited exceptions, the Court of Chancery of the State of Delawarewill be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting aclaim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, anyaction asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, as amended,our amended and restated certificate of incorporation or our amended and restated bylaws, any action to interpret, apply,enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylawsor any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entitypurchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to haveconsented to the provisions of our amended and restated certificate of incorporation described above. This choice of forumprovision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us orour directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers andemployees. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporationinapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incuradditional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business andfinancial condition. Unstable market and economic conditions may have serious adverse consequences on our business, financial condition andstock price. The global credit and financial markets have experienced extreme volatility and disruptions in the past several years,including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economicgrowth, increases in unemployment rates and uncertainty about economic stability. We cannot assure you that furtherdeterioration in credit and financial markets and confidence in economic conditions will not occur. Our general businessstrategy may be adversely affected by any such economic downturn, volatile business environment or continuedunpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it maymake any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any91 Table of Contentsnecessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy,financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, thereis a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficulteconomic times, which could directly affect our ability to attain our operating goals on schedule and on budget. ITEM 1B.UNRESOLVED STAFF COMMENTSNot applicable ITEM 2.PROPERTIESWe lease an approximately 5,300 square foot facility in Livonia, Michigan that is primarily used for our headquarters and ourresearch and development activities under a 3 year non‑cancellable facility lease that commenced in August 2016. Webelieve that these facilities are adequate to meet our current needs, and that suitable additional alternative spaces will beavailable in the future on commercially reasonable terms. ITEM 3.LEGAL PROCEEDINGSFrom time to time, we may be involved in various claims and legal proceedings relating to claims arising out of ouroperations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have amaterial adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because ofdefense and settlement costs, diversion of management resources and other factors. ITEM 4.MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIESCommon StockOur common stock has been listed on the Nasdaq Global Market under the symbol “GEMP” since August 5, 2016. Prior tothat date, there was no public trading market for our common stock.StockholdersOn March 11, 2019, we had 14,265,411 shares of common stock outstanding and 49 holders of record of our common stock.A substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers and othernominees. The transfer agent and registrar for our common stock is Computershare, Inc. Dividend PolicyWe have never declared or paid any dividends on our common stock, and we do not currently intend to pay any dividends onour common stock for the foreseeable future. Any future determination to pay dividends on our common stock will be,subject to applicable law, at the discretion of our Board of Directors and will depend upon, among other factors, our results ofoperations, financial condition, capital requirements, and contractual restrictions in loan or other agreements. ITEM 6.SELECTED FINANCIAL DATAWe have derived the following selected statement of operations data for the years ended December 31, 2018, 2017 and 2016and the selected balance sheet data as of December 31, 2018 and 2017 from our audited financial statements includedelsewhere in this Report. We have derived the following selected statement of operations data for the years 92 Table of Contentsended December 31, 2016, 2015 and 2014 and the selected balance sheet data as of December 31, 2016, 2015 and 2014 fromaudited financial statements that are not included in this Report.Our historical results are not necessarily indicative of the results that may be expected in the future. You should read theselected financial data below in conjunction with “Part II, Item 7. “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and our financial statements and the related notes included in Part II, Item 8“Financial Statements and Supplementary Data” in this Report.Statements of Operations Data: Year Ended December 31, 2018 2017 2016 2015 2014 Operating expenses: General and administrative $8,493 $10,438 $5,956 $3,177 $214 Research and development 14,312 22,686 8,740 3,991 52 Acquired in–process research anddevelopment — — — 908 — Total operating expenses 22,805 33,124 14,696 8,076 266 Loss from operations (22,805) (33,124) (14,696) (8,076) (266) Interest (expense) income (654) (286) 114 (762) (55) Loss on convertible note extinguishment — — — (198) — Other (expense) income (178) (5) (4) 7 1 Loss before income taxes (23,637) (33,415) (14,586) (9,029) (320) Provision (benefit) for income taxes — — — — — Net loss (23,637) (33,415) (14,586) (9,029) (320) Other comprehensive loss, net of tax — — — — — Comprehensive loss $(23,637) $(33,415) $(14,586) $(9,029) $(320) Net loss $(23,637) $(33,415) $(14,586) $(9,029) $(320) Adjustment to redemption value on Series Aconvertible preferred stock — — (366) (2,968) — Premium upon substantial modification ofconvertible notes with certain stockholders — — — (1,047) — Net loss attributable to common stockholders $(23,637) $(33,415) $(14,952) $(13,044) $(320) Net loss per share: Basic and diluted $(1.71) $(3.23) $(2.57) $(4.54) $(0.21) Number of shares used in per sharecalculations: Basic and diluted (1) 13,805,552 10,349,136 5,809,396 2,875,053 1,521,703 Balance Sheet Information: Year Ended December 31, 2018 2017 2016 2015 2014 Cash and cash equivalents $18,954 $18,473 $24,033 $3,620 $317 Total assets 19,694 19,017 24,754 4,490 330 Convertible notes (including premiumconversion derivative) — — — 6,769 810 Term loan (long-term portion) — 8,683 — — — Total liabilities 11,920 15,076 4,122 8,917 861 Series A convertible preferred stock — — — 7,953 — Accumulated deficit (84,111) (60,474) (27,059) (12,392) (584) Total stockholders’ equity (deficit) 7,774 3,941 20,632 (12,380) (531) 93 Table of Contents(1)Basic and diluted net loss per share attributable to common stockholders is computed based on the weighted-averagenumber of shares of common stock outstanding during each period. In April 2016, our board of directors approved anamendment to our certificate of incorporation to effect a 1-for-3.119 reverse stock split (the Reverse Stock Split) for allcommon and Series A preferred stock, effective on April 27, 2016. All share and per share data in this table has beenadjusted to reflect the Reverse Stock Split. For additional information, see Note 1 to our consolidated financialstatements included elsewhere in this Report ITEM 7MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONSThe following discussion of our financial condition and results of operations should be read in conjunction with thefinancial statements and notes included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Report. OverviewWe are a clinical‑stage biopharmaceutical company focused on developing and commercializing therapies for the treatmentof dyslipidemia, a serious medical condition that increases the risk of life threatening cardiovascular disease, includingorphan indications, as well as nonalcoholic fatty liver disease (NAFLD/NASH). Our therapeutic compound, gemcabene, hasbeen tested as monotherapy and in combination with statins and other drugs in over 1,100 subjects, which we define ashealthy volunteers and patients, across 25 Phase 1 and Phase 2 clinical trials and has demonstrated promising evidence ofefficacy, safety and tolerability.Our Company was co‑founded in November 2008 as a limited liability company under the name Michigan LifeTherapeutics, LLC (MLT) by former Pfizer Inc. employees, including Dr. Charles Bisgaier, who were responsible for licensingexclusive worldwide rights to gemcabene from Pfizer in April 2011. In October 2014, we incorporated a new entity under thename Gemphire Therapeutics Inc. in Delaware. In November 2014, we entered into a merger agreement with Gemphirewhereby MLT was merged with and into Gemphire, with Gemphire as the surviving entity and all outstanding units ofmembership interest in MLT were exchanged for shares of common stock of Gemphire. The purpose of the merger was tochange the jurisdiction of our incorporation from Michigan to Delaware and to convert from a limited liability company to acorporation.To date, our primary activities have been conducting research and development activities, planning and conducting clinicaltrials, performing business and financial planning, recruiting personnel and raising capital. We do not have any productsapproved for sale and have not generated any revenue. We do not expect to generate revenue until, and unless, the FDA orother regulatory authorities approve gemcabene and we successfully commercialize gemcabene. Until such time, if ever, aswe can generate substantial product revenue, we expect to finance our cash needs through a combination of equity and debtfinancings as well as collaborations, strategic alliances and licensing arrangements. Our net losses were $23.6 million, $33.4million and $14.6 million during the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31,2018, we had an accumulated deficit of $84.1 million. Our net losses may fluctuate significantly from quarter‑to‑quarter andyear‑to‑year, depending on the timing of our preclinical studies, clinical trials and our expenditures on other research anddevelopment activities.We have funded our operations to date primarily through the issuance and sale of common stock and warrants in publicofferings and a private placement, the proceeds of our term loan facility with Silicon Valley Bank (the “Term Loan”) whichwe prepaid in full on January 28, 2019, and, prior to our IPO, the issuance of preferred stock and convertible notes. As ofDecember 31, 2018, we had cash and cash equivalents of $19.0 million. Key Developments Clinical and Research Program Updates During 2016 to 2018, we initiated and completed three Phase 2b clinical trials for gemcabene in HoFH,hypercholesterolemia, including HeFH and ASCVD patients on maximally tolerated statins, and SHTG. We reported top linedata from our 8 patient trial for HoFH (COBALT-1) in the second quarter of 2017, top line data from our 105 patient trial forhypercholesterolemia on high‑intensity statin therapy including HeFH and ASCVD patients (ROYAL-1) in the third quarterof 2017, and top line data from our 91 patient trial in SHTG patients (INDIGO-1) in the94 Table of Contentssecond quarter of 2018. As previously announced, all three of these trials achieved statistical significance for their primaryendpoints.An investigator initiated pediatric NAFLD trial was begun in the fourth quarter of 2017 to study gemcabene in adolescents12-17 years old. The study enrolled six patients and in August 2018, the Data Safety Monitoring Board (DSMB) halted thetrial early due to “unanticipated problems” in the first three patients. Specifically, the primary efficacy endpoint of ALTincreased beyond baseline levels in two of these three patients. In addition, all three patients had an increase in the secondaryendpoint of liver fat fraction as measured by MRI-PDFF. All patients gained weight and had increased TGs during studytreatment, in contrast to data in other gemcabene trials. Patient compliance was compromised as assessed by unused tabletsand blood drug levels. Three observations were reported as AEs considered related to gemcabene. No events were reported asSAEs. The risk for increased liver fat with gemcabene treatment is unknown at this time. The patients will be monitored for12 months post-final dose. We intend to work closely with the physicians and other KOLs to identify potential reasons forthe unanticipated problems in the pediatric NAFLD study but cannot assure you that it will be possible to determine thereasons for the unexpected problems.A Phase 2 proof-of-concept trial treating FPL patients for 24 weeks is being conducted in an investigator-initiated study atthe University of Michigan and was initiated in early 2018. In the third quarter, the primary investigator and DSMB for thistrial reviewed the data from the pediatric trial as well interim data from the FPL trial and decided to continue the FPL trial.The trial was fully enrolled in the fourth quarter of 2018 and top-line data, including MRI-PDFF, is expected in the secondquarter of 2019.As announced in the third quarter of 2018, we completed and submitted to the FDA the results from our two year rodentcarcinogenicity studies. These studies were submitted as part of a request for the FDA to remove the partial clinical hold thatprevents us from conducting human studies of gemcabene that are greater than six months in duration. In response to oursubmission, the FDA did not lift the hold and requested that we provide additional data, including two preclinical studies,namely, a subchronic (13 week) study of gemcabene in PPARα knock-out mice and a study of gemcabene in in vitro PPARtransactivation assays using monkey and canine PPAR isoforms. We are working to complete studies requested by the FDAand expect to submit this additional data to the FDA in the fourth quarter of 2019. In addition, the FDA informed us that anEnd of Phase 2 (EOP2) meeting to reach an agreement on the design of Phase 3 registration and long term safety exposuretrials for our target indications in dyslipidemia would not take place until the partial clinical hold is lifted.Pfizer License AgreementIn the third quarter of 2018, we announced that our gemcabene in-licensing agreement with Pfizer was renegotiatedproviding three additional years to for us to achieve our first commercial sale, by April 2024. See “—Contractual Obligationsand Commitments—Pfizer Agreement” below.Workforce Reduction In September 2018, our board of directors approved a workforce reduction to reduce costs and conserve cash resources inlight of the FDA’s request for additional data described above and the resulting delay in our Phase 3 trials. The workforcereduction includes 5 employees, which represented approximately 33% of our workforce at such time, and was completed inthe fourth quarter of 2018. We recorded severance related charges totaling approximately $1.6 million, which includes cashseverance payments of approximately $0.5 million, a non-cash charge of approximately $1.1 million related to theaccelerated vesting of outstanding stock options for certain affected employees, and $30,000 for continued health insurancecoverage. We may incur additional costs not currently contemplated due to events associated with or resulting from theworkforce reduction.Review of Strategic AlternativesIn December 2018, we announced that our Board of Directors established a committee to oversee a review of strategicalternatives focused on maximizing stockholder value and that we had engaged Ladenburg Thalmann & Co. Inc. to act as ourstrategic financial advisor in this process. Despite undertaking this process, we may not be successful in completing atransaction, and, even if a strategic transaction is completed, it ultimately may not deliver the anticipated benefits or enhancestockholder value.95 Table of ContentsSVB Loan RepaymentIn January 2019, we prepaid in full all outstanding indebtedness under our Loan Agreement with SVB. See “—ContractualObligations and Commitments—Term Loan” below. Financial Operations OverviewRevenueTo date, we have not generated any revenue. We do not expect to generate revenue unless or until we obtain regulatoryapproval of and commercialize gemcabene. If we fail to complete the development of gemcabene, or any other productcandidate we may pursue in the future, in a timely manner, or fail to obtain regulatory approval, our ability to generate futurerevenue would be compromised.Operating ExpensesOur operating expenses are classified into three categories: general and administrative, research and development andacquired in‑process research and development.General and AdministrativeGeneral and administrative expenses consist primarily of personnel‑related costs, including salaries and share‑basedcompensation costs, for personnel in functions not directly associated with research and administrative activities. Othersignificant costs include legal fees relating to intellectual property and corporate matters and professional fees for accountingand other services. We anticipate our general and administrative expenses will continue to trend below comparable priorperiod levels in the near future as a result of reduced research and development activities, as we work to resolve the six-month clinical hold by the FDA. Research and DevelopmentTo date, our research and development expenses have related primarily to the clinical stage development of gemcabene.Research and development expenses consist of costs incurred in performing research and development activities, includingcompensation for research and development employees, costs associated with preclinical studies and trials, regulatoryactivities, manufacturing activities to support clinical activities, license fees, nonlegal patent costs, fees paid to externalservice providers that conduct certain research and development, clinical costs and an allocation of overhead expenses.Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contractedwork is performed. We accrue for costs incurred as the services are being provided by monitoring the status of the study orproject, and the invoices received from our external service providers. We adjust our accrual as actual costs become known.Research and development activities are central to our business model. We anticipate our research and development expenses will continue to trend below comparable prior period levels in the nearfuture as a result of reduced research and development activities, as we work to resolve the six-month clinical hold by theFDA. We expect that gemcabene will have higher development costs during its later stages of clinical development, ascompared to costs incurred during its earlier stages of development, primarily due to the increased size and duration of thelater‑stage clinical trials, so we expect our research and development expenses to continue to trend significantly abovecomparable prior period levels in the future as we continue to conduct preclinical studies and clinical trials for gemcabeneand potentially develop other product candidates. However, it is difficult to determine with certainty the duration, costs andtiming to complete our current or future preclinical programs and clinical trials of gemcabene. The duration, costs and timingof clinical trials and development of gemcabene will depend on a variety of factors that include, but are not limited to, thefollowing: ·per patient trial costs; ·the number of patients that participate in the trials; ·the number of sites included in the trials; 96 Table of Contents·the countries in which the trials are conducted; ·the length of time required to enroll eligible patients; ·the number of doses that patients receive; ·the drop‑out or discontinuation rates of patients; ·potential additional safety monitoring or other studies requested by regulatory agencies; ·the duration of patient follow‑up; ·the phase of development of the product candidate; ·arrangements with contract research organizations and other service providers; and ·the efficacy and safety profile of the product candidates. Interest (Expense) IncomeIn 2018 and 2017, Interest (expense) income consists of cash and non-cash interest expense attributed to our Term Loanbased on the prime rate in effect, as well as cash interest income from our cash and cash equivalents. In 2016, interest(expense) income largely consists of non-cash activity related to certain convertible notes issued by us prior to the IPO andthe underlying conversion derivative related to such notes, and cash interest earnings from cash and cash equivalents. Thenotes we issued had an annual interest rate of 8%, with some notes compounding interest daily and others compoundingannually. The principal and accrued and unpaid interest on the convertible notes converted into common stock immediatelyprior to the closing of the IPO. We continued to incur cash and non-cash interest expense related to our Term Loan through the prepayment of the TermLoan on January 28, 2019. We also expect to earn interest income from the investment of our cash and cash equivalents infuture periods. Other (Expense) IncomeOther (expense) income relates to non-operating transaction costs associated with our previously-announced review ofstrategic alternatives and to foreign currency exchange gains and losses. Foreign currency exchange gains and losses relate totransactions and monetary asset and liability balances denominated in currencies other than the U.S. dollar. Foreign currencygains and losses may continue to fluctuate in the future due to changes in foreign currency exchange rates.Provision for Income Taxes Provision for income taxes consists of federal and state income taxes in the United States, as well as deferred income taxesand changes in related valuation allowance reflecting the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Currently,there is no provision for income taxes, as we have incurred operating losses to date, and a full valuation allowance has beenprovided on the net deferred tax assets as of December 31, 2018 and December 31, 2017.97 Table of ContentsResults of OperationsComparison of Years Ended December 31, 2018 and 2017The following table summarizes our operating results for the periods indicated: For the Year Ended December 31, 2018 2017 Change (in thousands) Operating expenses: General and administrative $8,493 $10,438 $(1,945) Research and development 14,312 22,686 (8,374) Total operating expenses 22,805 33,124 (10,319) Loss from operations (22,805) (33,124) 10,319 Interest (expense) income (654) (286) (368) Other expense (178) (5) (173) Loss before income taxes (23,637) (33,415) 9,778 Provision (benefit) for income taxes — — — Net loss $(23,637) $(33,415) $9,778 General and AdministrativeGeneral and administrative expenses for the year ended December 31, 2018 were $8.5 million compared to $10.4 million forthe year ended December 31, 2017. The $1.9 million decrease in expenses from the comparable year in 2017 was largely theresult of higher separation costs in the 2017 period when compared to 2018. We incurred separation costs during the yearended December 31, 2017 for our former chief executive officer totaling $0.5 million of cash compensation and $2.1 millionof non-cash share-based compensation expense resulting from the acceleration of stock option vesting. In the 2018 period,general and administrative costs in connection with a reduction-in-force totaled $0.2 million of cash compensation and $0.4million of non-cash share-based compensation expense resulting from the acceleration of stock option vesting, partiallyoffsetting the overall expense decrease period over period. General and administrative expenses included $2.4 million and$4.1 million in share‑based compensation expense during the year ended December 31, 2018 and 2017, respectively. Timingof costs related to infrastructure supporting our ongoing clinical trials and public company requirements, focused primarilyon personnel costs and professional services, were the other primary drivers of the activity during both annual periods in2018 and 2017.Research and DevelopmentResearch and development expenses for the year ended December 31, 2018 were $14.3 million compared to $22.7 million forthe year ended December 31, 2017. The $8.4 million decrease was primarily attributable to reduced clinical trial activities in2018 compared to 2017. The overall decrease period over period was partially offset by separation costs recorded as researchand development expenses in connection with the September 2018 reduction-in-workforce, that was completed in the fourthquarter 2018, totaling $0.3 million of cash compensation and $0.7 million of non-cash share-based compensation expenseresulting from the acceleration of stock option vesting with no comparable separation costs recorded as research anddevelopment expenses in the prior year period. Research and development expenses included $1.8 million and $1.2 millionin share‑based compensation expense during the year ended December 31, 2018 and 2017, respectively.98 Table of ContentsInterest (Expense) IncomeInterest (expense) income for the year ended December 31, 2018 was $(0.7) million compared to $(0.3) million for the yearended December 31, 2017. Interest (expense) income during the year ended December 31, 2018 included interest expense inconnection with our Term Loan, offset in part by interest income of $0.2 million earned from proceeds received from the IPO,Private Placement and Term Loan that were held in short term, highly liquid money market accounts. Interest (expense)income during the year ended December 31, 2017 included interest expense in connection with our Term Loan, offset in partby interest income of $42,000 earned from proceeds received from the IPO, Private Placement and Term Loan that were heldin short term, highly liquid money market accounts.Other (Expense) IncomeOther (expense) income for the year ended December 31, 2018 comprises non-operating transaction costs associated with ourpreviously announced review of strategic alternatives in the amount of $0.2 million, and $1,000 related to foreign currencyexchange net losses. Other (expense) income for the year ended December 31, 2017 comprised of foreign currency exchangenet losses. Provision for Income TaxesProvision for income taxes consists of federal and state income taxes in the United States, as well as deferred income taxesand changes in related valuation allowance reflecting the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Currently,there is no provision for income taxes, as we have incurred operating losses to date, and a full valuation allowance has beenprovided on the net deferred tax assets as of December 31, 2018 and December 31, 2017.Comparison of the Years Ended December 31, 2017 and 2016The following table summarizes our operating results for the periods indicated: For the Year Ended December 31, 2017 2016 Change (in thousands) Operating expenses: General and administrative $10,438 $5,956 $4,482 Research and development 22,686 8,740 13,946 Total operating expenses 33,124 14,696 18,428 Loss from operations (33,124) (14,696) (18,428) Interest income (expense) (286) 114 (400) Other (expense) income (5) (4) (1) Loss before income taxes (33,415) (14,586) (18,829) Provision (benefit) for income taxes — — — Net loss $(33,415) $(14,586) $(18,829) General and AdministrativeGeneral and administrative expenses for the year ended December 31, 2017 were $10.4 million compared to $6.0 million forthe year ended December 31, 2016. The $4.5 million increase was primarily attributable to an increase in staffing andprofessional services associated largely with supporting our clinical trials and becoming a public company in August 2016as well as separation costs for our former chief executive officer totaling $0.5 million of cash compensation and $2.1 millionof non-cash share-based compensation expense resulting from the acceleration of stock option vesting. General andadministrative expenses included $4.1 million and $1.2 million in share‑based compensation expense during the year endedDecember 31, 2017 and 2016, respectively.99 Table of ContentsResearch and DevelopmentResearch and development expenses for the year ended December 31, 2017 were $22.7 million compared to $8.7 million forthe year ended December 31, 2016. The $13.9 million increase was primarily attributable to increased staffing and fees paidto external service providers for clinical trial development, regulatory consulting, preclinical studies and manufacturingactivities to support clinical advancement of gemcabene. Research and development expenses included $1.2 million and$0.6 million in share‑based compensation expense during the year ended December 31, 2017 and 2016, respectively.Interest Income (Expense)Interest (expense) income for the year ended December 31, 2017 was $(0.3) million compared to $0.1 million for the yearended December 31, 2016. Interest (expense) income during the year ended December 31, 2017 included interest expense inconnection with our Term Loan, offset in part by interest income of $42,000 earned from proceeds received from the IPO,Private Placement and Term Loan that were held in short term, highly liquid money market accounts. Interest (expense)income during the year ended December 31, 2016, on a net basis, represented non-cash interest income from the amortizationof the note premium associated with certain convertible notes coupled with the bifurcation of the conversion premiumliability and subsequent fair value adjustments associated with such notes, which were largely offset by interest on principaland discount amortization related to the such notes, which were converted to common stock immediately prior to the closingof the IPO. In addition, interest earnings of $23,000 from cash and cash equivalents were recorded during the year endedDecember 31, 2016.Provision for Income TaxesProvision for income taxes consists of federal and state income taxes in the United States, as well as deferred income taxesand changes in related valuation allowance reflecting the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Currently,there is no provision for income taxes, as we have incurred operating losses to date, and a full valuation allowance has beenprovided on the net deferred tax assets as of December 31, 2017 and December 31, 2016.Liquidity and Capital ResourcesCapital ResourcesAs of December 31, 2018, our principal sources of liquidity consisted of cash and cash equivalents of approximately $19.0million. Our cash and cash equivalents are invested in cash deposits and money market accounts. See “ContractualObligations and Commitments—Term Loan” below regarding our prepayment of all outstanding indebtedness under theTerm Loan subsequent to year end.We have not generated any revenue, and we anticipate that we will continue to incur losses for the foreseeable future. Wehave funded our operations to date primarily through the issuance and sale of common stock and warrants in public offeringsand a private placement, proceeds from our term loan facility with Silicon Valley Bank, which we prepaid in full on January28, 2019, and, prior to our IPO, the issuance of preferred stock and convertible notes in private placements.·In the first quarter of 2018, we completed an underwritten public offering of 3,592,858 shares of our common stock,including 450,000 shares of our common stock purchased by the underwriters upon the partial exercise of theiroverallotment option, at the public offering price of $7.00 per share. We received net proceeds of approximately$23.0 million after deducting underwriting discounts and commissions and offering expenses.·On July 24, 2017, we entered into a Loan and Security Agreement (the Loan Agreement) with Silicon Valley Bank(SVB). The Loan Agreement established a term loan facility in the aggregate principal amount of up to $15.0million (the Term Loan) to be funded in several tranches. We drew $10.0 million under the Loan Agreement on July24, 2017. The Term loan was repaid effective January 28, 2019. See “—Contractual Obligations and Commitments—Term Loan” below for a description of the repayment terms and certain other material terms of the LoanAgreement.100 Table of Contents·On March 15, 2017, we completed a private placement of 1,324,256 units at a price of $9.47 per unit for netproceeds of approximately $11.3 million after deducting offering expenses. Each unit consisted of one share of ourcommon stock and a warrant to purchase 0.75 shares of common stock. The warrants have an exercise price of$10.40 per share and are exercisable for a period of five years from the date of issuance. On April 20, 2017, theregistration statement on Form S-1 (File No 333-217296) for the resale of the shares of common stock issued in theprivate placement and the shares of common stock to be issued upon exercise of the warrants issued in the privateplacement was declared effective by the SEC.·In August 2016, we closed our IPO. We sold an aggregate of 3,027,755 shares of our common stock, including27,755 shares of our common stock purchased by the underwriters upon the partial exercise of their overallotmentoption, at a public offering price of $10.00 per share. We received net proceeds of approximately $26.1 million afterdeducting underwriting discounts and commissions and offering expenses. All of our outstanding preferred stockand convertible notes outstanding prior to our IPO converted into shares of our common stock immediately prior tothe closing of the IPO.Cash FlowsThe following table summarizes our cash flows for the periods indicated: For the Year Ended December 31, 2018 2017 2016 (in thousands) Net cash used in operating activities $(21,911) $(26,901) $(11,043) Net cash provided by (used in) investing activities — — — Net cash provided by financing activities 22,392 21,341 31,456 Net increase (decrease) in cash $481 $(5,560) $20,413 Cash Flow from Operating ActivitiesFor the year ended December 31, 2018, cash used in operating activities of $21.9 million was attributable to a net loss of$23.6 million adjusted by $4.1 million in share‑based compensation, non-cash interest expense of $0.3 million, and a netchange of $2.8 million in our net operating assets and liabilities. The change in operating assets and liabilities was primarilyattributable to a decrease in our accounts payable and accrued liabilities and by an increase in prepaid expenses associatedwith fluctuations in our operating activities. For the year ended December 31, 2017, cash used in operating activities of $26.9 million was attributable to a net loss of$33.4 million offset by $5.3 million in share‑based compensation, non-cash interest expense of $0.1 million and a net changeof $1.1 million in our net operating assets and liabilities. The change in operating assets and liabilities was primarilyattributable to a net increase in our accounts payable and accrued liabilities and by a net decrease in prepaid expensesassociated with fluctuations in our operating activities. For the year ended December 31, 2016, cash used in operating activities of $11.0 million was attributable to a net loss of$14.6 million which included $1.6 million in non‑cash expenses and a net change of $1.9 million in our net operating assetsand liabilities. The non‑cash (income) expenses consisted of $1.7 million of share‑based compensation offset by net non‑cashinterest income of $(0.1) million related to both certain convertible notes and the premium conversion derivative. The netchange in operating assets and liabilities was primarily attributable to increases in our accounts payable and accruedliabilities associated with our increased operating expenses. Cash Flow from Investing ActivitiesThere were no sources or uses of funds from investing activities for all periods presented.Cash Flow from Financing ActivitiesNet cash provided by financing activities during the year ended December 31, 2018 of $22.4 million related primarily toproceeds received from our Follow-On Offering in the first quarter of 2018 of $23.1 million, net of discounts,101 Table of Contentscommissions and other costs totaling $2.1 million, and to repayment of Term Loan principal in the amount of $0.7 million. Net cash provided by financing activities during the year ended December 31, 2017 of $21.3 million included $11.3 millionrelated to the proceeds from our March 2017 private placement, net of discounts, commissions and other costs totaling $1.3million paid through December 31, 2017 as well as $9.9 million in proceeds from the issuance of our Term Loan, net of issuecosts paid through December 31, 2017 of $89,000. In addition, $21,000 in offering costs were paid in 2017 related to thepublic offering of common stock that was completed in the first quarter of 2018. Net cash provided by financing activities during the year ended December 31, 2016 was $31.5 million consisting of $26.3million in IPO proceeds, net of discounts, commissions and other offering costs of $4.0 million paid through December 31,2016, and $5.1 million in proceeds from the issuance of convertible notes in February 2016 and April 2016 net of issuancecosts in the amount of $10,000.Liquidity and Capital Resource RequirementsWe had $9.3 million of principal outstanding under our Term Loan with SVB on December 31, 2018. See “—ContractualObligations and Commitments—Term Loan” below for a description of certain material terms of the Loan Agreement and ourprepayment of the Term Loan subsequent to year end.We have no current source of revenue to sustain our present activities, and we do not expect to generate revenue until, andunless, the FDA or other regulatory authorities approve gemcabene and we successfully commercialize gemcabene. Untilsuch time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through acombination of equity and debt financings as well as collaborations, strategic alliances and licensing arrangements. We donot have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interestof our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences thatadversely affect your rights as a common stockholder. Similar to the restrictions described below under our Loan Agreement,additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability totake specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raiseadditional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we mayhave to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not befavorable to us. If we are unable to raise additional funds through equity or debt financings or through collaborations,strategic alliances or licensing arrangements when needed, we may be required to delay, limit, reduce or terminate ourproduct development, future commercialization efforts, or grant rights to develop and market gemcabene that we wouldotherwise prefer to develop and market ourselves. We believe our cash on hand will be sufficient to fund operations into the third quarter of 2019, but we will need to raiseadditional capital to continue to fund the further development of gemcabene and our operations thereafter, includingsubmission of the additional information requested by the FDA to lift the partial clinical hold. Our business and thedevelopment of gemcabene is subject to numerous uncertainties, and we have based these estimates on assumptions that mayprove to be substantially different than we currently anticipate and could use our cash resources sooner than we expect.Additionally, the process of advancing early‑stage product candidates and testing product candidates in clinical trials iscostly, and the timing of progress in these clinical trials is uncertain. Our ability to successfully transition to profitability willbe dependent upon achieving a level of product sales adequate to support our cost structure. We cannot assure that we willever be profitable or generate positive cash flow from operating activities. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect onour growth strategy, financial performance and stock price and could require us to delay or abandon clinical developmentplans. We anticipate that our near-term expenses will continue to be below comparable period levels as we work to have the six-month clinical hold by the FDA removed, then if successful, expect our expenses will increase substantially as we:·continue clinical trials for gemcabene and for any other product candidate in our future pipeline;102 Table of Contents·seek regulatory approvals for any product candidates that successfully complete clinical trials;·contract to manufacture our product candidates;·establish on our own or with partners, a sales, marketing and distribution infrastructure to commercialize anyproducts for which we may obtain regulatory approval;·maintain, expand and protect our intellectual property portfolio;·hire additional staff, including clinical, scientific, operational and financial personnel, to execute our business plan;·add operational, financial and management information systems and personnel, including personnel to support ourproduct development and potential future commercialization efforts;·continue to pursue strategic alternatives to maximize stockholder value; and·continue to operate as a public company.Contractual Obligations and CommitmentsThe following table summarizes our contractual obligations as of December 31, 2018, which represent material expected orcontractually committed future obligations. Please see “—Term Loan” below regarding our prepayment of the Term Loansubsequent to year end. Payments Due by Period Less than 1 year 1–3 Years 3–5 Years More than 5 years Total (in thousands) Term loan $4,826 $5,949 $ — $ — $10,775 Facility lease 71 — — — 71 Total $4,897 $5,949 $ — $ — $10,846 Term LoanOn July 24, 2017, the Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) for a termloan of up to $15.0 million (the “Term Loan”), subject to funding in several tranches. Certain provisions of the LoanAgreement were conditioned on a pre-clinical event occurring by July 31, 2018. “Pre-clinical event” meant the receipt bySVB of a written electronic communication from our chief executive officer or chief financial officer, together withsupporting documentation from the FDA, that the FDA lifted the partial clinical hold with respect to clinical trials of longerthan six months in duration for gemcabene. A pre-clinical event had not occurred as of July 31, 2018 and, on such date, theCompany and SVB amended the Loan Agreement (as amended, the “Loan Agreement”). The Company drew the initial tranche of $10.0 million on July 24, 2017. Following the amendment, a third tranche of $5.0million was available through November 30, 2018 conditioned on the occurrence of certain events and was not drawn by theCompany. Under the Loan Agreement, if a pre-clinical event did not occur on or prior to September 30, 2019 or, if at any time prior to apre-clinical event, the Company’s unrestricted cash balance at SVB was less than $18.0 million, the Company was requiredto either (i) provide cash security and maintain a cash balance in a restricted account at SVB in an amount not less than 100%of the amounts owed by the Company to SVB or (ii) prepay the Term Loan, including certain fees, in its entirety. All amounts advanced under the Term Loan were scheduled to mature on February 1, 2021 and had an interest-only monthlypayment period through November 1, 2018, which could have been extended to February 1, 2019 upon the occurrence ofboth a positive clinical trial event and a pre-clinical event. A pre-clinical event did not occur prior to November 1, 2018 and,accordingly, we began making monthly payments of principal and interest on such date. Interest accrued on the unpaidprincipal balance at a floating per annum rate equal to the prime rate, except that, following an event103 Table of Contentsof default, interest would accrue at a rate up to 5% above the rate that is otherwise applicable. Our obligations under the LoanAgreement could be accelerated by SVB upon the occurrence of an event of default, including customary events for afinancing arrangement of this type, including, without limitation, payment defaults, defaults in the performance ofaffirmative or negative covenants, bankruptcy or related defaults, defaults on certain other indebtedness, defaults undercertain other agreements, the imposition of judgments or penalties, the material inaccuracy of representations or warranties,material adverse changes and revocations of government approvals. Subject to certain exceptions, the Loan Agreement contained certain covenants prohibiting us from, among other things: (a)disposing of our properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the businesscurrently engaged in by us or reasonably related thereto; (d) engaging in business combinations or acquisitions or permittingor suffering any change in control; (e) incurring any additional indebtedness; (f) allowing any lien or encumbrance on any ofour property; (g) paying any dividends or distributions; (h) entering into transactions with affiliates; and (i) making paymenton subordinated debt. In addition, we issued a warrant to purchase 36,000 shares of our common stock at an exercise price of $7.47 per share to SVBon July 31, 2018 in connection with the first amendment under the Loan Agreement. The warrant is immediately exercisableand has a term of ten years. The exercise price and number and type of shares underlying the warrant are subject toadjustment upon specified events, including any stock dividends and splits, reverse stock split, recapitalization,reorganization or similar transaction, as described therein. The warrant contains a “cashless exercise” feature that allows SVBto exercise the warrant without a cash payment to the Company, on a net issuance basis, based upon the fair market value ofthe Company’s common stock.The Loan Agreement required us to pay the following fees: (i) upon the maturity, acceleration or prepayment of the TermLoan, a final payment fee of 10% of the funded principal amount of the Term Loan, (ii) a success fee of 3.5% of the fundedprincipal amount of the Term Loan upon the occurrence of certain contingent events as defined in the Loan Agreement(described below), and (iii) upon termination of the Loan Agreement prior to the maturity date for any reason, a prepaymentfee equal to 2% (if such prepayment occurs prior to July 31, 2019) or 1% (if such prepayment occurs thereafter) of the fundedprincipal amount of the Term Loan.We were in compliance with the Loan Agreement covenants as of December 31, 2018. On January 25, 2019, we agreed to prepay in full all outstanding indebtedness under Loan Agreement which prepayment waseffective January 28, 2019. Upon payoff, any unfunded commitments to make credit extensions or financial accommodationsto us terminated, and all security interests and other liens granted to or held by SVB as security for the obligations wereterminated and automatically released, except those that were specified as surviving termination. As of the date of payment, we had approximately $8.9 million in outstanding borrowings and approximately $1.0 million inoutstanding interest and fees under the Loan Agreement, including the final payment fee equal to 10% of the originalaggregate principal amount of the Term Loan funded by SVB and drawn by us, which were repaid in full at the time ofpayment. The obligations, liabilities, covenants, and terms that are expressly specified in the Loan Agreement and any otherrelated loan and collateral security documents issued by us to SVB in connection with the transaction evidenced by the LoanAgreement as surviving termination shall continue to survive notwithstanding the payment, including without limitation,our indemnity obligations and our obligation to pay to SVB a success fee of 3.5% of the funded principal amount of theTerm Loan in the event any of the following occur on or before 5:00 PM, Eastern time, on July 24, 2024: (a) we receive FDAapproval for any new drug application for gemcabene, (b) a sale or other transfer of all or substantially all of our assets occurs,(c) a merger or consolidation of the Company with or into another person or entity occurs where the holders of theCompany’s outstanding voting equity securities immediately prior to such merger or consolidation hold less than a majorityof the issued and outstanding voting equity securities of the successor immediately following such transaction or (d) any saleby the holders of our outstanding voting equity securities where such holders do not continue to hold at least a majority ofour issued and outstanding voting equity securities immediately following the consummation of such transaction. Inaddition, the warrant to purchase 36,000 shares (subject to adjustment) our common stock dated as of July 31, 2018 betweenus and SVB will remain outstanding and exercisable in accordance with its terms. 104 Table of ContentsFacility LeaseIn May 2016, we entered into a non-cancellable facility lease commencing August 1, 2016. The term of the agreement isthree years with an initial monthly base rent of approximately $8,400 and increasing to approximately $8,900 during the lastyear of the lease agreement. Pfizer AgreementWe entered into an exclusive license agreement for the clinical product candidate gemcabene with Pfizer Inc. (Pfizer) in April2011, which was subsequently amended and restated in August 2018 (as so amended, the “Pfizer Agreement”). The PfizerAgreement grants us certain patent rights and a non-exclusive royalty bearing right and license to certain related data tomake, use, develop, commercialize, import and otherwise exploit the clinical product candidate gemcabene. Pfizer retains theright to make, use and import gemcabene solely for internal research purposes. In partial exchange for the rights granted by Pfizer, we agreed to issue shares of our common stock to Pfizer representing 15%of our fully diluted capital at the close of its first arms‑length Series A financing, which occurred on March 31, 2015. We also agreed to make milestone payments totaling up to $37 million upon the achievement of certain milestones,including the first new drug application (or its foreign equivalent) in any country, regulatory approval in each of the UnitedStates, Europe and Japan, the first anniversary of the first regulatory approval in any country, and upon achieving certainaggregate sales levels of gemcabene. Future milestone payments under the Pfizer Agreement, if any, are not expected tobegin for at least several years and extend over a number of subsequent years. In addition, we agreed to pay Pfizer tiered royalties on a country‑by‑country basis based upon the annualamount of net sales, as specified in the Pfizer Agreement, until the later of: (a) five (5) years after the firstcommercial sale in such country; (b) the expiration of all regulatory or data exclusivity for gemcabene insuch country; and (c) the expiration or abandonment of the last valid claim of the licensed patents,including any patent term extensions or supplemental protection certificates in such country (collectively,the Royalty Term). Under the Pfizer Agreement, we are obligated to use commercially reasonable efforts todevelop and commercialize gemcabene. The Pfizer Agreement will expire upon expiration of the last Royalty Term. On expiration (but not earlier termination), wewill have a perpetual, exclusive, fully paid-up, royalty-free license under the licensed patent rights and related data to make,use, develop, commercialize, import and otherwise exploit the clinical product candidate gemcabene. Either party mayterminate the Pfizer Agreement for the other party’s material breach following a cure period or immediately upon certaininsolvency events relating to the other party. Pfizer may immediately terminate the Pfizer Agreement in the event that (i) weor any of our affiliates or sublicenses contest or challenge, or support or assist any third party to contest or challenge, Pfizer’sownership of or rights in, or the validity, enforceability or scope of any of the patents licensed under the Pfizer Agreement or(ii) we or any of our affiliates or sublicensees fail to achieve the first commercial sale in at least one country by April 16,2024. Furthermore, upon termination of the Pfizer Agreement by Pfizer for any of the foregoing reasons, we grant Pfizer anon-exclusive, fully paid-up, royalty free, worldwide, transferrable, perpetual and irrevocable license to use any intellectualproperty rights arising from the development or commercialization of gemcabene by us and any trademarks identifyinggemcabene and agree to transfer regulatory filings and approvals to Pfizer or permit Pfizer to cross-reference and rely on suchregulatory filings and approvals for gemcabene. We may terminate the License Agreement for convenience upon 90 days’written notice and payment of an early termination fee. Other CommitmentsIn the course of our normal operations, we have entered into cancellable purchase commitments with our suppliers for variouskey research and clinical services and raw materials. The purchase commitments covered by these arrangements are subject tochange based on our research and development efforts.Critical Accounting Policies and EstimatesOur financial statements are prepared in accordance with GAAP. These accounting principles require us to make estimatesand judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements as well asthe reported amounts of revenue and expense during the periods presented. We believe that the105 Table of Contentsestimates and judgments upon which we rely are reasonably based upon information available to us at the time that we makethese estimates and judgments. To the extent that there are material differences between these estimates and actual results,our financial results will be affected. The accounting policies that reflect our more significant estimates and judgments andwhich we believe are the most critical to aid in fully understanding and evaluating our reported financial results aredescribed below.The following is not intended to be a comprehensive list of all of our accounting policies or estimates. Our accountingpolicies are more fully described in Note 2 — Summary of Significant Accounting Policies, included in “Item 8 — FinancialStatements and Supplementary Data” in this Report.Income TaxesWe utilize the liability method of accounting for income taxes as required by Accounting Standards Codification (ASC) 740,Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financialreporting and the tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effectwhen the differences are expected to reverse. Currently, there is no provision for income taxes, as we have incurred operatinglosses to date, and a full valuation allowance has been provided on the net deferred tax assets.Since incorporation, we have filed U.S. federal and Michigan state income tax returns. Our deferred tax assets were primarilycomprised of federal and state tax net operating loss carryforwards, acquired intangibles and tax credit carryforwards andwere recorded using enacted tax rates expected to be in effect in the years in which these temporary differences are expectedto be utilized. As of December 31, 2018, the tax effect of our federal and state net operating loss carryforwards wasapproximately $4.2 million and $0.9 million, respectively, and our federal and state research and development creditcarryforwards were $2.6 million and $0.1 million, respectively. As of December 31, 2017, the tax effect of our federal andstate net operating loss carryforwards was approximately $2.8 million and $0.6 million, respectively, and our federal andstate research and development credit carryforward were $1.9 million and $45,000, respectively. The federal net operatingloss incurred prior to January 1, 2018 and tax credit carryforwards will begin to expire in 2034 if not utilized. Federal netoperating losses incurred after December 31, 2017 will not expire. The state net operating loss carryforwards will begin toexpire in 2026, if not utilized, and the state research credit carryforwards will begin to expire in 2023 if not utilized. Recenttax reform legislation has significantly revised the rules applicable to the utilization of net operating losses for tax yearseither beginning or ending after January 1, 2018.Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to historical orfuture ownership percentage change rules provided by the Internal Revenue Code of 1986, as amended, and similar stateprovisions. The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards beforetheir utilization. However, due to uncertainties surrounding our ability to generate future taxable income to realize these taxassets, a full valuation allowance has been established to offset our deferred tax assets.Contingencies From time to time, we may be subject to legal proceedings and claims, including contractual allegations, patentinfringement, employment-related matters and other claims that arise in the normal course of business. We routinely assessthe likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses, by consultingwith internal personnel principally involved with such matters and with our outside legal counsel handling such matters. Weaccrue for estimated losses when it is probable that a liability or loss has been incurred and the amount can be reasonablyestimated. Contingencies by their nature relate to uncertainties that require the exercise of judgment both in assessingwhether or not a liability or loss has been incurred and estimating that amount of probable loss. The liabilities may change inthe future due to new developments or changes in circumstances. The inherent uncertainty related to the outcome of thesematters can result in amounts materially different from any provisions made with respect to their resolution.Share‑Based CompensationOur share‑based compensation for share‑based awards is accounted for in accordance with authoritative guidance and isestimated at the grant date based on the fair value of the award and recognized as expense ratably over the requisite vestingperiod of the award. Determining the appropriate fair value of share‑based awards requires judgment. We106 Table of Contentscalculate the fair value of each award to employees on the date of grant based on the fair value of our common stock. See“— Common Stock Valuation” below.We calculate the fair value of each stock option award to employees on the date of grant under the Black‑Scholesoption‑pricing model using certain assumptions related to the fair value of our common stock, the option’s expected term,our expected stock price volatility, risk free interest rates and our expected dividend rate.For options to purchase common stock issued to non‑employees, including consultants, we record share‑based compensationbased on the fair value of the options. We calculate the fair value of each share‑based award to non‑employees on eachmeasurement date based on the fair value of our common stock. The fair value of options granted to non‑employees isremeasured as the options vest and is recognized in the statements of operations during the period the related services arerendered.The fair value of each stock option grant was determined using the methods and assumptions discussed below. Each of theseinputs is subjective and generally requires significant judgment and estimation by management.·Fair Value of Common Stock. As discussed below in “— Common Stock Valuation,” because there was nopublic market for our common stock prior to our IPO, our board of directors has determined the fair value of thecommon stock by considering a number of objective and subjective factors, including based oncontemporaneous valuations of our common stock performed by an unrelated valuation specialist. Currently,the fair value of our common stock is based on the quoted market price.·Expected Term. The expected term represents the period that share‑based awards are expected to beoutstanding. The expected term for option grants is determined using the simplified method. The simplifiedmethod deems the term to be the average of the time‑to‑vesting and the contractual life of the share‑basedawards. The expected term for options issued to nonemployees is the contractual term.·Expected Volatility. Since we do not have a trading history of our common stock, the expected volatility wasderived from the historical stock volatilities of comparable peer public companies within our industry that weconsider to be comparable to our business over a period equivalent to the expected term of the share‑basedawards.·Risk‑Free Interest Rate. The risk‑free interest rate is based on the U.S. Treasury yield curve in effect at the dateof grant for zero‑coupon U.S. Treasury notes with maturities approximately equal to the share‑based awards’expected term.·Expected Dividend Rate. The expected dividend is zero as we have not paid and do not anticipate paying anydividends on our common stock for the foreseeable future.The estimated grant‑date fair value of our share‑based awards was calculated using Black‑Scholes option‑pricing model,based on the following assumptions for the following periods presented: Year Ended December 31, 2018 2017 2016 Expected stock price volatility 66.3% 65.8% 71.447% Expected life of options (years) 5.8 5.9 6.02 Expected dividend yield 0% 0% 0% Risk free interest rate 2.7% 2.0% 1.2% If any of the assumptions used in the Black‑Scholes option‑pricing model change significantly, share‑based compensationfor future awards may differ materially compared with the awards granted previously.For 2018, 2017 and 2016, share‑based compensation was $4.1 million, $5.3 million and $1.7 million, respectively. As ofDecember 31, 2018, we had unrecognized share‑based compensation expense totaling $3.9 million. 107 Table of ContentsCommon Stock ValuationDuring periods when there was an absence of a public trading market for our common stock prior to the IPO, on each grantdate, we developed an estimate of the fair value of our common stock in order to determine an exercise price for eachshare‑based award. We determined the fair value of our common stock using methodologies, approaches and assumptionsconsistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately‑Held‑CompanyEquity Securities Issued as Compensation. Our board of directors exercised reasonable judgment and considered a number ofobjective and subjective factors to determine the best estimate of the fair value of our common stock, including havingcontemporaneous and retrospective valuations of our common stock performed by an unrelated valuation specialist,valuations of comparable securities transactions, sales of our convertible preferred stock to unrelated third parties, the rights,preferences and privileges of our common stock versus our preferred stock, our operating and financial performance, ourstage of development, current business conditions, our projections, business developments, the lack of liquidity of ourcapital stock and general and industry specific economic outlook.Beginning in the fourth quarter of 2015 and up until the closing of the IPO, the fair value of our common stock was estimatedusing a hybrid of two market approaches, specifically the value of a potential Series B convertible preferred stock financingutilizing a Proposed Securities Transaction — Backsolve method and a pre‑money IPO value for an IPO exit. Lastly, thecompleted Series A preferred stock Recent Securities Transaction — Backsolve method was considered in the event that aSeries B convertible preferred stock financing or an IPO could not be achieved.We considered the various methods for allocating the enterprise value across our classes and series of capital stock todetermine the fair value of our common stock at each valuation date. The methods we used consisted of the following:·Option pricing method (OPM). Under the option pricing method, shares are valued by creating a series of calloptions with exercise prices based on the liquidation preferences and conversion terms of each equity class. Thevalues of the preferred and common stock are inferred by analyzing these options.·Probability‑weighted expected return method (PWERM). The PWERM is a scenario‑based analysis thatestimates the value per share based on the probability‑weighted present value of expected future investmentreturns, considering each of the possible outcomes available to us, as well as the economic and control rights ofeach share class.Our per share common stock value was estimated by allocating the equity value using a hybrid combination of OPM andPWERM. We used either PWERM or a combination of the OPM and the PWERM as described above to allocate the equityvalue to each element of our capital structure, including our common stock. For both approaches, we applied a discount tothe valuations due to the lack of marketability of the ordinary shares. We calculated the discount for lack of marketabilityusing a Finnerty model and applied it as appropriate to each allocation.The dates of our valuations did not always coincide with the dates of our option grants. In such instances, management’sestimates were based on the most recent valuation of shares of our common stock. For grants occurring between valuationdates, for financial reporting purposes, we considered the preceding valuations and our assessment of additional objectiveand subjective factors we believed were relevant as of the grant date to determine the fair value of our common stock.Related Party TransactionsSee Note 14 — “Related Party Transactions” included in “Item 8 — Financial Statements and Supplementary Data” in thisReport regarding the impact of certain related party transactions with respect to facility rent and financing activity.Off‑Balance Sheet ArrangementsWe did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as definedunder the rules and regulations of the SEC.108 Table of ContentsRecent Accounting PronouncementsSee Note 2 — “Summary of Significant Accounting Policies” included in “Item 8 — Financial Statements andSupplementary Data” in this Report regarding the impact of certain recent accounting pronouncements on our financialstatements. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot applicable.109 Table of Contents ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 111Balance Sheets 112Statements of Comprehensive Loss 113Statements of Changes in Convertible Preferred Stock and Stockholders' Equity (Deficit) 114Statements of Cash Flows 115Notes to Financial Statements 116 110 Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and ShareholdersGemphire Therapeutics Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of Gemphire Therapeutics Inc. (the Company) as of December 31, 2018and 2017, the related statements of comprehensive loss, changes in convertible preferred stock and stockholders’ equity(deficit) and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and thefinancial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In ouropinion, the financial statements present fairly, in all material respects, the financial position of the Company atDecember 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the periodended December 31, 2018, in conformity with U.S. generally accepted accounting principles. The Company's Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Asdiscussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, negative cashflows from operations, and has stated that substantial doubt exists about the Company’s ability to continue as a goingconcern. Management's evaluation of the events and conditions and management’s plans regarding these matters are alsodescribed in Note 1. The financial statements do not include any adjustments that might result from the outcome of thisuncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinionon the Company’s financial statements based on our audits. We are a public accounting firm registered with the PublicCompany Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to theCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities andExchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether dueto error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control overfinancial reporting. As part of our audits we are required to obtain an understanding of internal control over financialreporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control overfinancial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whetherdue to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a testbasis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating theaccounting principles used and significant estimates made by management, as well as evaluating the overall presentation ofthe financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2015.Detroit, MichiganMarch 15, 2019 111 Table of ContentsGemphire Therapeutics Inc.Balance Sheets(in thousands, except share amounts and par value) December 31, December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $18,954 $18,473 Prepaid expenses 715 490 Deferred offering costs — 21 Other assets 17 25 Total current assets 19,686 19,009 Deposits 8 8 Total assets $19,694 $19,017 Liabilities and stockholders’ equity Current liabilities: Accounts payable $2,044 $4,025 Accrued liabilities 438 1,010 Term loan - current portion 9,437 1,355 Total current liabilities 11,919 6,390 Long-term liabilities: Term loan — 8,683 Other liabilities 1 3 Total liabilities 11,920 15,076 Commitments and contingencies (Note 5) Stockholders’ equity: Preferred stock, $0.001 par value; 10,000,000 shares authorized as of December 31, 2018and 2017, no shares issued or outstanding as of December 31, 2018 and 2017. — — Common stock, $0.001 par value; 100,000,000 shares authorized as of December 31,2018 and 2017, 14,265,411 and 10,633,042 shares issued and outstanding at December31, 2018 and 2017, respectively. 22 18 Additional paid–in capital 91,863 64,397 Accumulated deficit (84,111) (60,474) Total stockholders’ equity 7,774 3,941 Total liabilities and stockholders’ equity $19,694 $19,017 See accompanying notes.112 Table of Contents Gemphire Therapeutics Inc.Statements of Comprehensive Loss(in thousands, except share and per share amounts) Year Ended December 31, 2018 2017 2016Operating expenses: General and administrative $8,493 $10,438 $5,956Research and development 14,312 22,686 8,740Total operating expenses 22,805 33,124 14,696Loss from operations (22,805) (33,124) (14,696)Interest (expense) income (654) (286) 114Other expense (178) (5) (4)Loss before income taxes (23,637) (33,415) (14,586)Provision (benefit) for income taxes — — —Net loss (23,637) (33,415) (14,586)Other comprehensive loss, net of tax — — —Comprehensive loss $(23,637) $(33,415) $(14,586)Net loss $(23,637) $(33,415) $(14,586)Adjustment to redemption value on Series A convertible preferred stock — — (366)Net loss attributable to common stockholders $(23,637) $(33,415) $(14,952)Net loss per share: Basic and diluted (Note 10) $(1.71) $(3.23) $(2.57)Number of shares used in per share calculations: Basic and diluted 13,805,552 10,349,136 5,809,396 See accompanying notes.113 Table of ContentsGemphire Therapeutics Inc.Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit)(in thousands, except share amounts) Series A Convertible Additional Total Preferred Stock Common Stock Paid–In Accumulated Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balance January 1, 2016 745,637 $7,953 3,758,488 $12 $ — $(12,392) $(12,380) Redemption value adjustment — Series Apreferred stock — 366 — — (285) (81) (366) Conversion of Series A preferred stock tocommon stock (745,637) (8,319) 827,205 1 8,318 — 8,319 Separation of convertible note beneficialconversion feature upon contingency resolution — — — — 372 — 372 Conversion of convertible notes to common stock — — 1,656,807 1 11,444 — 11,445 Issuance of common stock from offering — — 3,027,755 3 30,275 — 30,278 Issuance costs of offering — — — — (4,168) — (4,168) Share–based compensation — employee — — — — 1,498 — 1,498 Share–based compensation — non–employee — — — — 220 — 220 Net loss — — — — — (14,586) (14,586) Balance at December 31, 2016 — $ — 9,270,255 $17 $47,674 $(27,059) $20,632 Issuance of common stock from privateplacement — — 1,324,256 1 8,978 — 8,979 Issuance of detachable stock warrants inconnection with private placement — — — — 3,562 — 3,562 Issuance costs of private placement — — — — (1,287) — (1,287) Exercise of stock options — — 23,531 — 41 — 41 Exercise of warrants — — 15,000 — 156 — 156 Share–based compensation — employee — — — — 5,244 — 5,244 Share–based compensation — non–employee — — — — 29 — 29 Net loss — — — — — (33,415) (33,415) Balance at December 31, 2017 — $ — 10,633,042 $18 $64,397 $(60,474) $3,941 Issuance of common stock from follow-on publicoffering — — 3,592,858 4 25,146 — 25,150 Issuance costs of follow-on public offering — — — — (2,091) — (2,091) Warrant issuance — — — — 196 — 196 Exercise of stock options — — 39,511 — 84 — 84 Share–based compensation — employee — — — — 4,128 — 4,128 Share–based compensation — non–employee — — — — 3 — 3 Net loss — — — — — (23,637) (23,637) Balance at December 31, 2018 — $ — 14,265,411 $22 $91,863 $(84,111) $7,774 See accompanying notes.114 Table of ContentsGemphire Therapeutics Inc.Statements of Cash Flows(in thousands) For the Year Ended December 31, 2018 2017 2016 Operating activities Net loss $(23,637) $(33,415) $(14,586) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation 4,131 5,273 1,718 Non-cash interest on convertible notes to related parties — — 145 Non-cash interest on convertible notes — — 256 Non-cash discount amortization on convertible notes to related parties — — (17) Non-cash discount amortization on term loan and convertible notes 346 137 (276) Revaluation of premium conversion derivative — — (850) Non-cash interest upon conversion of convertible notes — — 649 Change in assets and liabilities: Prepaid expenses and other assets (196) 198 (55) Accounts payable (1,981) 2,007 1,477 Accrued and other liabilities (574) (1,101) 496 Net cash used in operating activities (21,911) (26,901) (11,043) Investing activities Net cash provided by (used in) investing activities — — — Financing activities Proceeds from issuance of term loan and convertible notes — 10,000 2,651 Proceeds from issuance of convertible notes to related parties — — 2,500 Issuance costs related to term loan and convertible notes (10) (89) (10) Repayment of principal (741) — — Exercise of stock options 84 41 — Exercise of warrants — 156 — Proceeds from sale of common stock and warrants 25,150 12,541 30,278 Offering costs (2,091) (1,287) (3,963) Deferred offering costs — (21) — Net cash provided by financing activities 22,392 21,341 31,456 Net increase (decrease) in cash and cash equivalents 481 (5,560) 20,413 Cash and cash equivalents at beginning of period 18,473 24,033 3,620 Cash and cash equivalents at end of period $18,954 $18,473 $24,033 Supplemental disclosure of cash flow information: Cash paid for income taxes $ — $ — $— Cash paid for interest $488 $291 $— Supplemental non-cash financing transactions: Conversion of Series A preferred stock to common stock $ — $ — $8,319 Conversion of convertible notes to common stock $ — $ — $11,445 Issuance of warrants in connection with term loan $196 $ — $— Redemption value change of Series A preferred stock $ — $ — $366 Bifurcation of premium conversion derivative related to convertible notes $ — $ — $505 Separation of beneficial conversion feature associated with convertible notes $ — $ — $372 Offering costs in other assets paid in prior year $ — $ — $205 Issuance costs in accounts payable and accrued liabilities $ — $10 $ — See accompanying notes. 115 Table of Contents Gemphire Therapeutics Inc.Notes to Financial Statements 1. The Company and Basis of PresentationThe Company, headquartered in Livonia, Michigan, is a clinical‑stage biopharmaceutical entity focused on developing andcommercializing therapies for the treatment of dyslipidemias as well as NAFLD/NASH with an initial focus on orphanindications including HoFH, FCS, and FPL. The Company’s primary activities to date have been conducting research anddevelopment activities, planning and conducting clinical trials, performing business and financial planning, recruitingpersonnel and raising capital. The Company is subject to certain risks, which include the need to research, develop, andclinically test potentially therapeutic products, initially one product candidate gemcabene (also known as CI‑1027); obtainregulatory approval for its products and commercialize them around the world, if approved; expand its managementscientific staff; finance its operations; and find collaboration partners to further advance development and commercialefforts. Initial Public OfferingOn August 4, 2016, the Company’s Registration Statement on Form S-1 (File No 333-210815) relating to its initial publicoffering (IPO) of its common stock was declared effective by the Securities and Exchange Commission (SEC). Pursuant tosuch Registration Statement, on August 10, 2016, the Company closed its IPO whereby 3,000,000 shares of its common stockwere issued and sold at a public offering price of $10.00 per share. On September 8, 2016, the Company closed the sale of27,755 shares of its common stock at the public offering price of $10.00 per share, representing a partial exercise of theunderwriters’ over-allotment option, following which, the IPO terminated. The Company received net proceeds ofapproximately $26.1 million after deducting underwriting discounts and commissions of $2.1 million and other offeringexpenses of $2.1 million. Immediately prior to the IPO, the Company amended and restated its certificate of incorporation and bylaws to, among otherthings, change its authorized capital stock to consist of (i) 100,000,000 shares of common stock and (ii) 10,000,000 shares ofundesignated preferred stock. Both the common stock and the preferred stock have a par value of $0.001 per share. Private Placement Offering On March 10, 2017, the Company entered into a securities purchase agreement for a private placement (the PrivatePlacement) with a select group of accredited investors whereby, on March 15, 2017 the Company issued and sold 1,324,256units at a price of $9.47 per unit for gross proceeds of approximately $12.5 million. Each unit consists of one share of theCompany’s common stock and a warrant to purchase 0.75 shares of common stock. The warrants have an exercise price of$10.40 per share and are exercisable for a period of five years from the date of issuance. On April 20, 2017, the registrationstatement on Form S-1 (File No 333-217296) for the resale of the shares of common stock issued in the Private Placement andthe shares of common stock to be issued upon exercise of the warrants issued in the Private Placement was declared effectiveby the SEC. Follow-On Public Offering On February 12, 2018, the Company completed an underwritten public offering (the Follow-On Offering) of 3,142,858 sharesof common stock at the public offering price of $7.00 per share. As part of such offering, the Company issued 450,000additional shares of common stock representing partial exercise of the underwriters’ overallotment option. The Companyreceived net proceeds of approximately $23.1 million after deducting underwriting discounts and commissions and offeringexpenses.Reverse Stock SplitIn April 2016, the board of directors approved an amendment to the Company’s certificate of incorporation to effect a 1-for-3.119 reverse stock split (the Reverse Stock Split) for all common and Series A preferred stock. The Reverse Stock Splitbecame effective on April 27, 2016 upon the filing of the amendment to the certificate of incorporation. The authorizedshares and par value of the common stock and Series A preferred stock were not adjusted as a result of the Reverse StockSplit. All issued and outstanding common and Series A preferred stock, options for common stock and116 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued per share amounts contained in the financial statements were retroactively adjusted to reflect the Reverse Stock Split for allperiods presented.Going ConcernThe accompanying financial statements have been prepared assuming that the Company will continue as a going concern,which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Companyadopted Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15,Presentation of Financial Statements - Going Concern (Subtopic 205-40) effective December 31, 2016, which requires theCompany to make certain disclosures if it concludes that there is substantial doubt about the entity’s ability to continue as agoing concern within one year from the date of the issuance of these financial statements. In the course of its activities, the Company has incurred losses and negative cash flows from operations since its inception.As of December 31, 2018, the Company had an accumulated deficit of $84.1 million. The Company expects to incur lossesfor the foreseeable future. The Company believes that its cash and cash equivalents of $19.0 million at December 31, 2018are not sufficient to fund the Company's current operating plan for at least twelve months after the date the consolidatedfinancial statements are issued. See “Contractual Obligations and Commitments—Term Loan” below regarding ourprepayment of all outstanding indebtedness under the Term Loan subsequent to year end. We have no current source ofrevenue to sustain our present activities, and we do not expect to generate revenue until, and unless, the Food and DrugAdministration (FDA) or other regulatory authorities approve gemcabene and we successfully commercialize gemcabene.Until such time, if ever, we expect to finance our cash needs through a combination of equity and debt financings as well ascollaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds andthere can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund itsoperations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. If the Company isunable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantlyreduce its operations or delay, scale back or discontinue the development of gemcabene. The financial statements do notinclude any adjustments that might result from the outcome of this uncertainty. 2. Summary of Significant Accounting PoliciesUse of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates andassumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differfrom those estimates.Cash and Cash EquivalentsThe Company considers all highly liquid investments with an original maturity of 90 days or less at the time of deposit to becash equivalents. The Company invests excess cash in readily available checking and savings accounts and highly liquidinvestments in money market accounts.Fair Value of Financial InstrumentsThe Company’s financial instruments include principally cash and cash equivalents, other current assets, accounts payable,accrued liabilities and debt. The carrying amounts for these financial instruments reported in the balance sheets approximatetheir fair values. See Note 11 — Fair Value Measurements, for further discussion of fair value.General and Administrative ExpensesGeneral and administrative expenses consist primarily of personnel‑related costs, including salaries and share‑basedcompensation costs, for personnel in functions not directly associated with research and development activities. Other117 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued significant costs include legal fees related to intellectual property and corporate matters and professional fees for accountingand other services.Research and Development ExpensesResearch and development expenses consist of costs incurred in performing research and development activities, includingcompensation for research and development employees, costs associated with preclinical studies and trials, regulatoryactivities, manufacturing activities to support clinical activities, license fees, non‑legal patent costs, fees paid to externalservice providers that conduct certain research and development, clinical costs and an allocation of overhead expenses.Research and development costs are expensed as incurred.Acquired In‑Process Research and Development ExpensesThe Company includes costs to acquire or in‑license product candidates in acquired in‑process research and developmentexpenses. The Company has acquired the right to develop and commercialize its product candidate gemcabene. These costsare immediately expensed provided that the payments do not also represent processes or activities that would constitute a“business” as defined under GAAP or provided that the product candidate has not achieved regulatory approval formarketing and absent obtaining such approval, has no alternative future use. Royalties owed on future sales of any licensedproduct will be expensed in the period the related revenues are recognized.Income TaxesThe Company utilizes the liability method of accounting for income taxes as required by Accounting Standards Codification(ASC) 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences betweenfinancial reporting and the tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be ineffect when the differences are expected to reverse. Currently, there is no provision for income taxes, as the Company hasincurred operating losses to date, and a full valuation allowance has been provided on the net deferred tax assets.Share‑Based CompensationThe Company accounts for share‑based compensation in accordance with the provisions of ASC 718, Compensation — StockCompensation (ASC 718). Accordingly, compensation costs related to equity instruments granted are recognized at thegrant‑date fair value. The Company records forfeitures when they occur. Share‑based compensation arrangements tonon‑employees are accounted for in accordance with the applicable provisions of ASC 718 and ASC 505, Equity, using a fairvalue approach. The compensation costs of these arrangements are subject to re‑measurement as the equity instruments vestand are recognized as expense over the related service period (typically the vesting period of the awards).Common Stock ValuationDue to the absence of an active market for the Company’s common stock prior to the close of the IPO, the Company utilizedmethodologies in accordance with the framework of the American Institute of Certified Public Accountants’ TechnicalPractice Aid, Valuation of Privately‑Held Company Equity Securities Issued as Compensation, to estimate the fair value ofits common stock. The valuation methodology included estimates and assumptions that required the Company’s judgment.These estimates and assumptions included a number of objective and subjective factors, including external marketconditions affecting the biopharmaceutical industry sector, and the likelihood of achieving a liquidity event, such as aninitial public offering or sale. Significant changes to the key assumptions used in the valuations could have resulted indifferent fair values of common stock at each valuation date.Convertible Preferred StockOn March 31, 2015, the Company issued 745,637 shares of Series A convertible preferred stock (the Series A preferred stock).On August 10, 2016, immediately prior to the closing of the IPO, the Company’s Series A preferred stock,118 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued together with accrued dividends thereon, converted into 827,205 shares of common stock. The Series A preferred stock priorto conversion was classified outside of permanent equity, in mezzanine equity, on the Company’s balance sheet. TheCompany initially records preferred stock that may be redeemed at the option of the holder, or based on the occurrence ofevents outside of the Company’s control, at the value of the proceeds received. Subsequently, if it is probable that thepreferred stock will become redeemable, the Company recognizes changes in the redemption value immediately as theyoccur and adjusts the carrying amount of the instrument to equal the redemption value at the end of each reporting period. Ifit is not probable that the preferred stock will become redeemable, the Company does not adjust the carrying value. In theabsence of retained earnings, these charges are recorded against additional paid‑in‑capital, if any, and then to accumulateddeficit. As a result of their conversion to common stock on August 10, 2016 as described above, no shares of Series Apreferred stock were outstanding as of December 31, 2018 and 2017.Segment InformationOperating segments are components of an enterprise for which separate financial information is available and is evaluatedregularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance.The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s Chief Executive Officer viewsthe Company’s operations and manages its business in one operating segment, which is the business of development andcommercialization of therapeutics for the treatment of dyslipidemia, a serious medical condition that increases the risk of lifethreatening cardiovascular disease and NAFLD/NASH. Accordingly, the Company has a single reporting segment.Jumpstart Our Business Startups Act Accounting ElectionAs an emerging growth company under the Jumpstart Our Business Startups Act (JOBS Act), the Company is eligible to takeadvantage of certain exemptions from various reporting requirements that are applicable to other public companies that arenot emerging growth companies. The Company has irrevocably elected not to avail itself of this exemption and, therefore,will be subject to the same new or revised accounting standards as other public companies that are not emerging growthcompanies.Recent Accounting PronouncementsRecently Adopted Accounting Pronouncements In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (Topic 606), which supersedes therevenue recognition requirements in FASB ASC 605. The new guidance primarily states that an entity should recognizerevenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration towhich the entity expects to be entitled in exchange for those goods and services. In January 2017 and September 2017, theFASB issued several amendments to ASU 2014‑09, including updates stemming from SEC Accounting Staff Announcementin July 2017. The amendments and updates included clarification on accounting for principal versus agent considerations(i.e., reporting gross versus net), licenses of intellectual property and identification of performance obligations. Theseamendments and updates do not change the core principle of the standard but provide clarity and implementation guidance.The Company has adopted this standard on January 1, 2018 and selected the modified retrospective transition method. TheCompany modified its accounting policies to reflect the requirements of this standard; however, the planned adoption willnot affect the Company’s financial statements and related disclosures for these periods or future periods until the Companygenerates revenues.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The objectiveof this ASU is to eliminate the diversity in practice related to the classification of restricted cash or restricted cash equivalentsin the statement of cash flows. For public business entities, this ASU is effective for annual and interim reporting periodsbeginning after December 15, 2017, with early adoption permitted. The amendments in this update should be appliedretrospectively to all periods presented. The Company adopted this standard on January 1, 2018 and it did not have amaterial impact on the Company’s financial statements.In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of ModificationAccounting (ASU 2016-09), which provides guidance about which changes to the terms or conditions of a share-based119 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued payment awards require an entity to apply modification accounting in Topic 718. This pronouncement is effective for annualreporting periods beginning after December 15, 2017, with early adoption permitted. The Company has adopted thisstandard on January 1, 2018 and it did not have a material impact on the Company’s financial statements.In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740), that codified the SEC Staff AccountingBulletin 118 (SAB 118) issued on December 22, 2017, which provides guidance on accounting for the tax effects of the TaxCuts and Jobs Act (the TCJA). SAB 118 provides a measurement period that should not extend beyond one year from theenactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company mustreflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To theextent that a company’s accounting for certain income tax effects of the TCJA is incomplete, but for which they are able todetermine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment isproper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the JointCommittee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, itshould continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before theenactment of the TCJA. The Company has applied this guidance to its financial statements and it did not have an impact onthe Company’s financial statements.Recent Accounting Pronouncements Not Yet AdoptedIn January 2016, the FASB issued ASU No. 2016‑01, Financial Instruments — Overall: Recognition and Measurement ofFinancial Assets and Financial Liabilities. The guidance affects the accounting for equity investments, financial liabilitiesunder the fair value option and the presentation and disclosure requirements of financial instruments. The guidance iseffective in the first quarter of fiscal 2019. Early adoption is permitted for the accounting guidance on financial liabilitiesunder the fair value option. The Company is currently evaluating the impact of the new guidance on its financial statements.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequently amended the guidance relatinglargely to transition considerations under the standard in January 2017 and July 2018. The objective of this update is toincrease transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balancesheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning afterDecember 15, 2018, including interim periods within those annual periods. The Company plans to adopt the standard onJanuary 1, 2019, and will apply the modified retrospective approach to each lease in existence at the adoption date. As such,the Company would not restate comparative periods and would recognize any cumulative adjustment to retained earnings onthe date of the adoption. The Company plans to elect the package of practical expedients provided under the standard. TheCompany is in the process of completing an impact analysis over the application of the standard as of the planned adoptiondate. The Company expects to recognize a range of approximately $0.1 million to $0.2 million of lease assets and liabilitieson the balance sheet as of January 1, 2019. The new standard is not expected to have a material impact on the Company'sstatements of comprehensive loss or statements of cash flows. The finalization of our assessment may result in significantchanges to our estimates. In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity andDerivatives and Hedging, which changes the accounting and earnings per share for certain instruments with down roundfeatures. The amendments in this ASU should be applied using a cumulative-effect adjustment as of the beginning of thefiscal year or retrospective adjustment to each period presented and is effective for annual periods beginning afterDecember 15, 2018, and interim periods within those periods. The Company is currently evaluating the requirements of thisnew guidance and has not yet determined its impact on the Company’s financial statements.In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements toNonemployee Share-Based Payment Accounting (ASU 2018-07), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should generally apply therequirements of Topic 718 to nonemployee awards except in circumstances where there is specific guidance on inputs to anoption pricing model and the attribution of cost. ASU 2018-07 specifies that Topic 718 applies to all share-based paymenttransactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuingshare-based payment awards. The guidance also clarifies that Topic 718 does not apply to share-based120 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods orservices to customers as part of a contract accounted for under Topic 606. This guidance is effective for annual reportingperiods beginning after December 15, 2018, with early adoption permitted, but no earlier than an entity’s adoption date ofTopic 606. The Company is currently evaluating the impact of the new guidance on its financial statements.In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes tothe Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The new guidance modifies the disclosurerequirements in Topic 820 as follows: ·Removals: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy fortiming of transfers between levels; and the valuation processes for Level 3 fair value measurements.·Modifications: for investments in certain entities that calculate net asset value, an entity is required to disclose thetiming of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if theinvestee has communicated the timing to the entity or announced the timing publicly; and the amendments clarify thatthe measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of thereporting date.·Additions: the changes in unrealized gains and losses for the period included in other comprehensive income forrecurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average ofsignificant unobservable inputs used to develop Level 3 fair value measurements.This guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average ofsignificant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description ofmeasurement uncertainty should all be applied prospectively for only the most recent interim or annual period presented inthe initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon theireffective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures uponissuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company iscurrently evaluating the impact of the new guidance on its financial statements.3. Accrued LiabilitiesAccrued liabilities consist of the following (in thousands): As of December 31, 2018 2017 Accrued compensation and other payroll liabilities $137 $306 Legal costs 106 91 Accrued interest 43 38 Other research and development expenses 135 522 Other general and administrative expenses 17 53 Total $438 $1,010 On September 18, 2018, the Company’s Board of Directors approved a workforce reduction involving 5 employees (or 33%of the workforce at that time) to lower costs and conserve cash resources in light of the previously announced request by theFDA for additional pre-clinical data. $0.1 million of unpaid severance costs related to the workforce reduction remained inaccrued liabilities as of December 31, 2018 and is included in accrued compensation and other payroll liabilities. 121 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued 4. DebtTerm Loan On January 25, 2019, the Company agreed to prepay in full all outstanding indebtedness under the Loan and SecurityAgreement (the Original Loan Agreement) with Silicon Valley Bank (SVB) dated July 24, 2017 (the “Initial Effective Date”),as amended by the First Amendment, dated July 31, 2018 (the First Amendment and, the Original Loan Agreement, asamended by the First Amendment to Loan and Security Agreement, the Loan Agreement), which prepayment was effectiveJanuary 28, 2019. Upon payoff, any unfunded commitments to make credit extensions or financial accommodations to theCompany terminated, and all security interests and other liens granted to or held by SVB as security for the obligations wereterminated and automatically released, except those that were specified as surviving termination (see Note 16 – SubsequentEvents). This note describes the terms of the Loan Agreement in effect on December 31, 2018 prior to the prepayment. The Loan Agreement established a term loan facility (the Term Loan) in the aggregate principal amount of up to $15,000,000to be funded in up to three tranches. Of such amount, $10,000,000 was funded on the Initial Effective Date. A third tranche of$5,000,000 was available through November 30, 2018 conditioned on the occurrence of certain events and was not drawn bythe Company. Under the Loan Agreement, if a Pre-Clinical Event did not occur on or prior to September 30, 2019 or, if at anytime prior to a Pre-Clinical Event, the Company’s unrestricted cash balance at SVB was less than $18,000,000, the Companywas required to either (i) provide cash security and maintain a cash balance in a restricted account at SVB in an amount notless than 100% of the amounts owed by the Company to SVB or (ii) prepay the Term Loan, including certain fees, in itsentirety. All amounts advanced under the Term Loan would have matured on February 1, 2021. In connection with the First Amendment, the Company issued a warrant to SVB (the Warrant) to purchase 36,000 shares ofthe Company’s common stock at an exercise price of $7.47 per share on July 31, 2018. The Warrant is immediatelyexercisable and has a term of ten years. The exercise price and number and type of shares underlying the Warrant are subjectto adjustment upon specified events, including any stock dividends and splits, reverse stock split, recapitalization,reorganization or similar transaction, as described therein. The Warrant contains a “cashless exercise” feature that allows SVBto exercise the Warrant without a cash payment to the Company, on a net issuance basis, based upon the fair market value ofthe Company’s common stock at the time of exercise, upon the terms set forth therein. The Warrant was deemed to be a free-standing instrument and was accounted for as equity given that there were no variable terms. The Company recorded $0.2million to additional paid-in capital upon issuance with an offset to a discount to the Term Loan. A Black-Scholes pricingmodel was used to estimate the aggregate fair value of the Warrant on the issuance date. Input assumptions used were asfollows: risk-free interest rate of 2.96 percent; expected volatility of 66 percent; expected life of 10 years; and expecteddividend yield of 0 percent. The discount to the Term Loan associated with the Warrant is being amortized as interestexpense over the term of the Loan Agreement and amounted to $33,000 for the year ended December 31, 2018. As of the date of payment on January 28, 2019, the Company had approximately $8.9 million in outstanding borrowings andapproximately $1.0 million in outstanding interest and fees under the Loan Agreement, including the final payment feeequal to 10% of the original aggregate principal amount of the Term Loan funded by SVB and drawn by the Company,which were repaid in full at the time of payment. The obligations, liabilities, covenants, and terms that are expressly specifiedin the Loan Agreement and any other related loan and collateral security documents issued by the Company to SVB inconnection with the transaction evidenced by the Loan Agreement as surviving termination shall continue to survivenotwithstanding the payment, including without limitation, the Company’s indemnity obligations and the Company’sobligation to pay to SVB a success fee of 3.5% of the funded principal amount of the Term Loan in the event any of thefollowing occur on or before 5:00 PM, Eastern time, on July 24, 2024: (a) the Company receives FDA approval for any newdrug application for gemcabene, (b) a sale or other transfer of all or substantially all of the assets of the Company occurs, (c) amerger or consolidation of the Company with or into another person or entity occurs where the holders of the Company’soutstanding voting equity securities immediately prior to such merger or consolidation hold less than a majority of theissued and outstanding voting equity securities of the successor immediately following such transaction or (d) any sale bythe holders of the Company’s outstanding voting equity securities where such holders do not continue to hold at least amajority of the Company’s issued and outstanding voting equity securities immediately following the consummation of suchtransaction. No event requiring payment of the success fee has occurred through the122 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued issuance date of these audited financial statements. Lastly, the Warrant to purchase 36,000 shares (subject to adjustment) ofthe Company’s common stock dated as of July 31, 2018 between the Company and SVB will remain outstanding andexercisable in accordance with its terms. In connection with the First Amendment, the Company was charged $10,000 by SVB and the fee was recorded as a discountto the Term Loan; the discount is being amortized as interest expense over the term of the Loan Agreement and amounted to$2,000 for the year ended December 31, 2018. In addition, the Company incurred $20,000 in third-party legal fees whichwere recorded to general and administrative expense in the accompanying statements of comprehensive loss during the yearended December 31, 2018. The Company was in compliance with the Loan Agreement covenants as of December 31, 2018 and through the repaymentof the Term Loan on January 28, 2019. Interest accrued on the unpaid principal balance at a floating per annum rate equal to the prime rate, except that, following anevent of default, interest would have accrued at a rate up to 5% above the rate that is otherwise applicable. The prime rate ineffect for the year ended December 31, 2018 ranged from 4.5% to 5.5% and the prime rate in effect for the year endedDecember 31, 2017 ranged from 4.25% to 4.5%. Lastly, debt issue costs that were incurred upon the July 2017 issuance ofthe Term Loan in the amount of $0.1 million were recorded as a discount to the Term Loan and were amortized ratably tointerest expense over the term of the loan. The Company recorded in aggregate $0.5 million and $0.3 million interest expense related to the Term Loan for the yearsended December 31, 2018 and 2017, respectively. As of December 31, 2018, minimum aggregate future payments under the Term Loan were as follows (in thousands) prior torepayment in January 2019: December 31, 2019 $4,8262020 4,5792021 1,370Total minimum payments 10,775Amount representing interest and discounts (1,338)Present value of minimum payments 9,437Current portion (9,437)Long-term portion $ - Future minimum interest payments under the Term Loan reflect the 5.5% per annum rate in effect at December 31, 2018 andon the date of repayment in January 2019. Given the intent of the Company to pay-off the Term Loan in January 2019 as ofthe December 31, 2018 balance sheet date, the Company classified the otherwise long-term portion of the Term Loanobligation as a current liability consistent with ASC 210 and other related accounting guidance. See Note 16 – SubsequentEvents. Interim NotesOn July 31, 2015, the Company entered into a convertible interim note financing (collectively with the notes issued inDecember 2015, February 2016 and April 2016, the Interim Notes), pursuant to which certain investors agreed to loan theCompany approximately $2.8 million. On August 10, 2016, immediately prior to the closing of the IPO, the Company’sInterim Notes, together with accrued interest thereon, converted into 1,656,807 shares of common stock.The Interim Notes accrued interest at a rate of 8% per annum, compounded annually, and would automatically convert intoshares issued to investors in the Company’s next equity financing round that results in gross proceeds of at least $5.0 million(a Qualified Financing). The conversion would be equal to unpaid principal at 115% plus any unpaid accrued interest. Theinvestors would be paid out principal at 200% if a change of control occurred before the next123 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued financing round. In the event that a Qualified Financing, change of control, or an IPO did not occur before July 31, 2016, theparties would then negotiate a price for conversion into a new round of stock.In December 2015, the Company amended the Interim Notes and certain investors agreed to loan the Company an additional$2.7 million for a revised financing total of $5.5 million. The Interim Notes continued to accrue interest at an 8% rate perannum compounded annually, but were amended to automatically convert into shares of the same class of the Company’snext convertible preferred stock financing round (the Preferred Stock Financing). The conversion into shares issued in thePreferred Stock Financing would be equal to unpaid principal at 115% plus unpaid accrued interest. In the event that either achange of control occurs or the Company completes a public transaction which results in the Company’s stockholdersholding securities listed on a national securities exchange, including an IPO, before the Preferred Stock Financing, theInterim Notes, as amended, would automatically convert into shares of the Company’s common stock at a conversion price of$6.70585 per share (which represents the original issue price of the Series A preferred stock) based on 100% of outstandingprincipal and unpaid accrued interest. Lastly, if a Preferred Stock Financing, change of control, or public transaction did notoccur before December 31, 2016, the parties agreed to then negotiate a conversion price into a new round of stock.In February 2016, certain investors agreed to loan the Company an additional $0.2 million for a revised financing total of$5.6 million. The Interim Notes continued to accrue interest at an 8% rate per annum compounded annually, but wereamended to automatically convert into shares of the same class of the Company’s next Preferred Stock Financing. Theconversion into shares issued in the Preferred Stock Financing would be equal to unpaid principal at 115% plus unpaidaccrued interest. In the event that either a change of control occurs or the Company completes a public transaction whichresults in the Company’s stockholders holding securities listed on a national securities exchange, including an IPO, beforethe Preferred Stock Financing, the Interim Notes, as amended, would automatically convert into shares of the Company’scommon stock at a conversion price of $6.70585 per share (which represents the original issue price of the Series A preferredstock as adjusted for the Reverse Stock Split) based on 100% of outstanding principal and unpaid accrued interest. Lastly, ifa Preferred Stock Financing, change of control, or public transaction did not occur before December 31, 2016, the partiesagreed to then negotiate a conversion price into a new round of stock.In April 2016, the Company amended the Interim Notes and certain investors agreed to loan the Company an additional$5.0 million for a revised financing total, including Interim Notes previously issued, of $10.6 million. The Interim Notescontinued to accrue interest at an 8% rate per annum compounded annually, but were amended so that 125% of the unpaidprincipal and accrued interest, would automatically convert into shares of the same class of the Company’s next convertiblepreferred stock financing round of at least $5.0 million (the Qualified Financing). In the event that either a change of controloccurs or the Company completes a public transaction which results in the Company’s stockholders holding securities listedon a national securities exchange, including an IPO, before the Qualified Financing, 100% of outstanding principal andunpaid accrued interest on the Interim Notes, as amended, would automatically convert into shares of the Company’scommon stock at a conversion price of $6.70585 per share, as adjusted for the Reverse Stock Split. Lastly, if a QualifiedFinancing, change of control, or public transaction did not occur, the Interim Notes would become payable on demandany time after December 31, 2016. The Company incurred issuance costs related to the April 2016 financing in the amount of$10,000. The Interim Notes were discounted for the issuance costs, and the discount was amortized to interest expense overtheir remaining term using the straight‑line method.On August 10, 2016, immediately prior to the closing of the IPO, the Company’s Interim Notes, together with accrued interestthereon, converted into 1,656,807 shares of common stock. At the time of their issuance, the Interim Notes contained aconversion premium with regard to the conversion into shares at the time of the next Qualified Financing. The Companydetermined that the redemption feature under the Interim Notes qualified as an embedded derivative and was separated fromits debt host. The bifurcation of the embedded derivative from its debt host resulted in a discount to the Interim Notes. Thediscount was amortized to interest expense over the term of the Interim Notes using the straight‑line method. The embeddedderivative was accounted for separately on a fair market value basis. The Company recorded the fair value changes of thepremium conversion derivative associated with the Interim Notes to interest income (expense) that amounted to $0.2 millionfor the year ended December 31, 2016. As a result of the conversion of the Interim Notes, together with accrued interestthereon, into common stock immediately prior to the closing of the IPO on August 10, 2016, there were no Interim Notes orpremium conversion derivatives outstanding as of December 31, 2018, 2017 or 2016.124 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued 5. Commitments and ContingenciesPfizer License AgreementIn April 2011, the Company and Pfizer Inc. (Pfizer) entered into an exclusive license agreement (the Pfizer Agreement) for theclinical product candidate gemcabene. In exchange for this worldwide exclusive right and license to certain patent rights tomake, use, sell, offer for sale and import the clinical product gemcabene, the Company agreed to certain milestone androyalty payments on future sales (See Note 6 — License Agreement). As of December 31, 2018, there was sufficientuncertainty with regard to both the outcome of the clinical trials and the ability to obtain sufficient funding to support any ofthe cash milestone payments under the license agreement, and as such, no liabilities were recorded related to the licenseagreement.Series A Preferred Stock DividendsHolders of the Series A preferred stock were entitled to cumulative accruing dividends at a simple rate of 8% per year on theoriginal issue price of the preferred stock of $6.70585 per share, as adjusted for the Reverse Stock Split. The dividendseffectively accrued daily on each share of preferred stock. The dividends were payable upon the earliest to occur of (1) thedate determined by the Board, (2) the liquidation of the Company (including a deemed liquidation event) or (3) theconversion or redemption of at least a majority of the outstanding shares of Series A preferred stock. If the board reasonablybelieved that the Company was not legally able to pay the dividends in cash at the payment date, or if elected by themajority of the Series A preferred stockholders or if issued in connection with an IPO, the dividends were to be paid in sharesof common stock at the conversion price for the Series A preferred stock in effect at that time, which was the original issueprice of the Series A preferred stock as adjusted from time to time for any stock dividends, combinations, splits orrecapitalizations. Since the dividends were payable upon a contingent event, the Company did not record them in theaccompanying financial statements while outstanding. On August 10, 2016, immediately prior to the closing of the IPO, theCompany’s Series A preferred stock, together with accrued dividends thereon, converted into 827,205 shares of commonstock, and as such, there were no cumulative unpaid dividends for the Series A preferred stock as of December 31, 2018 and2017.Other AgreementsBoth cancellable and non-cancellable facility agreements were in place that provided for fixed monthly rent for the yearsended December 31, 2018, 2017 and 2016. The total rent expense was $0.1 million, $0.1 million and $58,000 for the yearsended December 31, 2018, 2017 and 2016, respectively. In May 2016, the Company entered into a new lease agreement forits headquarters location, commencing in August 2016. The initial term of the agreement is 3 years with an initial monthlybase rent of approximately $8,400 and increasing to approximately $8,900 during the last year of the lease term. Inconjunction with entering into the new lease agreement, the Company cancelled its original Northville, Michigan leaseagreement, as amended, effective August 31, 2016 and renegotiated a new cancellable lease agreement for limited use ofoffice space in the Northville location that expired in September 2017 that had nominal rent.Future minimum lease payments under fixed non-cancellable operating leases that expire on various dates through August2019 consist of the following (in thousands): December 31, 2019 $71Total $71 125 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued Other Commitments and Contingencies In the ordinary course of business, from time to time, the Company may be subject to a broad range of claims and legalproceedings that relate to contractual allegations, patent infringement, employment-related matters and other claims. TheCompany establishes accruals for matters which it believes that losses are probable and can be reasonably estimated.Although it is not possible to predict with certainty the outcome of these matters, the Company is of the opinion that theultimate resolution of these matters will not have a material adverse effect on its results of operations or financial position. 6. License AgreementThe Company is party to the Pfizer Agreement, as amended on August 2, 2018, for a worldwide exclusive license to certainpatent rights and a non-exclusive royalty bearing right and license to certain related data to make, use, develop,commercialize, import and otherwise exploit the clinical product candidate gemcabene. Pfizer retains the right to make, useand import gemcabene solely for internal research purposes. In partial exchange for the rights granted by Pfizer, the Company agreed to issue shares of its common stock to Pfizerrepresenting 15% of the Company’s fully diluted capital at the close of its first arms‑length Series A financing, whichoccurred on March 31, 2015. The Company agreed to make milestone payments totaling up to $37 million upon the achievement of certain milestones,including the first new drug application (or its foreign equivalent) in any country, regulatory approval in each of the UnitedStates, Europe and Japan, the first anniversary of the first regulatory approval in any country, and upon achieving certainaggregate sales levels of gemcabene. Future milestone payments under the Pfizer Agreement, if any, are not expected tobegin for at least several years and extend over a number of subsequent years. The Company also agreed to pay Pfizer tiered royalties on a country‑by‑country basis based upon theannual amount of net sales, as specified in the Pfizer Agreement, until the later of: (a) five (5) years after thefirst commercial sale in such country; (b) the expiration of all regulatory or data exclusivity for gemcabenein such country; and (c) the expiration or abandonment of the last valid claim of the licensed patents,including any patent term extensions or supplemental protection certificates in such country (collectively,the Royalty Term). Under the Pfizer Agreement, the Company is obligated to use commercially reasonableefforts to develop and commercialize gemcabene. On March 31, 2015, upon the closing of the Series A preferred stock financing, the Company issued 675,250 shares of itscommon stock, at a fair market value of $0.9 million, to Pfizer in connection with the first equity payment, pursuant to whichPfizer became the owner of more than 5% of the Company’s capital stock. The transaction was recorded as acquiredin‑process research and development expenses based on the fair value of the common shares issued since no processes oractivities that would constitute a “business” were acquired and none of the rights and underlying assets acquired hadalternative future uses or reached a stage of technological feasibility. None of the other milestone or royalty payments weretriggered as of December 31, 2018. The Pfizer Agreement will expire upon expiration of the last Royalty Term. On expiration (but not earlier termination), theCompany will have a perpetual, exclusive, fully paid-up, royalty-free license under the licensed patent rights and related datato make, use, develop, commercialize, import and otherwise exploit the clinical product candidate gemcabene. Either partymay terminate the Pfizer Agreement for the other party’s material breach following a cure period or immediately upon certaininsolvency events relating to the other party. Pfizer may immediately terminate the Pfizer Agreement in the event that (i) theCompany or any of its affiliates or sublicenses contests or challenges, or supports or assists any third party to contest orchallenge, Pfizer’s ownership of or rights in, or the validity, enforceability or scope of any of the patents licensed under thePfizer Agreement or (ii) the Company or any of its affiliates or sublicensees fails to achieve the first commercial sale in atleast one country by April 16, 2024. Furthermore, upon termination of the Pfizer Agreement by Pfizer for any of the foregoingreasons, the Company grants Pfizer a non-exclusive, fully paid-up, royalty free, worldwide, transferrable, perpetual andirrevocable license to use any intellectual property rights arising from the development or commercialization of gemcabeneby the Company and any trademarks identifying gemcabene and agrees to transfer regulatory filings and approvals to Pfizeror permit Pfizer to cross-126 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued reference and rely on such regulatory filings and approvals for gemcabene. The Company may terminate the LicenseAgreement for convenience upon 90 days’ written notice and payment of an early termination fee. 7. Convertible Series A Preferred StockOn March 31, 2015, the Company issued 745,637 shares of Series A preferred stock at a per share price of $6.70585, asadjusted for the Reverse Stock Split, or $5.0 million in the aggregate, consisting of $1.5 million in cash and $3.5 millionrepresenting 125% of the principal and accrued and unpaid interest on previously issued convertible notes, all of whichconverted into shares of Series A preferred stock. On August 10, 2016, immediately prior to the closing of the IPO, theCompany’s Series A preferred stock, together with accrued dividends thereon, converted into 827,205 shares of commonstock.Prior to their conversion into shares of common stock, the Series A preferred stock had the following rights and preferences:Dividend RightsDividends effectively accrued on a daily basis at a simple rate of 8% per annum on the sum of the original per share issueprice. Dividends were effectively deemed declared daily and were payable upon the occurrence of certain events. In addition,the holders of the Series A preferred stock had rights to participate in common stock dividends, entitling holders of Series Apreferred stock to a dividend payable at the same time as the dividend paid on common stock based on the number of sharesof common stock each share of Series A preferred stock would convert into if such shares had converted on the record date.There were no dividends deemed payable and accrued as of December 31, 2018 or 2017 due to the conversion of the Series Apreferred stock, together with accrued dividends thereon, on August 10, 2016 immediately prior to the closing of the IPO.Voting RightsEach share of Series A preferred stock was entitled to vote together with the common stock on all actions to be taken by thestockholders of the Company, based on the number of shares of common stock into which each share of Series A preferredstock could be converted. A separate vote of a majority of the outstanding shares of Series A preferred stock was required to(1) issue or authorize any class or series of equity securities or equivalents, (2) effect any transaction that results in a changein control, (3) change the principal business of the Company, enter new lines of business, or exit the current line of business,(4) issue of convertible debt above a certain threshold, or (5) materially sell, transfer, license, pledge or encumber technologyor intellectual property. A management stock option plan approved by the board of directors, however, was not subject to aseparate vote of the Series A preferred stockholders, but any subsequent increases to the authorized option pool were subjectto approval by the Series A preferred stock holders via a separate vote.Liquidation RightsIn the event of any liquidation, dissolution, or winding‑up of the Company, whether voluntary or involuntary, merger,consolidation or transaction in which over 50% of the Company’s voting power was transferred, or a sale, lease, transfer,exclusive license or disposition of all or substantially all of the assets of the Company, the Series A preferred stock holderswere entitled to the assets of the Company legally available for distribution before any distribution or payment was made tothe holders of common stock. The distribution amount would have been equal the original issue price of the Series Apreferred stock (as adjusted for any stock dividends, combinations, splits or other recapitalizations since issuance), plus anyaccrued or declared but unpaid dividends thereon. After payment of the full liquidation preference to the Series A preferredstock holders, the remaining assets legally available for distribution would have been distributed to the holders of commonstock and holders of the Series A preferred stock pro rata based on the number of shares of common stock each share ofSeries A preferred stock would convert into if such shares had converted immediately prior to such liquidation, dissolution,or winding‑up.127 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued Conversion RightsShares of Series A preferred stock, at the option of the holder, could have been converted at any time into shares of commonstock. The conversion rate would have been obtained by dividing the Series A preferred stock original issue price of$6.70585 per share, as adjusted for the Reverse Stock Split, by the conversion price per share in effect at the time ofconversion. The Series A conversion price was initially equal to the original issue price, but could be adjusted on abroad‑based weighted average basis in connection with certain dilutive events. The Series A holder was also entitled toreceive additional shares of common stock for any unpaid Series A dividends (whether or not declared).Shares of Series A preferred stock would have automatically converted into common stock based upon the then‑effectiveSeries A conversion price upon the affirmative vote or consent of the holders of at least a majority of the outstanding sharesof the Series A preferred stock, or at the closing of a firmly underwritten public offering.The conversion price for the Series A preferred stock was $6.70585 per share (as adjusted for the Reverse Stock Split) at thetime of the conversion of the Series A preferred stock, together with accrued dividends thereon, immediately prior to theclosing of the IPO on August 10, 2016.Redemption RightsThe holders of at least 80% of the outstanding shares of Series A preferred stock could have required the Company to redeemall outstanding shares of Series A preferred stock at any time on or after December 31, 2020 at a redemption price equal to thegreater of 150% of the liquidation preference of the Series A preferred stock or the fair market value per share plus any unpaiddeclared dividends. The liquidation preference of the Series A preferred stock was defined as an amount per share equal to$6.70585, as adjusted from time to time for any stock dividends, combinations, splits or recapitalizations, plus any accruedor declared but unpaid dividends thereon.The redemption value for redeemable preferred stock could have at times been based on fair market value. The assumptionsused in calculating the estimated fair market value at each reporting period represented the Company’s best estimate,however, inherent uncertainties were involved. As a result, if factors or assumptions changed, the estimated fair value couldhave been materially different.The Company recognized changes in the redemption value immediately as they occurred and adjusted the carrying amountof the instrument to equal the redemption value at the end of each reporting period since it was probable that the instrumentswould have become redeemable. In the absence of retained earnings, these charges were recorded against additionalpaid‑in‑capital, if any, and then to accumulated deficit.The Company evaluated the Series A preferred stock and determined that it was considered an equity host under ASC 815, Derivatives and Hedging. In making this determination, the Company’s analysis followed the whole instrument approachthat compared an individual feature against the entire Series A preferred stock instrument that included that feature. TheCompany’s analysis was based on a consideration of the economic characteristics and risks of the Series A preferred stock.More specifically, the Company evaluated all of the stated and implied substantive terms and features of the Series Apreferred stock, including: (1) redemption features and their underlying exercisability, (2) existence of any protectivecovenants, (3) nature of dividends rights, (4) nature of voting rights, and (5) the existence and nature of any conversionrights. As a result of the above, the Company concluded that the Series A preferred stock represented an equity host, and assuch, the redemption and/or conversion features of the Series A preferred stock were considered to be clearly and closelyrelated to the associated Series A preferred stock host instrument. Accordingly, the redemption and/or conversion features ofthe Series A preferred stock were not considered an embedded derivative that required bifurcation.128 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued 8. Stockholders’ Equity (Deficit)Common StockThe Company had 14,265,411 and 10,633,042 shares of its common stock issued and outstanding as of December 31, 2018and December 31, 2017, respectively. Voting, dividend and liquidation rights of the holders of the common stock are subjectto the Company’s articles of incorporation, corporate bylaws and underlying shareholder agreements. In the first quarter of 2018, the Company completed the Follow-On Offering of 3,592,858 shares of common stock whichincludes 450,000 shares of common stock purchased by the underwriters upon the partial exercise of their overallotmentoption, at the public offering price of $7.00 per share. The Company received net proceeds of approximately $23.1 millionafter deducting underwriting discounts and commissions and offering expenses. The costs incurred related to the Follow-OnOffering were $2.1 million through December 31, 2018. On March 15, 2017, the Company issued and sold 1,324,256 units at a price of $9.47 per unit for gross proceeds ofapproximately $12.5 million in connection with the Private Placement. Each unit consisted of one share of the Company’scommon stock and a warrant to purchase 0.75 shares of common stock. The Company received net proceeds ofapproximately $11.3 million after deducting underwriting discounts and commissions and offering expenses. Offering costsincurred related to the 2017 Private Placement were $1.3 million. Warrants In connection with the Private Placement, the Company issued warrants to the investors participating in the financing topurchase an additional 993,204 shares of common stock. The warrants have a term of five years and were exercisableimmediately upon issuance with an exercise price equal to $10.40 per share. The warrants were classified as additional paid-in capital and recorded based on their relative fair value to the underlying common shares issued in the Private Placement.The fair market value of the warrants was approximately $4.9 million. The warrants were valued using the Black-Scholespricing model with the following assumptions: a risk-free interest rate of 2.0%, a contractual term of five years, zero dividendyield and a volatility factor of 65.1%. In connection with the First Amendment, the Company issued a warrant to SVB to purchase an additional 36,000 shares ofcommon stock on July 31, 2018 (See Note 4 – Debt). During the years ended December 31, 2018 and 2017, zero and 15,000 warrants were exercised, respectively. As of December31, 2018 and December 31, 2017, warrants to purchase 1,014,204 and 978,204 shares of common stock were outstanding,respectively. Dividend RightsCommon stock holders are entitled to receive dividends at the sole discretion of the board of directors of the Company. Therehave been no dividends declared on common stock as of December 31, 2018.Voting RightsThe holders of common stock are entitled to one vote for each share of common stock along with all other classes and seriesof stock of the Company on all actions to be taken by the stockholders of the Company, including actions that would amendthe certificate of incorporation of the Company to increase the number of authorized shares of the common stock.Liquidation RightsIn the event of any liquidation, dissolution, or winding‑up of the Company, the holders of common stock shall be entitled toshare in the remaining assets of the Company available for distribution post preferential distributions made to holders of theCompany’s preferred stock. There was no preferred stock outstanding as of December 31, 2018 and 2017.129 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued Deferred Offering CostsThere were $21,000 of deferred offering costs capitalized at December 31, 2017 related to the Private Placement. There wereno deferred offering costs capitalized as of December 31, 2018. 9. Share‑Based CompensationShare-based compensation expense was included in general and administrative and research and development costs asfollows in the accompanying statements of comprehensive loss (in thousands): Year Ended December 31, 2018 2017 2016 General and administrative $2,378 $4,091 $1,166 Research and development 1,753 1,182 552 Total share-based compensation $4,131 $5,273 $1,718 Restricted Stock AwardsDuring the years ended December 31, 2018, 2017 and 2016, the Company did not grant any restricted stock awards (RSAs).Previously granted RSAs were subject to various vesting schedules and generally vested ratably over a six to twenty fourmonth period coinciding with their respective service periods. During the years ended December 31, 2018, 2017 and 2016,no RSAs were forfeited.A summary of RSA grant activity is as follows: Number of Weighted-Average Shares Fair Value (per share) Non‑vested at December 31, 2015 348,093 $0.09Granted — $—Vested (344,084) $0.09Non‑vested at December 31, 2016 4,009 $0.21Granted — $—Vested (4,009) $0.21Non‑vested at December 31, 2017 — $—Granted — $—Vested — $—Non‑vested at December 31, 2018 — $— Grant date fair market value for the RSAs issued prior to the IPO was based on traditional valuation techniques and methodsin determining the fair value of the Company’s equity as a private company including market, income, and cost valuationapproaches. A number of objective and subjective factors were considered including contemporaneous and retrospectivevaluations of its common stock performed by an unrelated valuation specialist, sales of the Company’s convertible preferredstock to unrelated third parties, valuations of comparable peer public companies, the lack of liquidity of the Company’scapital stock and general and industry‑specific economic outlook. The fair value of the Company’s common stock wasdetermined by the Company’s board of directors prior to the IPO.Stock OptionsIn April 2015, the Company adopted a 2015 Equity Incentive Plan (the 2015 Plan) under which 320,615 shares of theCompany’s common stock were reserved for issuance to employees, directors and consultants. The 2015 Plan permits thegrant of incentive and non‑statutory stock options, appreciation rights, restricted stock, restricted stock units, performancestock and cash awards, and other stock‑based awards.130 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued Amendment and Restatement of 2015 Equity Incentive PlanIn April 2016 the Company’s board of directors approved the Company’s amended and restated 2015 Plan (the A&R 2015Plan). The A&R 2015 Plan became effective immediately upon the execution and delivery of the underwriting agreementrelated to the IPO. The A&R 2015 Plan provides for the grant of stock options, stock appreciation rights, restricted stockawards, restricted stock unit awards, performance-based stock awards and other forms of equity awards, as well as performancecash awards. The Company initially reserved 2,400,000 shares of common stock for issuance under the A&R 2015 Plan.During the years ended December 31, 2018, 2017 and 2016, the Company granted an aggregate of 772,000, 150,500 and1,825,700, respectively, of stock options under the A&R 2015 Plan or the 2015 Plan to its officers, directors, employees andconsultants, generally vesting over a three or four-year period.Inducement PlanIn September 2016 the Company’s board of directors approved the Company’s Inducement Plan (the Inducement Plan). TheCompany initially reserved 300,000 shares of its common stock to be used exclusively for grants of awards to individualswho were not previously employees or directors of the Company, as an inducement material to the individual’s entry intoemployment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The Plan was approvedby the Company’s board of directors without stockholder approval pursuant to Rule 5635(c)(4), and the terms and conditionsof the Plan are substantially similar to the Company’s stockholder-approved A&R 2015 Plan. During the years endedDecember 31, 2018, 2017 and 2016 was 50,000, 98,000 and 198,000 stock options to newly-hired officers and employeeswere granted, respectively, under the Inducement Plan, generally vesting over a four-year period.The following table summarizes the Company’s stock option plan activity for the years ended December 31, 2018, 2017 and2016 as follows: Weighted‑ Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Options Price Term (years) Value(1) Outstanding at December 31, 2015 302,842 $2.43 9.60 $1,031,000 Granted 2,023,700 $10.07 — — Exercised — $— — — Forfeited/Cancelled (83,742) $9.12 — — Outstanding at December 31, 2016 2,242,800 $9.07 9.48 $(2,759,000) Granted 248,500 $12.24 — — Exercised (23,910) $1.92 — — Forfeited/Cancelled (3,250) $1.34 — — Outstanding at December 31, 2017 2,464,140 $9.46 8.58 $(3,715,000) Granted 822,000 $8.24 — — Exercised (40,398) $2.25 — — Forfeited/Cancelled (444,968) $10.61 — — Outstanding at December 31, 2018 2,800,774 $9.02 7.96 $(22,994,287) Vested and exercisable at December 31,2018 1,812,181 $9.15 7.72 $(15,120,294) Vested and expected to vest at December31, 2018 2,800,774 $9.02 7.96 $(22,994,287) (1)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying optionsand the fair value of our common stock as of December 31, 2018, 2017 and 2016 of $0.81, $7.95 and $7.84 pershare, respectively.131 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued The weighted average fair value per share of options granted during the years ended December 31, 2018, 2017 and 2016 was$5.07, $7.35 and $6.37, respectively.The Company measures the fair value of stock options with service‑based and performance‑based vesting criteria toemployees, consultants and directors on the date of grant using the Black‑Scholes option pricing model. The fair value ofequity instruments issued to non‑employees is re‑measured as the award vests. The Company does not have history tosupport a calculation of volatility and expected term. As such, the Company has used a weighted‑average volatilityconsidering the volatilities of several guideline companies.For purposes of identifying similar entities, the Company considered characteristics such as industry, length of tradinghistory, and stage of life cycle. The assumed dividend yield was based on the Company’s expectation of not payingdividends in the foreseeable future. The average expected life of the options was determined based on the mid‑point betweenthe vesting date and the end of the contractual term according to the “simplified method” as described in Staff AccountingBulletin 110. The risk‑free interest rate is determined by reference to implied yields available from U.S. Treasury securitieswith a remaining term equal to the expected life assumed at the date of grant. The Company records forfeitures when theyoccur.The weighted‑average assumptions used in the Black‑Scholes option‑pricing model are as follows: Year Ended December 31, 2018 2017 2016 Expected stock price volatility 66.3% 65.8% 71.447% Expected life of options (years) 5.8 5.9 6.02 Expected dividend yield 0% 0% 0% Risk free interest rate 2.7% 2.0% 1.2% During the years ended December 31, 2018, 2017 and 2016, 709,521, 861,645 and 276,248 stock options vested,respectively. The weighted average fair value per share of options vesting during the years ended December 31, 2018, 2017and 2016 was $6.15, $5.99 and $4.59, respectively. During the years ended December 31, 2018, 2017 and 2016,444,968, 3,250, and 83,742 stock options were forfeited, respectively. As of December 31, 2018, 701,261 shares wereavailable for future issuance under the A&R 2015 and Inducement Plans.Under the A&R 2015 Plan, common shares reserved automatically increase on January 1 of each year, for a period of 10years commencing on January 1, 2017 and ending on (and including) January 1, 2026, to an amount equal to 20% of theCompany’s fully-diluted shares as of December 31st of the preceding calendar year. Notwithstanding the foregoing, theCompany’s board of directors may act prior to January 1st of a given year to provide that there will be no January 1st increasein the shares reserved for such year, or that the increase in shares reserved for such year will be a lesser number of shares thanwhat would have otherwise been allowed to occur under the provision. Effective January 1, 2018, 415,077 shares were addedto the A&R 2015 Plan under the share reserve provision. There were no shares added to the A&R 2015 Plan under the sharereserve provision during fiscal year 2017 or 2016. Effective January 1, 2019, 501,001 shares were added to the A&R 2015Plan under the share reserve provision. See Note 16 – Subsequent Events.Unrecognized share‑based compensation cost for the RSAs and stock options issued under the Company’s 2014 ShareholdersAgreement, A&R 2015 Plan and Inducement Plan was $3.9 million as of December 31, 2018. All of the unrecognizedcompensation cost was related to the stock options. The non‑employee portion of the unrecognized compensation cost wasestimated utilizing the Company’s fair market value for its common stock as of December 31, 2018. The unrecognizedshare‑based expense is expected to be recognized over a weighted average period of 1.5 years.Adoption of 2016 Employee Stock Purchase PlanIn April 2016 the Company’s board of directors approved the 2016 Employee Stock Purchase Plan (the ESPP) in order toenable eligible employees to purchase shares of the Company’s common stock at a discount following the effective date132 stTable of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued of the IPO. The Company’s stockholders also approved the ESPP in April 2016 and the ESPP became effective immediatelyupon the execution and delivery of the underwriting agreement related to the IPO. The Company initially reserved 150,000shares of common stock for issuance under the ESPP. As of December 31, 2018, no shares were purchased under the ESPP. 10. Net Loss Per Common ShareBasic earnings or loss per share of common stock is computed by dividing net loss by the weighted average number of sharesof common stock outstanding during the period. The holders of the Series A preferred stock had rights to participate incommon stock dividends, entitling the holders of Series A preferred stock to a dividend payable at the same time and rate pershare as the dividend paid on common stock based the number of shares of common stock each share of Series A preferredstock would have converted into if such shares had converted on the record date. The Series A preferred stock, however, didnot have a contractual obligation to share in the losses of the Company, and as such, no losses were allocated to the Series Apreferred stock for the purposes of the basic loss per share calculation while they were outstanding.Diluted earnings or loss per share of common stock is computed similarly to basic earnings or loss per share except theweighted average shares outstanding are increased to include additional shares from the assumed exercise of any commonstock equivalents, if dilutive. The Company’s RSAs, stock options, warrants, shares of Series A preferred stock, andconvertible notes are considered common stock equivalents while outstanding for this purpose. Diluted earnings is computedutilizing the treasury stock method for the RSAs, stock options and warrants, and in the case of the Series A preferred stock,either the two‑class method or the if‑converted method, whichever was more dilutive. No incremental common stockequivalents were included in calculating diluted loss per share because such inclusion would be anti‑dilutive given the netloss reported for the years ended December 31, 2018, 2017 and 2016. The following table sets forth the computation of basicand diluted loss per share as of December 31, 2018, 2017 and 2016 (in thousands, except share and per share amounts): Year Ended 2018 2017 2016 Numerator: Net loss $(23,637) $(33,415) $(14,586) Adjustment to redemption value on Series A convertible preferred stock — — (366) Net loss attributed to common stock holders $(23,637) $(33,415) $(14,952) Denominator: Basic and diluted weighted average common shares outstanding 13,805,552 10,349,136 5,809,396 Basic and diluted net loss per share $(1.71) $(3.23) $(2.57) The following potential common shares were not considered in the computation of diluted net loss per share as their effectwould have been anti‑dilutive: Year Ended 2018 2017 2016 Stock options 2,800,774 2,464,140 2,242,800 Restricted stock awards — — 4,009 Warrants 1,014,204 978,204 — Series A — — — Convertible notes — — — 11. Fair Value MeasurementsThe Company follows accounting guidance that emphasizes that fair value is a market‑based measurement, not an entityspecific measurement. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a133 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued liability in an orderly transaction between market participants at the measurement date.” Fair value measurements are definedon a three level hierarchy:Level 1 inputs: Unadjusted quoted prices for identical assets or liabilities in active markets;Level 2 inputs: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active,or inputs which are observable, weather directly or indirectly, for substantially the full term of the asset or liability;Level 3 inputs: Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participantswould use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at themeasurement date.As of December 31, 2018 and 2017, the fair values of cash and cash equivalents, prepaids, other assets, accounts payable andaccrued liabilities approximated their carrying values because of the short‑term nature of these assets or liabilities. Theestimated fair value of the Company’s Interim Notes prior to conversion upon the close of the IPO, and Term Loan was basedon amortized cost which was deemed to approximate fair value. The derivative liability associated with the conversionpremium on the Interim Notes while outstanding was based on cash flow models discounted at current implied market ratesevidenced in recent arms‑length transactions representing expected returns by market participants for similar instrumentswhich were based on Level 3 inputs.The following table provides a roll‑forward of the Company’s premium conversion derivative liabilities measured at fairvalue on a recurring basis using unobservable level 3 inputs (in thousands): For the Year EndedDecember 31, 2018 2017 2016 Balance as of beginning of period $ — $ — $345 Issuance of underlying convertible notes — — 505 Change in fair value of premium conversion derivative — — (850) Reversal of premium conversion derivative associated with note extinguishment — — — Redemption of underlying convertible notes — — — Balance as of end of period $ — $ — $ — There were no financial instruments measured on a recurring basis as of December 31, 2018 and 2017 and on a non‑recurringbasis for any of the periods presented.12. Income TaxesOn December 22, 2017, the Tax Cuts and Jobs Act (the TCJA), which significantly modified U.S. corporate income tax law,was signed into law by President Trump. The TCJA contains significant changes to corporate income taxation, including butnot limited to the reduction of the corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, limitationof the tax deduction for interest expense to 30% of earnings (except for certain small businesses), limitation of the deductionfor net operating losses to 80% of current year taxable income and generally eliminating net operating loss carrybacks,allowing net operating losses to carryforward without expiration, one-time taxation of offshore earnings at reduced ratesregardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain importantexceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, andmodifying or repealing many business deductions and credits (including changes to the orphan drug tax credit and changesto the deductibility of research and experimental expenditures that will be effective in the future). This revaluation resultedin a reduction to the Company’s deferred tax asset of $6.8 million as of December 31, 2017. This amount was offset by acorresponding reduction to the Company’s valuation allowance. The other provisions of the TCJA did not have a materialimpact on the December 31, 2017 financial statements. The Company’s final determination of the TCJA impact and theremeasurement of its deferred assets and liabilities was completed prior to the deadline of one year from the enactment of theTCJA. For the year ended December 31, 2018, there were no material changes to the analysis originally performed as ofDecember 31, 2017. 134 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued The effective tax rate for the years ended December 31, 2018, 2017 and 2016 was zero percent. A reconciliation of incometax computed at the statutory federal income tax rate to the provision (benefit) for income taxes included in theaccompanying statements of comprehensive loss is as follows: For the Year Ended December 31, 2018 2017 2016 Income tax (benefit) provision at federal statutory rate (21.0)% (34.0)% (34.0)%Valuation allowance 28.2 21.0 40.2 U.S. tax reform - 20.2 — State income tax, net of federal benefit (4.8) (4.1) (4.7) Convertible notes — — 1.1 Research credits (3.0) (3.6) (4.0) Other 0.6 0.5 1.4 Effective tax rate —% —% —% Significant components of the Company’s deferred tax assets and liabilities are summarized in the tables below as of (inthousands): Year Ended December 31,Deferred tax assets: 2018 2017Federal and state operating loss carryforwards $5,073 $3,349Research and development costs deferral election 12,264 8,881Acquired intangibles 235 235Term loan — 33Charitable contributions 21 14Stock-based compensation 2,618 1,722Research and development credit carryforwards 2,655 1,947 22,866 16,181Valuation allowance (22,866) (16,181)Total deferred tax assets, net of valuation allowance — —Deferred tax liabilities: Total deferred tax liabilities — —Net deferred tax assets $— $— As of December 31, 2018 and 2017, the Company had gross deferred tax assets of approximately $22.9 million and$16.2 million, respectively. Realization of the deferred assets is primarily dependent upon future taxable income, if any, theamount and timing of which are uncertain. The Company has had significant pre‑tax losses since its inception. The Companyhas not yet generated revenues and faces significant challenges to becoming profitable. Accordingly, the net deferred taxassets have been fully offset by a valuation allowance of $22.9 million and $16.2 million as of December 31, 2018 and 2017,respectively. U.S. net deferred tax assets will continue to require a valuation allowance until the Company can demonstratetheir realizability through sustained profitability or another source of income.As of December 31, 2018 and 2017, the tax effect of the Company’s federal net operating loss carryforwards wasapproximately $4.2 million and $2.8 million, respectively. The Company had federal research credit carryforwards as ofDecember 31, 2018 and 2017 of approximately $2.6 million and $1.9 million, respectively. The federal net operating lossincurred prior to January 1, 2018 and tax credit carryforwards will begin to expire in 2034 if not utilized. Federal netoperating losses incurred after December 31, 2017 will not expire. As of December 31, 2018 and 2017, the Company hadstate net operating loss carryforwards with a tax effect of approximately $0.9 million and $0.6 million, respectively. TheCompany had state research credit carryforwards of $0.1 million and $45,000 as of December 31, 2018 and 2017,respectively. The state net operating loss carryforwards will begin to expire in 2026, if not utilized, and the state researchcredit carryforwards will begin to expire in 2023 if not utilized. Recent tax reform legislation has significantly revised therules applicable to the utilization of net operating losses for tax years either beginning or ending after January 1, 2018.Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to theownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar135 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued state provisions. Generally, in addition to certain entity reorganizations, the limitation applies when one or more “5-percentshareholders” increase their ownership, in the aggregate, by more than 50 percentage points over a 36‑month time periodtesting period, or beginning the day after the most recent ownership change, if shorter. The annual limitation may result inthe expiration of net operating losses and credits before utilization.The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There were nouncertain tax positions as of December 31, 2018 and 2017, and as such, no interest or penalties were recorded to income taxexpense.The Company’s corporate returns are subject to examination beginning with the 2015 tax year for federal and in various statejurisdictions.13. Supplementary Data — Quarterly Financial Data (unaudited)The following table presents certain unaudited quarterly financial information for each of the eight fiscal quarters in theperiod ended December 31, 2018. This quarterly information has been prepared on the same basis as the audited financialstatements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation ofthe information for the periods presented. The results for these quarterly periods are not necessarily indicative of theoperating results for a full year or any future period. Three Months Ended December31, September30, June 30, March 31, 2018 (B) 2018 (B) 2018 2018 (in thousands, except per share amounts)Operating expenses: General and administrative $1,468 $2,364 $2,574 $2,087Research and development 1,833 3,542 3,960 4,977Total operating expenses 3,301 5,906 6,534 7,064Loss from operations (3,301) (5,906) (6,534) (7,064)Interest expense (178) (172) (144) (160)Other expense (177) (1) — —Loss before income taxes (3,656) (6,079) (6,678) (7,224)Provision (benefit) for income taxes — — — —Net loss (3,656) (6,079) (6,678) (7,224)Other comprehensive loss, net of tax — — — —Comprehensive loss $(3,656) $(6,079) $(6,678) $(7,224)Net loss per share: Basic and diluted (A) $(0.26) $(0.43) $(0.47) $(0.58) Three Months Ended December31, September30, June 30, March 31, 2017 2017 2017 2017 (in thousands, except per share amounts)Operating expenses: General and administrative $1,487 $2,050 $4,678 $2,223Research and development 5,080 6,489 5,837 5,280Total operating expenses 6,567 8,539 10,515 7,503Loss from operations (6,567) (8,539) (10,515) (7,503)Interest (expense) income (179) (132) 13 12Other expense — — — (5)Loss before income taxes (6,746) (8,671) (10,502) (7,496)Provision (benefit) for income taxes — — — —Net loss (6,746) (8,671) (10,502) (7,496)Other comprehensive loss, net of tax — — — —Comprehensive loss $(6,746) $(8,671) $(10,502) $(7,496)Net loss per share: Basic and diluted (A) $(0.63) $(0.82) $(0.99) $(0.79)(A)Net loss per share for the year may not equal the sum of the four historical quarters loss per share due to changes inweighted-average shares outstanding. (B)On September 18, 2018, the Company’s Board of Directors approved a workforce reduction involving 5 employees(or 33% of the workforce at that time) to lower costs and conserve cash resources in light of the previouslyannounced request by the FDA for additional pre-clinical data required in order to schedule an End of Phase 2(EOP2) meeting for gemcabene in the Company’s target indications. Related expenses recognized during the yearended December 31, 2018 totaled approximately $1.6 million, largely in the third quarter, of136 Table of ContentsGemphire Therapeutics Inc.Notes to Financial Statements - continued which approximately $0.6 million was recorded as general and administrative expense and $1.0 million wasrecorded as research and development expense. 14. Related Party TransactionsThe Company rented an office in Northville, Michigan from an LLC owned by two officers under short‑term agreementsduring the years ended December 31, 2017, 2016 and 2015. The original facility lease, as amended, was cancelled andreplaced with a cancellable lease agreement in August 2016 for limited use of office space in the same Northville location.The new lease agreement became effective in August 2016 and expired in September 2017. Rent expense under the relatedparty agreements was nominal during the year ended December 31, 2017 and was $21,000 and $23,000 during the yearsended December 31, 2016 and 2015, respectively. There was no rent expense under the related party agreements during theyear ended December 31, 2018. In February 2016, the Company issued an additional $0.2 million of Interim Notes, which included two notes issued to twoboard members (or entities they control) in the amount of $81,000. The February 2016 Interim Note issuances also included a$20,000 note to an investor who is related to an officer of the Company. The Interim Note were converted upon the close ofthe IPO.In April 2016, the Company issued an additional $5.0 million of Interim Notes, which included two notes to investors whowere related to two of the Company’s officers in the aggregate amount of $0.2 million. The April 2016 Interim Notesissuances also included three notes to investors who were related to three of the Company’s directors in the aggregate amountof $2.3 million. The Interim Note were converted upon the close of the IPO.The IPO included 154,450 shares sold to 5 officers and 3 board members, totaling $1.5 million. In addition, 500,000 shareswere sold to 1 investor who is related to 1 of the Company’s directors, totaling $5.0 million, and 47,000 shares totaling $0.5million were sold to 14 investors who are related to 5 officers of the Company.The Private Placement included 56,678 units sold to three board members, for aggregate proceeds totaling approximately$0.5 million, and 52,798 units sold to one investor who was related to one board member, for proceeds totalingapproximately $0.5 million. In the first quarter of 2018, in connection with the Follow-On Offering of 3,592,858 shares of common stock, the offeringincluded 14,286 shares sold to 1 officer, for aggregate proceeds totaling approximately $0.1 million and 71,429 shares soldto 1 investor who is an affiliate of 1 officer and board member, for proceeds totaling approximately $0.5 million. 15. Defined Contribution PlanThe Company adopted a 401(k) defined contribution plan on September 5, 2017, effective as of January 1, 2017, for allemployees over age 21. Employees can defer up to 100% of their compensation through payroll withholdings into the plansubject to federal law limits. Effective January 1, 2018, the Company began matching contributions on deferrals at 100% ofdeferrals up to 3% of one’s contributions and 50% on deferrals over 3%, but not exceeding 5% of one’s contributions inorder to satisfy certain non-discrimination tests required by the Internal Revenue Code. Employee contributions and anyemployer matching contributions made to satisfy certain non-discrimination tests required by the Internal Revenue Code are100% vested upon contribution. Discretionary employer matches vest over a six-year period beginning on the secondanniversary of an employee’s date of hire. The amount of matching contributions made during the years ended December 31,2018 and 2017 was $0.1 million and zero, respectively.16. Subsequent EventsTerm LoanEffective January 28, 2019, the Company prepaid in full all outstanding indebtedness under the Term Loan. As of the date ofrepayment, the Company had approximately $8.9 million in principal and interest outstanding as well as a final payment feedue of $1.0 million. Upon repayment, approximately $0.8 million of unamortized note discounts were recognized as interestexpense. See Note 4 – Debt for further information relating to the Term Loan.A&R 2015 PlanEffective January 1, 2019, 501,001 shares were added to the A&R 2015 Plan under the share reserve provision. See Note 9 –Share-Based Compensation. 137 Table of Contents ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURENone ITEM 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose inour Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicated to our management, including our ChiefExecutive Officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.We design and evaluate our disclosure controls and procedures recognizing that any controls and procedures, no matter howwell designed and operated, can provide only reasonable assurance and not absolute assurance of achieving the desiredcontrol objectives. Also, the design of a control system must reflect the fact that there are resource constraints and thebenefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that allcontrol issues and instances of fraud, if any, have been detected. These inherent limitations include the realities thatjudgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design ofany system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be noassurance that any design will succeed in achieving its stated goals under all potential future conditions.Under the supervision of and with the participation of our management, including our Chief Executive Officer and principalfinancial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules13a-15(e) and 15(d)- 15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as ofDecember 31, 2018. Based on this evaluation, our Chief Executive Officer and principal financial officer concluded that ourdisclosure controls and procedures were effective as of December 31, 2018.Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting toprovide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statementsfor external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financialreporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accountingprinciples, and that our receipts and expenditures are being made only in accordance with authorizations of our managementand Board; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, useor disposition of our assets that could have a material effect on the financial statements. Our management, including our Chief Executive Officer and principal financial officer (the “Certifying Officer”), recognizesthat our internal control over financial reporting cannot prevent or detect all error and all fraud. A control system, no matterhow well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectiveswill be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controlsmust be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues andinstances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptionsabout the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions. 138 Table of ContentsManagement, with the participation of the Certifying Officer, assessed our internal control over financial reporting as ofDecember 31, 2018, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based onthis assessment, management has concluded that our internal control over financial reporting was effective as of December31, 2018. This Report does not include an attestation report of our independent registered public accounting firm regarding internalcontrol over financial reporting. Management’s report was not subject to attestation by our independent registered publicaccounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Report on Form 10-K. Changes in Internal Control Over Financial ReportingThere were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)during the quarter ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting. ITEM 9B.OTHER INFORMATION None PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe Board is divided into three classes. Members of each class serve staggered three-year terms. The following tableprovides information as to each person who is, as of the filing hereof, a director and/or executive officer of the Company: NAMEAGEPOSITION(S)Dr. Steven Gullans66President, Chief Executive Officer and DirectorDr. Charles L. Bisgaier65Chief Scientific Officer and Chairman of the BoardSeth Reno52Chief Commercial OfficerPedro Lichtinger64DirectorAndrew Sassine55DirectorKenneth Kousky64Director Business Experience and Background of Directors and Executive Officers Dr. Steven Gullans has been our President and Chief Executive Officer since May 2018 and has served as a memberof our Board since April 2016. Prior to his appointment as CEO, he served as the Company’s Interim President and ChiefExecutive Officer from May 2017 until May 2018. As CEO, Dr. Gullans oversees the daily operations of the Company andmanages the executive team including the CFO, CSO, CMO, CCO, and VP of Manufacturing who report to him. Hisresponsibilities include oversight of activities related to clinical trials, manufacturing, finances, business development, R&Dand intellectual property. He communicates regularly with the Board of Directors about the status of the Company and futureplans. He previously served as Managing Director at Excel Venture Management, LLC (Excel), a Boston-based venturecapital firm which he co-founded and where he was employed from February 2008 through May 2018. At Excel, he focusedon investing in life science technology companies with a particular interest in disruptive platforms that can impact multipleindustries. Prior to Excel, Dr. Gullans co-founded RxGen, Inc., a pharmaceutical services company where he served as chiefexecutive officer from January 2004 to February 2008. Dr. Gullans is currently a director at Orionis Biosciences, a drugdevelopment company. He was previously a board member of Activate Networks, Inc. which was acquired by DecisionResource Group, BioTrove, Inc. which was acquired by Life Technologies139 Table of ContentsCorporation, Biocius Life Sciences, Inc. which was acquired by Agilent Technologies Inc., Cleveland HeartLab, Inc., whichwas acquired by Quest Diagnostics, N-of-One, Inc. which was acquired by Oiagen, Inc., nanoMR Inc. which was acquired byDNA Electronics Ltd, Tetraphase Pharmaceuticals, Inc. which went public in 2013, and Molecular Templates, Inc. which wasmerged into a public entity in 2017. Dr. Gullans was a faculty member at Harvard Medical School and Brigham and Women'sHospital for almost 20 years. Dr. Gullans holds a B.S. from Union College and a Ph.D. from Duke University. Our Boardbelieves Dr. Gullans should serve as a director based on his extensive experience in the life sciences industry and his boardand CEO experience. Dr. Charles Bisgaier, one of our co-founders, has served as our Chief Scientific Officer and Chairman of our Boardsince November 2014. He also currently serves as an Adjunct Associate Professor of Pharmacology at the University ofMichigan. Prior to our founding, he served from September 2008 to November 2014 as the Chief Executive Manager for ourpredecessor, Michigan Life Therapeutics, LLC. In addition, he co-founded Michigan Life Ventures, LLC, a venture capitalfirm investing primarily in Michigan-based life sciences companies, where since 2008 he has served as the Chief ExecutiveManager. He also served as the Interim President and Chief Executive Officer of ProNAi Therapeutics, Inc., currently knownas Sierra Oncology, a clinical-stage oncology company, from September 2010 to April 2012, and as a member of its board ofdirectors from 2009 to March 2014. In 1998, Dr. Bisgaier co-founded the original Esperion, which was acquired by Pfizer in2003. After the acquisition, he served as the Senior Director of Pharmacology for the Esperion Division of Pfizer GlobalResearch and Development from 2004 to 2006. From 2006 to 2008, Dr. Bisgaier also served as a director, board member andpresident of Pipex Pharmaceuticals, Inc., currently known as Synthetic Biologics, Inc., a specialty pharmaceutical company.From 1990 to 1998, Dr. Bisgaier was an Associate Research Fellow in the Department of Cardiovascular Diseases in theParke-Davis division of Warner-Lambert Co. Currently he is a board member at Hygieia, Inc., a privately held health servicecompany, at BioSavita Inc., a privately held life sciences company, and at Diapin Therapeutics LLC, a privately held lifesciences company and an advisor to Imagine Pharma, LLC, a privately held healthcare pharmaceutical company. He receiveda B.A. in biology from the State University of New York at Oneonta and an M.S. and Ph.D. in biochemistry from GeorgeWashington University. After receiving his Ph.D., he studied lipoprotein metabolism within the Specialized Center ofResearch for atherosclerosis at Columbia University College of Physicians and Surgeons. Our Board believes Dr. Bisgaiershould serve as a director based on his depth of experience in founding and developing biopharmaceutical companies as wellas his knowledge of our product candidate gemcabene.Seth Reno has served as our Chief Commercial Officer since August 2015. Prior to joining us, he served in severalcommercial roles including Head of Commercial Operations for Medimmune, LLC, a biologics company, from June 2010 toApril 2015. From April 2001 to June 2010, Mr. Reno worked at AstraZeneca, a public biopharmaceutical company, in anumber of roles, including in the sales, commercial operations, managed markets and brand team spaces. Prior to joiningAstraZeneca in 2001, Mr. Reno spent 11 years at Wyeth Pharmaceuticals, Inc., a pharmaceutical company, in commercialoperations and sales account management. Mr. Reno holds a B.S. in human resources from the University of Delaware and anM.B.A. from Strayer University. Pedro Lichtinger has served as a member of our Board since December 2015. Mr. Lichtinger is currently Chairman,Chief Executive Officer, and Director of ChemioCare Inc., a private biotechnology company focused on the CIMV(Chemotherapy Induced Nausea and Emesis) therapeutic area. He was previously the President, Chief Executive Officer, andDirector of Asterias Biotherapeutics, a publicly traded company with a focus on neurology and oncology from June 2014 toFebruary 2016. Mr. Lichtinger served as President, Chief Executive Officer, and a director of Optimer Pharmaceuticals, Inc.,from May 2010 to February 2013. Mr. Lichtinger previously served as an executive of Pfizer, Inc. from 1995 to 2009,including as President of Pfizer's Global Primary Care Unit from 2008 to 2009, Area President, Europe from 2006 to 2008,President, Global Animal Health from 1999 to 2006, and Regional President Europe Animal Health from 1995 to 1999.Before joining Pfizer, Mr. Lichtinger was an executive of Smith Kline Beecham Plc, last serving as Senior Vice-PresidentEurope Animal Health from 1987 to 1995. Mr. Lichtinger serves as a director of Sanfer de Mexico, a leading Mexicanpharmaceutical company and is on the advisory board of Zero Gravity Solutions, Inc., an agricultural company. Mr.Lichtinger previously served as a director of BioTime, Inc. Mr. Lichtinger holds an MBA degree from the Wharton School ofBusiness and an engineering degree from the National University of Mexico. Our Board believes Mr. Lichtinger should serveas director based on his extensive pharmaceutical industry and public company leadership experience. 140 Table of ContentsAndrew Sassine has served as a member of our Board since May 2015. Mr. Sassine began serving as Chief FinancialOfficer of Arcturus Therapeutics Ltd. in 2018. Mr. Sassine served in various positions at Fidelity Investments from 1999 to2012, including as a Portfolio Manager for various funds from 2005 to December 2011. Mr. Sassine has also served onseveral boards of life science companies. Mr. Sassine currently serves on the board of directors of iCAD, Inc., a public cancerdetection and radiation therapy solutions company and previously served on the boards of directors of FluoroPharmaMedical, Inc., a public biopharmaceutical company, Acorn Energy, Inc., a public holding company focused on technologysolutions for energy infrastructure asset management and CNS Response, Inc., a public psychiatric clinical decision supportcompany. Mr. Sassine also serves on the board of directors of Freedom Meditech, Inc., a private medical device company, andComhear Inc., a private digital audio software and device company, where he is also the chairman of the board of directors.Mr. Sassine serves on the Strategic Advisory Board of MD Revolution Inc., a private digital health service company. Mr.Sassine has been a member of the Henry B. Tippie College of Business, University of Iowa Board of Advisors since 2009 andserved on the board of trustees at the Clarke Schools for Hearing and Speech from 2009 through 2014. Mr. Sassine holds aB.A. from the University of Iowa and an M.B.A. from the Wharton School at the University of Pennsylvania. Our Boardbelieves Mr. Sassine should serve as a director based on his extensive experience in the public markets as well as hisfinancial expertise. Kenneth Kousky has served as a member of our Board since March 2015. Mr. Kousky has also served as the ChiefExecutive Officer of the Mid-Michigan Innovation Center, a privately funded, non-profit business incubator, since 2010. Hehas also served as the President and Chief Executive Officer of IP3, Inc., an information security consulting firm, since 2002.Also, Mr. Kousky is a founding member and has served as Executive Director of the Blue Water Angels Investment Network,a Michigan-based funding network that assists in private equity investments in early-stage tech startups, since 2008. In 1988,Mr. Kousky founded an IT services company, Wave Technologies International Inc., which he led through an initial publicoffering in 1994. In 1989, he established Washington University's graduate program in Telecommunication Management,and he has lectured at Saginaw Valley State University, Washington University and at the Wharton School of Business at theUniversity of Pennsylvania. Mr. Kousky is a member of several corporate boards, including Michigan Sugar Company,RetroSense Therapeutics LLC and Foodjunky LLC. Mr. Kousky holds a B.A. in economics and urban studies fromWashington University, and an M.S. in economics from University of Pennsylvania. Our Board believes Mr. Kousky shouldserve as a director based on his extensive financial and strategic business planning experience.There are no familial relationships among any of our directors and executive officers.Section 16(a) Beneficial Ownership Reporting Compliance Section 16 of the Exchange Act requires our directors, executive officers and any persons who own more than 10%of our common stock to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons arerequired by SEC regulation to furnish us with copies of all Section 16(a) forms that they file. Based solely on our review ofthe copies of such forms furnished to us and written representations from our directors and executive officers, we are notaware of any person who, at any time during 2018, was subject to Section 16 of the Exchange Act with respect to ourcommon stock and failed to file, on a timely basis, reports required by Section 16(a) of the Exchange Act during 2018.Code of Business Conduct and Ethics Our Board has adopted a code of business conduct and ethics that applies to all of our employees, officers anddirectors, including our principal executive officer, principal financial officer, principal accounting officer and otherexecutive officers. We intend to disclose future amendments to certain provisions of our code of business conduct and ethics,or waivers of these provisions, on our website. The full text of our code of conduct is posted on the investor relations sectionof our website at http://ir.gemphire.com under "Corporate Governance—Highlights". Audit Committee Information Our audit committee is comprised of Mr. Kousky, Mr. Lichtinger and Mr. Sassine, and Mr. Sassine is currently thechairman. Each member of our audit committee meets the requirements for independence under the current Nasdaq141 Table of Contentsand SEC rules and regulations and is financially literate. In addition, our Board has determined that each of Messrs. Kousky,Lichtinger and Sassine is an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-Kpromulgated under the Securities Act of 1933, as amended (the "Securities Act"). This designation does not impose anyduties, obligations or liabilities that are greater than are generally imposed on members of our audit committee and ourBoard. Our audit committee is directly responsible for, among other things: ·our accounting and financial reporting processes, including our financial statement audits and the integrity of ourfinancial statements;·our compliance with legal and regulatory requirements;·the qualifications, independence and performance of our independent auditors; and·the preparation of the audit committee report to be included in our annual proxy statement. The responsibilities and activities of the audit committee are described further in its charter. ITEM 11. EXECUTIVE COMPENSATION Executive Officer CompensationThe following tables and accompanying narrative disclosure discuss the compensation awarded to, earned by, orpaid to:·Steven Gullans, Ph.D., our President and Chief Executive Officer;·Charles L. Bisgaier, Ph.D., our Chief Scientific Officer and Chairman of our Board of Directors;·Lee Golden, Ph.D, our former Chief Medical Officer;·Jeffrey Mathiesen, our former Chief Financial Officer; and·Seth Reno, our Chief Commercial Officer.We refer to these five current or former executive officers as the “named executive officers.”142 Table of ContentsSummary Compensation Table for 2018The following table presents summary information regarding the total compensation for services rendered in allcapacities that was earned by our named executive officers during the fiscal years ended December 31, 2018 and 2017. NAME AND PRINCIPALPOSITIONYEARSALARY($)BONUS($)OPTIONAWARDS($)NON-EQUITYINCENTIVEPLANCOMPENSATIONALL OTHERCOMPENSATIONTOTAL($) Steven Gullans, Ph.D.2018346,932250,0001,299,138— 6,7511,902,821President and Chief ExecutiveOfficer201730,376—353,264—23,575407,215 Charles L. Bisgaier, Ph.D.2018330,000—298,240—11,183639,423Chief Scientific Officer2017330,00030,000——258360,258 Lee Golden, Ph.D.2018264,625—919,572—193,2781,377,476Former Chief Medical Officer2017365,00039,000133,870—258538,128Jeffrey Mathiesen2018242,875—298,240—183,560724,675Former Chief Financial Officer2017335,000———738335,738Seth Reno2018275,000—298,240—10,566583,805Chief Commercial Officer2017275,00020,000——581295,581 The amounts reported reflect the aggregate grant date fair value of the stock options granted to our named executiveofficers during 2017 and 2018, as computed in accordance with FASB Accounting Standards CodificationTopic 718 (ASC 718). Assumptions used in the calculation of these amounts are included in Note 9 to the financialstatements included in this Annual Report. As required by SEC rules, the amounts shown exclude the impact ofestimated forfeitures related to service‑based vesting conditions.Unless otherwise noted, amounts reflect the dollar value of group life insurance premiums paid during 2017 and2018 with respect to life insurance for the named executive officer and Company 401(k) matching contributions,which were $6,667, $11,000, $10,585, $11,000 and $9,972 for Dr. Gullans, Dr. Bisgaier, Dr. Golden, Mr. Mathiesenand Mr. Reno, respectively, for 2018. No matching contributions were made in 2017.Amounts reported reflect that Dr. Gullans was employed as President and Chief Executive Officer of the Companycommencing May 1, 2018 and prior to that time as Interim President and Chief Executive Officer of the Companycommencing May 23, 2017. Prior to his appointment as Interim President and Chief Executive Officer, Dr. Gullanswas a non-employee director. Dr. Gullans’s cash compensation did not change as a result of his appointment as ourInterim President and Chief Executive Officer until his employment agreement was executed in connection with hisappointment as President and Chief Executive Officer in May 2018.For 2017, “Salary” reflects the amount paid to Dr. Gullans following his appointment as Interim President and ChiefExecutive Officer and “All Other Compensation” includes $23,575 paid to Dr. Gullans prior to his appointment asInterim President and Chief Executive Officer, as cash fees for his service as a non-employee director. For 2018,“Bonus” reflects a signing bonus Dr. Gullans received in connection with his appointment as President and ChiefExecutive Officer in May 2018. As a named executive officer of the Company, compensation paid to Dr. Gullans forthe entire 2018 and 2017 fiscal years is fully reflected in this table.143 (1)(2) (3) (4) (5) (1)(2)(3)Table of ContentsAmounts reported for 2018 reflect that Dr. Golden’s employment with the Company ended as of September 21, 2018.In addition to group life insurance premiums and 401(k) matching contributions described in footnote 2, “All OtherCompensation” for 2018 includes a one-time, lump sum of $182,500, which was equal to 6 months of his annualbase salary, paid to Dr. Golden in connection with his separation from the Company. Amounts reported for 2018 reflect that Mr. Mathiesen’s employment with the Company ended as of September 21,2018. In addition to group life insurance premiums and 401(k) matching contributions described in footnote 2, “AllOther Compensation” for 2018 includes (i) a one-time, lump sum of $167,500, which was equal to 6 months of hisannual base salary, and (ii) $4,507 for continued health insurance coverage paid to Mr. Mathiesen in connectionwith his separation from the Company.Narrative Disclosure to Summary Compensation TableThe compensation program for our named executive officers for 2018 had three components: base salary, annualcash bonus and stock option grants. The below disclosure and tables explain each component of compensation in furtherdetail.Base Salary. There was no base salary increase for any of our named executive officers for 2018, as compared to2017, except that Dr. Gullans’s base salary was set at $500,000 pursuant to his employment agreement entered into inconnection with his appointment as President and Chief Executive Officer in May 2018. Prior to such time, he served asInterim President and Chief Executive Officer of the Company commencing May 23, 2017 and, in that role, continued toreceive the compensation he received as a non-employee director. Cash Bonus. In 2018, each of our named executive officers had a target bonus, set forth as a percentage of annualbase salary. The compensation committee did not make any changes to the target bonuses of the named executive officers, asa percentage of base salary, for 2018. In 2018, target bonuses for the named executive officers other than Dr. Gullans were40% of base salary. Dr. Gullans’s target bonus was set at 50% of base salary pursuant to his employment agreement enteredinto in connection with his appointment as President and Chief Executive Officer in May 2018. The payment of bonuses is inthe compensation committee’s discretion, and no bonuses were earned or paid for 2018. Equity Grants. On January 28, 2018, considering the recommendations of Haigh & Company, the compensationcommittee granted to each of Dr. Bisgaier, Mr. Mathiesen and Mr. Reno an option to purchase up to 48,000 shares of ourcommon stock and to Dr. Golden an option to purchase up to 148,000 shares of our common stock, in each case, vesting in aseries of 48 equal monthly installments on the last day of each month commencing on the grant date, subject to suchexecutive’s continuous service, and subject to acceleration upon a change in control.In connection with his service as Interim President and Chief Executive Officer, on January 29, 2018, the Boardgranted Dr. Gullans an option to purchase up to 60,000 shares of our common stock (the “January Options”), with a grantdate fair value of $364,604, vesting in a series of 12 equal monthly installments on the last day of each month commencingon the grant date, subject to Dr. Gullans’s continuous service, and subject to acceleration upon either (i) a change in controlor (ii) the appointment of a replacement President and Chief Executive Officer.Upon the appointment of Dr. Gullans as President and Chief Executive Officer on May 1, 2018, the terms of theJanuary Options were amended so that they vest in a series of 48 equal monthly installments on the last day of each monthcommencing on the grant date, subject to Dr. Gullans’s continuous service. Following the amendment, the grant date fairvalue of the January Options was determined to be $378,816. Additionally, pursuant to the employment agreement enteredinto with Dr. Gullans described below, on May 1, 2018, Dr. Gullans was also granted:·an option to purchase up to 150,000 shares of our common stock with a grant date fair value of $514,846, vesting ina series of 48 equal monthly installments on the last day of each month commencing on the grant date, subject toDr. Gullans’s continuous service;144 (4)(5)Table of Contents·an option to purchase up to 50,000 shares of our common stock with a grant date fair value of $191,010, vesting in aseries of 48 equal monthly installments on the last day of each month commencing on the grant date, subject to Dr.Gullans’s continuous service; and·an option to purchase up to 100,000 shares of our common stock with a grant date fair value of $214,466. 50,000 ofthese shares shall vest on the date that the first patient in the first Phase 3 clinical trial of gemcabene in a non-orphanindication receives the first dose of gemcabene and the other 50,000 shall vest on the date when the Company’scommon stock achieves a certain target, in each case, if such event occurs on or before December 31, 2019, subjectto Dr. Gullans’s continuous service.All Other Compensation. The Company maintains, and the named executive officers participate in, a 401(k) definedcontribution plan. Each participant may contribute to the plan through payroll deductions, up to 100% of his or hercompensation limited to the maximum allowed by the Internal Revenue Service regulations. The Company providesemployer “safe harbor” matching contributions to all participants, including the named executive officers, equal to 100% ofsalary deferrals up to 3% of a participant’s contributions and 50% of salary deferrals thereafter up to 5% of a participant’scontributions. Agreements with Our Named Executive OfficersWe have entered into written employment agreements with each of our executive officers. For a discussion of theseverance pay and other benefits to be provided in connection with a termination of employment and/or a change in controlunder the arrangements with our named executive officers, please see “— Potential Payments Upon Termination or Changein Control” below.Each of our named executive officers has also executed our standard form of confidential information and inventionassignment agreement.Offer Letter with Dr. Gullans. On June 8, 2017, we entered into an offer letter with Dr. Gullans as Interim Presidentand Chief Executive Officer, effective May 23, 2017. On May 30, 2017, our compensation committee granted Dr. Gullans anoption to purchase 60,000 shares of our common stock vesting monthly in equal increments over a 12 month period, subjectto acceleration upon the appointment of a replacement Chief Executive Officer or upon a change in control, under theAmended and Restated 2015 Equity Incentive Plan (“2015 Plan”). The offer letter provided that Dr. Gullans will continue toreceive the compensation he receives as a director of the Company and was able to participate in the benefit programs andarrangements to the extent available to Company employees. Dr. Gullans also executed our employee proprietaryinformation, inventions assignment and non-competition agreement, which provides for confidentiality and non-competeand non-solicitation provisions, the latter for one year after termination of employment.Employment Agreement with Dr. Gullans. On May 1, 2018, we entered into an employment agreement with Dr.Gullans. His employment agreement has an initial term of three years beginning on May 1, 2018 and automatically renewsfor an additional one year period at the end of the initial term and each anniversary thereafter provided that at least 90 daysprior to the expiration of the initial term or any renewal term the board does not notify Dr. Gullans of its intention not torenew.His employment agreement entitles Dr. Gullans to, among other benefits, the following compensation: (i) an annualbase salary of at least $500,000, reviewed at least annually commencing with the review of compensation for the year endedDecember 31, 2020; (ii) a signing bonus of $250,000; (iii) an annual cash bonus in an amount of up to fifty percent (50%) ofhis annual base salary; (iv) participation in equity-based long-term incentive compensation plans generally available tosenior executive officers of the Company (beginning in 2019); and (v) participation in welfare benefit plans, practices,policies and programs (including, without limitation, medical, prescription, dental, disability, employee life, group life,accidental death and travel accident insurance plans and programs) made available to other senior executive officers of theCompany.Additionally, pursuant to the employment agreement, Dr. Gullans was granted certain options to purchase theCompany’s common stock as set forth under “–Equity Grants” above. Also as described above, pursuant to his employmentagreement, Dr. Gullans consented to an extension of the vesting term of an option he was previously145 Table of Contentsgranted for 60,000 shares from 12 months to 48 months. Notwithstanding the vesting schedules set forth above, he mayexercise all or a part of any such option, including the unvested portion, during his employment and within the term of suchoption; provided he enters into an early exercise purchase agreement with the Company with a vesting schedule that willresult in the same vesting as if no early exercise had occurred and any unvested shares purchased will be subject to theCompany's purchase option.Employment Agreements with Mr. Mathiesen and Dr. Bisgaier. We entered into an employment agreement witheach of Mr. Mathiesen and Dr. Bisgaier, effective as of the pricing our initial public offering. The initial term of eachemployment agreement is from the effective date, August 4, 2016, through the third anniversary of the effective date andautomatically renews for an additional one year period at the end of his initial term and each anniversary thereafter, providedthat at least 90 days prior to the expiration of his initial term or any renewal term the board does not notify such officer of itsintention not to renew the employment period.Each officer’s employment agreement also entitles him to, among other benefits, the following compensation:(i) eligibility to receive an annual cash bonus of up to a percentage of his annual base salary as specified in his employmentagreement at the sole discretion of the board and as determined by the compensation committee commensurate with thepolicies and practices applicable to other senior executive officers of the Company; (ii) an opportunity to participate in anyequity based long‑term incentive compensation plan commensurate with the terms and conditions applicable to other seniorexecutive officers; and (iii) participation in welfare benefit plans, practices, policies and programs provided by the Companyand its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life,accidental death and travel accident insurance plans and programs) to the extent available to our other senior executiveofficers.Separation and Release Agreement with Mr. Mathiesen. On September 21, 2018, the Company entered into aseparation and release agreement with Mr. Mathiesen. In connection with his departure from the Company, Mr. Mathiesenreceived certain benefits that he was entitled to receive under his employment agreement described above in connection witha termination without cause. Accordingly, under the separation and release agreement, the Company agreed (1) to pay Mr.Mathiesen a lump sum equal to $167,500, (2) that all of Mr. Mathiesen’s outstanding stock options will (a) vest as if Mr.Mathiesen was employed by the Company through August 4, 2019 and (b) remain exercisable until the final termination dateof such option awards under the applicable award agreement, (3) to pay the monthly cost of premiums for continued healthinsurance coverage during the twelve-month period following Mr. Mathiesen’s separation from the Company, provided Mr.Mathiesen does not qualify for health care coverage from another employer during that period; and (4) to reimburse Mr.Mathiesen for reasonable expenses incurred through the separation date that are reviewed and approved according toCompany policy.Employment Agreement with Dr. Golden. We entered into an employment agreement with Dr. Golden in October2016. The initial term of his employment agreement is from the effective date through the third anniversary of the effectivedate and automatically renews for an additional one year period at the end of the initial term and each anniversary thereafter,provided that at least 90 days prior to the expiration of the initial term or any renewal term the board does not notify Dr.Golden of its intention not to renew the employment period.Dr. Golden’s employment agreement entitled him to, among other benefits, the following compensation:(i) eligibility to receive an annual cash bonus of up to 40% of his annual base salary as determined by the compensationcommittee commensurate with the policies and practices applicable to other senior executive officers of the Company; (ii) anopportunity to participate in any equity based long‑term incentive compensation plan commensurate with the terms andconditions applicable to other senior executive officers; and (iii) participation in welfare benefit plans, practices, policies andprograms provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental,disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extentavailable to our other senior executive officers. In connection with his hiring at Chief Medical Officer, on October 5, 2016,our compensation committee granted Dr. Golden an option to purchase 126,000 shares of our common stock vesting asfollows: 12,000 shares underlying the option vested immediately on October 5, 2016, one-fourth of the remaining sharesvested on October 31, 2017 and the balance of the shares vest in a series of 36 successive equal monthly installmentsmeasured from October 31, 2017, subject to acceleration upon a change in control.146 Table of ContentsSeparation and Release Agreement with Dr. Golden. On September 23, 2018, the Company entered into aseparation and release agreement with Dr. Golden effective as of September 21, 2018. In connection with his departure fromthe Company, Dr. Golden received certain benefits that he was entitled to receive under his employment agreement describedabove in connection with a termination without cause. Accordingly, under the separation and release agreement, theCompany agreed (1) to pay Dr. Golden a lump sum equal to $182,500, (2) that all of Dr. Golden’s outstanding stock optionswill (a) vest as if Dr. Golden was employed by the Company through October 5, 2019 and (b) remain exercisable until thefinal termination date of such option awards under the applicable award agreement, and (3) to reimburse Dr. Golden forreasonable expenses incurred through the separation date that are reviewed and approved according to Company policy.Employment Agreement with Mr. Reno. We entered into an employment agreement with Mr. Reno, effective August15, 2016. The initial term of the employment agreement is from the effective date through the first anniversary of theeffective date and automatically renews for an additional one year period at the end of his initial term and each anniversarythereafter, provided that at least 90 days prior to the expiration of his initial term or any renewal term the board does notnotify Mr. Reno of its intention not to renew the employment period.Mr. Reno’s employment agreement also entitles him to, among other benefits, the following compensation:(i) eligibility to receive an annual cash bonus of up to a percentage of his annual base salary as specified in his employmentagreement at the sole discretion of the board and as determined by the compensation committee commensurate with thepolicies and practices applicable to other senior executive officers of the Company; (ii) an opportunity to participate in anystock option, performance share, performance unit or other equity based long‑term incentive compensation plancommensurate with the terms and conditions applicable to other senior executive officers (the Plans); and (iii) participationin welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including,without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accidentinsurance plans and programs) to the extent available to our other senior executive officers.147 Table of ContentsOutstanding Equity Awards at Fiscal Year‑End 2018The following table sets forth information regarding restricted stock awards and outstanding stock options held byour named executive officers as of December 31, 2018: OPTION AWARDSNAMEGRANT DATEVESTINGCOMMENCEMENTDATENUMBER OFSECURITIESUNDERLYINGUNEXERCISEDOPTIONSEXERCISABLE(#)NUMBER OFSECURITIESUNDERLYINGUNEXERCISEDOPTIONSUNEXERCISABLE(#)OPTIONEXERCISEPRICE($)OPTIONEXPIRATIONDATESteven Gullans,Ph.D.August 4, 2016August 4, 201635,00025,00010.00August 3, 2026 May 30, 2017May 30, 2017 60,000—10.26May 29, 2027 January 29, 2018January 29, 2018 15,00045,00010.44January 28, 2028 May 1, 2018May 1, 201850,000—5.56April 30, 2028 May 1, 2018May 1, 2018150,000—5.56April 30, 2028 May 1, 2018May 1, 2018100,000—5.56April 30, 2028 Charles L.Bisgaier, Ph.D.August 4, 2016August 4, 2016 87,50062,50010.00August 3, 2026 January 28, 2018January 28, 2018 12,00036,00010.10January 27, 2028 Lee Golden,Ph.D.October 5, 2016October 5, 201695,125—10.80October 4, 2026 March 28, 2017March 28, 2017 12,917—11.15March 27, 2027 January 28, 2018January 28, 2018 64,750—10.10January 27, 2028 Jeffrey MathiesenSeptember 25,2015September 25, 201545,093—3.59September 24, 2025 August 4, 2016August 4, 2016157,500—10.00August 3, 2026 January 28, 2018January 28, 2018 19,000—10.10January 27, 2028 Seth RenoAugust 17, 2015August 17, 201551,299—2.12August 16, 2025 August 4, 2016August 4, 201687,50062,50010.00August 3, 2026 January 28, 2018January 28, 2018 12,00036,00010.10January 27, 2028All of the outstanding stock option awards were granted under our 2015 Plan unless otherwise noted.The shares underlying the option vest monthly in equal increments over a 48 month period beginning on August 4,2016.The shares underlying the option vest monthly in equal increments over a 12 month period beginning on May 30,2017.The shares underlying the option vest monthly in equal increments over a 48 month period beginning on January 31,2018. Dr. Gullans is permitted to exercise unvested portions of this option, however, these shares will be subject tothe same vesting schedule, and the Company will have a repurchase option for such unvested shares.The shares underlying the option vest monthly in equal increments over a 48 month period on the last day of themonth beginning on May 31, 2018. Dr. Gullans is permitted to exercise unvested portions of this option, however,these shares will be subject to the same vesting schedule, and the Company will have a repurchase option for suchunvested shares.148 (1)(2)(3)(4)(5)(5)(6)(2)(4)(7)(8)(8)(8)(9)(9)(9)(10)(2)(4) (1)(2)(3)(4)(5)Table of ContentsThe shares underlying the option vest (i) with respect to 50,000 shares, on the date that the first patient in the firstPhase 3 clinical trial of gemcabene in a non-orphan indication receives the first dose of gemcabene and (ii) withrespect to the other 50,000 shares, on the date when the consecutive day volume weighted average closing price ofthe Company’s common stock achieves a certain target, in each case, if such event occurs on or before December 31,2019. Dr. Gullans is permitted to exercise unvested portions of this option, however, these shares will be subject tothe same vesting schedule, and the Company will have a repurchase option for such unvested shares.These options were granted under the Inducement Plan.Under the separation and release agreement with Dr. Golden, the Company agreed that all of Dr. Golden’soutstanding stock options vested as if Dr. Golden was employed by the Company through October 5, 2019. Allremaining options were forfeited.Under the separation and release agreement with Mr. Mathiesen, the Company agreed that all of Mr. Mathiesen’soutstanding stock options vested as if Mr. Mathiesen was employed by the Company through August 4, 2019. Allremaining options were forfeited.10,000 shares underlying the option vested immediately on August 17, 2015; the balance of the shares vested in 36monthly increments beginning on August 31, 2015. Potential Payments Upon Termination or Change in ControlSteven GullansPursuant to his employment agreement, regardless of the manner in which Dr. Gullans service terminates, he isentitled to receive amounts earned during his term of service, including salary and other benefits. The Company is permittedto terminate the employment of Dr. Gullans for the following reasons: (1) death or disability, (2) Termination for Cause (asdefined below) or (3) for any other reason or no reason.Dr. Gullans is permitted Termination for Good Reason (as defined below) of his employment. In addition, he mayterminate his employment upon written notice to the Company 30 days prior to the effective date of such termination. In theevent of his death during the employment period or a termination due to his disability, Dr. Gullans or his beneficiaries orlegal representatives shall be provided the sum of (a) any annual base salary earned, but unpaid, for services rendered to theCompany on or prior to the date on which the employment period ends and (b) the bonus that would have been payable tohim subject to any performance conditions and (c) certain other benefits provided for in his employment agreement (the“Gullans Unconditional Entitlements”).In the event of Dr. Gullans’s Termination for Cause by the Company or the termination of his employment as a resultof his resignation other than a Termination for Good Reason, Dr. Gullans shall be provided the Gullans UnconditionalEntitlements. In the event of (i) a Termination for Good Reason by Dr. Gullans, (ii) expiration of his employment period as aresult of the Company’s decision not to extend his employment beyond the initial term or (iii) the exercise by the Companyof its termination rights to terminate him other than by Termination for Cause, death or disability, Dr. Gullans shall beprovided the Gullans Unconditional Entitlements and, subject to Dr. Gullans signing and delivering to the Company and notrevoking a general release of claims in favor of the Company and certain related parties, the Company shall provide him aseverance amount equal to (i) 1 times his annual base salary as of the termination date less the Non‑Compete Amount (ifapplicable) (as defined in his employment agreement) and (ii) a prorated cash bonus for the year as well as continued medicalcoverage for 12 months following such termination, immediate vesting of all stock options, which become immediatelyexercisable in accordance with the stock option award documents, subject to the same conditions that would be applicable toDr. Gullans if he remained employed through the 18 month anniversary of the termination date and continued vesting ofequity awards in accordance with the terms of the award agreements (the “Gullans Conditional Benefits”).In the event that the Company consummates a transaction that constitutes a change in control and the optionsdescribed above in Executive Compensation – Agreements with Our Named Executive Officers – Steven Gullans are not149 (6)(7)(8)(9)(10)Table of Contentsassumed, continued or substituted, then all of the unvested shares underlying such options shall fully vest and becomeexercisable upon the effectiveness of such change in control.In the event of Dr. Gullans’s Termination for Good Reason, the exercise by the Company of its right to terminate Dr.Gullans other than a Termination for Cause, Mr. Gullans’s death or disability or the Company’s election not to extend theemployment period upon expiration of the initial term or any renewal term, in each case, within eighteen (18) monthsfollowing a change in control, Dr. Gullans shall receive (i) the Gullans Unconditional Entitlements, (ii) 1.5 times the sum ofDr. Gullans’s annual base salary and cash bonus (calculated based on the greater of Dr. Gullans’s target bonus for such year orthe average bonus paid to Dr. Gullans in the prior two fiscal years), (iii) accelerated vesting of all equity awards that wereassumed, continued or substituted by the surviving or acquiring corporation in the change in control and remain subject totime-based vesting conditions, if any, and (iv) the Conditional Benefits except the Severance Amount. Under Dr. Gullans’s employment agreement, “Termination for Cause” means a termination of Dr. Gullans’semployment by the Company due to (A) an intentional act or acts of dishonesty undertaken by him and intended to result insubstantial gain or personal enrichment to Dr. Gullans at the expense of the Company, (B) unlawful conduct or grossmisconduct that is willful and deliberate on his part in the performance of his employment duties and that, in either event, ismaterially injurious to the Company, (C) his conviction of, or Dr. Gullans’s entry of a no contest or nolo contendere plea to, afelony, (D) material breach by the Dr. Gullans of his fiduciary obligations as an officer or director of the Company, (E) apersistent failure by Dr. Gullans to perform the duties and responsibilities of his employment, which failure is willful anddeliberate on Dr. Gullans’s part and is not remedied within 30 days after his receipt of written notice from the Company ofsuch failure; or (F) material breach of any terms and conditions of his employment agreement, which breach has not beencured by him within ten days after written notice thereof to Dr. Gullans from the Company. No act or failure to act on Dr.Gullans’s part shall be considered “dishonest,” “willful” or “deliberate” unless intentionally done or omitted to be done inbad faith and without reasonable belief that Dr. Gullans’s action or omission was in the best interests of the Company. Anyact, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board shall be conclusivelypresumed to be done, or omitted to be done, by Dr. Gullans in good faith and in the best interests of the Company.Under Dr. Gullans’s employment agreement, “Termination for Good Reason” means Dr. Gullans’s termination of hisemployment within 30 days of the Company’s failure to cure, in accordance with the procedures set forth below, any of thefollowing events: (A) a reduction in his annual base salary as in effect immediately prior to such reduction without hiswritten consent, unless such reduction is made pursuant to an across the board reduction applicable to all senior executivesof the Company; (B) the removal of Dr. Gullans by the Company from the position of President and Chief Executive Officer;(C) a material reduction in his duties and responsibilities as in effect immediately prior to such reduction; (D) a change in hisreporting relationships; or (E) a material breach of any material provision of his employment agreement by the Company towhich Dr. Gullans shall have delivered a written notice to the board within 45 days of Dr. Gullans’s having actual knowledgeof the occurrence of one of such events stating that he intends to terminate his employment by Termination for Good Reasonand specifying the factual basis for such termination, and such event, if capable of being cured, shall not have been curedwithin 21 days of the receipt of such notice. Notwithstanding the foregoing, a termination shall not be treated as aTermination for Good Reason if he has consented in writing to the occurrence of the event giving rise to the claim ofTermination for Good Reason.Charles L. Bisgaier and Seth RenoPursuant to Mr. Bisgaier’s and Mr. Reno’s employment agreements, regardless of the manner in which their serviceterminates, such named executive officer is entitled to receive amounts earned during his term of service, including salaryand other benefits. In addition, each of our named executive officers is eligible to receive certain benefits pursuant to his orher agreement with us described above under "—Agreements with our Named Executive Officers."The Company is permitted to terminate the employment of Dr. Bisgaier or Mr. Reno for the following reasons:(1) death or disability, (2) Termination for Cause (as defined below) or (3) for any other reason or no reason. Each suchofficer is permitted Termination for Good Reason (as defined below) of such officer's employment. In150 Table of Contentsaddition, each such officer may terminate his or her employment upon written notice to the Company 30 days prior to theeffective date of such termination. In the event of such officer's death during the employment period or a termination due to such officer's disability, suchofficer or his or her beneficiaries or legal representatives shall be provided the sum of (a) any annual base salary earned, butunpaid, for services rendered to the Company on or prior to the date on which the employment period ends and (b) the bonusthat would have been payable to such officer subject to any performance conditions and (c) certain other benefits providedfor in the employment agreement (the "Unconditional Entitlements"). In the event of such officer's Termination for Cause by the Company or the termination of such officer's employment as aresult of such officer's resignation other than a Termination for Good Reason, such officer shall be provided theUnconditional Entitlements. In the event of a Termination for Good Reason by such officer or the exercise by the Company of its termination rights toterminate such officer other than by Termination for Cause, death or disability, such officer shall be provided theUnconditional Entitlements and, subject to such officer signing and delivering to the Company and not revoking a generalrelease of claims in favor of the Company and certain related parties, the Company shall provide such officer a severanceamount equal to (i) 0.5-1.0 (which ratio varies based on the negotiated terms in the agreement of such officer) times suchofficer's annual base salary as of the termination date less the Non-Compete Amount (if applicable) (as defined in his or heremployment agreement) and (ii) a prorated cash bonus for the year as well as continued medical coverage for 12 monthsfollowing such termination, immediate vesting of all stock options, which become immediately exercisable in accordancewith the stock option award documents, subject to the same conditions that would be applicable to such officer if he or sheremained employed through the end of the employment period and continued vesting of equity awards in accordance withthe terms of the award agreements (the "Conditional Benefits"). If, within two years after a change in control, the Company terminates such officer other than due to such officer's deathor disability or a Termination for Cause, or such officer effects a Termination for Good Reason, the Company will pay to suchofficer, in a lump sum in cash within 30 days after the termination date, the aggregate of: (i) the Unconditional Entitlements;and (ii) the amount equal to the product of 1.0-1.5 (which ratio varies based on the negotiated terms in the agreement of suchofficer) times the sum of (y) such officer's annual base salary, and (z) the greater of the target bonus for the then current fiscalyear under the Plans or any successor annual bonus plan and the average annual bonus paid to or for the benefit of suchofficer for the prior three full years (or any shorter period during which such officer had been employed by the Company). Inaddition, the Company shall provide such officer the Conditional Benefits minus such officer's severance amount. The awardagreements for the options granted to our executive officers, including Dr. Bisgaier and Dr. Golden, also contain termsproviding for accelerated vesting of stock options upon a change in control. Under the employment agreements, "Termination for Cause" means a termination of the officer's employment by theCompany due to (A) an intentional act or acts of dishonesty undertaken by the officer and intended to result in substantialgain or personal enrichment to the officer at the expense of the Company, (B) unlawful conduct or gross misconduct that iswillful and deliberate on the officer's part and that, in either event, is materially injurious to the Company, (C) the convictionof the officer of, or the officer's entry of a no contest or nolo contendere plea to, a felony, (D) material breach by the officer ofthe officer's fiduciary obligations as an officer or director of the Company, (E) a persistent failure by the officer to perform theduties and responsibilities of the officer's employment hereunder, which failure is willful and deliberate on the officer's partand is not remedied by the officer within 30 days after the officer's receipt of written notice from the Company of such failure;or (F) material breach of any terms and conditions of the respective employment agreement by the officer, which breach hasnot been cured by the officer within ten days after written notice thereof to the officer from the Company. No act or failure toact on the officer's part shall be considered "dishonest," "willful" or "deliberate" unless intentionally done or omitted to bedone by the officer in bad faith and without reasonable belief that the officer's action or omission was in the best interests ofthe Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board shallbe conclusively presumed to be done, or omitted to be done, by the officer in good faith and in the best interests of theCompany.151 Table of Contents Under the employment agreements, "Termination for Good Reason" means a termination of the officer's employment bysuch officer within 30 days of the Company's failure to cure, in accordance with the procedures set forth below, any of thefollowing events: (A) a reduction in the officer's annual base salary as in effect immediately prior to such reduction by morethan 10% without the officer's written consent, unless such reduction is made pursuant to an across the board reductionapplicable to all senior executives of the Company; (B) the removal of the officer by the Company from the executive officerposition held; (C) a material reduction in the officer's duties and responsibilities as in effect immediately prior to suchreduction; or (D) a material breach of any material provision of the employment agreement by the Company to which theofficer shall have delivered a written notice to the board within 45 days of the officer's having actual knowledge of theoccurrence of one of such events stating that the officer intends to terminate the officer's employment by Termination forGood Reason and specifying the factual basis for such termination, and such event, if capable of being cured, shall not havebeen cured within 21 days of the receipt of such notice. Notwithstanding the foregoing, a termination shall not be treated as aTermination for Good Reason if the officer shall have consented in writing to the occurrence of the event giving rise to theclaim of Termination for Good Reason.Pursuant to his employment agreement, to the extent Mr. Reno remains employed as of the closing date of a changein control, any stock options he held as of the effective date of his employment agreement will fully vest, effective as of theclosing date of the change in control.Dr. Golden. In connection with Dr. Golden’s termination in September 2018, the Board approved a separation andrelease agreement, under which Dr. Golden received a severance payment. Dr. Golden’s separation and release agreement isdescribed above under “—Employment Agreements with Named Executive Officers—Separation and Release Agreementwith Dr. Golden”.Mr. Mathiesen. In connection with Mr. Mathiesen’s termination in September 2018, the Board approved aseparation and release agreement, under which Mr. Mathiesen received a severance payment. Mr. Mathiesen’s separation andrelease agreement is described above under “—Employment Agreements with Named Executive Officers—Separation andRelease Agreement with Mr. Mathiesen”.Amended and Restated 2015 Equity Incentive Plan and Inducement PlanOur board of directors initially adopted the 2015 Plan in April 2015, and our stockholders approved the 2015 Planin April 2015. In April 2016, our board of directors and stockholders approved the amendment and restatement of the 2015Plan in order to increase the share reserve under the 2015 Plan, include an “evergreen” provision, allow limited delegation ofaward authority to an executive officer and include certain annual limits on equity awards, which amendments becameeffective on August 4, 2016. In May 2018, our board of directors and stockholders approved an amendment to the amendedand restated 2015 Plan to increase the number of shares of common stock reserved for issuance under the 2015 Plan by300,000 shares without any change to the “evergreen” provision. We refer to such amended and restated plan, as amended in2018, as the 2015 Plan.Our board of directors adopted the Inducement Plan in September 2016, and amended the Inducement Plan in April2018 to increase the aggregate number of shares of common stock that may be issued under the Inducement Plan. Pursuant tothe Inducement Plan, as amended, we have reserved 450,000 shares of common stock to be used exclusively for grants ofawards to individuals who were not previously employees or directors of the Company, as an inducement material to theindividual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.The Inducement Plan was approved, amended and can be further amended to increase the number of shares reservedthereunder at any time by our board of directors without stockholder approval pursuant to Rule 5635(c)(4) of the NasdaqListing Rules. The terms and conditions of the Inducement Plan are substantially similar to our 2015 Plan, which wasapproved by our stockholders. Under the 2015 Plan and the Inducement Plan, the compensation committee may provide, in individual awardagreements or in any other written agreement between a participant and us, that the stock award will be subject to additionalacceleration of vesting and exercisability in the event of a change of control. Under the 2015 Plan, a change of control isgenerally (1) the acquisition by a person or entity of more than 50% of our combined voting power other than by merger,consolidation or similar transaction; (2) a consummated merger, consolidation or similar transaction immediately after whichour stockholders cease to own more than 50% of the combined voting power of the surviving152 Table of Contentsentity; (3) a consummated sale, lease or exclusive license or other disposition of all or substantially of our assets; or (4) thereplacement of a majority of the directors who were on the board of directors at the time the 2015 Plan became effective, orthe Incumbent Board, by directors who were not elected to the board by a majority of the directors who were sitting on theIncumbent Board. Accordingly, the compensation committee, pursuant to the individual award agreements and/or individualemployment agreements, for all unvested options held by our named executive officers, except the option awards granted toDr. Gullans in 2018 (the treatment upon a change of control of which is described in “–Potential Payment Upon aTermination or Change in Control – Steven Gullans” above) provided for accelerated vesting of such options upon a changein control.Chief Executive Officer Pay RatioAs an “emerging growth company” and a “smaller reporting company”, we are not required to provide informationrelating to the ratio of total compensation of our Chief Executive Officer to the median of the annual total compensation ofall of our employees, as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.Non-Employee Director CompensationOur non‑employee directors receive a mix of cash and share-based compensation intended to encouragenon‑employee directors to continue to serve on our board of directors, further align the interests of the directors andstockholders, and attract new non‑employee directors with outstanding qualifications. Directors who are employees orofficers of the Company do not receive any additional compensation for Board service.Our non-employee director compensation policy became effective following the completion of our initial publicoffering in August 2016. Pursuant to this policy, each of our non-employee directors receives an annual retainer of $50,000.Additionally, the Chairmen of our Audit, Compensation and Nominating and Corporate Governance Committees receive anadditional annual payment of $15,000, $7,500 and $5,000, respectively; and the members of each of our committees receivean additional annual payment of $5,000.On January 29, 2018, each non-employee director was granted an option to purchase 10,800 shares of commonstock, which options vest in a series of 12 equal monthly installments, subject to the director’s continued service, and willvest in full upon a change in control (as defined in the 2015 Plan).The following table provides compensation information for the fiscal year ended December 31, 2018 for eachnon‑employee member of our Board. Fees Earned Option or Paid in Cash Awards Total Name ($) ($)(1) ($) P. Kent Hawryluk(2) 62,500 65,629 128,129 Kenneth Kousky 55,000 65,629 120,629 Pedro Lichtinger 60,000 65,629 125,629 Andrew Sassine 70,000 65,629 135,629 (1) Stock option awards were granted under the 2015 Plan. The amounts reported reflect the aggregate grant date fairvalue of each equity award granted to our non-employee directors during the fiscal year ended December 31, 2018,as computed in accordance with ASC 718. Assumptions used in the calculation of these amounts are included inNote 9 to the financial statements included in this Annual Report. As required by SEC rules, the amounts shownexclude the impact of estimated forfeitures related to service‑based vesting conditions.(2) Mr. Hawryluk resigned from the Board effective as of February 28, 2019. 153 Table of ContentsAs of December 31, 2018, each of the following non‑employee directors had shares underlying outstanding stockoptions as follows: Mr. Hawryluk, 70,800; Mr. Kousky, 78,816; Mr. Lichtinger, 102,862; and Mr. Sassine, 102,862.As named executive officers of the Company, compensation paid to Dr. Gullans and Dr. Bisgaier for the 2017 and2018 fiscal years is fully reflected under “Named Executive Officer Compensation Tables—Summary Compensation Tablefor 2018”. 154 Table of Contents ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERSSecurity Ownership of Certain Beneficial Owners and ManagementThe following table sets forth certain information regarding beneficial ownership of our capital stock as of March11, 2019, by:·each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;·each of our named executive officers;·each of our directors; and·all of our current executive officers and directors as a group.The table lists applicable percentage ownership based on 14,265,411 shares of common stock outstanding as ofMarch 11, 2019. In addition, the rules include shares of our common stock issuable pursuant to the exercise of stock optionsand warrants that are either immediately exercisable or exercisable within 60 days of March 11, 2019. These shares aredeemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing thepercentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentageownership of any other person.We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attributebeneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect tothose securities. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investmentpower with respect to all shares shown as beneficially owned by them, subject to applicable community155 Table of Contentsproperty laws. Except as otherwise noted below, the address for each person or entity listed in the table is c/o GemphireTherapeutics Inc., 17199 N. Laurel Park Drive, Suite 401, Livonia, Michigan 48152. SHARESBENEFICIALLYOWNEDNAME AND ADDRESS OF BENEFICIAL OWNERNUMBERPERCENTGreater than 5% stockholders Excel Ventures II GP, LLC 969,8516.8Venrock Healthcare Capital Partners II, L.P.1,383,2909.7Mina Sooch 1,188,3838.1 Directors and Named Executive Officers Charles L. Bisgaier, Ph.D.1,469,48710.2Andrew Sassine 236,2161.6Jeffrey Mathiesen 235,7271.6Seth Reno 188,7101.3P. Kent Hawryluk184,7511.3Lee Golden, Ph.D.172,7921.2Steven Gullans, Ph.D.171,2501.2Pedro Lichtinger 151,8651.1Kenneth Kousky 72,001* All current executive officers and directors as a group(7 persons)2,474,28016.4 *Represents beneficial ownership of less than one percent. (1)Represents (i) 930,252 shares of common stock beneficially owned by Excel Ventures II GP, LLC (“Excel”) andcertain of its affiliates and (ii) warrants to purchase 39,599 shares of common stock, as reported on the Schedule13G/A filed with the SEC on February 6, 2019, and the Form 4 filed by Dr. Gullans on February 12, 2018. Theaddress for Excel is 200 Clarendon Street, 17th floor, Boston, MA 02116. (2)Represents 1,383,290 shares held by Venrock Healthcare Capital Partners II, L.P. (“Venrock”) and certain of itsaffiliates as reported on the Schedule 13G filed with the SEC on August 20, 2018. The address for Venrock is 7Bryant Park, 23 Floor, New York, NY 10018. Venrock and each of its affiliates reported on the Schedule 13G haveshared voting power and investment power over these shares.(3)Ms. Sooch’s employment with the Company terminated as of May 23, 2017. Represents (a) 668,732 shares ofcommon stock held by Ms. Sooch, (b) 455,220 shares underlying options to purchase common stock that areexercisable within 60 days of March 11, 2019, (c) 39,431 shares of common stock held by the Arvinder S. SoochTrust dated September 20, 2006, of which Ms. Sooch's spouse is the trustee and (d) 25,000 shares of common stockheld in a grantor retained annuity trust. Ms. Sooch’s beneficial ownership presented herein is based on Companyrecords as of May 2017.156 (1) (2)(3)(4)(5)(6)(7)(8) (9)(10)(11)(12)rdTable of Contents(4)Represents (a) 1,248,914 shares of common stock held by Dr. Bisgaier, (b) 119,125 shares underlying options topurchase common stock that are exercisable within 60 days of March 11, 2019, (c) 82,220 shares of common stockheld by The Charles L. Bisgaier Trust dated November 8, 2000, of which Dr. Bisgaier is the trustee, and(d) 19,228 shares of common stock held by Bisgaier Family, LLC, of which Dr. Bisgaier is a manager. (5)Represents (a) 136,264 shares of common stock held by Mr. Sassine, (b) 84,112 shares underlying options topurchase common stock that are exercisable within 60 days of March 11, 2019 and (c) 15,840 shares underlyingwarrants to purchase common stock that are exercisable within 60 days of March 11, 2019. (6)Represents (a) 14,134 shares of common stock held by Mr. Mathiesen and (b) 221,593 shares underlying options topurchase common stock that are exercisable within 60 days of March 11, 2019.(7) Represents (a) 18,286 shares of common stock held by Mr. Reno and (b) 170,424 shares underlying options topurchase common stock that are exercisable within 60 days of March 11, 2019.(8) Represents (a) 32,062 shares of common stock held by P. Kent Hawryluk, (b) 52,050 shares underlying options topurchase common stock that are exercisable within 60 days of March 11, 2019, (c) 81,889 shares of common stockheld by the P. Kent Hawryluk Revocable Trust, of which Mr. Hawryluk is the trustee and (d) 18,750 sharesunderlying warrants to purchase common stock that are exercisable within 60 days of March 11, 2019 held by theP. Kent Hawryluk Revocable Trust, of which Mr. Hawryluk is the trustee.(9)Represents 172,792 shares underlying options to purchase common stock that are exercisable within 60 days ofMarch 11, 2019.(10)Represents 171,250 shares underlying options to purchase common stock that are exercisable within 60 days ofMarch 11, 2019.(11)Represents (a) 59,833 shares of common stock held by Mr. Lichtinger, (b) 84,112 shares underlying options topurchase common stock that are exercisable within 60 days of March 11, 2019 and (c) 7,920 shares underlyingwarrants to purchase common stock that are exercisable within 60 days of March 11, 2019. (12)Represents (a) 11,935 shares of common stock held by Mr. Kousky, and (b) 60,066 shares underlying options topurchase common stock exercisable within 60 days of March 11, 2019. Securities Authorized for Issuance Under Equity Compensation PlanThe following table presents information as of December 31, 2018 with respect to compensation plans under which shares ofour common stock may be issued.Plan CategoryNumber of securities tobe issued upon exercise ofoutstanding options,warrants and rights (#)Weighted-averageexercise price ofoutstanding options,warrants and rights ($)Number ofsecurities remainingavailable for futureissuance underequity compensationplans (#)Equity compensation plans approved bysecurity holders2,595,0038.96757,032Equity compensation plans not approvedby security holders205,7719.81244,229Total2,800,774 1,001,261 (1)Includes 300,000 shares of common stock that remained available for purchase under the ESPP and 457,032shares of common stock that remained available for issuance under our 2015 Plan. The number of shares of ourcommon stock reserved under the ESPP will automatically increase on January 1 of each calendar year throughJanuary 1, 2026 by the least of (1) 1.0% of the total number of shares of our common stock outstanding onDecember 31 of the preceding calendar year and (2) 75,000 shares. The number of shares of our common stockreserved under our 2015 Plan will automatically increase on January 1 of each157 (1) (2) Table of Contentsyear, continuing through and including January 1, 2026, to an amount equal to 20% of the fully diluted sharesas of December 31 of the preceding calendar year, or a lesser number of shares determined by our board ofdirectors.(2)Includes 244,229 shares of common stock that remained available for issuance under our Inducement Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORINDEPENDENCEThe following includes a summary of transactions since January 1, 2017 to which we have been a party, in which theamount involved in the transaction exceeded the lesser of $120,000 or 1% of the average of the Company’s total assets atyear end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge,beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoingpersons had or will have a direct or indirect material interest, other than equity and other compensation, termination, changeof control and other arrangements, which are described under Part III, Item 11 “Executive Compensation” in this Report.Investor AgreementsIn connection with our Series A convertible preferred stock financing, we entered into an investor rights agreementand right of first refusal and co-sale agreement containing voting rights, information rights, rights of first refusal and co-saleand registration rights, among other things, with each of the holders of our Series A convertible preferred stock. On April 14,2016, we amended the investor rights agreement to provide registration rights to certain holders of our convertible notes. Asdetailed above, certain members of our board of directors, executive officers and related parties were holders of our Series Aconvertible preferred stock prior to the closing of our initial public offering. These rights terminated upon the closing of ourinitial public offering, except for the registration rights described below. These registration rights will terminate as to a givenholder of registrable securities upon the earlier of (i) five years following the closing of our initial public offering, (ii) afterthe consummation of a liquidation event and (iii) when freely tradeable under Rule 144 of the Securities Act.Demand Registration RightsAt any time beginning six months after our initial public offering date, upon the written request of certain of theholders of the registrable securities then outstanding that we file a registration statement under the Securities Act coveringthe registration of the registrable securities having an aggregate offering price to the public of not less than $5 million, wewill be obligated to notify all holders of registrable securities of such request and to use our reasonable best efforts to registerthe sale of all registrable securities that holders may request to be registered. We are not required to effect more than tworegistration statements which are declared or ordered effective. We may postpone the filing or effectiveness of a registrationstatement for up to 90 days once in any twelve month period if our Board determines in its good faith judgment that suchregistration and offering would materially and adversely affect us. As of March 11, 2019, the holders of 1,230,625 shareswere entitled to these demand registration rights."Piggyback" Registration RightsIf we register any securities for public sale, holders of registration rights will have the right to include their shares inthe registration statement. These piggyback registration rights are subject to specified conditions and limitations, includingthe right of the underwriters of any underwritten offering to limit the number of shares having registration rights to beincluded in the registration statement, but not below 30% of the total number of shares included in the registration statement.As of March 11, 2019, the holders of 1,230,625 shares were entitled to these piggyback registration rights.158 Table of ContentsForm S-3 Registration RightsIf we are eligible to file a registration statement on Form S-3, holders of at least 20% of the outstanding registrablesecurities will have the right to demand that we file a registration statement on Form S-3 so long as the aggregate price to thepublic of the securities to be sold under the registration statement on Form S-3 is at least $5 million. We are not required toeffect more than two registrations on Form S-3 in any 12-month period. The right to have such shares registered on Form S-3is further subject to other specified conditions and limitations. Upon such a request, we will be required to use our reasonablebest efforts to file the registration as soon as practicable. As of March 11, 2019, the holders of 1,230,625 shares were entitledto these Form S-3 registration rights.Indemnification AgreementsWe have entered, and intend to continue to enter, into separate indemnification agreements with our directors andexecutive officers, in addition to the indemnification provided for in our amended and restated certificate of incorporationand amended and restated bylaws. These agreements, among other things, require us to indemnify our directors and officersfor certain expenses, including attorneys' fees, judgments, fines and settlement amounts incurred by a director or officer inany action or proceeding arising out of their services as one of our directors or officers or any other company or enterprise towhich the person provides services at our request. We believe that these provisions and indemnification agreements arenecessary to attract and retain qualified persons as directors and officers.Our amended and restated certificate of incorporation and amended and restated bylaws limit our directors' liabilityto the fullest extent permitted under Delaware corporate law. Delaware corporate law provides that directors of a corporationwill not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability:··for any transaction from which the director derives an improper personal benefit; ··for any act or omission not in good faith or that involves intentional misconduct or a knowing violation oflaw; ··under Section 174 of the Delaware General Corporation Law (unlawful payment of dividends or redemptionof shares); or ··for any breach of a director's duty of loyalty to the corporation or its stockholders.If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limitingthe personal liability of directors, then the liability of our directors shall be eliminated or limited to the fullest extentpermitted by the Delaware General Corporation Law, as so amended.Delaware law and our amended and restated certificate of incorporation and our amended and restated bylawsprovide that we will, in certain situations, indemnify our directors and officers and may indemnify other employees and otheragents, to the fullest extent permitted by law. Any indemnified person is also entitled, subject to certain limitations, topayment or reimbursement of reasonable expenses (including attorneys' fees and disbursements) in advance of the finaldisposition of the proceeding.Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers orcontrol persons, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Actand is therefore unenforceable.Insider Participation in Private Placement Certain of our directors and 5% holders participated in our March 2017 private placement wherein we issued andsold units at a price of $9.47 per unit, with each unit consisting of one share of our common stock and a warrant to purchase0.75 shares of common stock. The warrants have an exercise price of $10.40 per share and are exercisable for a159 Table of Contentsperiod of five years from the date of issuance. The following table summarizes units purchased in the private placement byour directors and entities who held more than 5% of our outstanding capital stock at the time of the purchase. NameNumber of Units PurchasedAggregate Purchase Price ($)Greater than 5% stockholders Cormorant Asset Management, LLC52,798499,997.06Excel Venture Fund II, LLC(1)52,798499,997.06Directors Pedro Lichtinger10,55999,993.73Andrew Sassine21,119199,996.93P. Kent Hawryluk(2)25,000236,750.00(1) Our director, Dr. Gullans, was previously a Manager of Excel.(2) Purchased by the P. Kent Hawryluk Revocable Trust, of which Mr. Hawryluk is the trustee. Private Placement Registration Rights AgreementOn March 10, 2017, the Company entered into a Securities Purchase Agreement with certain accredited investors(the “Purchasers”) pursuant to which the Company, in a private placement (the “Private Placement”), agreed to issue and sellto the Purchasers units, each of which consisted of one share of the Company’s common stock, and a warrant to purchase 0.75shares of common stock (the “Warrants”). In connection with the Private Placement, the Company entered into a RegistrationRights Agreement with the Purchasers, dated as of March 10, 2017 (the “Registration Rights Agreement”), pursuant to whichthe Company agreed to file a registration statement with the SEC covering the resale of the shares of common stock sold inthe Private Placement and the shares of common stock issuable upon exercise of the Warrants, within 30 days of the closingof the Private Placement. The Registration Rights Agreement includes customary indemnification rights in connection withthe registration statement.Insider Participation in the Follow-On Public Offering Excel, one of our principal stockholders and a former affiliate of our President and Chief Executive Officer,purchased 71,429 shares for an aggregate purchase price of $500,003 in our underwritten public offering that closed onFebruary 12, 2018.Policies and Procedures for Transactions with Related PartiesTo assist the Company in complying with its disclosure obligations and to enhance the Company's disclosurecontrols, the Board approved a formal policy in June 2016 regarding related person transactions. A "related person" is adirector, officer, nominee for director or a more than 5% stockholder (of any class of the Company's voting stock) since thebeginning of the Company's last completed fiscal year, and their immediate family members. A related person transaction isany transaction or any series of transactions in which the Company was or is to be a participant, the amount involved exceeds$120,000, and in which any related person had or will have a direct or indirect material interest. Specifically, the policy establishes a process for identifying related persons and procedures for reviewing andapproving such related person transactions. In addition, directors and executive officers are required to complete an annualquestionnaire in connection with the Company's proxy statement for its annual meeting of stockholders, which includesquestions regarding related person transactions, and such persons also are required to provide written notice to the Companyor outside legal counsel of any updates to such information prior to the annual meeting. Further, the Company's legal,financial and other departments have established additional procedures to assist the Company in identifying existing andpotential related person transactions and other potential conflict of interest transactions, including policies and proceduresdesigned to comply with Auditing Standard No. 18 issued by the Public Company Accounting Oversight Board.160 Table of Contents The audit committee and/or the independent directors of the Board review such proposed business transactions toensure that the Company's involvement in such transactions is on terms comparable to those that could be obtained in arm'slength dealings with an unrelated third party and is in the best interests of the Company and its stockholders. In addition, under the Code of Business Conduct and Ethics, the Company's employees, officers and directors arediscouraged from entering into any transaction that may cause a conflict of interest for the Company. In addition, they mustreport any potential conflict of interest, including related person transactions, to their supervisor or the compliance officer, asdefined in the Code of Business Conduct and Ethics.Director IndependenceOur common stock is listed on the Nasdaq Global Market (“Nasdaq”). Under the rules of Nasdaq, independentdirectors must comprise a majority of a listed company’s Board. In addition, the rules of Nasdaq require that, subject tospecified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governancecommittees be independent. Under the rules of Nasdaq, a director will only qualify as an “independent director” if, in theopinion of that company’s board of directors, that person does not have a relationship that would interfere with the exerciseof independent judgment in carrying out the responsibilities of a director. Additionally, compensation committee membersmust not have a relationship with us that is material to the director’s ability to be independent from management inconnection with the duties of a compensation committee member.Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”). In order to be considered independent for purposes of Rule 10A-3,a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the auditcommittee, the board of directors or any other board of directors committee: (i) accept, directly or indirectly, any consulting,advisory or other compensatory fee from the listed company or any of its subsidiaries; or (ii) be an affiliated person of thelisted company or any of its subsidiaries.Our Board has undertaken a review of the independence of each director and considered whether each director has amaterial relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his orher responsibilities. As a result of this review, our Board determined that persons who served as members of our Board during2018 were, and all current members of our Board are, “independent directors” as defined under the applicable rules andregulations of the SEC and the listing requirements and rules of Nasdaq, except Dr. Gullans, our President and ChiefExecutive Officer, and Dr. Bisgaier, our Chairman and Chief Scientific Officer. Each member who served on our auditcommittee, compensation committee and nominating and corporate governance committee in 2018 met, and each currentmember of our audit committee, compensation committee and nominating and corporate governance committee meets, therequirements for independence under the current Nasdaq and SEC rules and regulations. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe audit committee has considered the scope and fee arrangements for all services provided by Ernst & Young,taking into account whether the provision of non-audit-related services is compatible with maintaining Ernst & Young’sindependence. We retained Ernst & Young to provide services in the following categories and amounts, and the followingtable presents fees for professional audit services rendered by Ernst & Young for the audit of our annual financial statementsfor the years ended December 31, 2018 and 2017. FEE CATEGORYFISCAL YEAR 2018FISCAL YEAR 2017Audit fees(1)$270,315$362,560Audit-related fees(2)——Tax fees(3)—$4,000All other fees(4)——Total fees$270,315$366,560161 Table of Contents (1)Audit fees include fees for professional services provided by Ernst & Young in connection with the audit of ourfinancial statements, review of our quarterly financial statements, and related services that are typically provided inconnection with registration statements. (2)Audit-related fees include fees billed for assurance and related services reasonably related to the performance of theaudit of our financial statements. There were no audit related fees billed by Ernst & Young in 2018 or 2017. (3)Tax fees relate to permissible services for technical tax advice related to federal and state income tax matters. (4)There were no other fees billed by Ernst & Young for any other services in 2018 or 2017. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered PublicAccounting Firm Our audit committee generally pre-approves all audit and permitted non-audit and tax services provided by theindependent registered public accounting firm. Pre-approval is detailed as to the particular service or category of services andis generally subject to a specific budget. The independent registered public accounting firm and management are required toperiodically report to the audit committee regarding the extent of services provided by the independent registered publicaccounting firm in accordance with this pre-approval, and the fees for the services performed to date. Our audit committeemay also pre-approve particular services on a case-by-case basis. All of the services relating to the fees described in the tableabove were approved by our audit committee. PART IV ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) The following documents are filed as part of this report: 1. Financial Statements See Index to Financial Statements at Item 8 herein. 2. Financial Statement SchedulesSCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS Beginning Additions Ending Balance of Charged to Charged to Balance ofDescription Period Costs and Expenses Paid inCapital Releases Period (in thousands) For the Year Ended December 31, 2016 Valuation allowance for deferred taxes $3,657 $5,937 $(274) $ — $9,320For the Year Ended December 31, 2017 Valuation allowance for deferred taxes $9,320 $6,861 $ — $ — $16,181For the Year Ended December 31, 2018 Valuation allowance for deferred taxes $16,181 $6,685 $ — $ — $22,866 No other financial statement schedules are provided because the information called for is not required or is showneither in the financial statements or notes thereto.162 Table of Contents 3. Exhibits: EXHIBITNUMBER DESCRIPTION OF DOCUMENT 1.1 Equity Distribution Agreement, dated September 1, 2017, by and between the Registrant and Piper Jaffray &Co. (incorporated by reference to Exhibit 1.2 to the Registrant’s Registration Statement on Form S-3, FileNo. 333-220315, filed on September 1, 2017).1.2 Underwriting Agreement, by and between Gemphire and Piper Jaffray & Co. dated February 8, 2018(incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on February 12, 2018).3.1 Third Amended and Restated Certificate of Incorporation of Gemphire Therapeutics Inc. (incorporated byreference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, File No. 001-37809, filed onAugust 10, 2016).3.2 Amended and Restated Bylaws of Gemphire Therapeutics Inc. (incorporated by reference to Exhibit 3.2 tothe Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on August 10, 2016).4.1 Form of Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to theRegistrant’s Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed onJune 13, 2016).4.2 Investor Rights Agreement, dated as of March 31, 2015, by and among the Registrant and the Investorslisted therein as amended by First Amendment to Investor Rights Agreement, dated as of April 14, 2016(incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1, FileNo. 333-210815, filed on April 18, 2016).4.3 Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’sCurrent Report on Form 8-K, File No. 001-37809, filed on March 13, 2017).4.4 Warrant to Purchase Stock, dated July 31, 2018, by and between Gemphire Therapeutics Inc. and SiliconValley Bank (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8- K, FileNo. 001-37809, filed on August 6, 2018).10.1* Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’sRegistration Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).10.2* Form of Amended and Restated 2015 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 tothe Registrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed onJune 13, 2016).10.3* Form of 2016 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to the Registrant'sAmendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed on June 13, 2016).10.4* Employment Agreement by and between the Registrant and Mina Sooch (incorporated by reference toExhibit 10.5 to the Registrant's Registration Statement on Form S-1, File No. 333-210815, filed on April 18,2016).10.5* Employment Agreement by and between the Registrant and Jeffrey S. Mathiesen (incorporated by referenceto Exhibit 10.6 to the Registrant's Amendment No. 1 to the Registration Statement on Form S-1, FileNo. 333-210815, filed on June 13, 2016).10.6* Employment Agreement by and between the Registrant and Charles L. Bisgaier (incorporated by referenceto Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, File No. 333-210815, filed on April18, 2016).10.7* Form of Executive Officer Employment Agreement (incorporated by reference to Exhibit 10.8 to theRegistrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed onJune 13, 2016).163 Table of Contents10.8+ License Agreement, dated April 16, 2011, by and between the Registrant and Pfizer Inc. (incorporated byreference to Exhibit 10.9 to the Registrant’s Amendment No. 1 to the Registration Statement on Form S-1,File No. 333-210815, filed on June 13, 2016).10.9 Lease Agreement, dated as of May 18, 2016 and commencing on August 1, 2016, by and betweenthe Registrant and North Laurel Project, LLC (incorporated by reference to Exhibit 10.11 to theRegistrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed onJune 13, 2016). 10.10 Form of Note Purchase Agreement dated July 31, 2015 as amended on December 10, 2015, March 27, 2016and April 14, 2016 (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statementon Form S-1, File No. 333-210815, filed on April 18, 2016).10.11 Form of Joinder Agreement to Note Purchase Agreement (incorporated by reference to Exhibit 10.12 to theRegistrant’s Registration Statement on Form S-1, File No. 333-210815, filed on April 18, 2016).10.12 Fourth Amendment to Note Purchase Agreement and Convertible Promissory Notes dated April 26, 2016(incorporated by reference to Exhibit 10.14 to the Registrant’s Amendment No. 1 to the RegistrationStatement on Form S-1, File No. 333-210815, filed on June 13, 2016).10.13* Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.15 to theRegistrant's Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-210815, filed onJune 13, 2016).10.14* Gemphire Therapeutics Inc. Inducement Plan (incorporated by reference to Exhibit 10.1 to the Registrant’sCurrent Report on Form 8-K, File No. 001-37809, filed on October 3, 2016).10.15* Form of Stock Option Grant Notice, Option Agreement and Notice of Exercise under the GemphireTherapeutics Inc. Inducement Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s CurrentReport on Form 8-K, File No. 001-37809, filed on October 3, 2016).10.16 Form of Securities Purchase Agreement, dated March 10, 2017 (incorporated by reference to Exhibit 10.1 tothe Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on March 13, 2017).10.17 Form of Registration Rights Agreement, dated March 10, 2017 (incorporated by reference to Exhibit 10.2 tothe Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on March 13, 2017).10.18 Loan and Security Agreement dated as of July 24, 2017 by and between Gemphire Therapeutics Inc. andSilicon Valley Bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form8- K, File No. 001-37809, filed on July 25, 2017).10.19* Separation and Release Agreement between Gemphire Therapeutics Inc. and Mina Sooch dated May 30,2017 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, File No.001-37809, filed on August 14, 2017).10.20* Offer Letter between Gemphire Therapeutics Inc. and Dr. Steve Gullans dated June 8, 2017 (incorporated byreference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, File No. 001-37809, filed onAugust 14, 2017).10.21* Amendment to Inducement Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s CurrentReport on Form 8-K, File No. 001-37809, filed on April 12, 2018).10.22* Employment Agreement between Gemphire Therapeutics Inc. and Dr. Steve Gullans dated May 1, 2018(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on May 3, 2018).10.23* Amendment to the Gemphire Therapeutics Inc. Amended and Restated 2015 Equity Incentive Plan(incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, File No. 001-37809, filed on May 24, 2018).10.24+ Amended and Restated License Agreement effective August 2, 2018 by and between GemphireTherapeutics Inc. and Pfizer Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s CurrentReport on Form 8-K, File No. 001-37809, filed on August 6, 2018).10.25 First Amendment to Loan and Security Agreement, dated as of July 31, 2018, by and between GemphireTherapeutics Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to the Registrant’sCurrent Report on Form 8-K, File No. 001-37809, filed on August 6, 2018).164 Table of Contents10.26* Employment Agreement by and between the Registrant and Seth Reno.10.27* Separation and Release Agreement with Jeffrey S. Mathiesen dated as of September 21, 2018 (incorporatedby reference to Exhibit 10.3 to the Registrant’s Current Report on Form 10-Q, File No. 001-37809, filed onNovember 8, 2018).10.28* Separation and Release Agreement with Dr. Lee Golden dated as of September 21, 2018 (incorporated byreference to Exhibit 10.4 to the Registrant’s Current Report on Form 10-Q, File No. 001-37809, filed onNovember 8, 2018). 23.1 Consent of Ernst &Young LLP31.1 Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Exchange Act Rule13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of The Sarbanes Oxley Act of 200232.1 Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Indicates management contract or compensatory plan.+ Registrant has omitted and filed separately with the SEC portions of the exhibit pursuant to a confidentialtreatment request under Rule 406 promulgated under the Securities Act. 165 Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto duly authorized.Date: March 15, 2019GEMPHIRE THERAPEUTICS INC. By:/S/ STEVEN GULLANS Steven Gullans, Ph.D. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the dates indicated.SIGNATURE TITLE DATE /s/ STEVEN GULLANS President and Chief Executive Officer March 15, 2019Steven Gullans, Ph.D. (Principal Executive Officer and Principal FinancialOfficer) /s/ CHARLES L. BISGAIER, Ph.D. Chief Scientific Officer and Chairman of the March 15, 2019Charles L. Bisgaier, Ph.D. Board of Directors /s/ KENNETH KOUSKY Member of the Board of Directors March 15, 2019Kenneth Kousky /s/ PEDRO LICHTINGER Member of the Board of Directors March 15, 2019Pedro Lichtinger /s/ ANDREW SASSINE Member of the Board of Directors March 15, 2019Andrew Sassine 166EXHIBIT 10.26EMPLOYMENT AGREEMENTTHIS EMPLOYMENT AGREEMENT (this “Agreement”) by and between GEMPHIRE THERAPEUTICSINC., a Delaware corporation (the “Company”) and SETH C. RENO (the “Executive”) is signed by the Companyand the Executive on August 15, 2016 (the “Effective Date”).BACKGROUNDThe board of directors of the Company (the “Board”) has determined that it is in the best interests of theCompany and its stockholders to employ the Executive. The Executive is currently employed as its Chief CommercialOfficer subject to an offer letter dated August 6, 2015 and effective August 10, 2015, (the “Prior Agreement”). TheCompany and the Executive desire to enter into this Agreement to embody the terms of those continued relationshipsand to amend, restate and supersede the terms and conditions of the Prior Agreement in their entirety. This Agreementshall represent the entire understanding and agreement between the parties with respect to the Executive’s employmentwith the Company.NOW, THEREFORE, in consideration of the foregoing and the terms and conditions set forth herein, theparties agree as follows:TERMS AND CONDITIONS1. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Executive in its employ,and the Executive hereby agrees to remain in the employ of the Company, subject to the terms and conditions of thisAgreement, for the period commencing on the Effective Date and ending on the first anniversary of the Effective Date(the “Initial Term”). The term of this Agreement will automatically be renewed for a term of one (1) year (each, a“Renewal Term”) at the end of the Initial Term and at the end of each Renewal Term thereafter, provided that theBoard does not provide written notice to the Executive of its intention not to renew this Agreement ninety (90) daysprior to the expiration of the Initial Term or any Renewal Term. For purposes of this Agreement, “EmploymentPeriod” includes the Initial Term and any Renewal Term(s) thereafter. Notwithstanding the foregoing, in the event ofa Change in Control, the date the Change in Control occurs shall become the Effective Date for all purposes thereafter,and each Change in Control thereafter shall result in a new Effective Date on the date of the latest Change inControl. This Agreement, on the Effective Date, amends, restates and supersedes the Prior Agreement.2. TERMS OF EMPLOYMENT.(a) Position and Duties.(i) During the Employment Period, the Executive shall serve as the Chief CommercialOfficer of the Company, and in such other position or positions with the1  Company and its subsidiaries as are consistent with the Executive’s position as Chief Commercial Officer of theCompany, and shall have such duties and responsibilities as are assigned to the Executive by the Board consistent withthe Executive’s position as Chief Commercial Officer of the Company.(ii) During the Employment Period, and excluding any periods of vacation and sick leave towhich the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal businesshours and on a full time basis to the business and affairs of the Company, to discharge the responsibilities assigned tothe Executive hereunder, and to use the Executive’s reasonable best efforts to perform faithfully and efficiently suchresponsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A)be employed by the Company or any of its subsidiaries or Affiliates, (B) serve on corporate, civic or charitable boards,committees, or advisory boards, (C) deliver lectures, fulfill speaking engagements or teach at educational institutions,and (D) manage personal investments, so long as such activities do not significantly interfere with the performance ofthe Executive’s responsibilities as an employee of the Company in accordance with this Agreement.(b) Compensation.(i) Base Salary. During the Employment Period, the Executive shall receive an annualbase salary (the “Annual Base Salary”) at least equal to $250,000, subject to applicable withholding taxes, whichshall be paid in accordance with the Company’s normal payroll practices for senior executive officers of the Companyas in effect from time to time. During the Employment Period, the Annual Base Salary shall be reviewed at leastannually by the Board or the Compensation Committee of the Board (the “Compensation Committee”). Any increasein the Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under thisAgreement. The Annual Base Salary shall not be reduced after any such increase (unless otherwise agreed to by theExecutive) and the term “Annual Base Salary” as utilized in this Agreement shall refer to the Annual Base Salary as soincreased or adjusted.(ii) Annual Bonus. In addition to the Annual Base Salary, for each fiscal year endingduring the Employment Period, the Executive shall be eligible for an annual cash bonus (the “Annual Bonus”), asdetermined by the Compensation Committee, which value shall be up to forty (40) percent of the Annual Base Salaryand as determined in accordance with the policies and practices generally applicable to other senior executive officersof the Company. Each such Annual Bonus awarded to the Executive shall be paid sometime during the first seventy-five (75) days of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless theExecutive shall elect, in compliance with Treasury Regulation 1.409A-2(a), to defer the receipt of such Annual Bonus.(iii) Long-Term Incentive Compensation. During the Employment Period, the Executiveshall be entitled to participate in any stock option, performance share, performance unit or other equity based long-termincentive compensation plan, program or arrangement (the “Plans”) generally made available to senior executiveofficers of the Company, on substantially the same terms and conditions as generally apply to such other2  officers, except that the size of the awards made to the Executive shall reflect the Executive’s position with theCompany and the Compensation Committee’s views.(iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or theExecutive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfarebenefit plans, practices, policies and programs provided by the Company and its Affiliated companies (including,without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travelaccident insurance plans and programs) made available to other senior executive officers of the Company.(v) Shares and Stock Options. As of the Effective Date, the Executive shall be entitled toretain all shares of the Company’s common stock (the “Common Stock”) and stock options held by the Executive asof the Effective Date (the “Executive’s Current Equity”); provided, however, to the extent that the Executive remainsemployed by the Company as of the closing date of a Change in Control, the Executive’s Current Equity shall fullyvest effective as of the closing date of a Change in Control.(vi) Expenses. During the Employment Period, the Executive shall be entitled to receiveprompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the plans, practices,policies and programs of the Company.(vii) Vacation. During the Employment Period, the Executive shall be entitled to paidvacation in accordance with the plans, practices, policies and programs of the Company consistent with the treatmentof other senior executive officers of the Company.3. TERMINATION OF EMPLOYMENT.(a) Notwithstanding Section 1, the Employment Period shall end upon the earliest to occur of (i)the Executive’s death, (ii) a Termination due to Disability, (iii) a Termination for Cause, (iv) the Termination Datespecified in connection with any exercise by the Company of its Termination Right, (v) a Termination for GoodReason, or (vi) the termination of this Agreement by Executive pursuant to Section 3(b). If the Employment Periodterminates as of a date specified under this Section 3, the Executive agrees that, upon written request from theCompany, the Executive shall resign from any and all positions the Executive holds with the Company and any of itssubsidiaries and Affiliates, effective immediately following receipt of such request from the Company (or at such laterdate as the Company may specify).(b) This Agreement may be terminated by the Executive at any time upon thirty (30) days priorwritten notice to the Company or upon such shorter period as may be agreed upon between the Executive and theBoard. In the event of a termination by the Executive, the Company shall be obligated only to continue to pay theExecutive’s salary and provide other benefits provided by this Agreement up to the date of the termination.(c) Benefits Payable Under Termination.(i) In the event of the Executive’s death during the Employment Period or a Terminationdue to Disability, the Executive or the Executive’s beneficiaries or legal3  representatives shall be provided the Unconditional Entitlements (as defined below), including, but not limited to, anysuch Unconditional Entitlements that are or become payable under any Company plan, policy, practice or program orany contract or agreement with the Company by reason of the Executive’s death or Termination due to Disability.(ii) In the event of the Executive’s Termination for Cause or termination by the Executiveother than a Termination for Good Reason, the Executive shall be provided the Unconditional Entitlements.(iii) In the event of (1) a Termination for Good Reason, (2) the exercise by the Company ofits Termination Rights or (3) the Executive’s termination as a result of the Board’s decision to provide the Executivewith written notice of the Company’s intention not to renew this Agreement ninety (90) days prior to the expiration ofthe Initial Term or any Renewal Term, the Executive shall be provided the Unconditional Entitlements and, subject tothe Executive signing and delivering to the Company and not revoking before the sixtieth (60) day following theTermination Date, a general release of claims in favor of the Company and certain related parties in a form reasonablysatisfactory to the Company and the Executive, which the Company shall provide to the Executive within seven (7)days following the Termination Date (the “Release”), the Company shall provide the Executive the ConditionalBenefits. Any and all amounts payable and benefits or additional rights provided to the Executive upon a terminationof the Executive’s employment pursuant to this Section 3(c) (other than the Unconditional Entitlements) shall only bepayable or provided if the Executive signs and delivers the Release and if the Release becomes irrevocable prior to thesixtieth (60) day following the Termination Date. In no event shall the Executive be obligated to seek otheremployment or take any other action by way of mitigation of the amounts payable to the Executive under any of theprovisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earnedby the Executive as a result of employment by a subsequent employer.(d) Unconditional Entitlements. For purposes of this Agreement, the “UnconditionalEntitlements” to which the Executive may become entitled under Section 3(c) are as follows:(i) Earned Amounts. The Earned Compensation shall be paid within thirty (30) daysfollowing the termination of the Executive’s employment hereunder, or if any part thereof constitutes a bonus which issubject to or conditioned upon any performance conditions, within thirty (30) days following the determination thatsuch conditions have been met, provided that in no event shall the bonus be paid later than ninety (90) days followingthe Executive’s termination of employment.(ii) Benefits. All benefits payable to the Executive under any employee benefit plans(including, without limitation any pension plans or 401(k) plans) of the Company or any of its Affiliates applicable tothe Executive at the time of termination of the Executive’s employment with the Company and all amounts andbenefits (other than the Conditional Benefits) which are vested or which the Executive is otherwise entitled to receiveunder the terms of or in accordance with any plan, policy, practice or program of, or any contract or agreement with,the Company, at or subsequent to the date of the Executive’s termination without regard to the performance by theExecutive of further services or the resolution of a4 thth contingency, shall be paid or provided in accordance with and subject to the terms and provisions of such plans, itbeing understood that all such benefits shall be determined on the basis of the actual date of termination of theExecutive’s employment with the Company.(iii) Indemnities. Any right which the Executive may have to claim a defense and/orindemnity for liabilities to or claims asserted by third parties in connection with the Executive’s activities as an officer,director or employee of the Company shall be unaffected by the Executive’s termination of employment and shallremain in effect in accordance with its terms.(iv) Medical Coverage. The Executive shall be entitled to such continuation of health carecoverage as is required under, and in accordance with, applicable law or otherwise provided in accordance with theCompany’s policies. The Executive shall be notified in writing of the Executive’s rights to continue such coverageafter the termination of the Executive’s employment pursuant to this Section 3(d)(iv), provided that the Executivetimely complies with the conditions to continue such coverage. The Executive understands and acknowledges that theExecutive is responsible to make all payments required for any such continued health care coverage that the Executivemay choose to receive.(v) Business Expenses. The Executive shall be entitled to reimbursement, in accordancewith the Company’s policies regarding expense reimbursement as in effect from time to time, for all business expensesincurred by the Executive prior to the termination of the Executive’s employment.(vi) Stock Options/Equity Awards. Except to the extent additional rights are provided uponthe Executive’s qualifying to receive the Conditional Benefits, the Executive’s rights with respect to any stock optionsand/or other equity awards granted to the Executive by the Company shall be governed by the terms and provisions ofthe Plans and Plan rules, provided that the Executive shall have ninety (90) days from the Termination Date to exercisevested options, and award agreements pursuant to which such stock options and equity awards were awarded, as ineffect at the Termination Date.(e) Conditional Benefits. For purposes of this Agreement, the “Conditional Benefits” to whichthe Executive may become entitled are as follows:(i) Severance Amount. The Company shall pay the Executive a lump sum amount equal tothe Severance Amount. Subject to Section 3(c)(iii) above, the Severance Amount shall be paid on the date that is sixty(60) days after the Termination Date (or upon the Executive’s death, if earlier).(ii) COBRA. Provided that the Executive timely elects continued health insurance coverageunder the federal COBRA law, the Company will pay one-hundred percent of the cost of premiums for such healthinsurance continuation coverage during the twelve (12) months following the Termination Date. Notwithstandinganything to the contrary in this Agreement, the Executive’s entitlement to any benefits or payments under this Section3(e)(ii) shall cease on such date that the Executive becomes eligible to receive health insurance5  coverage from another employer group health plan due to Executive’s employment with a future employer.(iii) Stock Options. All of the Executive’s stock options shall vest and become immediatelyexercisable in accordance with the applicable Original Stock Option Award Documents, subject to the same conditionsas if the Executive had remained employed under this Agreement through the end of the Employment Period. Onceexercisable, all stock options shall remain exercisable until the stock option termination date. All of the Executive’sstock options that were vested and exercisable at the Termination Date shall remain exercisable until the expiration dateof such stock options. Except as otherwise expressly provided herein, all stock options shall continue to be subject tothe Original Stock Option Award Documents.(iv) Equity Awards. Any restricted stock or other equity award subject to vesting shallcontinue to vest in accordance with the terms of the Original Award Documents, regardless of the Executive’stermination of employment. Except as otherwise expressly provided herein, all such restricted stock or other equityawards shall be subject to, and administered in accordance with, the Original Award Documents.(v) Additional Distribution Rules. Notwithstanding any other payment date or scheduleprovided in this Agreement to the contrary, if the Executive is deemed on the Termination Date of the Executive’semployment to be a “specified employee” within the meaning of that term under Section 409A of the Code and theregulations thereunder (“Section 409A”), then each of the following shall apply:(A) With regard to any payment that is considered “nonqualified deferredcompensation” under Section 409A and payable on account of a “separation from service” (within the meaning ofSection 409A and as provided in Section 3(g) of this Agreement), such payment shall not be made prior to the datewhich is the earlier of (1) the expiration of the six (6)-month period measured from the date of the Executive’s“separation from service,” and (2) the date of the Executive’s death (the “Delay Period”) to the extent required underSection 409A. Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 3(e)(v)(A)(whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shallbe paid to the Executive in a lump sum, and all remaining payments due under this Agreement shall be paid orprovided in accordance with the normal payment dates specified for them herein; and(B) To the extent that benefits to be provided during the Delay Period are considered“nonqualified deferred compensation” under Section 409A provided on account of a “separation from service,” theExecutive shall pay the cost of such benefits during the Delay Period, and the Company shall reimburse the Executive,to the extent that such costs would otherwise have been paid or reimbursed by the Company or to the extent that suchbenefits would otherwise have been provided by the Company at no cost to the Executive, for the Company’s share ofthe cost of such benefits upon expiration of the Delay Period, and any remaining benefits shall be paid, reimbursed orprovided by the Company in accordance with the procedures specified herein.6  The foregoing provisions of this Section 3(e)(v)(A) shall not apply to any payments or benefits that areexcluded from the definition of “nonqualified deferred compensation” under Section 409A, including, withoutlimitation, payments excluded from the definition of “nonqualified deferred compensation” on account of beingseparation pay due to an involuntary separation from service under Treasury Regulation 1.409A-1(b)(9)(iii) or onaccount of being a “short-term deferral” under Treasury Regulation 1.409A-1(b)(4).(f) Definitions. For purposes of this Agreement, the following terms shall have the meaningsascribed to them below:(i) “Affiliate” means any corporation, partnership, limited liability company, trust or otherentity which directly, or indirectly through one or more intermediaries, controls, is under common control with, or iscontrolled by, the Company.(ii) “Change in Control” means the occurrence, in a single transaction or in a series ofrelated transactions, of any one or more of the following events:(A) any Exchange Act Person becomes the Owner, directly or indirectly, of securitiesof the Company representing more than 50% of the combined Voting Power of the Company’s then outstandingsecurities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, aChange in Control will not be deemed to occur (1) in connection with the issuance of securities of the Company as partof a joint venture or strategic partnership to which the Company is party, (2) on account of the acquisition of securitiesof the Company directly from the Company, (3) on account of the acquisition of securities of the Company by aninvestor, any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transactionor series of related transactions the primary purpose of which is to obtain financing for the Company through theissuance of equity securities, (4) on account of the acquisition of securities of the Company by any individual who is,on the IPO Date, either an executive officer or a member of the Board (either, an “IPO Investor”) and/or any entity inwhich an IPO Investor has a direct or indirect interest (whether in the form of voting rights or participation in profits orcapital contributions) of more than 50% (collectively, the “IPO Entities”), (5) on account of the IPO Entitiescontinuing to hold shares that come to represent more than 50% of the combined Voting Power of the Company’s thenoutstanding securities as a result of the conversion of any class of the Company’s securities into another class of theCompany’s securities having a different number of votes per share pursuant to the conversion provisions set forth in theCompany’s Amended and Restated Certificate of Incorporation, or (6) solely because the level of Ownership held byany Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstandingVoting Securities as a result of a repurchase or other acquisition of Voting Securities by the Company reducing thenumber of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence)as a result of the acquisition of Voting Securities by the Company, and after such share acquisition, the Subject Personbecomes the Owner of any additional Voting Securities that, assuming the repurchase or other acquisition had notoccurred, increases the percentage of the then outstanding Voting Securities Owned by the Subject Person over thedesignated percentage threshold, then a Change in Control will be deemed to have occurred;7  (B) a merger, consolidation or similar transaction involving (directly or indirectly) theCompany is consummated and, immediately after the consummation of such merger, consolidation or similartransaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either(1) outstanding voting securities representing more than 50% of the combined outstanding voting power of thesurviving entity in such merger, consolidation or similar transaction or (2) more than 50% of the combined outstandingvoting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case insubstantially the same proportions as their Ownership of the outstanding voting securities of the Company immediatelyprior to such transaction; provided, however, that a merger, consolidation or similar transaction will not constitute aChange in Control under this prong of the definition if the outstanding voting securities representing more than 50% ofthe combined voting power of the surviving entity or its parent are owned by the IPO Entities;(C) a sale, lease, exclusive license or other disposition of all or substantially all of theconsolidated assets of the Company and its subsidiaries is consummated, other than a sale, lease, license or otherdisposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, morethan 50% of the combined voting power of the voting securities of which are Owned by stockholders of the Companyin substantially the same proportions as their Ownership of the outstanding voting securities of the Companyimmediately prior to such sale, lease, license or other disposition; provided, however, that a sale, lease, exclusivelicense or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries willnot constitute a Change in Control under this prong of the definition if the outstanding voting securities representingmore than 50% of the combined voting power of the acquiring entity or its parent are owned by the IPO Entities; or(D) individuals who, on the Effective Date, 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 orrecommended by a majority vote of the members of the Incumbent Board then still in office, such new member will,for purposes of this Agreement, be considered as a member of the Incumbent Board.Notwithstanding the foregoing definition, in the case of any payment or benefit that constitutes nonqualifieddeferred compensation under Section 409A of the Code, if necessary in order to ensure that the Executive does notincur liability for additional tax under Section 409A of the Code, a transaction (or series of related transactions) shallconstitute a Change in Control only if, in addition to satisfying the foregoing definition, such transaction (or series ofrelated transactions) also satisfies the definition of a “change in control event” under Treas. Reg. Section 1.409A-3(i)(5).(iii) “Code” means the Internal Revenue Code of 1986, as amended and the rules andregulations promulgated thereunder.(iv) “Earned Compensation” means any Annual Base Salary earned, but unpaid, forservices rendered to the Company on or prior to the date on which the Employment Period ends pursuant to Section3(a) (but excluding any salary and interest accrued thereon payment of which has been deferred).8  (v) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and therules and regulations promulgated thereunder.(vi) “Exchange Act Person” means any natural person, entity or “group” (within themeaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” will not include (A) theCompany or any subsidiary of the Company, (B) any employee benefit plan of the Company or any subsidiary of theCompany or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or anysubsidiary of the Company, (C) an underwriter temporarily holding securities pursuant to a registered public offering ofsuch securities, (D) an entity Owned, directly or indirectly, by the stockholders of the Company in substantially thesame proportions as their Ownership of stock of the Company, or (E) any natural person, entity or “group” (within themeaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the IPO Date, is the Owner, directly or indirectly,of securities of the Company representing more than 50% of the combined voting power of the Company’s thenoutstanding securities.(vii) “IPO Date” means the date of the underwriting agreement between the Company andthe underwriter(s) managing the initial public offering of the Common Stock, pursuant to which the Common Stock ispriced for the initial public offering.(viii) “Non-Compete Amount” means, if the Executive is an officer or employee of theCompany, if a Change in Control occurs and if during the 24 month period following the Change in Control theExecutive is terminated without Cause (other than because of the Executive’s death or Disability) or the Executiveterminates the Executive’s employment for Good Reason, the amount mutually agreed upon by the Company and theExecutive in exchange for the Executive’s covenant not to engage in or otherwise compete against the businessengaged in by the Company, directly or indirectly, whether as an employee, consultant, independent contractor,partner, shareholder, investor or in any other capacity, for a one-year period following termination of the Executive’semployment with the Company.(ix) “Original Stock Option Award Documents” means, with respect to any stock option,the terms and provisions of the award agreement and Plan pursuant to which such stock option was granted, each as ineffect on the Termination Date.(x) “Original Award Documents” means, with respect to any restricted stock or otherequity award, the terms and provisions of the award agreement related to and the Plan governing such restricted stockor other equity award, each as in effect on the Termination Date.(xi) “Own,” “Owned,” “Owner,” “Ownership” means a person or entity will be deemedto “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person orentity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or sharesvoting power, which includes the power to vote or to direct the voting, with respect to such securities.(xii) “Person” shall have the same meaning as ascribed to such term in Section 3(a)(9) of theExchange Act, as supplemented by Section 13(d)(3) of the Exchange Act,9  and shall include any group (within the meaning of Rule 13d-5(b) under the Exchange Act); provided that Person shallnot include (A) the Company or any of its Affiliates, or (B) any employee benefit plan (including an employee stockownership plan or employee stock purchase plan) sponsored by the Company or any of its Affiliates.(xiii) “Severance Amount” means an amount equal to 0.5 times the sum of (A) the AnnualBase Salary as in effect as of the Termination Date less the Non-Compete Amount (if applicable) and (B) an amountequal to a prorated portion of the Executive’s cash bonus for the year in which the Termination Date occurs, with suchprorated amount determined by multiplying the Executive’s cash bonus for the year in which the Termination Dateoccurs by a fraction, the numerator of which is the number of full months during such year in which the Executive wasemployed and the denominator of which is twelve (12).(xiv) “Termination for Cause” means a termination of the Executive’s employment by theCompany due to (A) an intentional act or acts of dishonesty undertaken by the Executive and intended to result insubstantial gain or personal enrichment to the Executive at the expense of the Company, (B) unlawful conduct or grossmisconduct that is willful and deliberate on the Executive’s part and that, in either event, is materially injurious to theCompany, (C) the conviction of the Executive of, or the Executive’s entry of a no contest or nolo contendre plea to, afelony, (D) material breach by the Executive of the Executive’s fiduciary obligations as an officer or director of theCompany, (E) a persistent failure by the Executive to perform the duties and responsibilities of the Executive’semployment hereunder, which failure is willful and deliberate on the Executive’s part and is not remedied by theExecutive within 30 days after the Executive’s receipt of written notice from the Company of such failure, or (F)material breach of any terms and conditions of this Agreement by Executive, which breach has not been cured by theExecutive within ten days after written notice thereof to Executive from the Company. For the purposes of thisSection 3(f)(xiv), no act or failure to act on the Executive’s part shall be considered “dishonest,” “willful” or“deliberate” unless intentionally done or omitted to be done by the Executive in bad faith and without reasonable beliefthat the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based uponauthority given pursuant to a resolution duly adopted by the Board shall be conclusively presumed to be done, oromitted to be done, by the Executive in good faith and in the best interests of the Company.(xv) “Termination Date” means the earlier to occur of (A) the date the Company specifies inwriting to the Executive in connection with the exercise of its Termination Right or (B) the date the Executive specifiesin writing to the Company in connection with any notice to effect a Termination for Good Reason. Notwithstandingthe foregoing, a termination of employment will not be deemed to have occurred for purposes of any provision of thisAgreement providing for the payment of any amounts or benefits subject to Section 409A upon or following atermination of employment unless such termination is also a “separation from service” (within the meaning of Section409A), and notwithstanding anything contained herein to the contrary, the date on which such separation from servicetakes place will be the Termination Date.(xvi) “Termination due to Disability” means a termination of the Executive’s employment bythe Company because the Executive has been incapable, after10  reasonable accommodation, of substantially fulfilling the positions, duties, responsibilities and obligations set forth inthis Agreement because of physical, mental or emotional incapacity resulting from injury, sickness or disease for aperiod of (A) six (6) consecutive months or (B) an aggregate of nine (9) months (whether or not consecutive) in anytwelve (12) month period. Any question as to the existence, extent or potentiality of the Executive’s disability shall bedetermined by a qualified physician selected by the Company with the consent of the Executive, which consent shallnot be unreasonably withheld. The Executive or the Executive’s legal representatives or any adult member of theExecutive’s immediate family shall have the right to present to such physician such information and arguments as to theExecutive’s disability as he, she or they deem appropriate, including the opinion of the Executive’s personal physician.(xvii) “Termination for Good Reason” means a termination of the Executive’s employmentby the Executive within thirty (30) days of the Company’s failure to cure, in accordance with the procedures set forthbelow, any of the following events: (A) a reduction in Executive’s Annual Base Salary as in effect immediately prior tosuch reduction by more than ten percent (10%) without Executive’s written consent, unless such reduction is madepursuant to an across the board reduction applicable to all senior executives of the Company; (B) the removal of theExecutive by the Company from the position of Chief Commercial Officer of the Company; (C) a material reduction inthe Executive’s duties and responsibilities as in effect immediately prior to such reduction; or (D) a material breach ofany material provision of this Agreement by the Company to which the Executive shall have delivered a written noticeto the Board within forty-five (45) days of the Executive’s having actual knowledge of the occurrence of one of suchevents stating that the Executive intends to terminate the Executive’s employment for Good Reason and specifying thefactual basis for such termination, and such event, if capable of being cured, shall not have been cured within twenty-one (21) days of the receipt of such notice. Notwithstanding the foregoing, a termination shall not be treated as aTermination for Good Reason if the Executive shall have consented in writing to the occurrence of the event givingrise to the claim of Termination for Good Reason.(xviii) “Termination Right” means the right of the Company, in its sole, absolute andunfettered discretion, to terminate the Executive’s employment under this Agreement for any reason or no reasonwhatsoever. For the avoidance of doubt, any Termination for Cause effected by the Company shall not constitute theexercise of its Termination Right.(xix) “Voting Power” means such number of Voting Securities as shall enable the holdersthereof to cast all the votes which could be cast in an annual election of directors of a company.(xx) “Voting Securities” means all securities entitling the holders thereof to vote in anannual election of directors of a company.(g) Conflict with Plans. As permitted under the terms of the applicable Plans, the Company andthe Executive agree that the definitions of Termination for Cause or Termination for Good Reason set forth in thisSection 3 shall apply in place of any similar definition or comparable concept applicable under either of the Plans (orany similar definition in any successor plan).11  (h) Section 409A. It is intended that payments and benefits under this Agreement either beexcluded from or comply with the requirements of Section 409A and the guidance issued thereunder and, accordingly,to the maximum extent permitted, this Agreement shall be interpreted consistent with such intent. In the event that anyprovision of this Agreement is subject to but fails to comply with Section 409A, the Company may revise the terms ofthe provision to correct such noncompliance to the extent permitted under any guidance, procedure or other methodpromulgated by the Internal Revenue Service now or in the future or otherwise available that provides for suchcorrection as a means to avoid or mitigate any taxes, interest or penalties that would otherwise be incurred by theExecutive on account of such noncompliance. Provided, however, that in no event whatsoever shall the Company beliable for any additional tax, interest or penalty imposed upon or other detriment suffered by the Executive underSection 409A or damages for failing to comply with Section 409A. Solely for purposes of determining the time andform of payments due the Executive under this Agreement (including any payments due under Sections 3(c) or 5) orotherwise in connection with the Executive’s termination of employment with the Company, the Executive shall not bedeemed to have incurred a termination of employment unless and until the Executive shall incur a “separation fromservice” within the meaning of Section 409A. The parties agree, as permitted in accordance with the final regulationsthereunder, a “separation from service” shall occur when the Executive and the Company reasonably anticipate that theExecutive’s level of bona fide services for the Company (whether as an employee or an independent contractor) willpermanently decrease to no more than forty (40) percent of the average level of bona fide services performed by theExecutive for the Company over the immediately preceding thirty-six (36) months. The determination of whether andwhen a separation from service has occurred shall be made in accordance with this subparagraph and in a mannerconsistent with Treasury Regulation Section 1.409A-1(h). All reimbursements and in-kind benefits provided underthis Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that suchreimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i)any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specifiedin this Agreement), (ii) the amount of expenses eligible for reimbursement (and the in-kind benefits to be provided)during a calendar year may not affect the expenses eligible for reimbursement (and the in-kind benefits to be provided)in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of thecalendar year following the year in which the expense is incurred, and (iv) the right to reimbursement (or in-kindbenefits) is not subject to set off or liquidation or exchange for any other benefit. For purposes of Section 409A, theExecutive’s right to any installment payments under this Agreement shall be treated as a right to receive a series ofseparate and distinct payments. Whenever a payment under this Agreement specifies a payment period with referenceto a number of days (e.g., “payment shall be made within ninety (90) days following the date of termination”), theactual date of payment within the specified period shall be within the sole discretion of the Company.4. EXECUTIVE REMEDY. The Executive shall be under no obligation to seek other employment orother engagement of the Executive’s services. The Executive acknowledges and agrees that the payment and rightsprovided under Section 3 are fair and reasonable, and are the Executive’s sole and exclusive remedy, in lieu of all otherremedies at law or in equity, for termination of the Executive’s employment by the Company upon exercise of itsTermination Right pursuant to this Agreement or upon a Termination for Good Reason.12  5. ADDITIONAL PAYMENTS FOLLOWING A CHANGE IN CONTROL.(a) If, during the Employment Period and within two (2) years after a Change in Control, theCompany shall terminate the Executive’s employment other than due to the Executive’s death, a Termination forCause, a Termination due to Disability or if the Executive shall effect a Termination for Good Reason:(i) the Company shall pay to the Executive, in a lump sum in cash within thirty (30) daysafter the Termination Date, the aggregate of the following amounts:(A) the Unconditional Entitlements;(B) the amount equal to the product of 1 times the sum of (y) the Annual Base Salary,and (z) the greater of the target bonus for the then current fiscal year under the Plans or any successor annual bonusplan and the average Annual Bonus paid to or for the benefit of the Executive for the prior three (3) full years (or anyshorter period during which the Executive has been employed by the Company), and(ii) the Company shall provide the Executive the Conditional Benefits minus the SeveranceAmount.(b) If any payment or benefit (including payments and benefits pursuant to this Agreement) theExecutive would receive in connection with a Change in Control from the Company or otherwise (the “Payment”)would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for thisparagraph, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Companyshall cause to be determined, before any amounts of the Payment are paid to the Executive, which of the following twoalternative forms of payment shall be paid to the Executive: (A) payment in full of the entire amount of the Payment (a“Full Payment”), or (B) payment of only a part of the Payment so that the Executive receives the largest paymentpossible without the imposition of the Excise Tax (a “Reduced Payment”). A Full Payment shall be made in the eventthat the amount received by the Executive on a net after-tax basis is greater than what would be received by theExecutive on a net after-tax basis if the Reduced Payment were made, otherwise a Reduced Payment shall be made. Ifa Reduced Payment is made, (i) the Payment shall be paid only to the extent permitted under the Reduced Paymentalternative, and the Executive shall have no rights to any additional payments and/or benefits constituting the Payment,and (ii) reduction in payments and/or benefits shall occur in the following order: (A) reduction of cash payments; (B)cancellation of accelerated vesting of equity awards other than stock options; (C) cancellation of accelerated vesting ofstock options; and (D) reduction of other benefits paid to Executive. In the event that acceleration of compensationfrom the Executive’s equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse orderof the date of grant.(c) The independent registered public accounting firm engaged by the Company for general auditpurposes as of the day prior to the effective date of the Change in Control, or a nationally recognized law firm, shallmake all determinations required to be made under this Section 5. If the independent registered public accounting firmor nationally13  recognized law firm so engaged by the Company is serving as accountant or auditor for the individual, entity or groupeffecting the Change in Control, the Company shall appoint a nationally recognized law firm or independent registeredpublic accounting firm or law firm to make the determinations required hereunder. The Company shall bear allexpenses with respect to the determinations by such independent registered public accounting firm required to be madehereunder.(d) The independent registered public accounting firm or law firm engaged to make thedeterminations hereunder shall provide its calculations, together with detailed supporting documentation, to theCompany and the Executive within fifteen (15) calendar days after the date on which Executive’s right to a Payment istriggered (if requested at that time by the Company or Executive) or such other time as requested by the Company orExecutive. Any good faith determinations of the accounting firm or law firm made hereunder shall be final, bindingand conclusive upon the Company and Executive.(e) The Company’s obligation to make the payments provided for in this Agreement and otherwiseto perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or otherclaim, right or action which the Company may have against the Executive or others. In no event shall the Executive beobligated to seek other employment or take any other action by way of mitigation of the amounts payable to theExecutive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not theExecutive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, alllegal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcomethereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision ofthis Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive aboutthe amount of any payment pursuant to this Agreement), plus, in each case, interest on any delayed payment at theapplicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.6. CONFIDENTIALITY.(a) Confidentiality. Without the prior written consent of the Company, except (y) as reasonablynecessary in the course of carrying out the Executive’s duties hereunder or (z) to the extent required by an order of acourt having competent jurisdiction or under subpoena from an appropriate government agency, the Executive shall notdisclose any Confidential Information unless such Confidential Information has been previously disclosed to the publicby the Company or has otherwise become available to the public (other than by reason of the Executive’s breach ofthis Section 6(a)). The term “Confidential Information” shall include, but shall not be limited to: (i) the identities ofthe existing and prospective customers or clients of the Company and its Affiliates, including names, addresses, creditstatus, and pricing levels; (ii) the buying and selling habits and customs of existing and prospective customers or clientsof the Company and its Affiliates; (iii) financial information about the Company and its Affiliates; (iv) product andsystems specifications, concepts for new or improved products and other product or systems data; (v) the identities of,and special skills possessed by, employees of the Company and its Affiliates; (vi) the identities of and pricinginformation about the suppliers and vendors of the Company and its Affiliates; (vii) training programs developed by the14  Company or its Affiliates; (viii) pricing studies, information and analyses; (ix) current and prospective products andinventories; (x) financial models, business projections and market studies; (xi) the financial results and businessconditions of the Company and its Affiliates; (xii) business plans and strategies of the Company and its Affiliates;(xiii) special processes, procedures, and services of suppliers and vendors of the Company and its Affiliates; and(xiv) computer programs and software developed by the Company or its Affiliates.(b) Company Property. Promptly following the Executive’s termination of employment, theExecutive shall return to the Company all property of the Company, and all copies thereof in the Executive’spossession or under the Executive’s control, except that the Executive may retain the Executive’s personal notes,diaries, rolodexes, mobile devices, calendars and electronic calendars, and correspondence of a personal nature.(c) Nonsolicitation. The Executive agrees that, while the Executive is employed by the Companyand during the one-year period following the Executive’s termination of employment with the Company (the“Restricted Period”), the Executive shall not directly or indirectly, (i) solicit any individual who is, on the TerminationDate (or was, during the six-month period prior to the Termination Date), employed by the Company or its Affiliates toterminate or refrain from renewing or extending such employment or to become employed by or become a consultantto any other individual or entity other than the Company or its Affiliates or (ii) induce or attempt to induce anycustomer or investor (in each case, whether former, current or prospective), supplier, licensee or other business relationof the Company or any of its Affiliates to cease doing business with the Company or such Affiliate, or in any wayinterfere with the relationship between any such customer, investor, supplier, licensee or business relation, on the onehand, and the Company or any of its Affiliates, on the other hand. Any payments owed to Executive at time ofseparation as described herein shall be contingent upon Executive’s compliance with the post-employmentnonsolicitation provisions.(d) Noncompetition. The Executive agrees that, during the Restricted Period, the Executive shallnot be employed by, serve as a consultant to, or otherwise assist or directly or indirectly provide services to aCompetitor (as defined below) if (i) the services that the Executive is to provide to the Competitor are the same as, orsubstantially similar to, any of the services that the Executive provided to the Company or the Affiliates, and suchservices are to be provided with respect to any location in which the Company or an Affiliate had material operationsduring the twelve (12) month period prior to the Termination Date, or with respect to any location in which theCompany or an Affiliate had devoted material resources to establishing operations during the twelve (12) month periodprior to the Termination Date; or (ii) the trade secrets, Confidential Information, or proprietary information (including,without limitation, confidential or proprietary methods) of the Company and the Affiliates to which the Executive hadaccess could reasonably be expected to benefit the Competitor if the Competitor were to obtain access to such secretsor information. For purposes of this paragraph, services provided by others shall be deemed to have been provided bythe Executive to Competitor if the Executive had material supervisory responsibilities with respect to the provision ofsuch services. The term “Competitor” means any enterprise (including a person, firm, business, division, or other unit,whether or not incorporated) during any period in which a material portion of its business is (and during any period inwhich it intends to enter into business activities that would be) materially competitive in any way with any business inwhich the Company or any of the Affiliates were15  engaged during the twelve (12) month period prior to the Executive’s Termination Date (including, without limitation,any business if the Company devoted material resources to entering in such business during such twelve (12) monthperiod), but for purposes of clause (c) above, the term “Competitor “ shall be limited to those businesses to which theExecutive devoted more than an insignificant amount of time while employed by the Company. Notwithstanding theforegoing, the term “Competitor” shall not include a business of a Competitor if such business would not, as a stand-alone enterprise, constitute a “Competitor” under the foregoing definition, provided that Executive does not render anyservices to, or otherwise assist the portion of the business that competes with the Company and its Affiliates. For theavoidance of doubt, the Company’s and Affiliates’ businesses shall include, without limitation, the lines of business setforth in the Company’s annual report on Form 10-K, provided that nothing in this sentence shall be construed to limitthe type of business of the Company and the Affiliates or the restrictions with respect to such businesses in thefuture. Any payments owed to Executive at time of separation as described herein shall be contingent uponExecutive’s compliance with the post-employment noncompetition provisions.(e) Equitable Remedies. The Executive acknowledges that the Company would be irreparablyinjured by a violation of Section 6 and the Executive agrees that the Company, in addition to any other remediesavailable to it for such breach or threatened breach, on meeting the standards required by law, shall be entitled to apreliminary injunction, temporary restraining order, or other equivalent relief, restraining the Executive from any actualor threatened breach of Section 6. If a bond is required to be posted in order for the Company to secure an injunctionor other equitable remedy, the parties agree that said bond need not be more than a nominal sum.(f) Employee Proprietary Information and Inventions Assignment. The terms of that certainEmployee Proprietary Information, Inventions Assignment and Non-Competition Agreement between the Executiveand the Company dated August 6, 2015 are hereby incorporated by reference (the “Invention AssignmentAgreement”). To the extent that there are any conflicts between the terms and conditions of the Invention AssignmentAgreement and this Agreement, the terms and conditions of this Agreement shall control. All non-conflicting terms ofthe Invention Assignment Agreement are hereby expressly preserved.(g) Severability; Blue Pencil. The Executive acknowledges and agrees that the Executive has hadthe opportunity to seek advice of counsel in connection with this Agreement and the restrictive covenants containedherein are reasonable in geographical scope temporal duration and in all other respects. If it is determined that anyprovision of this Section 6 is invalid or unenforceable, the remainder of the provisions of this Section 6 shall notthereby be affected and shall be given full effect, without regard to the invalid portions. If any court or other decision-maker of competent jurisdiction determines that any of the covenants in this Section 6 is unenforceable because of theduration or geographic scope, of such provision, then after such determination becomes final and unappealable, theduration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable,and in its reduced form, such provision shall be enforced.16  7. SUCCESSORS.(a) This Agreement is personal to the Executive and without the prior written consent of theCompany shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. ThisAgreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.(b) This Agreement shall inure to the benefit of and be binding upon the Company and itssuccessors and assigns and any party acting in the form of a receiver or trustee capacity.(c) The Company will require any successor (whether direct or indirect, by purchase, merger,consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expresslyand agree to perform this Agreement in the same manner and to the same extent that the Company would be requiredto perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Companyas hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees toperform this Agreement by operation of law, or otherwise.8. MISCELLANEOUS.(a) This Agreement shall be construed, and the rights and obligations of the parties hereunderdetermined, in accordance with the substantive laws of the State of Michigan, without regard to its conflict-of-lawsprinciples. For the purposes of any suit, action or proceeding based upon, arising out of or relating to this Agreementor the negotiation, execution or performance hereof, the parties hereby expressly submit to the jurisdiction of all federaland state courts sitting within the confines of the Federal Eastern District of Michigan (the “Venue Area”) and consentthat any order, process, notice of motion or other application to or by any such court or a judge thereof may be servedwithin or without such court’s jurisdiction by registered mail or by personal service in accordance with Section 8(b). The parties agree that such courts shall have the exclusive jurisdiction over any such suit, action or proceedingcommenced by either or both of said parties. Each party hereby irrevocably waives any objection that it may now orhereafter have to the laying of venue of any suit, action or proceeding based upon, arising out of or relating to thisAgreement or the negotiation, execution or performance hereof, brought in any federal or state court sitting within theconfines of the Venue Area and hereby further irrevocably waives any claim that any such suit, action or proceedingbrought in any such court has been brought in an inconvenient forum. The captions of this Agreement are not part ofthe provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwisethan by a written agreement executed by the parties hereto or their respective successors and legal representatives.(b) All notices and other communications hereunder shall be in writing and shall be given by handdelivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed asfollows:If to the Executive: At Executive’s address as it appears in theCompany’s books and records or at such otherplace as Executive shall have designated bynotice as herein provided to the Company17  If to the Company: Gemphire Therapeutics Inc.Attn: CEOGemphire Therapeutics Inc.17199 N. Laurel Park Drive, Ste. 401Livonia, Michigan 48152Telephone: (248) 681-9815Fax: (734) 864-5765 with a copy to: Honigman Miller Schwartz and Cohn LLP350 East Michigan Avenue, Suite 300Kalamazoo, Michigan 49007Attention: Phillip D. Torrence, Esq.Telephone: (269) 337-7702Fax: (269) 337-7703Email: ptorrence@honigman.com or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice andcommunications shall be effective when actually received by the addressee.(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validityor enforceability of any other provision of this Agreement.(d) The Company hereby agrees to indemnify the Executive and hold the Executive harmless to theextent provided under Certificate of Incorporation of the Company (as amended), the By-Laws of the Company (asamended) and the Indemnification Agreement entered into by and between the Company and the Executive againstand in respect of any and all actions, suits, proceedings, claims, demands, judgments, costs, expenses (includingreasonable attorney’s fees), losses, and damages resulting from the Executive’s good faith performance of theExecutive’s duties and obligations with the Company. This obligation shall survive the termination of the Executive’semployment with the Company.(e) From and after the Effective Date, the Company shall cover the Executive under directors’ andofficers’ liability insurance both during and, while potential liability exists, after the Employment Period in the sameamount and to the same extent as the Company covers its other executive officers and directors.(f) The Company may withhold from any amounts payable under this Agreement such Federal,state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.(g) The Executive’s or the Company’s failure to insist upon strict compliance with any provision ofthis Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, withoutlimitation, the right of the executive to effect a Termination for Good Reason shall not be deemed to be a waiver ofsuch provision of right or any other provision or right of this Agreement.18  (h) This Agreement, the Invention Assignment Agreement, and all agreements, documents,instruments, schedules, exhibits or certificates prepared in connection herewith, represent the entire understanding andagreement between the parties with respect to the subject matter hereof, supersede all prior agreements or negotiationsbetween such parties, including the Prior Agreement, and may be amended, supplemented or changed only by anagreement in writing which makes specific reference to this Agreement or the agreement or document deliveredpursuant hereto, as the case may be, and which is signed by the party against whom enforcement of any suchamendment, supplement or modification is sought. SIGNATURES ON THE FOLLOWING PAGE 19  IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date firstabove written.THE EXECUTIVE: THE COMPANY: GEMPHIRE THERAPEUTICS INC./s/ Seth C. Reno SETH C. RENO By:/s/ Mina Sooch Name:MINA SOOCH Title:CEO & PRESIDENT SIGNATURE PAGE TO EMPLOYMENT AGREEMENTExhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-225435, Form S-8 No. 333-222675, Form S-8 No. 333-213946, Form S-8 No. 333-213014, Form S-3 No. 333-220315 and Form S-3 No. 333-217296) ofGemphire Therapeutics Inc. of our report dated March 15, 2019, with respect to the financial statements and schedule ofGemphire Therapeutics Inc. included in the Annual Report on Form 10-K for the year ended December 31, 2018. /s/ ERNST & YOUNG LLP Detroit, MichiganMarch 15, 2019 Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICERPURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a), AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES OXLEY ACT OF 2002 I, Steven Gullans, Ph.D., certify that: 1. I have reviewed this annual report on Form 10-K of Gemphire Therapeutics Inc. for the period ended December 31, 2018; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-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) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and theaudit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: March 15, 2019 /s/ STEVEN GULLANS Name:Steven Gullans, Ph.D. Title:President and Chief Executive Officer (Principal Executive Officer and Principal FinancialOfficer) Exhibit 32.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER,PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THESARBANES-OXLEY ACT OF 2002* Pursuant to the requirement set forth in Rule 13a-14(b) or Rule 15d-14(b) of the Securities and Exchange Act of 1934, asamended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code, Steven Gullans, Ph.D.,President and Chief Executive Officer of Gemphire Therapeutics Inc. (the “Company”), hereby certifies that, to the best of hisknowledge: 1. The Company’s Annual Report on Form 10-K for the period ended December 31, 2018, to which this Certification isattached as Exhibit 32.1 (the “Annual Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of theExchange Act, and 2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition of theCompany at the end of the period covered by the Annual Report and results of operations of the Company for the periodcovered by the Annual Report. ___/s/ STEVEN GULLANS President and Chief Executive Officer(Principal Executive Officer and Principal Financial Officer) Dated: March 15, 2019 * This certification accompanies the report to which it relates, is not deemed filed with the Securities and ExchangeCommission and is not to be incorporated by reference into any filing of Gemphire Therapeutics Inc. under the SecuritiesAct of 1933, as amended, or the Exchange Act made before or after the date of the report, irrespective of any generalincorporation language contained in such filing. 

Continue reading text version or see original annual report in PDF format above