KemPharm Inc
Annual Report 2016

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K ☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 ☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 001-36913 KEMPHARM, INC.(Exact Name of Registrant as Specified in Its Charter) Delaware 20-5894398(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 2500 Crosspark Road, Suite E126, Coralville, IA 52241 (319) 665-2575(Address of principal executive offices and zip code) (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, $0.0001 par value The NASDAQ Stock Market LLC(NASDAQ Global Market) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☐ No ☒ Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ☐ No ☒ Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.: Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒(Do not check if smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2016, the last business dayof the registrant’s most recently completed second fiscal quarter, was approximately $46,412,563, based upon the closing sales price for the registrant’scommon stock, as reported on the NASDAQ Global Market. The calculation of the aggregate market value of voting and non-voting common equityexcludes 2,985,534 shares of common stock the registrant held by executive officers, directors and stockholders that the registrant concluded wereaffiliates of the registrant on that date. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct orindirect, to direct or cause the direction of management or policies of the registrant or that such person is controlled by or under common control with theregistrant. As of March 7, 2017, the registrant had 14,646,982 shares of common stock outstanding. Documents Incorporated by Reference Portions of the registrant’s definitive proxy statement for its 2017 annual meeting of stockholders are incorporated herein by reference in Part III of thisAnnual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120days of the registrant’s fiscal year ended December 31, 2016. Except with respect to information specifically incorporated by reference in this AnnualReport on Form 10-K, the definitive proxy statement is not deemed to be filed as part of this Annual Report on Form 10-K.  KEMPHARM, INC.FORM 10-K Page PART I Item 1.Business4Item 1A.Risk Factors22Item 1B.Unresolved Staff Comments60Item 2.Properties60Item 3.Legal Proceedings60Item 4.Mine Safety Disclosures60 PART II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities61Item 6.Selected Financial Data61Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations62Item 7A.Quantitative and Qualitative Disclosures About Market Risk77Item 8.Financial Statements and Supplementary Data77Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosures77Item 9A.Controls and Procedures77Item 9B.Other Information77 PART III Item 10.Directors, Executive Officers and Corporate Governance78Item 11.Executive Compensation78Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters78Item 13.Certain Relationships and Related Transactions, and Director Independence78Item 14.Principal Accounting Fees and Services78 PART IV Item 15.Exhibits and Financial Statement Schedules79 Signatures102  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under theSecurities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-lookingstatements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,”“will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,”“predicts,” “assume,” “intend,” “potential,” “continue” or other similar words or the negative of these terms. These statements are only predictions. Wehave based these forward-looking statements largely on our current expectations and projections about future events and financial trends that webelieve may affect our business, financial condition and results of operations. The outcome of the events described in these forward-looking statementsis subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this report. Accordingly, you should not place unduereliance upon these forward-looking statements. We cannot assure you that the events and circumstances reflected in the forward-looking statementswill be achieved or occur, the timing of events and circumstances and actual results could differ materially from those projected in the forward lookingstatements. Forward-looking statements contained in this report include, but are not limited to, statements about: ●the progress of, timing of and amount of expenses associated with our research, development and commercialization activities; ●the timing, conduct and success of our clinical studies for our product candidates; ●our ability to obtain U.S. and foreign regulatory approval for our product candidates and the ability of our product candidates to meetexisting or future regulatory standards; ●our expectations regarding federal, state and foreign regulatory requirements; ●the therapeutic benefits and effectiveness of our product candidates; ●the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our product candidates; ●our ability to manufacture sufficient amounts of our product candidates for clinical studies and products for commercialization activities; ●our intention to seek to establish strategic collaborations or partnerships for the development or sale of our product candidates; ●our expectations as to future financial performance, expense levels and liquidity sources; ●the timing of commercializing our product candidates; ●our ability to compete with other companies that are or may be developing or selling products that are competitive with our productcandidates; ●anticipated trends and challenges in our potential markets; ●our ability to attract and retain key personnel; and ●other factors discussed elsewhere in this report. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We have included importantfactors in the cautionary statements included in this report, particularly in the section entitled “Risk Factors” that we believe could cause actual resultsor events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact ofany future acquisitions, mergers, dispositions, joint ventures or investments we may make. Except as required by law, we do not assume any intent toupdate any forward-looking statements after the date on which the statement is made, whether as a result of new information, future events orcircumstances or otherwise. NOTE REGARDING COMPANY REFERENCE Unless the context otherwise requires, we use the terms “KemPharm,” “Company,” “we,” “us” and “our” in this Annual Report on Form 10-K to refer toKemPharm, Inc. We have proprietary rights to a number of trademarks used in this Annual Report on Form 10-K that are important to our business,including KemPharm® and the KemPharm logo. All other trademarks, trade names and service marks appearing in this Annual Report on Form 10-Kare the property of their respective owners. Solely for convenience, the trademarks and trade names in this Annual Report on Form 10-K are referred towithout the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullestextent under applicable law, their rights thereto. NOTE REGARDING MARKET AND INDUSTRY DATA This Annual Report on Form 10-K includes statistical and other industry and market data that we obtained from industry publications and research,surveys and studies conducted by third parties. Any information in this Annual Report on Form 10-K provided by Symphony Health Solutions, or SHS, is an estimate derived from the use of informationunder license from the following SHS service: SHS Pharmaceutical Audit Suite (PHAST), in each case, for the period January 2012 to December 2016.SHS expressly reserves all rights, including rights of copying, distribution and republication.  PART I ITEM 1.BUSINESS. Overview We are a clinical-stage specialty pharmaceutical company engaged in the discovery and development of proprietary prodrugs that we believe will beimproved versions of widely prescribed, approved drugs. We employ our Ligand Activated Therapy, or LAT, platform technology to create ourprodrugs. We are building a pipeline of prodrug product candidates that target large market opportunities in pain, attention deficit hyperactivity disorder,or ADHD, and central nervous system, or CNS, disorders. Our two lead product candidates are KP415, our extended release, or ER, d-threo-methylphenidate product candidate for the treatment of ADHD, and KP201/IR, our acetaminophen, or APAP, free, single-entity, benzhydrocodonehydrochloride immediate-release, or IR, abuse-deterrent product candidate designed for the treatment of acute pain. We own worldwide commercial rightsfor all of our product candidates, except that Shire Pharmaceuticals, LLC, or Shire, has a right of first refusal to acquire, license or commercialize KP415. We previously submitted a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, for our product candidate Apadaz, whichconsists of KP201, our prodrug of hydrocodone, and acetaminophen. In June 2016, the FDA issued a complete response letter, or CRL, for our ApadazNDA. Generally, the FDA issues CRLs to indicate that the FDA considers the review cycle for an application complete and that the application is notready for approval in its present form. In its CRL, the FDA advised us that it did not believe our proposed labeling included in the application accuratelyconveyed the outcome of our abuse deterrence studies of Apadaz. In August 2016, we completed our end-of-review meeting with the FDA. At the end-of-review meeting, we discussed with the FDA the issues identified by the FDA in the Apadaz NDA and what we believe is the potential to achieve a pathforward for an Apadaz product label that could include abuse deterrence claims. The meeting also involved discussions pertaining to abuse deterrence inrelation to the broader IR prescription opioid market, hydrocodone-acetaminophen combination products, and published industry guidance from the FDAconcerning the evaluation and labeling of abuse deterrent opioids. In November 2016, we elected to continue the regulatory review process for Apadazwith the submission of a Formal Dispute Resolution Request, or FDRR, to the FDA. We anticipate up to twelve months may be required to complete allparts of the FDRR process. Key members of our senior management, while at New River Pharmaceuticals Inc., were instrumental in the development of Vyvanse, a prodrug ofamphetamine indicated for ADHD, through FDA marketing approval. New River Pharmaceuticals was acquired by Shire plc in 2007 and Vyvansegenerated over $2.0 billion in sales in 2016. We use our LAT platform technology to discover and develop prodrugs that improve one or more of the attributes of approved drugs, such assusceptibility to abuse, bioavailability and safety. A prodrug is a precursor chemical compound of a drug that is inactive or less than fully active, which isthen converted in the body to its active form through a normal metabolic process. Where possible, we seek, in part, to develop prodrugs that will beeligible for approval under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or the FFDCA, otherwise known as a 505(b)(2) NDA, whichallows us to rely on the FDA’s previous findings of safety and effectiveness for one or more approved products, if we demonstrate such reliance isscientifically appropriate. Because our prodrugs are novel combinations of an FDA-approved drug, referred to as the parent drug, with one or moreligands, they may be new molecular entities, or NMEs, and thus may be eligible for composition-of-matter patent protection. An NME is a drugcontaining an active ingredient that has not been approved or marketed in the United States. We intend to advance our pipeline of product candidates for the treatment of ADHD, pain and various CNS indications, and we anticipate reportinghuman proof-of-concept, or POC, data for KP201/IR in 2018, additional pharmacokinetic, or PK, data for KP415 in 2017 and pivotal efficacy trial data forKP415 in 2018. We filed an Investigational New Drug application, or IND, for KP511/ER, our extended release formulation of KP511, our prodrug ofhydromorphone, for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternativetreatment options are inadequate, which took effect in March 2016 and received "Fast Track" designation by the FDA in May 2016. We also filed anIND for KP415, which took effect in October 2016, and an IND for KP201/IR, which took effect in November 2016 and received "Fast Track" designationfor KP201/IR in December 2016. In addition, we anticipate submitting an NDA for each of KP415 and KP201/IR (APAP-free) in 2018, potentiallyfollowed by an NDA for each of KP511/IR and KP511/ER in 2019. We plan to employ our LAT platform technology and development expertise todevelop additional product candidates that address unmet medical needs in large, established markets. We believe our product candidates may be eligiblefor composition-of-matter patent protection and we intend to use the 505(b)(2) NDA pathway when available, which we believe may reduce drugdevelopment time, risk and expense. As of December 31, 2016, our patent portfolio consisted of 69 granted patents and 70 pending patent applications worldwide. Within that patentportfolio, we have received granted U.S. composition-of-matter patents covering KP201, KP201-related compositions-of-matter, and prodrugs underlyingtwo of our other product candidates. Our Strategy Our goal is to be a leading specialty pharmaceutical company focused on the discovery and development of novel prodrugs. Key components of ourstrategy include, for example: ●Leverage our LAT platform technology to improve the attributes of approved drugs in large markets. We plan to employ our LAT platformtechnology to develop additional prodrugs that have improved properties over approved drugs and address unmet medical needs in large,established markets. We intend to develop prodrugs of FDA-approved drugs in multiple therapeutic areas. ●Advance the development of our pipeline product candidates. We plan to advance the development of our lead product candidates, KP415, forthe treatment of ADHD and KP201/IR (APAP-free), for the short-term management of acute pain. We plan to initiate PK and human abuseliability studies related to KP415 and KP201/IR, respectively, in 2017. We also anticipate beginning a pivotal efficacy trial for KP415 in 2017.We are also developing KP511/ER, for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatmentand for which alternative treatment options are inadequate, KP511/IR, for the short duration management of acute pain, KP303, our prodrug ofquetiapine, for the treatment of schizophrenia and other CNS disorders, KP606/IR, our IR formulation of our prodrug of oxycodone, for themanagement of moderate to severe pain where the use of an opioid analgesic is appropriate, and KP746, our prodrug of oxymorphone, for themanagement of moderate to severe pain where the use of an opioid analgesic is appropriate.  ●Continue to build a global intellectual property portfolio. We intend to vigorously pursue composition-of-matter patent protection for ourprodrugs in markets covering a majority of the global commercial opportunity. 4 Our LAT Prodrug Platform Technology We use our LAT platform technology to create prodrugs by chemically attaching one or more molecules, referred to as ligands, to an FDA-approvedparent drug. We typically use ligands that have been demonstrated to be safe in toxicological studies or have been granted Generally Recognized as Safe,or GRAS, status for food use by the FDA. Our prodrugs are chemical successors of the parent drugs, but may be considered to be NMEs and thus may beeligible for potential protection by composition-of-matter patents. When the prodrug is administered to a patient as intended, the targeted humanmetabolic processes, such as those in the gastrointestinal, or GI, tract, separate the ligand from the prodrug and release the parent drug, which can thenexert its therapeutic effect. We select ligands that, when combined with the parent drug, create prodrugs believed to have improved drug attributes whilemaintaining efficacy potentially equivalent to the parent drug. We believe that our LAT platform technology offers the following potential benefits: ●Improved drug properties. We seek to develop prodrugs with improved attributes over FDA-approved drugs, such as reduced susceptibility toabuse, enhanced bioavailability and increased safety. ●Composition-of-matter patent protection. Our prodrugs combine an FDA-approved parent drug with one or more ligands to create NMEs andmay be eligible for patent protection, provided that all other applicable legal and regulatory requirements are met. We seek patent protection notonly for our prodrug product candidates, but also for related compounds with the intention of creating potential heightened barriers to marketentry. ●Eligibility for 505(b)(2) NDA pathway. Our LAT platform technology allows us to develop prodrugs that may be eligible to use the 505(b)(2)NDA pathway. Under that regulatory pathway, if we are able to demonstrate the bioequivalence of our product candidates to appropriateapproved drugs, we will then be able to reference the FDA’s previous findings of safety and effectiveness for the approved drugs in our 505(b)(2)NDA submissions. This may allow us to avoid the significant time and expense of conducting large clinical trials and eliminate the need forsome preclinical activities. The Unmet Need for Addressing Early Morning Behavioral Deficits and Maintaining Consistent, Sustained Efficacy in Daily ADHD Treatment The ADHD market is relatively well served by a number of methylphenidate and amphetamine stimulate products. While many of the currently marketedstimulant products provide good symptom control for up to 12 hours post-dose, there is increasing attention to addressing early morning behavioraldeficits. Such early-morning deficits can include difficulties getting out of bed, difficulty getting ready for school, arguing and excessive struggling, and extremeirritability. A recent study, authored by Floyd R. Sallee and published in the Journal of Child & Adolescent Psychopharmacology, entitled "EarlyMorning Functioning in Stimulant-Treated Children and Adolescents with Attention-Deficit/Hyperactivity Disorder, and its Impact onCaregivers," characterized the frequency and severity of ADHD symptoms throughout the day in children and adolescents treated with stable doses ofstimulant medications. Results of that particular study indicated that the most severe symptoms occurred during the early morning routine, followed by evening homework timeand bedtime. The time from awakening to arriving at school can comprise up to 20% of waking hours per day (2-3 hours), and therefore such symptomscan cause significant distress for both children and caregivers. Therefore, we believe there is a need to develop a methylphenidate product that providesearly-morning control of symptoms while also providing sustained, consistent efficacy through the day and into the early evening hours. 5 The Epidemic of Prescription Drug Abuse in the United States The United States is facing an epidemic of prescription drug abuse. According to the U.S. Department of Health and Human Services, or HHS, prescriptiondrug overdose death rates in the United States have increased five-fold since 1980, and by 2009, drug overdose deaths outnumbered deaths due to motorvehicle crashes. HHS also estimates that opioid analgesics were involved in approximately 60% of U.S. drug overdose deaths where a drug was specifiedin 2010. The economic costs of this public health problem are significant. A study published in 2011 in a peer-reviewed medical journal estimated thatthe costs of the non-medical use of prescription opioids in the United States are over $50 billion annually, including medical and substance abusetreatment costs, lost work productivity and criminal justice costs. The increasing negative social consequences and costs of prescription drug abuse have led to a number of regulatory and legislative actions andproposals, including: ●FDA Guidance. In January 2013, the FDA published draft guidance with regard to the evaluation and labeling of abuse-deterrent opioids. Theguidance was published in final form in April 2015. The FDA guidance provides direction as to the studies and data required for obtainingabuse-deterrent claims in a product label. The draft guidance describes four categories of label claims for abuse-deterrent products. Depending onproduct and study data, a combination of categories can be included in the label claims. The FDA guidance lists the following theoreticalexamples: ●Category 1–in vitro data demonstrate the product has physical and chemical properties that are expected to deter intravenous abuse.However, abuse is still possible by the oral and nasal routes. ●Category 1 and 2–in vitro data demonstrate that the product has physical and chemical properties that are expected to deter oral, nasal andintravenous abuse. However, abuse of intact product is still possible by the oral route. ●Category 2 and 3–pharmacokinetic and clinical abuse potential studies indicate that the product has properties that are expected to deterabuse via the oral, intranasal and intravenous routes. However, abuse of product by these routes is still possible. ●Category 4–data demonstrated a reduction in the abuse of the product in the community setting compared to the levels of abuse, overdose,and death that occurred when only formulations of the same opioid without abuse-deterrent properties were available. This reduction inabuse appears to be attributable to the product’s formulation, which deters abuse by injection or snorting of the manipulated product.However, such abuse of this product is still possible, and the product’s abuse deterrence properties do not deter abuse associated withswallowing the intact formulation. If a product is approved by the FDA to include such claims in its label, the applicant may use information about the abuse-deterrent features of theproduct in its marketing efforts to physicians. ●FDA Authority. In an April 2013 letter to the U.S. House of Representatives’ Committee on Energy and Commerce, the FDA outlined itsauthority to address the issue of prescription opioid abuse in the United States. The FDA asserted that, if it determines that a formulation of anextended-release opioid drug product has abuse-deterrent properties, it has the authority to refrain from approving non-abuse-deterrentformulations of the drug and to initiate procedures to withdraw the non-abuse-deterrent formulations already on the market. ●FDA Action. The FDA has approved the inclusion of language regarding the ability to deter abuse in the product labels for nine abuse-deterrentopioids, OxyContin, Targiniq ER, Embeda, Hysingla, MorphaBond, Xtampza, Troxyca, Arymo and Vantrela. These actions reinforce the FDA’spublic statement that the development of abuse-deterrent opioid analgesics is a public health priority. ●FDA Public Meetings. In October 2014, the FDA hosted a public meeting to discuss the development, assessment and regulation of abuse-deterrent formulations of opioid medications. In the announcement for the public meeting, the FDA anticipated that, after abuse-deterrentformulations become available for a number of different opioid medications and after it gains more experience with formulations withmeaningful abuse-deterrent properties, the FDA may determine that the risks outweigh the benefits for all or most opioid products without abuse-deterrent properties. On October 31 and November 1, 2016, the FDA convened a public meeting for Abuse-Deterrent Generic Products andStandardization of In Vitro Testing. The public meeting was held to review and evaluate FDA draft guidance to establish a pathway for genericabuse-deterrent formulation approvals and to standardize testing requirements for In Vitro testing regimes. The FDA has not indicated a timelinefor finalizing this draft guidance. 6 Our Prodrug Product Candidates We have employed our LAT platform technology to create a portfolio of product candidates that we believe will offer significant improvements overFDA-approved and widely prescribed drugs. Our pipeline of product candidates is summarized in the table below: Selected KemPharm Prodrug Product Candidates Product Development KeyIndication / Parent Drug Candidate Status MilestoneADHD Methylphenidate (controlled release) KP415 Clinical NDA Submission - 2018Pivotal Efficacy TrialData - 2018Pain Hydrocodone (IR) KP201/IR (APAP-free) "Fast Track"DesignationDecember 2016 NDA Submission - 2018Human POC Data - 2017Hydromorphone (ER) KP511/ER "Fast Track"DesignationMay 2016 NDA Submission - 2019Human POC Data - 2018Hydromorphone (IR) KP511/IR Clinical NDA Submission - 2019Human POC Data - 2018Oxycodone (IR) KP606/IR Preclinical Oxymorphone KP746 Preclinical CNS Quetiapine KP303 Preclinical KP415 Overview KP415 is our prodrug of methylphenidate, which we are developing for the treatment of ADHD. The ADHD market is largely served by the stimulantproducts methylphenidate and amphetamine. KP415 is designed to be a controlled release, or CR, abuse-deterrent methylphenidate product. We plan to seek approval of KP415 under the 505(b)(1) NDA pathway, which will not allow us to rely on the FDA's previous findings of safety andeffectiveness for one or more approved products that may be available for a 505(b)(2) NDA. We anticipate reporting additional PK data for KP415 in 2017 and pivotal efficacy trial data for KP415 in 2018 and submitting a 505(b)(1) NDA for KP415 in 2018. KP415 has received "Fast Track" designationby the FDA. Under our asset purchase agreement with Shire, we granted Shire a right of first refusal to acquire, license or commercialize KP415. The right of firstrefusal may be exercised by Shire for a period of 30 business days following Shire's receipt of written notice from us of the existence of a bona fide offerfrom a third party to acquire, license or commercialize KP415. We are also party to an agreement with MonoSol Rx, LLC, or MonoSol, pursuant to which MonoSol has the right to receive an amount equal to apercentage in the low teens of any value generated by KP415, and any product candidates arising therefrom, including royalty payments on any licenseof KP415, the sale of KP415 to a third party or the commercialization of KP415. Market Opportunity We believe the ADHD market would be receptive to new branded drugs that have improved properties when compared to current treatments. We believe anew product in the form of a prodrug that has abuse-deterrent features and a more consistent controlled release drug delivery mechanism may providea new treatment option in this large market segment. While methylphenidate is available as a generic product, the branded formulations, Concerta,Focalin XR, Quillivant XR and Daytrana, accounted for sales of $800 million in 2016. Key Product Features of KP415 Based on our preclinical and clinical data, we believe KP415, if approved by the FDA, may have valuable product features and may provide significantbenefits to patients, physicians, and society when compared to other FDA-approved and widely prescribed methylphenidate products: ●​Abuse-deterrent technology. In order to evaluate the abuse-deterrent qualities of KP415, we conducted preclinical studies in rats to compare theexposure to methylphenidate following intranasal and intravenous, or IV, administration of KP415 as compared to intranasal and IV administrationof methylphenidate hydrochloride. We observed significantly lower concentrations of methylphenidate following intranasal and IV administrationof KP415 compared to intranasal and IV administered methylphenidate hydrochloride. KP415 incorporates our LAT platform technology and,based on our preclinical and clinical studies, we believe it will have abuse-deterrent characteristics. ●​Faster early-morning symptom control and sustained effectiveness. In December 2016, we announced the results of our Phase I POC clinical trialof KP415. This trial was designed to assess the relative PK of 32 mg of KP415 compared with 36 mg of Concerta after oral administration underfasted conditions. In this trial, we observed that KP415 had PK properties that produced earlier d-methylphenidate exposure followed by a slowerextended release of d-methylphenidate relative to the comparator, Concerta. We believe that this PK profile may provide quicker onset of actionthan existing alternatives, thereby providing faster control of symptoms following administration early in the morning, as well as sustained,consistent effectiveness through the day and into the early evening hours.  ●Once-daily dosing. PK data from our preclinical studies suggest that the time to maximum plasma concentration of methylphenidate after oraladministration of KP415 is approximately three times longer than that after oral administration of currently marketed IR methylphenidate. Webelieve this CR attribute of KP415 may allow for convenient, once-daily dosing. ●Amenable to patient-friendly formulations. Although we believe our prodrug, KP415, possesses abuse-deterrent properties, our preclinical andclinical data shows that KP415 could ultimately be used in a variety of patient-friendly dosage forms such as oral thin film, orally dissolvingtablets, chewable tablets and liquids as a means of increasing patient convenience and compliance. ●Composition-of-matter patent protection. KP415 is generally protected by a U.S. composition-of-matter patent that will expire, after utilizing allappropriate patent term adjustments but excluding possible term extensions, in 2032. Our patent strategy is focused primarily on key geographicmarket opportunities, and, as of December 31, 2016, a composition-of-matter patent on KP415 was granted in New Zealand and South Africa, andadditional KP415 patent filings were pending in the United States and an additional 23 foreign jurisdictions. In addition, subject to furtherdiscussions with the FDA, we believe KP415 may be eligible for new chemical entity, or NCE, exclusivity status, which could allow for five yearsof U.S. market exclusivity following the FDA's approval of an NDA for KP415. ●​No generic equivalent product. KP415 is a prodrug that we believe will be given a new chemical name, which could mean that there would be nogeneric equivalent product for KP415 in most states, making drug-equivalent substitution potentially difficult at the pharmacy. 7 KP201/IR (APAP-free) Overview KP201/IR (APAP-free), is an IR formulation of KP201 without any APAP. We are developing KP201/IR (APAP-free) for the short-term management ofacute pain. KP201/IR (APAP-free) is designed to be an abuse-deterrent opioid product that offers comparable efficacy to the existing standard-of-care, IRhydrocodone/APAP combination products, such as Vicodin, Norco and Lortab, but with the potential safety advantage of having no added APAP. We anticipate intitiating human clinical trials in 2017, including an intranasal human abuse liability study. Based on our current development timelines,we anticipate submitting an NDA utilizing the 505(b)(1) pathway for KP201/IR (APAP-free) in 2018. We believe that KP201/IR (APAP-free), like otherabuse-deterrent opioids, would receive priority review. KP201/IR (APAP-free) has received "Fast Track" designation by the FDA. Market Opportunity Currently, there are no IR hydrocodone products approved in the United States that are formulated without APAP, with or without an abuse-deterrentlabel. We believe KP201/IR (APAP-free), if approved, would provide physicians with an abuse-deterrent hydrocodone product alternative not currentlyavailable to help them with the short-term management of acute pain in patients. Key Product Features of KP201/IR (APAP-free) We believe KP201/IR (APAP-free), if approved by the FDA, may have many valuable product features and may provide significant benefits to patients,physicians and society: ●Abuse-deterrent technology. KP201/IR (APAP-free) uses our KP201 prodrug, which incorporates our LAT platform technology, to create itsabuse-deterrent properties and thus may provide a higher barrier against attempted abuse than many existing formulation-based approaches. ●No added APAP. KP201/IR (APAP-free) contains no acetaminophen. According to the FDA, overdoses of APAP are the most common cause ofdrug-related liver injury. In 2011, the FDA limited the amount of APAP in prescription combination products and required warnings be added toall APAP prescription products. ●Composition-of-matter patent protection. KP201/IR (APAP-free) is protected by a U.S. composition-of-matter patent on KP201 that will expire,after utilizing all appropriate patent term adjustments but excluding possible patent term extensions, no earlier than 2030. ●No generic equivalent product. We believe the difference in chemical name, prescription strength and lack of APAP in the formulation maypotentially mean that there will be no generic equivalent product for KP201/IR (APAP-free) in most states, making drug equivalent substitutionpotentially difficult at the pharmacy. ●Convenient dosing. We believe that KP201/IR (APAP-free) will be as convenient as existing IR hydrocodone/APAP combination products. 8 KP511 Overview KP511 is our prodrug of hydromorphone, which we are developing for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. We are currently working on an ER and IR formulation ofKP511. KP511 is designed to be an abuse-deterrent opioid product that offers equivalent efficacy to approved hydromorphone products. KP511 combineshydromorphone with one or more ligands. We believe KP511 does not release its hydromorphone component until it is metabolized in the GI tractfollowing oral administration. We believe KP511 is highly tamper-resistant and is stable under conditions that can potentially defeat many formulation-based abuse-deterrent technologies. We plan to seek approval of KP511/ER and KP511/IR under the 505(b)(2) NDA pathway. Based on our preclinical data, we believe that KP511 mayrelease hydromorphone after oral administration in humans in a manner that is comparable to the appropriate approved hydromorphone drug. Weanticipate reporting human POC data for KP511/ER and KP511/IR in 2018 and submitting a 505(b)(2) NDA for KP511/ER and KP511/IR in 2019. In June 2016, we announced results from a Phase 1 POC trial of KP511. In the trial, we observed comparable hydromorphone exposure between 4 mgDilaudid Oral Liquid and an equimolar 8 mg dose of KP511. Additionally, in January 2017, we announced the results of our exploratory Phase 1, double-blind, single-dose, 2-treatment, 2-period, randomized, crossover study, intended to assess the PK, safety and intranasal abuse potential of KP511,compared to equivalent doses of hydromorphone hydrochloride, or HM. In this trial, KP511 produced statistically significant reduction in peak andoverall hydromorphone exposure with KP511 versus HM. The improved PK of KP511 resulted in meaningful, statistically lower scores in the exploratorypharmacodynamic measures of "Drug Liking,"​ "Feeling High,"​ "Overall Drug Liking"​ and "Take Drug Again"​ when compared to HM. Market Opportunity Oral hydromorphone products are typically used for the management of pain severe enough to require daily, around-the-clock, long-term opioidtreatment and for which alternative treatment options are inadequate. SHS estimates that in 2016 there were nearly 3 million dispensed prescriptions ofhydromorphone in the United States. Currently, there are no hydromorphone products approved in the United States with an abuse-deterrent label. Key Product Features of KP511/ER Based on our clinical and preclinical data, we believe KP511/ER and KP511/IR, if approved by the FDA, may have valuable product features and providesignificant benefits to patients, physicians and society when compared to FDA-approved hydromorphone products: ●Abuse-deterrent technology. In order to evaluate the abuse-deterrent qualities of KP511, we conducted clinical and preclinical studies of KP511.As described above, our Phase 1 POC trial of KP511 produced meaningful, statistically lower scores in the exploratory pharmacodynamicmeasures of "Drug Liking," "Feeling High," "Overall Drug Liking" and "Take Drug Again" when compared to HM. We also conducted preclinicalstudies in rats to compare the exposure to hydromorphone following intranasal and IV administration of KP511 as compared to intranasal and IVadministration of hydromorphone hydrochloride. We observed significantly lower concentrations of hydromorphone following intranasal and IVadministration of KP511 compared to intranasal and IV administered hydromorphone hydrochloride. KP511 incorporates our LAT platformtechnology to create its abuse-deterrent properties and, based on our preclinical and clinical studies, we believe it may have abuse-deterrentcharacteristics. ●Oral overdose protection. In our preclinical studies, we observed that hydromorphone blood levels in rats increased more slowly and to a lesserextent after oral administration of increasing excessively large doses of KP511, as compared to increasing equimolar oral doses ofhydromorphone hydrochloride. Thus, as to KP511, we believe it is possible that the metabolic processes of releasing hydromorphone from theprodrug become saturated at excessively large oral doses. If confirmed by further studies, this could potentially mean that KP511 may reduce therisk of oral overdosing. ●Composition-of-matter patent protection. KP511/ER and KP511/IR are protected by a U.S. composition-of-matter patent on KP511 that willexpire, after utilizing all appropriate patent term adjustments but excluding possible patent term extensions, in 2032. Our patent strategy isfocused primarily on key geographic market opportunities, and, as of December 31, 2016, a composition-of-matter patent on KP511 was grantedin Australia, Japan, Philippines, New Zealand, South Africa, and Singapore, and applications covering KP511 were pending in the United Statesand an additional 20 foreign jurisdictions. ●No generic equivalent product. KP511 is a prodrug that we believe will be given a new chemical name, which would mean that there may be nogeneric equivalent product for KP511/ER or KP511/IR in most states, making drug equivalent substitution difficult at the pharmacy. Other Product Candidates We are using our LAT platform technology to develop other product candidates in pain. One example is KP606/IR, an IR formulation of KP606, ourprodrug of oxycodone, which we are developing for the management of moderate to severe pain where the use of an opioid analgesic is appropriate.KP606/IR is designed to be an IR abuse-deterrent opioid product that may potentially offer equivalent efficacy to OxyContin. KP606 combinesoxycodone with one or more ligands. Another example is KP746, our prodrug of oxymorphone, which is currently in preclinical development. We aredeveloping KP746 for the management of moderate to severe pain where the use of an opioid analgesic is appropriate. In addition to our product candidates in pain, we are using our LAT platform technology to develop product candidates for the treatment of CNSdisorders. KP303, our prodrug of quetiapine, is currently in preclinical development. We are developing KP303 for the treatment of CNS disorders. 9 Our Intellectual Property Our intellectual property strategy includes seeking composition-of-matter patents, among other patents, for our prodrugs and product candidates andconjugates of our prodrugs while also protecting, where appropriate as trade secrets, our LAT platform technology, the process by which we identify,screen, evaluate and select ligands to be conjugated with parent drugs to create our prodrugs. Our current prodrugs all consist of an approved parent drugand one or more ligands that we have selected using our LAT platform technology. The parent drug and ligand or ligands together may potentiallyconstitute an NME and thus may be eligible for composition-of-matter patent protection, among other patent protections, in the United States and abroad. To date, we have internally developed all of our intellectual property, related to our LAT platform technology. As of December 31, 2016, we have beengranted 14 issued patents within the United States, and an additional 55 foreign patents covering our prodrugs or product candidates. The terms of the 14issued U.S. patents extend to various dates ranging, for example, between 2030 and 2032. The term of our overall domestic and foreign patent portfoliorelated to our prodrugs and product candidates, including patent term adjustments but excluding possible patent term extensions, extend to various datesranging, for example, between 2030 and 2032, if pending patent applications in each of our patent families issue as patents. As of December 31, 2016, wefiled 11 pending patent applications under active prosecution in the United States, and an additional 59 pending foreign patent applications potentiallycovering our prodrugs and product candidates. Our issued and granted patents provide protection in jurisdictions that include the United States,Australia, Canada, China, Colombia, Israel, Japan, Kazakhstan, Malaysia, Mexico, New Zealand, Philippines, Russia, Ukraine, Singapore, Indonesia andSouth Africa. In 2013, the United States Patent and Trademark Office, or the USPTO, issued a composition-of-matter patent covering KP201, which will expire, afterutilizing all appropriate patent term adjustments but excluding possible patent term extensions, no earlier than 2030. Further, there are granted or recentlyallowed compositions-of-matter patents covering KP201 in Australia, Canada, China, Colombia, Israel, Japan, Kazakhstan, Malaysia, Mexico, NewZealand, Russia, Ukraine, Indonesia and South Africa. In addition, one U.S. patent application covering KP201-related compositions-of-matter waspending as of December 31, 2016, and patent applications covering KP201 were pending as of December 31, 2016, in the United Arab Emirates, Brazil,Belarus, Chile, Costa Rica, Cuba, Egypt, Europe, Hong Kong, India, South Korea, Oman, Philippines, Singapore, Thailand and Vietnam. In August 2014, the USPTO issued a composition-of-matter patent covering KP511, which will expire, after utilizing all appropriate patent termadjustments but excluding possible patent term extensions, in 2032. In July 2015, the USPTO issued a composition-of-matter patent generally coveringKP415, which will expire, after utilizing all appropriate patent term adjustments but excluding patent term extensions, in 2032. We have also filedcomposition-of-matter patent applications for KP415 and KP511 in the United States and in Argentina, Australia, Brazil, Canada, Chile, China, Egypt,Hong Kong, Europe, India, Israel, Indonesia, Japan, South Korea, Kazakhstan, Mexico, Malaysia, New Zealand, Philippines, Russia, Singapore, Thailand,Ukraine, Vietnam and South Africa. We anticipate filing additional patent applications for our prodrug product candidates. We also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and othercontractors. To help protect our LAT platform technology, as well as any proprietary know-how and show-how beyond that which is patentable, we relyon trade secret protection and confidentiality agreements to protect our interests. To this end, we generally require our employees, consultants andadvisors to enter into confidentiality agreements prohibiting the disclosure of confidential information and, in some cases, requiring disclosure andassignment to us of the ideas, developments, discoveries, inventions and improvements important to our business. Commercialization We have not yet begun commercialization activities for any our product candidates in active development. Because many of our product candidates mayhave large potential market opportunities, and may require significant marketing resources, we may conclude that the most appropriate approach to theircommercialization, if they receive regulatory approval, will involve forming a commercial collaboration or strategic relationship, or consummating sometype of strategic transaction, with a larger pharmaceutical or other marketing organization. Alternatively, we may conclude that building our own focusedsales and marketing organization will be most appropriate, perhaps as part of a co-promotional arrangement, or some other form of collaboration. As weget closer to potential approval of our product candidates, we will work to identify and implement the commercialization strategies that we conclude arethe most desirable with regard to the specific product candidates. Research and Development Historically, we have devoted a significant amount of resources to develop our product candidates. For the years ended December 31, 2016, 2015 and2014, we recorded $20.5 million, $13.9 million and $11.9 million, respectively, in research and development expenses. We plan to increase our researchand development expense for the foreseeable future as we continue our efforts to commercialize, if approved, and further advance the development of ourproduct candidates, subject to the availability of additional funding. 10 Competition Our industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We will facecompetition and potential competition from a number of sources, including pharmaceutical and biotechnology companies, specialty pharmaceuticalcompanies, generic drug companies, drug delivery companies and academic and research institutions. We believe the key competitive factors that willaffect the development and commercial success of our product candidates include their potential degree of abuse deterrence, onset of action,bioavailability, therapeutic efficacy, convenience of dosing, safety, tolerability and cost. Many of our potential competitors have substantially greaterfinancial, technical and human resources than we do, as well as more experience in the development of product candidates, obtaining FDA and otherregulatory approvals of products and the commercialization of those products. Consequently, our competitors may develop abuse-deterrent or otherproducts for the treatment of ADHD, the short-term management of acute pain, or for other indications we are pursuing or may pursue in the future, andsuch competitors’ products may be more effective, better tolerated and less costly than our product candidates. Our competitors may also be moresuccessful in manufacturing and marketing their products than we are. We will also face competition in recruiting and retaining qualified personnel andestablishing clinical trial sites and patient enrollment in clinical trials. If approved, KP415 will compete against currently marketed, branded and generic methylphenidate products for the treatment of ADHD. Some of thesecurrently marketed products include Johnson & Johnson's Concerta, Novartis AG's Ritalin, Ritalin LA, Focalin and Focalin XR, UCB S.A.'s Metadate CD,and Noven Pharmaceuticals' Daytrana, in addition to multiple other branded and generic methylphenidate products marketed by companies includingAllergan plc and Mallinckrodt plc. In addition, if approved, KP415 will face potential competition from any abuse-deterrent or other methylphenidateproducts for the treatment of ADHD that are currently in or which may enter into clinical development. If approved, our abuse-deterrent opioid product candidates will face competition from commercially available branded and generic opioid drugs,including hydrocodone, hydromorphone, oxycodone, fentanyl, morphine, oxymorphone and methadone, as well as other marketed non-opioid productsfor the treatment of pain, and potential competition from opioid and non-opioid products for the treatment of pain that are currently in clinicaldevelopment. In addition, our product candidates will face competition from approved and abuse-deterrent labeled opioid drugs and potentialcompetition from abuse-deterrent opioid drugs that are currently in clinical development. We may compete with multiple companies that have developedand are developing abuse-deterrent technologies that may be applied to a variety of drugs, including those being developed for the short-termmanagement of acute pain as well as for other indications that we are pursuing or may pursue in the future. If approved, our abuse-deterrent opioidproduct candidates may face competition from opioid products or abuse-deterrent technologies from companies including Allergan plc, AcuraPharmaceuticals, Inc., Cara Therapeutics, Inc., Collegium Pharmaceutical, Inc., Depomed, Inc., DURECT Corporation, Egalet Corporation, ElitePharmaceuticals, Inc., Endo International plc, Grünenthal Group, Inspirion Delivery Technologies, LLC, IntelliPharmaceutics International Inc.,Mallinckrodt plc, Mylan Inc., Nektar Therapeutics, Pain Therapeutics, Inc., Pfizer Inc., Purdue Pharma L.P., Signature Pharmaceuticals, TevaPharmaceutical Industries Ltd., Trevena Inc. and UCB S.A. If approved, KP201/IR (APAP-free) will compete against currently marketed, branded and generic IR hydrocodone/APAP combination products indicatedfor the short-term management of acute pain. Some of these currently marketed products include AbbVie's Vicodin, Allergan's Norco, Shionogi's Xodoland UCB Pharma's Lortab, in addition to multiple other branded and generic hydrocodone/APAP combination products marketed by companiesincluding Allergan plc, Endo International plc and Mallinckrodt plc. In addition, if approved, KP201/IR (APAP-free) will face potential competition fromany abuse-deterrent IR or hydrocodone/APAP combination or other APAP-free products for the short-term management of acute pain that are currently inor may enter into clinical development. If approved, KP511 will compete against currently marketed, branded and generic, IR and ER hydromorphone products approved for use in opioid-tolerant patients for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternativetreatment options are inadequate. Some of these currently marketed products include Purdue Pharma L.P.’s Dilaudid and Mallinckrodt plc’s Exalgo, inaddition to multiple other branded and generic IR and ER hydromorphone products marketed by companies including Allergan plc, Mallinckrodt plc,Rhodes Pharmaceuticals L.P. and Roxanne Laboratories, Inc. In addition, if approved, KP511/ER and KP511/IR will face potential competition from anyabuse-deterrent or other IR and ER hydromorphone products for the treatment of pain that are currently in or which may enter into clinical development. Manufacturing Our manufacturing strategy is to rely on contract manufacturers to produce our prodrug product candidates for clinical trials and, if approved, drugproduct for commercial sale. We currently have no manufacturing facilities and limited personnel with manufacturing experience. We rely on JohnsonMatthey Inc., or JMI, a third-party manufacturer, to produce the bulk quantities of KP201 required for the manufacture of the KP201/IR used in ourclinical trials under a supply agreement. JMI is also currently contracted to manufacture of KP511 to be used in our non-clinical, clinical and formulationdevelopment programs needed to support an NDA filing. We have contracted with another third-party manufacturer to supply KP415 to be used in ournon-clinical, clinical and formulation development programs necessary to support an NDA filing. We plan to continue to rely on these manufacturers tomanufacture commercial quantities of KP201 used in production of KP201/IR, KP511 and KP415, respectively, for sale in the United States, if and whenwe receive approval by the FDA. We expect to contract with third-party manufacturers for the manufacture of all API supply needs outside the UnitedStates if and when we receive approval by regulatory authorities outside the United States. Our current and any future third-party manufacturers, their facilities and all lots of drug substance and drug products used in our clinical trials are requiredto be in compliance with current good manufacturing practices, or cGMPs. The cGMP regulations include requirements relating to organization ofpersonnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls,packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. The manufacturingfacilities for our products must meet cGMP requirements and FDA satisfaction before any product is approved and we can manufacture commercialproducts. Our current and any future third-party manufacturers are also subject to periodic inspections of facilities by the FDA and other authorities,including procedures and operations used in the testing and manufacture of our products to assess our compliance with applicable regulations. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including refusal to approvepending applications, license suspension or revocation, withdrawal of an approval, imposition of a clinical hold or termination of clinical trials, warningletters, untitled letters, cyber letters, modification of promotional materials or labeling, product recalls, product seizures or detentions, refusal to allowimports or exports, total or partial suspension of production or distribution, debarment, injunctions, fines, consent decrees, additional reportingrequirements and oversight if we become subject to a corporate integrity agreement or similar agreements to resolve allegations of non-compliance withthese laws, refusals of government contracts and new orders under existing contracts, exclusion from participation in federal and state healthcareprograms, restitution, disgorgement or civil or criminal penalties, including fines and individual imprisonments. 11 Supply Agreement with Johnson Matthey Under our supply agreement with JMI, or the Supply Agreement, JMI has agreed to supply us with all of the KP201 necessary for clinical trials andcommercial sale for a price equal to JMI’s manufacturing cost and to provide process development services for KP201. In exchange, we issued shares ofour common stock to JMI, provided that the commercial supply arrangement for KP201 would be exclusive to them in the United States. In addition, forfurther process optimization and manufacture of NDA registration batches, we agreed to pay a minimum royalty on the net sales on the commercial sale ofKP201, if approved by the FDA. The percentage royalty rate ranges from the high teens at low volumes to the mid-single digits at higher volumes. Underthe agreement, JMI has completed manufacture of our registration batches of KP201 and stability testing for those batches is in process. Under the Supply Agreement, we retain sole ownership of KP201 and are required to use commercially reasonable efforts to develop and to pursue FDAmarketing approval of KP201. We are responsible for product development, including formulation, preclinical studies and clinical trials, and forregulatory approval, quality assurance and commercialization. If KP201 is subject to a DEA scheduling quota, then each quarter, both we and JMI areresponsible for using commercially reasonable efforts to obtain a quota from the DEA for the production of the KP201 API and for KP201. We are responsible for all costs of any KP201 manufactured during a specified validation process for KP201. After completion of the validation process,but prior to the commercial launch of any products that utilize KP201 as the API, JMI will manufacture batches of KP201 at a price to be negotiated.Failure to agree upon this pricing would result in JMI supplying these batches to us free of charge and we would pay JMI an additional royalty paymenton such batches. The percentage royalty rate ranges from the low teens at low volumes to the low single digits at higher volumes and is additive to anyminimum royalty we may owe JMI on such batch. JMI will manufacture and supply KP201 at a price equal to JMI’s fully allocated manufacturing costafter commercial launch should we obtain approval for marketing from the FDA. We must purchase all of our U.S. KP201 needs from JMI and JMI cannot supply KP201 to other companies. After the commercial launch of any productthat utilizes KP201 as the API, JMI is required to identify a secondary manufacturing site and qualify and validate that site for the production of KP201. The term of the Supply Agreement extends as long as we hold a valid and enforceable patent for KP201 or until the tenth anniversary of the commerciallaunch of any product that utilizes KP201 as the API, whichever date is later. Upon the expiration of such term, the agreement will automatically renewfor a period of two years unless either party provides 12 months’ prior notice of its intent not to renew. Asset Purchase Agreement with Shire LLC In March 2012, as a result of a litigation settlement, we and our chief executive officer, Travis C. Mickle, Ph. D., entered into an asset purchase agreementwith Shire pursuant to which we sold assets and intellectual property to Shire for proceeds of $5.1 million. As partial consideration for this sale, we andDr. Mickle agreed not to compete with Shire in the development, commercialization, production or distribution of amphetamine amino acid conjugateproducts until March 21, 2017. Pursuant to this agreement, we also granted Shire a right of first refusal to acquire, license or commercialize KP415. 12 Third-Party Reimbursement Sales of pharmaceutical products depend in significant part on the availability of coverage and adequate reimbursement by third-party payors, such asstate and federal governmental authorities, including those that administer the Medicare and Medicaid programs, and private managed care organizationsand health insurers. Decisions regarding the extent of coverage and amount of reimbursement to be provided for each of our product candidates will bemade on a plan-by-plan basis. One payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage,and adequate reimbursement, for the product. Each third-party payor determines whether or not it will provide coverage for a drug, what amount it willpay providers for the drug, and on what tier of its formulary the drug will be placed. These decisions are influenced by the existence of multiple drugproducts within a therapeutic class and the net cost to the plan, including the amount of the prescription price, if any, rebated by the drug’s manufacturer.Typically, generic versions of drugs are placed in a preferred tier. The position of a drug on the formulary generally determines the co-payment that apatient will need to make to obtain the drug and can strongly influence the adoption of a drug by patients and physicians. Patients who are prescribedtreatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of theassociated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significantportion of the cost of our products. Additionally, a third-party payor’s decision to provide coverage for a drug does not imply that an adequatereimbursement rate will be approved. Also, third-party payors are developing increasingly sophisticated methods of controlling healthcare costs. As aresult, coverage, reimbursement and placement determinations are complex and are often the subject of extensive negotiations between the payor and theowner of the drug. Unless we enter into a strategic collaboration under which our collaborator assumes responsibility for seeking coverage and reimbursement for a givenproduct, we will be responsible for negotiating coverage, reimbursement and placement decisions for our product candidates. Coverage, reimbursementsand placement decisions for a new product are based on many factors including the coverage, reimbursement and placement of already marketed brandeddrugs for the same or similar indications, the safety and efficacy of the new product, availability of generics for similar indications, the clinical need forthe new product and the cost-effectiveness of the product. Increasingly, both purchasers and payors are also conducting comparative clinical and costeffectiveness analyses involving application of metrics, including data on patient outcomes, provided by manufacturers. Within the Medicare program, as self-administered drugs, KP201/IR (APAP-free), KP303, KP415, KP511/ER, KP511/IR, KP606/IR and KP746 would bereimbursed under the expanded prescription drug benefit known as Medicare Part D. This program is a voluntary Medicare benefit administered byprivate plans that operate under contracts with the federal government. These plans develop formularies that determine which products are covered andwhat co-pay will apply to covered drugs. The plans have considerable discretion in establishing formularies and tiered co-pay structures, negotiatingrebates with manufacturers and placing prior authorization and other restrictions on the utilization of specific products, subject to review by the Centersfor Medicare and Medicaid Services, or CMS, for discriminatory practices. These Part D plans negotiate discounts with drug manufacturers, which arepassed on, in whole or in part, to each of the plan’s enrollees through reduced premiums. Historically, Part D beneficiaries have been exposed tosignificant out-of-pocket costs after they surpass an annual coverage limit and until they reach a catastrophic coverage threshold. However, changes madeby the Patient Protection and Affordable Care Act as amended by the Health Care Education and Reconciliation Act, or the ACA, will reduce this patientcoverage gap, known as the “donut hole”, by transitioning patient responsibility in that coverage range from 100% in 2010 to only 25% in 2020. To helpachieve this reduction, pharmaceutical manufacturers are required to provide quarterly discounts of 50% off the negotiated price of branded drugsdispensed to Medicare Part D patients in the donut hole. If a drug product is available for reimbursement by Medicare or Medicaid, its manufacturer must comply with various health regulatory requirements andprice reporting metrics, which may include, as applicable, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Medicaidrebate requirements of the Omnibus Budget Reconciliation Act of 1990, or the OBRA, and the Veterans Health Care Act of 1992, or the VHCA, each asamended. Among other things, the OBRA requires drug manufacturers with certain drugs covered by Medicaid to pay rebates on prescription drugs tostate Medicaid programs. States may also negotiate “supplemental” Medicaid rebates on drug products dispensed under Medicaid. Manufacturersparticipating in Medicaid are also generally required to participate in the Public Health Service 340B Drug Discount Program, which imposes amandatory discount on purchases by certain customers. Manufacturers of innovator drugs, including 505(b)(2) drugs, that participate in the Medicaidprogram are also required to offer the drugs on the Federal Supply Schedule purchasing program of the General Services Administration for purchase bythe Department of Veterans Affairs, the Department of Defense and other authorized users at a mandatory discount. Additional laws and requirementsapply to these contracts. Participation in such federal programs may result in prices for our future products that will likely be lower than the prices wemight otherwise obtain. Third-party payors, including the U.S. government, continue to apply downward pressure on the reimbursement of pharmaceutical products. Also, thetrend towards managed health care in the United States and the concurrent growth of organizations such as health maintenance organizations may resultin lower reimbursement for pharmaceutical products. We expect that these trends will continue as these payors implement various proposals or regulatorypolicies, including various provisions of the recent health reform legislation that affect reimbursement of these products. There are currently, and weexpect that there will continue to be, a number of federal and state proposals to implement controls on reimbursement and pricing, directly and indirectly. 13 Government Regulation The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinicaldevelopment, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research anddevelopment activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, packaging, recordkeeping, tracking,approval, import, export, distribution, advertising and promotion of our products. The process required by the FDA before product candidates may be marketed in the United States generally involves the following: ●nonclinical laboratory and animal tests that must be conducted in accordance with good laboratory practices, or GLPs; ●submission of an IND, which must become effective before clinical trials may begin; ●approval by an independent institutional review board, or IRB, for each clinical site or centrally before each trial may be initiated; ●adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed product candidate for its intended use,performed in accordance with good clinical practices, or GCPs; ●submission to the FDA of an NDA; ●satisfactory completion of an FDA advisory committee review, if applicable; ●pre-approval inspection of manufacturing facilities and selected clinical investigators for their compliance with cGMP and GCPs; and ●FDA approval of an NDA to permit commercial marketing for particular indications for use. Prior to the commencement of marketing of controlled substances, the DEA must also determine the controlled substance schedule, taking into accountthe recommendation of the FDA. The testing and approval process requires substantial time, effort and financial resources. Preclinical studies include laboratory evaluation of drugsubstance chemistry, pharmacology, toxicity and drug product formulation, as well as animal studies to assess potential safety and efficacy. Prior tocommencing the first clinical trial with a product candidate, we must submit the results of the preclinical tests and preclinical literature, together withmanufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Somepreclinical studies may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless theFDA, within the 30-day time period, raises safety concerns or questions about the conduct of the clinical trial by imposing a clinical hold. In such a case,the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Submission of an IND may not result in FDAauthorization to commence a clinical trial. A separate submission to the existing IND must be made for each successive clinical trial conducted duringproduct development, as well as amendments to previously submitted clinical trials. Further, an independent IRB for each study site proposing to conductthe clinical trial must review and approve the plan for any clinical trial, its informed consent form and other communications to study subjects before theclinical trial commences at that site. The IRB must continue to oversee the clinical trial while it is being conducted, including any changes to the studyplans. Regulatory authorities, an IRB or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding thatthe subjects are being exposed to an unacceptable health risk, the clinical trial is not being conducted in accordance with the FDA’s or the IRB’srequirements, if the drug has been associated with unexpected serious harm to subjects, or based on evolving business objectives or competitive climate.Some studies also include a data safety monitoring board, which receives special access to unblinded data during the clinical trial and may advise us tohalt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. 14 In general, for purposes of NDA approval, human clinical trials are typically conducted in three sequential phases that may overlap. ●Phase 1—Studies are initially conducted to test the product candidate for safety, dosage tolerance, structure-activity relationships, mechanism ofaction, absorption, metabolism, distribution and excretion in healthy volunteers or subjects with the target disease or condition. If possible,Phase 1 trials may also be used to gain an initial indication of product effectiveness. ●Phase 2—Controlled studies are conducted with groups of subjects with a specified disease or condition to provide enough data to evaluate thepreliminary efficacy, optimal dosages and dosing schedule and expanded evidence of safety. Multiple Phase 2 clinical trials may be conductedto obtain information prior to beginning larger and more expensive Phase 3 clinical trials. ●Phase 3—These clinical trials are undertaken in larger subject populations to provide statistically significant evidence of clinical efficacy and tofurther test for safety in an expanded subject population at multiple clinical trial sites. These clinical trials are intended to establish the overallrisk/benefit ratio of the product and provide an adequate basis for product labeling. These trials may be done globally to support globalregistrations so long as the global sites are also representative of the U.S. population and the conduct of the study at global sites comports withFDA regulations and guidance, such as compliance with GCPs. In the case of a 505(b)(2) NDA, which is a marketing application in which sponsors may rely on investigations that were not conducted by or for theapplicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted, someof the above-described studies and preclinical studies may not be required or may be abbreviated. Bridging studies may be needed, however, todemonstrate the relevance of the studies that were previously conducted by other sponsors to the drug that is the subject of the NDA. The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase 4 studies may be made acondition to be satisfied after approval. The results of Phase 4 studies can confirm the effectiveness of a product candidate and can provide importantsafety information. Clinical trials must be conducted under the supervision of qualified investigators in accordance with GCP requirements, which includes the requirementsthat all research subjects provide their informed consent in writing for their participation in any clinical trial, and the review and approval of the study byan IRB. Investigators must also provide information to the clinical trial sponsors to allow the sponsors to make specified financial disclosures to the FDA.Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the trial procedures, the parameters to be used inmonitoring safety and the efficacy criteria to be evaluated and a statistical analysis plan. Information about some clinical trials, including a description ofthe trial and trial results, must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on theirClinicalTrials.gov website. The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and activepharmaceutical ingredients imported into the United States are also subject to regulation by the FDA relating to their labeling and distribution. Further,the export of investigational drug products outside of the United States is subject to regulatory requirements of the receiving country as well as U.S.export requirements under the FFDCA. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and theIRB and more frequently if serious adverse events occur. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistryand physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordancewith cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, amongother things, must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must beselected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration overits shelf life. 15 505(b)(2) Approval Process Section 505(b)(2) of the FFDCA, or 505(b)(2), provides an alternate regulatory pathway to FDA approval for new or improved formulations or new uses ofpreviously approved drug products. Specifically, 505(b)(2) permits the filing of an NDA where at least some of the information required for approvalcomes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or forwhom the investigations were conducted. The applicant may rely upon the FDA’s prior findings of safety and effectiveness for an approved product thatacts as the reference listed drug for purposes of a 505(b)(2) NDA. The FDA may also require 505(b)(2) applicants to perform additional studies ormeasurements to support any changes from the reference listed drug. The FDA may then approve the new product candidate for all or some of the labeledindications for which the referenced product has been approved, as well as for any new indication sought by the 505(b)(2) applicant. Our current and anticipated product candidates are or will be based on already approved APIs in combination with a ligand. Accordingly, we have andexpect to be able to continue to rely on information from studies previously conducted by the companies that obtained approval for drugs containingsuch APIs. Orange Book Listing Section 505 of the FFDCA describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a newdrug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A 505(b)(2) NDA is an application thatcontains full reports of investigations of safety and efficacy but where at least some of the information required for approval comes from investigationsthat were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom theinvestigations were conducted. This regulatory pathway enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy for anexisting product, or published literature, in support of its application. Section 505(j) establishes an abbreviated approval process for a generic version ofapproved drug products through the submission of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a generic drugproduct that has the same active ingredients, dosage form, strength, route of administration, labeling, performance characteristics and intended use,among other things, to a previously approved product. ANDAs are termed “abbreviated” because they are generally not required to include preclinicaland clinical data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their product is bioequivalent to, orperforms in the same manner as, the innovator drug through in vitro, in vivo, or other testing. The generic version must deliver the same amount of activeingredients into a subject’s bloodstream in the same amount of time as the innovator drug and can often be substituted by pharmacists under prescriptionswritten for the reference listed drug. In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA patents whose claims cover theapplicant’s product. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in the Orange Book. Theseproducts may be cited by potential competitors in support of approval of an ANDA or 505(b)(2) NDA. Any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in the Orange Book or a 505(b)(2) NDA referencing adrug listed in the Orange Book must certify to the FDA that (1) no patent information on the drug or method of use that is the subject of the applicationhas been submitted to the FDA; (2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid or will not be infringedupon by the manufacture, use or sale of the drug product for which the application is submitted. This last certification is known as a Paragraph IVcertification. Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired, except where the ANDA or 505(b)(2) NDAapplicant challenges a listed patent through a Paragraph IV certification. If the applicant does not challenge the listed patents or does not indicate that itis not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application will not be approved until all of the listed patents claimingthe referenced product have expired, or, if permissible, are carved out. If the competitor has provided a Paragraph IV certification to the FDA, the competitor must also send notice of the Paragraph IV certification to the holderof the NDA for the reference listed drug and the patent owner once the application has been accepted for filing by the FDA. The NDA holder or patentowner may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringementlawsuit within 45 days of the receipt of a Paragraph IV certification prevents the FDA from approving the application until the earlier of 30 months fromthe date of the lawsuit, expiration of the patent, settlement of the lawsuit, a decision in the infringement case that is favorable to the applicant or suchshorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay. In instances where an ANDA or505(b)(2) NDA applicant files a Paragraph IV certification, the NDA holder or patent owner regularly take action to trigger the 30-month stay, recognizingthat the related patent litigation may take many months or years to resolve. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for asignificant period of time depending on the patent certification the applicant makes and the reference drug sponsor’s decision to initiate patent litigation.The applicant may also elect to submit a statement certifying that its proposed label does not contain, or carves out, any language regarding the patentedmethod-of-use rather than certify to a listed method-of-use patent. Exclusivity The FDA provides periods of regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in themarketplace for the innovation represented by its approved drug for a period of three or five years following the FDA’s approval of the NDA. Five years ofexclusivity are available to NCEs. An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA. An activemoiety is the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt, including a salt with hydrogenor coordination bonds, or other noncovalent derivatives, such as a complex, chelate, or clathrate, of the molecule, responsible for the therapeutic activityof the drug substance. During the exclusivity period, the FDA may not accept for review or approve an ANDA or a 505(b)(2) NDA submitted by anothercompany that contains the previously approved active moiety. An ANDA or 505(b)(2) application, however, may be submitted one year before NCEexclusivity expires if a Paragraph IV certification is filed. Applicants may also seek to carve out certain drug labeling that is protected by exclusivity. If a product is not eligible for the NCE exclusivity, it may be eligible for three years of exclusivity. Three-year exclusivity is available to the holder of anNDA, including a 505(b)(2) NDA, for a particular condition of approval, or change to a marketed product, such as a new formulation for a previouslyapproved product, if one or more new clinical trials, other than bioavailability or bioequivalence trials, was essential to the approval of the applicationand was conducted or sponsored by the applicant. This three-year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDAs for thecondition of the new drug’s approval. As a general matter, three-year exclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs forgeneric versions of the original, unmodified drug product. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA;however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate andwell-controlled clinical trials necessary to demonstrate safety and efficacy. 16 NDA Submission and Review by the FDA Assuming successful completion of the required clinical and preclinical testing, among other items, the results of product development, includingchemistry, manufacture and controls, nonclinical studies and clinical trials are submitted to the FDA, along with proposed labeling, as part of an NDA.The submission of an NDA requires payment of a substantial user fee to the FDA. These user fees must be filed at the time of the first submission of theapplication, even if the application is being submitted on a rolling basis. Fee waivers or reductions are available in some circumstances. One basis for awaiver of the application user fee is if the applicant employs fewer than 500 employees, including employees of affiliates, the applicant does not have anapproved marketing application for a product that has been introduced or delivered for introduction into interstate commerce, and the applicant,including its affiliates, is submitting its first marketing application. In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA for a new active ingredient, indication, dosage form,dosage regimen or route of administration must contain data that are adequate to assess the safety and efficacy of the drug for the claimed indications inall relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe andeffective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until afterapproval of the product for use in adults or full or partial waivers from the pediatric data requirements. The FDA must refer applications for drugs that contain active ingredients, including any ester or salt of the active ingredients, that have not previouslybeen approved by the FDA to an advisory committee or provide in an action letter a summary of the reasons for not referring it to an advisory committee.The FDA may also refer drugs which present difficult questions of safety, purity or potency to an advisory committee. An advisory committee is typicallya panel that includes clinicians and other experts who review, evaluate and make a recommendation as to whether the application should be approvedand under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefullywhen making decisions. The FDA reviews applications to determine, among other things, whether a product is safe and effective for its intended use and whether themanufacturing controls are adequate to assure and preserve the product’s identity, strength, quality and purity. Before approving an NDA, the FDA willinspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturingprocesses and facilities, including contract manufacturers and subcontracts, are in compliance with cGMP requirements and adequate to assure consistentproduction of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical trialsites to assure compliance with GCPs. Once the FDA receives an application, it has 60 days to review the NDA to determine if it is substantially complete to permit a substantive review, beforeit accepts the application for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. The timeline for the FDAto complete its review of an NDA may differ based on whether the application is a standard review or priority review application. The FDA may give apriority review designation to drugs that are intended to treat serious conditions and provide significant improvements in the safety or effectiveness of thetreatment, diagnosis, or prevention of serious conditions. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, orPDUFA, the FDA has set the review goal of ten months from the 60-day filing date to complete its initial review of a standard NDA for an NME and makea decision on the application. For non-NME standard applications, the FDA has set the review goal of ten months from the submission date to completeits initial review and to make a decision on the application. For priority review applications, the FDA has set the review goal of reviewing NME NDAswithin six months of the 60-day filing date and non-NME applications within six months of the submission date. Such deadlines are referred to as thePDUFA date. The PDUFA date is only a goal and the FDA does not always meet its PDUFA dates. The review process and the PDUFA date may also beextended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding the submission. Once the FDA’s review of the application is complete, the FDA will issue either a Complete Response Letter, or CRL, or approval letter. A CRL indicatesthat the review cycle of the application is complete and the application is not ready for approval. A CRL generally contains a statement of specificconditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinical testing, or other information oranalyses in order for the FDA to reconsider the application. The FDA has the goal of reviewing 90% of application resubmissions in either two or sixmonths of the resubmission date, depending on the kind of resubmission. Even with the submission of additional information, the FDA ultimately maydecide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, theFDA may issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specificindications. The FDA may delay or refuse approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or requirepost-marketing testing and surveillance to monitor safety or efficacy of a product, or impose other conditions, including distribution restrictions or otherrisk management mechanisms. For example, the FDA may require a risk evaluation and mitigation strategy, or REMS, as a condition of approval orfollowing approval to mitigate any identified or suspected serious risks and ensure safe use of the drug. The FDA may prevent or limit further marketingof a product, or impose additional post-marketing requirements, based on the results of post-marketing studies or surveillance programs. After approval,some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject tofurther testing requirements, FDA notification and FDA review and approval. Further, should new safety information arise, additional testing, productlabeling or FDA notification may be required. FDA approval of any NDA submitted by us will be at a time the FDA chooses. Also, if regulatory approval of a product is granted, such approval mayentail limitations on the indicated uses for which such product may be marketed or may include contraindications, warnings or precautions in the productlabeling, including a black box warning. If the FDA requires a boxed warning, we would also be subject to specified promotional restrictions, such as theprohibition of reminder advertisements. The FDA also may not approve the inclusion of labeling claims necessary for successful marketing. Onceapproved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problemsoccur after the product reaches the marketplace. In addition, the FDA may require Phase 4 post-marketing studies to monitor the effect of approvedproducts, and may limit further marketing of the product based on the results of these post-marketing studies. 17 Post-approval Requirements Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including manufacturing,periodic reporting, product sampling and distribution, advertising, promotion, drug shortage reporting, compliance with any post-approval requirementsimposed as a conditional of approval such as Phase 4 clinical trials, REMS and surveillance, recordkeeping and reporting requirements, including adverseexperiences. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review andapproval. There also are continuing, annual user fee requirements for any approved products and the establishments at which such products aremanufactured, as well as new application fees for supplemental applications with clinical data. Drug manufacturers and their subcontractors are requiredto register their establishments with the FDA and certain state agencies and to list their drug products, and are subject to periodic announced andunannounced inspections by the FDA and these state agencies for compliance with cGMPs and other requirements, which impose procedural anddocumentation requirements upon us and our third-party manufacturers. We cannot be certain that we or our present or future suppliers will be able tocomply with the cGMP regulations and other FDA regulatory requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented, or FDA notification. FDAregulations also require investigation and correction of any deviations from cGMPs and specifications, and impose reporting and documentationrequirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue toexpend time, money and effort in the area of production and quality control to maintain cGMP compliance. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturingprocesses, or failure to comply with regulatory requirements, may result in withdrawal of marketing approval, mandatory revisions to the approvedlabeling to add new safety information or other limitations, imposition of post-market studies or clinical trials to assess new safety risks, or imposition ofdistribution or other restrictions under a REMS program, among other consequences. The FDA closely regulates the marketing and promotion of drugs. A company can make only those claims relating to safety and efficacy, purity andpotency that are approved by the FDA. Physicians, in their independent professional medical judgment, may prescribe legally available products for usesthat are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. We, however, are prohibited frommarketing or promoting drugs for uses outside of the approved labeling. In addition, the distribution of prescription pharmaceutical products, including samples, is subject to the Prescription Drug Marketing Act, or PDMA,which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drugdistributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements toensure accountability in distribution. The Drug Supply Chain Security Act also imposes obligations on manufacturers of pharmaceutical products relatedto product tracking and tracing. Failure to comply with any of the FDA’s requirements could result in significant adverse enforcement actions. These include a variety of administrative orjudicial sanctions, such as refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, imposition of a clinicalhold or termination of clinical trials, warning letters, untitled letters, cyber letters, modification of promotional materials or labeling, product recalls,product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, debarment, injunctions, fines,consent decrees, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolveallegations of non-compliance with these laws, refusals of government contracts and new orders under existing contracts, exclusion from participation infederal and state healthcare programs, restitution, disgorgement or civil or criminal penalties, including fines and individual imprisonment. Any of thesesanctions could result in adverse publicity, among other adverse consequences. Risk Evaluation and Mitigation Strategy (REMS) The FDA has the authority to require a REMS to ensure the safe use of the drug. In determining whether a REMS is necessary, the FDA must consider thesize of the population likely to use the drug, the seriousness of the disease or condition to be treated, the expected benefit of the drug, the duration oftreatment, the seriousness of known or potential adverse events, and whether the drug is an NME. If the FDA determines a REMS is necessary, the drugsponsor must develop the REMS program, which the FDA reviews and approves. A REMS may be required for a single drug or an entire class of drugs. A REMS may be required to include various elements, including, but not limited to, a medication guide or patient package insert, a communication planto educate healthcare providers of the drug’s risks, limitations on who may prescribe or dispense the drug, elements to assure safe use, or ETASU, animplementation system, or other measures that the FDA deems necessary to assure the safe use of the drug. ETASU can include, but are not limited to,special training or certification for prescribing or dispensing, dispensing only under specified circumstances, special monitoring, and the use of patientregistries. In addition, the REMS must include a timetable to periodically assess the strategy. The FDA may also impose a REMS requirement on a drugalready on the market if the FDA determines, based on new safety information, that a REMS is necessary to ensure that the drug’s benefits outweigh itsrisks. The requirement for a REMS can materially affect the potential market and profitability of a drug. Based upon currently approved product REMS programs and class-wide REMS programs, including the class-wide REMS programs for extended-releaseand long-acting opioid analgesics, we believe that most of our product candidates, if approved, may be subject to a REMS. Accordingly, we expect tohave to take prescribed measures to ensure the safe use of our products, if they are approved. 18 DEA Regulation Most of our product candidates, if approved, will be regulated as “controlled substances” as defined in the Controlled Substances Act of 1970, or CSA,and the DEA’s implementing regulations, which establish registration, security, recordkeeping, reporting, storage, distribution, importation, exportation,inventory, quota and other requirements administered by the DEA. These requirements are directly applicable to us and also applicable to our contractmanufacturers and to distributors, prescribers and dispensers of our product candidates. The DEA regulates the handling of controlled substances througha closed chain of distribution. This control extends to the equipment and raw materials used in their manufacture and packaging in order to prevent lossand diversion into illicit channels of commerce. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use,and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substancesconsidered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Schedule II drugs arethose that meet the following characteristics: ●the drug has a high potential for abuse; ●the drug has a currently accepted medical use in treatment in the United States or a currently accepted medical use with severe restrictions; and ●abuse of the drug may lead to severe psychological or physical dependence. We expect that most of our product candidates may be listed by the DEA as Schedule II controlled substances under the CSA. In 2014, the DEArescheduled hydrocodone combination products into Schedule II from Schedule III. If our product candidates are ultimately listed as Schedule IIcontrolled substances, then the importation of APIs for our product candidates, as well as the manufacture, shipping, storage, sales and use of the products,will be subject to a high degree of regulation. In addition to maintaining an importer and/or exporter registration, importers and exporters of controlledsubstances must obtain a permit for every import of a Schedule I or II substance and a narcotic substance in Schedule III, IV and V, as well as every exportof a Schedule I or II substance and a narcotic substance in Schedule III and IV. For all other drugs in Schedule III, IV and V, importers and exporters mustsubmit an import or export declaration. Schedule II drugs are subject to the strictest requirements for registration, security, recordkeeping and reporting.Also, distribution and dispensing of these drugs are highly regulated. For example, all Schedule II drug prescriptions must be signed by a physician,physically presented to a pharmacist and may not be refilled without a new prescription. Electronic prescriptions may also be permissible depending onthe state, so long as the prescription complies with the DEA’s requirements for electronic prescriptions. Controlled substances classified in Schedule III, IV, and V are also subject to registration, recordkeeping, reporting, and security requirements. Forexample, Schedule III drug prescriptions must be authorized by a physician and may not be refilled more than six months after the date of the originalprescription or more than five times. A prescription for controlled substances classified in Schedules III, IV, and V issued by a physician, may becommunicated either orally, in writing or by facsimile to the pharmacies. Controlled substances that are also classified as narcotics, such as hydrocodone,oxycodone and hydromorphone, are also subject to additional DEA requirements, such as manufacturer reporting of the import of narcotic raw material. Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration isspecific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import andmanufacturing, and each registration will specify which schedules of controlled substances are authorized. Similarly, separate registrations are alsorequired for separate facilities. Acquisition and distribution transactions must also be reported for Schedule I and II controlled substances, as well asSchedule III narcotic substances. The DEA typically inspects a facility to review its security measures prior to issuing a registration and on a periodic basis. Security requirements vary bycontrolled substance schedule, with the most stringent requirements applying to Schedule I and Schedule II substances. Required security measuresinclude background checks on employees and physical control of inventory through measures such as cages, surveillance cameras and inventoryreconciliations. Records must be maintained for the handling of all controlled substances, and periodic reports made to the DEA, for example distributionreports for Schedule I and II controlled substances, Schedule III substances that are narcotics, and other designated substances. Reports must also be madefor thefts or losses of any controlled substance, and to obtain authorization to destroy any controlled substance. In addition, special permits andnotification requirements apply to imports and exports of narcotic drugs. In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II. Distributions of anySchedule I or II controlled substance or Schedule III narcotic must also be accompanied by special order forms, with copies provided to the DEA. Becausemost of our product candidates may be regulated as Schedule II controlled substances, they may be subject to the DEA’s production and procurementquota scheme. The DEA establishes annually an aggregate quota for how much of a controlled substance may be produced in total in the United Statesbased on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. The limited aggregate amount of opioids andstimulants that the DEA allows to be produced in the United States each year is allocated among individual companies, which must submit applicationsannually to the DEA for individual production and procurement quotas. We and our contract manufacturers must receive an annual quota from the DEAin order to produce or procure any Schedule I or Schedule II for use in manufacturing of our product candidates. The DEA may adjust aggregateproduction quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion inwhether or not to make such adjustments. Our, or our contract manufacturers’, quota of an active ingredient may not be sufficient to meet commercialdemand or complete clinical trials. Any delay, limitation or refusal by the DEA in establishing our, or our contract manufacturers’, quota for controlledsubstances could delay or stop our clinical trials or product launches, which could have a material adverse effect on our business, financial position andresults of operations. To enforce these requirements, the DEA conducts periodic inspections of registered establishments that handle controlledsubstances. Failure to maintain compliance with applicable requirements, particularly as manifested in loss or diversion, can result in administrative, civilor criminal enforcement action that could have a material adverse effect on our business, results of operations and financial condition. The DEA may seekcivil penalties, refuse to renew necessary registrations, or initiate administrative proceedings to revoke those registrations. In some circumstances,violations could result in criminal proceedings. Individual states also independently regulate controlled substances. We and our contract manufacturers will be subject to state regulation on distributionof these products, including, for example, state requirements for licensures or registration. 19 Other Healthcare Regulations Our business activities, including but not limited to, research, sales, promotion, distribution, medical education and other activities following productapproval will be subject to regulation by numerous regulatory and law enforcement authorities in the United States in addition to the FDA, includingpotentially the Department of Justice, the U.S. Department of Health and Human Services and its various divisions, including the CMS and the HealthResources and Services Administration, the Department of Veterans Affairs, the Department of Defense and state and local governments. Our businessactivities must comply with numerous healthcare laws, including those described below. The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting orreceiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, the referral of an individualfor, or purchasing, leasing, ordering, or arranging for the purchase, lease or order of, any good, facility, item or service reimbursable under Medicare,Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. There are a number ofstatutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawnnarrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subjectto scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception orregulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluatedon a case-by-case basis based on a cumulative review of all of its facts and circumstances. Additionally, the ACA amended the intent requirement of thefederal Anti-Kickback Statute, and some other healthcare criminal fraud statutes, so that a person or entity no longer needs to have actual knowledge ofthe Anti-Kickback Statute, or the specific intent to violate it, to have violated the statute. The ACA also provided that a violation of the federal Anti-Kickback Statute is grounds for the government or a whistleblower to assert that a claim for payment of items or services resulting from such violationconstitutes a false or fraudulent claim for purposes of the False Claims Act. The federal civil and criminal false claims laws, including the federal False Claims Act, prohibit, among other things, any person or entity fromknowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government, including the Medicare andMedicaid programs, or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim or toavoid, decrease or conceal an obligation to pay money to the federal government. We, and our business activities, are subject to the civil monetary penalties statute which imposes penalties against any person or entity who, among otherthings, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an itemor service that was not provided as claimed or is false or fraudulent. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit knowinglyand willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses,representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless ofwhether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminalinvestigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or makingany materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters.Additionally, the ACA amended the intent requirement of some of these criminal statutes under HIPAA so that a person or entity no longer needs to haveactual knowledge of the statute, or the specific intent to violate it, to have committed a violation. Additionally, the federal Open Payments program, created under Section 6002 of the ACA and its implementing regulations, require some manufacturersof drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program(with specified exceptions) to report annually information related to specified payments or other transfers of value provided to physicians and teachinghospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually specifiedownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interestsmay result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1.0 million per year for “knowing failures.” In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business.HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposesrequirements on certain types of individuals and entities relating to the privacy, security and transmission of individually identifiable health information.Among other things, HITECH makes HIPAA’s security standards directly applicable to business associates, independent contractors or agents of coveredentities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also createdfour new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave stateattorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ feesand costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in somecircumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Many states have also adopted laws similar to each of the above federal laws, which may be broader in scope and apply to items or services reimbursed byany third-party payor, including commercial insurers. Several states have also enacted legislation requiring pharmaceutical companies to, among otherthings, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing,clinical trials and other activities, or register their sales representatives, as well as prohibiting pharmacies and other healthcare entities from providingcertain physician prescribing data to pharmaceutical companies for use in sales and marketing, and prohibiting certain other sales and marketingpractices. Enforcement actions can be brought by federal or state governments or as “qui tam” actions brought by individual whistleblowers in the name of thegovernment. Depending on the circumstances, failure to comply with these laws can result in penalties, including criminal, civil and/or administrativecriminal penalties, damages, fines, disgorgement, debarment from government contracts, individual imprisonment, additional reporting requirements andoversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws,exclusion of products from reimbursement under government programs, refusal to allow us to enter into supply contracts, including government contracts,reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect ourbusiness. 20 Healthcare Reform Measures The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals designed to change thehealthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States andelsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving qualityand/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affectedby major legislative initiatives. For example, in March 2010, the ACA was passed. The ACA has substantially changed health care financing by both governmental and private insurers,and significantly affected the U.S. pharmaceutical industry. The ACA, among other things, subjected manufacturers to new annual fees and taxes forspecified branded prescription drugs, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program,expanded health care fraud and abuse laws, revised the methodology by which rebates owed by manufacturers to the state and federal government forcovered outpatient drugs under the Medicaid Drug Rebate Program are calculated, imposed an inflation penalty on new formulations of drugs, extendedthe Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, expanded the 340Bprogram which caps the price at which manufacturers can sell covered outpatient pharmaceuticals to specified hospitals, clinics and community healthcenters, and provided incentives to programs that increase the federal government’s comparative effectiveness research. There have been judicial andcongressional challenges to certain aspects of the ACA. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the BudgetResolution, that authorizes the implementation of legislation that would repeal portions of the ACA. The Budget Resolution is not a law; however, it iswidely viewed as the first step toward the passage of repeal legislation. Further, on January 20, 2017, President Trump signed an Executive Orderdirecting federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of anyprovision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers ofpharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of the ACA that are repealed. We continueto evaluate the effect that the ACA has on our business. Final regulations, guidance, amendments and judicial orders are anticipated in the future and wewill continue to assess the ACA’s impact on us as final regulations, guidance, amendments and judicial orders are issued. Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked withrecommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggeringthe legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2%per fiscal year, which went into effect in April 2013 and will remain in effect through 2025 unless additional Congressional action is taken. In addition, inJanuary 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments toseveral categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers fromthree to five years. Further, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricingpractices. Specifically, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring moretransparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, andreform government program reimbursement methodologies for drugs. The Foreign Corrupt Practices Act The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering or authorizing payment or offering ofanything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of theforeign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities arelisted in the United States to comply with accounting provisions requiring the companies to maintain books and records that accurately and fairly reflectall transactions of the companies, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls forinternational operations. Foreign Regulation In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales anddistribution of our products to the extent we choose to develop or sell any products outside of the United States. The approval process varies from countryto country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials,product licensing, pricing and reimbursement vary greatly from country to country. Employees As of December 31, 2016, we employed 32 full-time employees. We have never had a work stoppage, and none of our employees is represented by a labororganization or under any collective bargaining arrangements. We consider our employee relations to be good. Segments and Geographic Information We view our operations and manage our business as one operating segment. See our financial statements for a discussion of revenues, operating loss, netloss and total assets. All of our assets were held in the United States for the years ended December 31, 2016, 2015 and 2014. Corporate Information We were incorporated under the laws of the State of Iowa in October 2006 and were reincorporated under the laws of the State of Delaware in May 2014.Our principal executive offices are located at 2500 Crosspark Road, Suite E126, Coralville, IA 52241 and our telephone number is (319) 665-2575. Ourwebsite address is www.kempharm.com. The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K. 21 ITEM 1A.RISK FACTORS. You should carefully consider all of the risk factors and uncertainties described below, in addition to other information contained in this Annual Reporton Form 10-K, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” andour financial statements and related notes, before investing in our common stock. If any of the following risks materialize, our business, financialcondition and results of operations could be seriously harmed. This Annual Report on Form 10-K also contains forward-looking statements that involverisks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that aredescribed below and elsewhere in this Annual Report on Form 10-K. Risks Related to Our Financial Position and Capital Needs In light of our receipt of the CRL from the FDA regarding our NDA for Apadaz, the U.S. regulatory pathway for Apadaz is uncertain, and we may neverobtain regulatory approval in the United States. In December 2015, we submitted an NDA to the FDA for the marketing and sale of Apadaz. The NDA was accepted for filing by the FDA in February2016. In June 2016, the FDA issued the CRL regarding the NDA, indicating that their review was complete and the NDA was not ready for approval in itspresent form. In its CRL, the FDA advised us that it did not believe our proposed labeling included in the application accurately conveyed the outcomeof our abuse deterrence studies of Apadaz. In August 2016, we completed our end-of-review meeting with the FDA. At the end-of-review meeting, we discussed with the FDA the issues identified bythe FDA in the Apadaz NDA and what we believe is the potential to achieve a path forward for an Apadaz product label that could include abusedeterrence claims. Despite this end-of-review meeting with the FDA, we cannot guarantee when, or if, we will be successful in receiving approval for anApadaz label that includes abuse deterrent claims. In November 2016, we elected to continue the regulatory review process for Apadaz with the submission of a FDRR to the FDA. We anticipate up totwelve months may be required to complete all parts of the FDRR process. We cannot guarantee that the FDRR or any other action will be resolved in ourfavor. As a result, the approval of our NDA for Apadaz has been substantially delayed and may never occur. We cannot predict whether the FDA will have concerns regarding the abuse deterrent or other features of our product candidates for any future NDA wemay submit. If the FDA were to raise similar concerns regarding the abuse deterrent or other features of our product candidates in the future, the FDA maynot approve any such product candidates or we may not have sufficient capital resources to fully fund any new trials that the FDA may require as acondition to approval of our product candidates. The U.S. regulatory pathway for Apadaz, and potentially our other product candidates, is highly uncertain at this time, and we may never obtainregulatory approval of any of our product candidates in the United States. If that were to occur, it would have a material adverse effect on our operationsand financial condition. We have incurred significant operating losses since our inception. We expect to incur operating losses over the next several years and may neverachieve or maintain profitability. We have incurred operating losses since our inception and, as of December 31, 2016, had an accumulated deficit of $121.3 million. Our loss fromoperations for the years ended December 31, 2016, 2015 and 2014, were $37.5 million, $22.8 million and $16.4 million, respectively. We have financedour operations to date with $25.3 million raised in private placements of redeemable convertible preferred stock, $115.9 million in convertiblepromissory notes and term debt and $59.9 million in aggregate net proceeds from our initial public offering. We have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and clinical trials. Weare still in the early stages of development of many of our product candidates, and we have not completed development of any of our product candidates.We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly fromquarter to quarter and year to year. We anticipate that our expenses will increase substantially as we: ●continue our ongoing preclinical studies, clinical trials and our product development activities for our pipeline of product candidates; ●seek regulatory approvals for product candidates that successfully complete clinical trials; ●continue research and preclinical development and initiate clinical trials of our other product candidates; ●seek to discover and develop additional product candidates; ●potentially establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize anyproduct candidates for which we may obtain regulatory approval; ●adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products; ●maintain, expand and protect our intellectual property portfolio; and ●incur additional legal, accounting and other expenses in operating as a public company. To become and remain profitable, we must succeed in developing and eventually commercializing prodrugs that generate significant revenue. This willrequire us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials and obtaining regulatoryapproval of our product candidates, and manufacturing, marketing and selling any product candidates for which we may obtain regulatory approval, aswell as discovering and developing additional product candidates. We are only in the preliminary stages of most of these activities. We may neversucceed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability. Because of the numerous risks and uncertainties associated with prodrug development, we are unable to accurately predict the timing or amount ofexpenses or when, or if, we will be able to achieve profitability. If we are required by regulatory authorities to perform studies in addition to thosecurrently expected, or if there are any delays in the initiation and completion of our clinical trials or the development of any of our product candidates,our expenses could increase. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remainprofitable would depress our value and could impair our ability to raise capital, expand our business, maintain our research and development efforts,obtain product approvals, diversify our product offerings or continue our operations. A decline in our value could also cause you to lose all or part ofyour investment. 22 We will need substantial additional funding to pursue our business objectives. If we are unable to raise capital when needed, we could be forced todelay, reduce or altogether cease our prodrug development programs or commercialization efforts. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through thesecond quarter of 2019. However, we will need to obtain substantial additional funding in connection with our continuing operations. Our future capitalrequirements will depend on many factors, including: ●the progress and results of our preclinical studies, clinical trials and other product development and commercialization activities; ●the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates; ●the ability to obtain abuse-deterrent claims in the labels for our product candidates; ●the number and development requirements of other product candidates that we may pursue; ●the costs, timing and outcome of regulatory review of our product candidates; ●the efforts necessary to institute post-approval regulatory compliance requirements; ●the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of ourproduct candidates for which we receive marketing approval; ●the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval, which may be affectedby market conditions, including obtaining coverage and adequate reimbursement of our product candidates from third-party payors, includinggovernment programs and managed care organizations, and competition within the therapeutic class to which our product candidates areassigned; ●the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights anddefending any intellectual property-related claims; and ●the extent to which we acquire or in-license other product candidates and technologies. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process thattakes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval for our product candidates orclaims necessary to make such candidates profitable, and achieve product sales. In addition, our product candidates, if approved, may not achievecommercial success. Our commercial revenue, if any, will be derived from sales of prodrug products that we do not expect to be commercially availablefor the foreseeable future, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequateadditional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity ordebt securities, the terms of these securities or this debt may restrict our ability to operate. Our credit facility agreement with Deerfield Private DesignFund III, L.P., or Deerfield, dated June 2, 2014, or the Deerfield facility includes, and any future debt financing and equity financing, if available, mayinvolve agreements that include, covenants limiting and restricting our ability to take specific actions, such as incurring additional debt, making capitalexpenditures, entering into profit-sharing or other arrangements or declaring dividends. Additionally, in February 2016, we issued $86.25 millionaggregate principal amount of our 5.50% senior convertible notes due 2021, or the 2021 Notes. We are required to make periodic interest payments to theholders of the 2021 Notes and to make payments of principal upon maturity. In this regard, if holders of the 2021 Notes do not convert their 2021 Notesprior to the maturity date, we will be required to repay the principal amount of all then outstanding 2021 Notes plus any accrued and unpaid interest. Wemay also be required to repurchase the 2021 Notes for cash upon the occurrence of a change of control or certain other fundamental changes involving us.If our capital resources are insufficient to satisfy our debt service obligations, we will be required to seek to sell additional equity or debt securities or toobtain debt financing. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements withthird parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or togrant licenses on terms that may not be favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategicconsiderations even if we believe we have sufficient funds for our current or future operating plans. If we are unable to raise capital when needed or onattractive terms, we could be forced to delay, reduce or altogether cease our research and development programs or future commercialization efforts. Our operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability. We commenced active operations in 2006, and our operations to date have been largely focused on raising capital, identifying potential productcandidates, broadening our expertise in the development of our prodrugs, undertaking preclinical studies and conducting clinical trials. We have not yetdemonstrated an ability to obtain regulatory approvals, manufacture a prodrug on a commercial scale or arrange for a third party to do so, or conduct salesand marketing activities necessary for successful commercialization or enter into a collaboration for that purpose. Consequently, any predictions youmake about our future success or viability may not be as accurate as they could be if we had a longer operating history. We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. Wewill need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities.We may not be successful in such a transition. We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety offactors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications offuture operating performance. 23 Risks Related to the Development of Our Product Candidates Our research and development is focused on discovering and developing proprietary prodrugs, and we are taking an innovative approach todiscovering and developing prodrugs, which may never lead to marketable prodrug products. A key element of our strategy is to use our LAT platform technology to build a pipeline of prodrugs and progress product candidates based on theseprodrugs through clinical development for the treatment of a variety of diseases and conditions. The scientific discoveries that form the basis for ourefforts to discover and develop prodrugs are relatively new. The scientific evidence to support the feasibility of developing product candidates based onthese discoveries is both preliminary and limited. Although our research and development efforts to date have resulted in a pipeline of prodrug productcandidates, we may not be able to develop prodrugs that are bioequivalent, safe and effective and that have commercially significant improvements overalready approved drugs. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not besuitable for clinical development, including as a result of being shown to have harmful side effects, a lack of efficacy, or other characteristics that indicatethat they are unlikely to be prodrugs that will receive marketing approval and achieve market acceptance. For instance, in June 2016, we received theCRL from the FDA for our Apadaz NDA indicating that the FDA considers the review cycle for the Apadaz NDA complete and that the application is notready for approval in its present form. In November 2016, we elected to continue the regulatory review process for Apadaz with the submission of a FDRRto the FDA. Despite this, we cannot guarantee when, or if, we will be successful in receiving approval for an Apadaz label that includes abuse deterrentclaims. If we do not successfully develop and commercialize product candidates based upon our LAT platform technology, we will not be able to obtainproduct revenue in future periods, which likely would result in significant harm to our financial position and adversely affect our stock price. 24 If we are not able to obtain required regulatory approvals for our product candidates, we will not be able to commercialize them and our ability togenerate revenue or profits or to raise future capital could be limited. The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import anddistribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries,which regulations differ from country to country and change over time. We are not permitted to market any of our product candidates in the United Statesuntil we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approvals in such countries. In the UnitedStates, the FDA generally requires the completion of nonclinical testing and clinical trials of each drug to establish its safety and efficacy and extensivepharmaceutical development to ensure its quality and other factors before an NDA is approved. Regulatory authorities in other jurisdictions imposesimilar requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewerare approved for commercialization. Even if regulatory approval is obtained, subsequent safety, efficacy, quality or other issues can result in a product approval being suspended orwithdrawn. Other than the submission of our NDA for Apadaz to the FDA, as to which the FDA issued the June 2016 CRL, we have not yet submittedcomparable applications to other regulatory authorities. If our development efforts for our product candidates, including regulatory approval, are notsuccessful for their planned indications or are delayed, or if adequate demand for our product candidates that are approved for marketing, if any, is notgenerated, our business will be harmed. The success of our product candidates will depend on the receipt and maintenance of regulatory approval and the issuance and maintenance of suchapproval is uncertain and subject to a number of risks, including the following: ●the FDA or comparable foreign regulatory authorities, IRBs or ethics committees may disagree with the design or conduct of our clinical trials; ●the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or other regulatory agencies formarketing approval or for us to receive approval for claims that are necessary for commercialization, for instance in June 2016, the FDAissued the CRL for our Apadaz NDA; ●the dosing in a particular clinical trial may not be at an optimal level; ●patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to our product candidates; ●the data collected from clinical trials may not be sufficient to support the submission of an NDA or other submission to regulatory authorities orto obtain regulatory approval in the United States or elsewhere; ●the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturerswith which we contract for clinical and commercial supplies or may later suspend or withdraw such approval; ●the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering ourclinical data insufficient for approval; and ●even if we obtain marketing approval in one or more countries, future safety or other issues could result in the suspension or withdrawal ofregulatory approval in such countries. We have only limited experience in filing the applications necessary to gain regulatory approvals and have relied, and expect to continue to rely, onconsultants and third-party contract research organizations, or CROs, with expertise in this area to assist us in this process. Securing FDA approvalrequires the submission of extensive nonclinical and clinical data, information about product manufacturing processes and inspection of facilities andsupporting information to the FDA for each therapeutic indication to establish a product candidate's safety and efficacy for each indication andmanufacturing quality. Additionally, we cannot guarantee that regulators will agree with our assessment of the results of the clinical trials we haveconducted or that any future trials will be successful. For example, in May 2016, the Anesthetic and Analgesic Drug Products Advisory Committee andthe Drug Safety and Risk Management Advisory Committee of the FDA voted 16 to four for the approval of Apadaz, but voted 18 to two againstinclusion of abuse deterrent labeling for Apadaz. Additionally, in June 2016, we received the CRL from the FDA for our Apadaz NDA indicating that theFDA considers the review cycle for the Apadaz NDA complete and that the application is not ready for approval in its present form. In November 2016, weelected to continue the regulatory review process for Apadaz with the submission of a FDRR to the FDA. Despite this, we cannot guarantee when, or if, wewill be successful in receiving approval for an Apadaz label that includes abuse deterrent claims. Any product candidate we develop may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude ourobtaining regulatory approval or prevent or limit commercial use with respect to one or all intended indications. The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon,among other things, the type, complexity and novelty of the product candidates involved, the jurisdiction in which regulatory approval is sought and thesubstantial discretion of the regulatory authorities. Changes in the regulatory approval policy during the development period, changes in or theenactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval orrejection of an application or may result in future withdrawal of approval. Regulatory approval obtained in one jurisdiction does not necessarily meanthat a product candidate will receive regulatory approval in all jurisdictions in which we may seek approval, but the failure to obtain approval in onejurisdiction may negatively impact our ability to seek approval in a different jurisdiction. Failure to obtain regulatory marketing approval of our productcandidates in any indication will prevent us from commercializing those product candidates, and our ability to generate revenue will be impaired. 25 We are very early in our development efforts and only a limited number of our product candidates have entered clinical development. All of our otheractive product candidates are still in preclinical development. If we are unable to commercialize our product candidates, or experience significantdelays in doing so, our business will be harmed. We are very early in our development efforts and only a limited number of our product candidates have entered clinical development. All of our otheractive product candidates are still in preclinical development. We have not completed the development of any product candidates, we generate norevenue from the sale of any prodrugs and we may never be able to develop a marketable prodrug product. We have invested substantially all of ourefforts and financial resources in the development of our LAT platform technology, the identification of potential product candidates and thedevelopment of our product candidates. Our ability to generate revenue from our product candidates will depend heavily on their successful developmentand eventual commercialization. The success of our product candidates will depend on several factors, including: ●successful completion of preclinical studies and requisite clinical trials; ●successful completion and achievement of endpoints in our clinical trials; ●demonstration that the risks involved with our product candidates are outweighed by the benefits; ●successful development of our manufacturing processes for our product candidates, including entering into and maintaining arrangements withthird-party manufacturers; ●successful completion of an FDA preapproval inspection of the facilities used to manufacture our product candidates, as well as select clinicaltrial sites; ●receipt of timely marketing approvals from applicable regulatory authorities, including, if applicable, the determination by the DEA, of thecontrolled substance schedule for a product candidate, taking into account the recommendation of the FDA; ●obtaining abuse-deterrent claims in the labels for our product candidates; ●obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity for our product candidates and otherwiseprotecting our rights in our intellectual property portfolio; ●maintaining compliance with regulatory requirements, including cGMPs; ●launching commercial sales of product candidates, if and when approved, whether alone or in collaboration with others; ●acceptance of our prodrug product candidates, if approved, by patients, the medical community and third-party payors; ●competing effectively with other therapies; ●obtaining and maintaining healthcare coverage and adequate reimbursement; and ●maintaining a continued acceptable safety and efficacy profile of the prodrug products following approval. Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatoryauthorities. If, following submission, our NDA for a product candidate is not accepted for substantive review or approval, the FDA or other comparableforeign regulatory authorities may require that we conduct additional studies or clinical trials, provide additional data, take additional manufacturingsteps or require other conditions before they will reconsider our application. If the FDA or other comparable foreign regulatory authorities requireadditional studies, clinical trials or data, we would incur increased costs and delays in the marketing approval process, which may require us to expendmore resources than we have available. In addition, the FDA or other comparable foreign regulatory authorities may not consider sufficient any additionalrequired studies, clinical trials, data or information that we perform and complete or generate, or we may decide to abandon the program. It is possible that none of our existing product candidates or any of our future product candidates will ever obtain regulatory approval, even if we expendsubstantial time and resources seeking such approval. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfullycommercialize our product candidates, which would harm our business. 26 Our ability to market and promote our products in the United States by describing their abuse-deterrent features will be determined by the FDA-approved labeling for them. The commercial success of most of our product candidates will depend upon our ability to obtain FDA-approved labeling describing their abuse-deterrent features. Our failure to achieve FDA approval of product labeling containing such information will prevent our advertising and promotion of theabuse-deterrent features of our product candidates in order to differentiate them from other similar products. This would make our products lesscompetitive in the market. FDA approval is required in order to make claims that a product has an abuse-deterrent effect. In January 2013, the FDA published draft guidance withregard to the evaluation and labeling of abuse-deterrent opioids. This guidance was published in final form in April 2015. The FDA guidance providesdirection as to the studies and data required for obtaining abuse-deterrent claims in a product label. The guidance describes four categories of label claimsfor abuse-deterrent products. Depending on product and study data, a combination of categories can be included in the label claims. The FDA guidancelists the following theoretical examples: ●Category 1–in vitro data demonstrate the product has physical and chemical properties that are expected to deter intravenous abuse. However,abuse is still possible by the oral and nasal routes. ●Category 1 and 2–in vitro data demonstrate that the product has physical and chemical properties that are expected to deter oral, nasal andintravenous abuse. However, abuse of intact product is still possible by the oral route. ●Category 2 and 3–pharmacokinetic and clinical abuse potential studies indicate that the product has properties that are expected to deter abusevia the oral, intranasal and intravenous routes. However, abuse of product by these routes is still possible. ●Category 4–data demonstrated a reduction in the abuse of the product in the community setting compared to the levels of abuse, overdose, anddeath that occurred when only formulations of the same opioid without abuse-deterrent properties were available. This reduction in abuseappears to be attributable to the product’s formulation, which deters abuse by injection or snorting of the manipulated product. However, suchabuse of this product is still possible, and the product’s abuse deterrence properties do not deter abuse associated with swallowing the intactformulation. If a product is approved by the FDA to include such claims in its label, the applicant may use information about the abuse-deterrent features of theproduct in its marketing efforts to physicians. There can be no assurance that any of our product candidates will receive FDA-approved labeling that describes the abuse-deterrent features of suchproducts. The FDA may find that our trials do not support abuse-deterrent labeling or that our product candidates do not provide substantial abusedeterrence because, for example, their deterrence mechanisms do not address the way they are most likely to be abused. For instance, in May 2016, theAnesthetic and Analgesic Drug Products Advisory Committee and the Drug Safety and Risk Management Advisory Committee of the FDA voted 18 totwo against inclusion of abuse-deterrent labeling for Apadaz. Subsequently, in June 2016, the FDA issued the CRL for our Apadaz NDA indicating thatthe FDA considers the review cycle for the Apadaz NDA complete and that the application is not ready for approval in its present form. In its CRL, theFDA advised us that it did not believe our proposed labeling included in the application accurately conveyed the outcome of our abuse deterrencestudies of Apadaz. In November 2016, we elected to continue the regulatory review process for Apadaz with the submission of a FDRR to the FDA.Despite this, we cannot guarantee when, or if, we will be successful in receiving approval for an Apadaz label that includes abuse deterrent claims. As with all claims, we will be required to provide adequate substantiation. For example, we will need to demonstrate that our product candidates haveabuse-deterrent properties sufficient to achieve abuse-deterrent labeling. Further, the FDA is not required to follow its guidance and could change this guidance, which could require us to conduct additional trials. If the FDAdoes not approve abuse-deterrent labeling, we will not be able to promote such products based on their abuse-deterrent features and may not be able todifferentiate such products from other similar products. Even if we do receive FDA approval for abuse-deterrent claims, the claims may not be broad enough to demonstrate a substantial benefit to health careproviders and patients. For instance, the claims may not encompass the more common forms of abuse for products like our product candidates. Moreover,continued investigation in Phase 4 studies following product approval may not support the continued use of abuse-deterrent claims. 27 If we attempt to rely on the 505(b)(2) pathway and the FDA does not conclude that our product candidates are sufficiently bioequivalent, or havecomparable bioavailability, to approved drugs, or if the FDA does not allow us to pursue the 505(b)(2) NDA pathway as anticipated, the approvalpathway for our product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications andrisks than anticipated, and the FDA may not ultimately approve our product candidates. A key element of our strategy is to seek FDA approval for our product candidates through the 505(b)(2) NDA pathway where possible. The 505(b)(2)pathway permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for theapplicant and for which the applicant has not obtained a right of reference. Such reliance is typically predicated on a showing of bioequivalence orcomparable bioavailability to an approved drug. If the FDA does not allow us to pursue the 505(b)(2) NDA pathway as anticipated, or if we cannot demonstrate bioequivalence or comparablebioavailability of our product candidates to approved products, we may need to conduct additional clinical trials, provide additional data andinformation, and meet additional standards for regulatory approval. Moreover, even if the FDA does allow us to pursue the 505(b)(2) NDA pathway,depending on the product candidate, we may still need to conduct additional clinical trials, including clinical trials to assess product safety or efficacy.For instance, we currently plan on relying on the 505(b)(1) pathway for any NDA we submit for KP415 and KP201/IR. Additionally, we do not anticipatethat the 505(b)(2) pathway will be available for every product candidate. If this were to occur, the time and financial resources required to obtain FDAapproval for our product candidates, and complications and risks associated with our product candidates, would likely substantially increase. Moreover, our inability to pursue the 505(b)(2) NDA pathway could result in new competitive products reaching the market more quickly than ourproduct candidates, which could hurt our competitive position and our business prospects. Even if we are allowed to pursue the 505(b)(2) NDA pathway,we cannot assure you that our product candidates will receive the requisite approvals for commercialization on a timely basis, if at all. Other companiesmay achieve product approval of similar products before we do, which would delay our ability to obtain product approval, expose us to greatercompetition, and would require that we seek approval via alternative pathways, such as an ANDA, which is used for the development of generic drugproducts. In addition, notwithstanding the approval of a number of products by the FDA under 505(b)(2) over the last few years, pharmaceutical companies andothers have objected to the FDA’s interpretation of 505(b)(2). If the FDA’s interpretation of 505(b)(2) is successfully challenged, the FDA may change itspolicies and practices with respect to 505(b)(2) regulatory approvals, which could delay or even prevent the FDA from approving any NDA that wesubmit under 505(b)(2). Even if our product candidates are approved under 505(b)(2), the approval may be subject to limitations on the indicated uses for which the products maybe marketed, including more limited subject populations than we request, may require that contraindications, warnings or precautions be included in theproduct labeling, including a black box warning, may be subject to other conditions of approval, or may contain requirements for costly post-marketingclinical trials, testing and surveillance to monitor the safety or efficacy of the products, or other post-market requirements, such as a REMS. The FDA alsomay not approve a product candidate with a label that includes the labeling claims necessary or desirable for the successful commercialization of thatproduct candidate. Based upon currently approved products, we anticipate that we will be required to conduct Phase 4 studies and to implement a REMSand will have a black box warning for at least some of our product candidates. The FDA may determine that any NDA we may submit under the 505(b)(2) regulatory pathway for any of our product candidates in the future is notsufficiently complete to permit a substantive review. If we were to file an NDA under the 505(b)(2) regulatory for any of our product candidates, within 60 days of the agency’s receipt of our NDA, the FDAwill make a threshold determination of whether the NDA is sufficiently complete to permit a substantive review. This 60-day review period is referred toas the filing review. If the NDA is sufficiently complete, the FDA will file the NDA. If the agency refuses to file the NDA, it will notify us and state thereason(s) for the refusal. The FDA may refuse to file our NDA for various reasons, including but not limited to, if: ●the NDA is incomplete because it does not on its face contain the information required under the FFDCA or the FDA’s regulations; ●the NDA does not contain a statement that each nonclinical laboratory study was conducted in compliance with the GLP requirements, or foreach study not so conducted, a brief statement of the reason for the noncompliance; ●the NDA does not contain a statement that each clinical trial was conducted in compliance with the IRB regulations or was not subject to thoseregulations, and the agency’s informed consent regulations or a brief statement of the reason for noncompliance; or ●the drug is a duplicate of a listed drug approved before receipt of the NDA and is eligible for approval under an ANDA for generic drugs. In its procedures, the FDA has stated that it could find an NDA submitted under the Section 505(b)(2) regulatory pathway incomplete and refuse to file itif the NDA, among other reasons: ●fails to include appropriate literature or a listed drug citation to support the safety or efficacy of the drug product; ●fails to include data necessary to support any aspects of the proposed drug that represent modifications to the listed drug(s) relied upon; ●fails to provide a bridge, for example by providing comparative bioavailability data, between the proposed drug product and the listed drugproduct to demonstrate that such reliance is scientifically justified; ●uses an unapproved drug as a reference product for the bioequivalence study; or ●fails to provide a patent certification or statement as required by the FDA’s regulations where the 505(b)(2) NDA relies on one or more listeddrugs.  Additionally, the FDA will refuse to file an NDA if an approved drug with the same active moiety is entitled to five years of exclusivity, unless theexclusivity period has elapsed or unless four years of the five-year period have elapsed and the NDA contains a certification of patent invalidity or non-infringement. An active moiety is the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt(including a salt with hydrogen or coordination bond) or other noncovalent derivative (such as a complex, chelate, or clathrate) of the molecule,responsible for the therapeutic activity of the drug substance. If the FDA refuses to file an NDA submitted by us, we may amend the NDA and resubmit it. In such a case, the FDA will again review the NDA anddetermine whether it may be filed. There can be no assurance that the FDA will file any NDA submitted by us in the future. If the agency refuses to file anNDA, we will need to address the deficiencies cited by the FDA, which could substantially delay the review process. 28 Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays incompleting, or ultimately be unable to complete, the development and commercialization of our product candidates. The risk of failure for our product candidates is high. It is impossible to predict when or if any of our product candidates will prove effective or safe inhumans and will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, wemust complete preclinical development and then conduct clinical trials to demonstrate the safety and efficacy of our product candidates in humans.Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or moreclinical trials can occur at any stage of testing. The outcome of preclinical studies and early clinical trials may not be predictive of the success of laterclinical trials, and interim results of a clinical trial do not necessarily predict final results. Interpretation of results from early, usually smaller, studies thatsuggest positive trends in some subjects, requires caution. Results from later stages of clinical trials enrolling more subjects may fail to show the desiredsafety and efficacy results or otherwise fail to be consistent with the results of earlier trials of the same product candidates. Later clinical trial results maynot replicate earlier clinical trials for a variety of reasons, including differences in trial design, different trial endpoints, or lack of trial endpoints inexploratory studies, subject population, number of subjects, subject selection criteria, trial duration, drug dosage and formulation and lack of statisticalpower in the earlier studies. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companiesthat have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketingapproval of their products. For instance, in June 2016, the FDA issued the CRL for our Apadaz NDA indicating that the FDA considers the review cyclefor the Apadaz NDA complete and that the application is not ready for approval in its present form. In its CRL, the FDA advised us that it did notbelieve our proposed labeling included in the application accurately conveyed the outcome of our abuse deterrence studies of Apadaz. In November2016, we elected to continue the regulatory review process for Apadaz with the submission of a FDRR to the FDA. Despite this, we cannot guaranteewhen, or if, we will be successful in receiving approval for an Apadaz label that includes abuse deterrent claims. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketingapproval or commercialize our product candidates, including: ●regulators or IRBs may not authorize us or our investigators to commence a clinical trial, conduct a clinical trial at a prospective trial site oramend clinical trial protocols as needed; ●we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospectivetrial sites and CROs; ●clinical trials of our product candidates may produce negative or inconclusive results, including failure to demonstrate statistical significance incases where that is required, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon prodrugdevelopment programs; ●the number of subjects required for clinical trials of our product candidates 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 we anticipate; ●our third-party contractors may fail to comply with regulatory requirements or trial protocols, or meet their contractual obligations to us in atimely manner, or at all; ●regulators or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliancewith regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; ●the cost of clinical trials of our product candidates may be greater than we anticipate, including if we are not able to pursue the 505(b)(2) NDApathway for approval of our product candidates; ●we will need to pay substantial application user fees, which we may not be able to afford; ●the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may beinsufficient or inadequate; ●we may abandon our development program or programs based on the changing regulatory or commercial environment; ●regulatory authorities may not agree with our trial design or implementation; and ●our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBsto suspend or terminate the trials. If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we areunable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are onlymodestly positive or if there are safety concerns, we may: ●be delayed in obtaining marketing approval for our product candidates; ●not obtain marketing approval at all; ●obtain approval for indications or patient populations that are not as broad as intended or desired; ●obtain approval but without the claims necessary for us to successfully commercialize our product candidates; ●obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; ●be subject to additional post-marketing testing, surveillance, or other requirements, such as REMS; or ●have the product removed from the market after obtaining marketing approval. Our prodrug development costs may also increase if we experience delays in testing or obtaining marketing approvals. We do not know whether any ofour preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significantpreclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our productcandidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our productcandidates. 29 Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay. As product candidates are developed through preclinical studies to late-stage clinical trials towards approval and commercialization, various aspects ofthe development program, such as manufacturing methods and formulation, may be altered along the way in an effort to optimize processes and results.Such changes may not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect theresults of planned clinical trials or other future clinical trials conducted with the altered materials. Such changes may also require additional testing, FDAnotification or FDA approval. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or moreclinical trials, increase clinical trial costs, delay approval of our product candidates and jeopardize our ability to commence product sales and generaterevenue. Our decision to seek approval of our product candidates under 505(b)(2), if available, may increase the risk that patent infringement suits are filedagainst us, which would delay the FDA's approval of such product candidates. In connection with any NDA that we may submit under 505(b)(2), if there are patents that claim the approved drug contained in our product candidatesand referenced in our 505(b)(2) NDA, we must certify to the FDA and notify the patent holder that any patents listed for the approved drug in the FDA'sOrange Book publication are invalid, unenforceable or will not be infringed by the manufacture, use or sale of our prodrug. If a patent infringementlawsuit is filed against us within 45 days of its receipt of notice of our certification, the FDA is automatically prevented from approving our 505(b)(2)NDA until the earliest of 30 months, expiration of the patent, settlement of the lawsuit or a court decision in the infringement case that is favorable to us,or such shorter or longer period as may be ordered by a court. Such actions are routinely filed by patent owners. Accordingly, we may invest significanttime and expense in the development of our product candidates only to be subject to significant delay and patent litigation before our product candidatesmay be commercialized. We may not be successful in defending any patent infringement claim. Even if we are found not to infringe, or a plaintiff's patentclaims are found invalid or unenforceable, defending any such infringement claim would be expensive and time-consuming, and would delay launch ofour product candidates and distract management from their normal responsibilities. We anticipate that most of our product candidates, if approved by the FDA, may be subject to mandatory REMS programs, which could increase thecost, burden and liability associated with the commercialization of these product candidates. The FDA has indicated that some opioid drugs formulated with the active ingredients hydrocodone, fentanyl, hydromorphone, methadone, morphine,oxycodone, oxymorphone and others will be required to have a REMS to ensure that the benefits of the drugs continue to outweigh the risks. The FDAhas already approved a REMS for ER and long-acting opioids as part of a federal initiative to address inappropriate prescribing and prescription drugabuse and misuse, which the FDA continually updates. The REMS introduces new safety measures designed to reduce risks and improve the safe use ofER and long-acting opioids, while ensuring access to needed medications for patients in pain. The ER and long-acting opioid REMS affects more than 25companies that manufacture these opioid analgesics. Under the new REMS, companies are required to make education programs available to prescribers.It is expected that companies will meet this obligation by taking specific steps to ensure that health care providers are aware of the availability of thetraining and by providing educational grants to continuing education providers, who will develop and deliver the training. The REMS also requirescompanies to make available FDA-approved patient education materials on the safe use of these drugs. The companies must perform periodic assessmentsof the implementation of the REMS and the success of the program in meeting its goals. The FDA will review these assessments and may requireadditional elements to achieve the goals of the program. Independent audits must also be conducted of the educational efforts. We anticipate that most of our product candidates, if approved by the FDA, may be subject to a REMS requirement. There may be increased cost,administrative burden and potential liability associated with the marketing and sale of these types of product candidates subject to a REMS requirement,which could increase the costs to us and reduce the commercial benefits to us from the sale of these product candidates. 30 Our product candidates contain controlled substances, the manufacture, use, sale, importation, exportation, prescribing and distribution of which aresubject to regulation by the DEA. Before we can commercialize our product candidates, the DEA will need to determine the controlled substance schedule, taking into account therecommendation of the FDA. This may be a lengthy process that could delay our marketing of a product candidate and could potentially diminish anyregulatory exclusivity periods for which we may be eligible. Most of our product candidates, including KP201/IR (APAP-free), KP303, KP415,KP511/ER, KP511/IR, KP606/IR and KP746, if approved, will be regulated as “controlled substances” as defined in the CSA and the implementingregulations of the DEA, which establish registration, security, recordkeeping, reporting, storage, distribution, importation, exportation, inventory, quotaand other requirements administered by the DEA. These requirements are applicable to us, to our contract manufacturers and to distributors, prescribersand dispensers of our product candidates. The DEA regulates the handling of controlled substances through a closed chain of distribution. This controlextends to the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels ofcommerce. A number of states and foreign countries also independently regulate these drugs as controlled substances. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use,and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substancesconsidered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Schedule II drugs arethose that meet the following characteristics: ●the drug has a high potential for abuse; ●the drug has a currently accepted medical use in treatment in the United States or a currently accepted medical use with severe restrictions; and ●abuse of the drug may lead to severe psychological or physical dependence. We expect that most of our product candidates may be listed by the DEA as Schedule II controlled substances under the CSA. Consequently, themanufacturing, shipping, storing, selling and using of the products will be subject to a high degree of regulation. In addition to maintaining an importerand/or exporter registration, importers and exporters of controlled substances must obtain a permit for every import of a Schedule I or II substance and anarcotic substance in Schedule III, IV and V, as well as every export of a Schedule I or II substance and a narcotic substance in Schedule III and IV. For allother drugs in Schedule III, IV and V, importers and exporters must submit an import or export declaration. Schedule II drugs are subject to the strictestrequirements for registration, security, recordkeeping and reporting. Also, distribution and dispensing of these drugs are highly regulated. For example,all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.Electronic prescriptions may also be permissible depending on the state, so long as the prescription complies with the DEA’s requirements for electronicprescriptions. Controlled substances classified in Schedule III, IV, and V are also subject to registration, recordkeeping, reporting and security requirements. Forexample, Schedule III drug prescriptions must be authorized by a physician and may not be refilled more than six months after the date of the originalprescription or more than five times. A prescription for controlled substances classified in Schedules III, IV and V issued by a physician, may becommunicated either orally, in writing or by facsimile to the pharmacies. Controlled substances that are also classified as narcotics, such as hydrocodone,oxycodone and hydromorphone, are also subject to additional DEA requirements, such as manufacturer reporting of the import of narcotic raw material. Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration isspecific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import andmanufacturing, and each registration will specify which schedules of controlled substances are authorized. Similarly, separate registrations are alsorequired for separate facilities. Acquisition and distribution transactions must also be reported for Schedule I and II controlled substances, as well asSchedule III narcotic substances. In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II. Because most of ourproduct candidates may be regulated as Schedule II controlled substances, they may be subject to the DEA’s production and procurement quota scheme.The DEA establishes annually an aggregate quota for how much of a controlled substance may be produced in total in the United States based on theDEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. Manufacturers of Schedule I and II controlled substances arerequired to apply for quotas on an annual basis. If we or our contract manufacturers or suppliers do not obtain a sufficient quota from the DEA, we may notbe able to obtain sufficient quantities of these controlled substances in order to complete our clinical trials or meet commercial demand, if our productcandidates are approved for marketing. Because of their restrictive nature, these laws and regulations could limit commercialization of our product candidates containing controlled substances.States may also have their own controlled substance laws that may further restrict and regulate controlled substances. Failure to comply with these lawsand regulations could also result in withdrawal of our DEA registrations, disruption in manufacturing and distribution activities, consent decrees, criminaland civil penalties and state actions, among other consequences. 31 If we experience delays or difficulties in the enrollment of subjects in clinical trials, our receipt of necessary regulatory approvals could be delayed orprevented. We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligiblesubjects to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. We cannot predict how successfulwe will be at enrolling subjects in future clinical trials. If we are not successful at enrolling subjects in one clinical trial, it may effect when we are able toinitiate our next clinical trial, which could result in significant delays in our efforts to pursue regulatory approval of and commercialize our productcandidates. In addition, some of our competitors have ongoing clinical trials to treat the same indications as our product candidates, and subjects whowould otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors. Subject enrollment is affected by other factorsincluding: ●the size and nature of the subject population specified in the trial protocol; ●the eligibility criteria for the study in question; ●the perceived risks and benefits of the product candidate under study; ●the fact that the product candidate is a controlled substance; ●severe or unexpected drug-related adverse events experienced by subjects in a clinical trial; ●the availability of drugs approved to treat the diseases or conditions under study; ●the efforts to facilitate timely enrollment in clinical trials; ●the patient referral practices of physicians; ●the severity of the disease or condition under investigation; ●the ability to obtain and maintain subject informed consent; ●the ability to retain subjects in the clinical trial and their return for follow-up; ●the clinical trial design, including required tests, procedures and follow-up; ●the ability to monitor subjects adequately during and after treatment; ●delays in adding new investigators and clinical sites; ●withdrawal of clinical trial sites from clinical trials; and ●the proximity and availability of clinical trial sites for prospective subjects. Our inability to enroll a sufficient number of subjects for clinical trials would result in significant delays and could require us to abandon one or moreclinical trials altogether. Enrollment delays in these clinical trials may result in increased development costs for our product candidates, which couldcause our value to decline and limit our ability to obtain additional financing. 32 Our clinical trials may fail to demonstrate the safety and efficacy of our product candidates, or serious adverse or unacceptable side effects may beidentified during the development of our product candidates, which could prevent or delay regulatory approval and commercialization, increase ourcosts or necessitate the abandonment or limitation of the development of some of our product candidates. Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensivepreclinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication, and failures can occur at anystage of testing. Clinical trials often fail to demonstrate safety and efficacy of the product candidate studied for the target indication. If our product candidates are associated with side effects in clinical trials or have characteristics that are unexpected, we may need to abandon theirdevelopment or limit development to more narrow uses or subpopulations in which the side effects or other characteristics are less prevalent, less severe ormore acceptable from a risk-benefit perspective. The FDA or an IRB may also require that we suspend, discontinue, or limit our clinical trials based onsafety information. Such findings could further result in regulatory authorities failing to provide marketing authorization for our product candidates.Many product candidates that initially showed promise in early stage testing have later been found to cause side effects that prevented furtherdevelopment of the product candidate. We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates orindications that may be more profitable or for which there is a greater likelihood of success. Because we have limited financial and management resources, we focus on research programs and product candidates that we identify for specificindications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to havegreater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable marketopportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield anycommercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we mayrelinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have beenmore advantageous for us to retain sole development and commercialization rights to such product candidate. Social issues around the abuse of opioids and stimulants, including law enforcement concerns over diversion and regulatory efforts to combat abuse,could decrease the potential market for our product candidates. Media stories regarding prescription drug abuse and the diversion of opioids, stimulants and other controlled substances are commonplace. Lawenforcement and regulatory agencies may apply policies that seek to limit the availability of opioids and stimulants. Such efforts may inhibit our abilityto commercialize our product candidates. Aggressive enforcement and unfavorable publicity regarding, for example, the use or misuse of hydrocodone orother opioid drugs, the limitations of abuse-deterrent formulations, public inquiries and investigations into prescription drug abuse, litigation orregulatory activity, sales, marketing, distribution or storage of our products could harm our reputation. Such negative publicity could reduce the potentialsize of the market for our product candidates and decrease the revenue we are able to generate from their sale, if approved. Similarly, to the extentprescription drug abuse becomes a less prevalent or less urgent public health issue, regulators and third-party payors may not be willing to pay a premiumfor abuse-deterrent formulations of opioids or stimulants. Additionally, efforts by the FDA and other regulatory bodies to combat abuse of opioids and stimulants may negatively impact the market for our productcandidates. For example, in April 2014, the FDA approved class-wide labeling changes to the indications for use of all approved ER and long-actingopioids so that ER and long-acting opioids will be indicated only for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. It is possible that such changes could reduce the number ofprescriptions for opioids written by physicians and negatively impact the potential market for our product candidates. The FDA also held a publicmeeting in October 2014, on the development and regulation of abuse-deterrent formulations of opioid medications. Further, the Centers for DiseaseControl and Prevention recently issued draft guidelines for the prescribing of opioids for chronic pain, providing recommendations for primary careproviders prescribing opioids for chronic pain on when to initiate or continue opioids, opioid selection and discontinuation, and the assessment of therisk and addressing harms of opioid use, among other areas. It is possible that FDA, or other regulatory bodies, will announce new regulatory initiatives atany time that may increase the regulatory burden or decrease the commercial opportunity for our product candidates. We are party to non-competition restrictions that may prevent us from investigating, developing or commercializing specified amphetamine-basedproduct candidates. On March 21, 2012, we entered into an asset purchase agreement with Shire, pursuant to which we sold assets and intellectual property to Shire. As partialconsideration for this sale, we and our chief executive officer, Travis C. Mickle, Ph.D., agreed not to compete with Shire in the development,commercialization, production or distribution of amphetamine amino acid conjugate products until March 21, 2017. As a result, we have not engaged inany development efforts for such product candidates and will not engage in any such development efforts until the expiration of this non-competitionprovision, if at all. Prior to such time, our competitors may make substantial development progress regarding similar product candidates and even obtainFDA or other regulatory approval for similar product candidates. This could result in our competitors establishing a strong market position before we areable to enter the market or begin our development process, which may prevent us from entering such market altogether. 33 Risks Related to Our Dependence on Third Parties We rely on and expect to continue to rely on third parties to conduct our clinical trials for our product candidates, and those third parties may notperform satisfactorily, including failing to meet deadlines for the completion of such trials. We have engaged and expect to continue to engage CROs for our planned clinical trials of our product candidates. We rely on and expect to continue torely on CROs, as well as other third parties, such as clinical data management organizations, medical institutions and clinical investigators, to conductthose clinical trials. Agreements with such third parties might terminate for a variety of reasons, including a failure to perform by the third parties. If weneed to enter into alternative arrangements, our drug development activities would be delayed. Our reliance on these third parties for research and development activities reduces our control over these activities but does not relieve us of ourresponsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the generalinvestigational plan and protocols for the trial. Moreover, the FDA requires us to comply with GCPs for conducting, recording and reporting the results ofclinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants areprotected. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, investigators and trial sites. We also are required toregister specified ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, withinspecified timeframes. In addition, we must conduct our clinical trials with product produced under cGMP requirements. Failure to comply with theseregulations may require us to repeat preclinical studies and clinical trials, which would delay the regulatory approval process. Failure to comply with theapplicable requirements related to clinical investigations by us, our CROs or clinical trial sites can also result in clinical holds and termination of clinicaltrials, debarment, FDA refusal to approve applications based on the clinical data, warning letters, withdrawal of marketing approval if the product hasalready been approved, fines and other monetary penalties, delays, adverse publicity and civil and criminal sanctions, among other consequences. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do notsuccessfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or ourstated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, ormay be delayed in our efforts to, successfully commercialize our product candidates. In addition, investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equitycompensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, orthe FDA concludes that the financial relationship may have affected the interpretation of the study, the integrity of the data generated at the applicableclinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any NDAwe submit by the FDA. Any such delay or rejection could prevent us from commercializing our product candidates. Further, our arrangements withinvestigators are also subject to scrutiny under other health care regulatory laws, such as the federal Anti-Kickback Statute. We also rely on and expect to continue to rely on other third parties to store and distribute product supplies for our clinical trials. Any performance failureon the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products,producing additional losses and depriving us of potential product revenue. If the third parties with whom we contract do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the qualityor accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for otherreasons, our clinical trials may be extended, delayed or terminated, we may need to conduct additional trials, and we may not be able to obtain regulatoryapproval for or successfully commercialize our product candidates. As a result, the commercial prospects for our product candidates would be harmed, ourcosts could increase and our ability to generate revenue could be delayed. To the extent we are unable to successfully identify and manage theperformance of third-party service providers in the future, our business may be adversely affected. 34 We contract with third parties for the manufacture of our product candidates that utilize KP201, KP511 and KP415 as the API used in our clinicaltrials and with a sole source supplier for the manufacture of bulk quantities of KP201, KP511 and KP415 used in product candidates that utilize thesemoieties as the API and we expect to continue to do so. This reliance on third-party manufacturers increases the risk that we will not have sufficientquantities of KP201, KP511 or KP415, or such quantities at an acceptable cost, which could delay, prevent or impair our development orcommercialization efforts. We do not have any manufacturing facilities or personnel. We procure the bulk drug substances for KP201, KP511 and KP415 from sole-source, third-party manufacturers and the product candidates that utilize these moieties as the API used in our clinical trials from other third parties. We anticipate wewill continue to do so for the foreseeable future. We also expect to continue to rely on third parties as we proceed with preclinical and clinical testing ofour other product candidates, as well as for commercial manufacture if any of our product candidates receive marketing approval. This reliance on thirdparties increases the risk that we will not have sufficient quantities of KP201, KP511, KP415, other bulk drug substances or our product candidates, orsuch quantities at an acceptable cost or quality, which could delay, prevent or impair our ability to timely conduct our clinical trials or our otherdevelopment or commercialization efforts. We may be unable to establish any future agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to maintain ourexisting third-party relationships or establish any such agreements with other third-party manufacturers, reliance on third-party manufacturers entailsadditional risks, including: ●reliance on the third party for FDA and DEA regulatory compliance and quality assurance; ●the possible misappropriation of our proprietary information, including our trade secrets and know-how; ●disruption and costs associated with changing suppliers, including additional regulatory filings; ●the possible breach, termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; ●a delay or inability to procure or expand sufficient manufacturing capacity; ●manufacturing and product quality issues related to scale-up of manufacturing; ●costs and validation of new equipment and facilities required for scale-up; ●the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; ●termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; ●the reliance on a limited number of sources, and in some cases, single sources for product components, such that if we are unable to secure asufficient supply of these product components, we will be unable to manufacture and sell our product candidates in a timely fashion, in sufficientquantities or under acceptable terms; and ●carrier disruptions or increased costs that are beyond our control. Any of these events could lead to clinical trial delays, failure to obtain regulatory approval or impact our ability to successfully commercialize ourproducts. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections thatwill be conducted after we submit our marketing application to the FDA, and these facilities could fail to obtain FDA approval. While we are ultimately responsible for the manufacture of our product candidates, we do not, other than through our contractual arrangements, controlthe manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMP requirements and formanufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material thatconforms to our specifications and the strict regulatory requirements of the FDA or other regulatory authorities, we will not be able to secure and maintainregulatory approval for their manufacturing facilities. In addition, other than through our contractual agreements, we have no control over the ability ofour contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatoryauthority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may needto find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain marketing approval for or market our productcandidates, if approved. Further, if our product candidates are approved, our suppliers will be subject to regulatory requirements, covering manufacturing, testing, quality controland record keeping relating to our product candidates, and subject to ongoing inspections by the regulatory agencies. Failure by any of our suppliers tocomply with applicable regulations may result in long delays and interruptions to our manufacturing capacity while we seek to secure another supplierthat meets all regulatory requirements, as well as market disruption related to any necessary recalls or other corrective actions. Third-party manufacturers may not be able to comply with current cGMP regulations or similar regulatory requirements outside the United States. Ourfailure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, includingwarning letters, clinical holds or termination of clinical trials, fines, injunctions, restitution, disgorgement, civil penalties, delays, suspension orwithdrawal of approvals or other permits, FDA refusal to approve pending applications, product detentions, FDA or DEA consent decrees placingsignificant restrictions on or suspending manufacturing and distribution operations, debarment, refusal to allow import or export, product detentions,adverse publicity, dear-health-care-provider letters or other warnings, license revocation, seizures or recalls of product candidates, operating restrictions,refusal of government contracts or future orders under existing contracts and civil and criminal liability, including False Claims Act liability, exclusionfrom participation in federal health care programs, and corporate integrity agreements among other consequences, any of which could significantly andadversely affect supplies of our prodrugs. 35 Our product candidates and any prodrugs that we may develop may compete with other product candidates and drugs for access to manufacturingfacilities, and we may be unable to obtain access to these facilities on favorable terms. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performancefailure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently havearrangements in place for redundant supply or a second source for KP201, KP511 or KP415 bulk drug substance. If our current contract manufacturer forKP201, KP511 or KP415 bulk drug substance cannot perform as agreed, we may be required to replace such manufacturer and we may incur added costsand delays in identifying and qualifying any such replacement. We may seek collaborations with third parties for the development or commercialization of our product candidates. If those collaborations are notsuccessful, we may not be able to capitalize on the market potential of these product candidates. We may seek third-party collaborators for the development and commercialization of our product candidates, including for the commercialization of anyof our product candidates that are approved for marketing outside the United States. Our likely collaborators include large and mid-size pharmaceuticalcompanies, regional, national and international pharmaceutical companies and biotechnology companies. If we do enter into any collaborationarrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to thedevelopment or commercialization of our product candidates. Our ability to generate revenue from these arrangements will depend on our collaborators’abilities to successfully perform the functions assigned to them in these arrangements. Collaborations involving our product candidates would pose the following risks to us: ●collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; ●collaborators may not perform their obligations as expected; ●collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect notto continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus oravailable funding, or external factors, such as an acquisition, that divert resources or create competing priorities; ●collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a productcandidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; ●collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our productcandidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized underterms that are more economically attractive than ours; ●product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates orproducts, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; ●a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commitsufficient resources to the marketing and distribution of such products; ●disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development,might cause delays or termination of the research, development or commercialization of product candidates, might lead to additionalresponsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming andexpensive; ●collaborators may not properly maintain or defend our or their intellectual property rights or may use our or their proprietary information in sucha way as to invite litigation that could jeopardize or invalidate such intellectual property or proprietary information or expose us to potentiallitigation; ●collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and ●collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital topursue further development or commercialization of the applicable product candidates. Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a present orfuture collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our drug development orcommercialization program could be delayed, diminished or terminated. 36 If we are not able to establish collaborations, we may have to alter our development and commercialization plans. Our prodrug development programs and the potential commercialization of our product candidates will require substantial additional capital. For some ofour product candidates, we may need to collaborate with pharmaceutical and biotechnology companies for the development and potentialcommercialization of those product candidates. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, amongother things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposedcollaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA orsimilar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities ofmanufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to ourownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and marketconditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on andwhether such a collaboration could be more attractive than the one with us for our product candidate. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent businesscombinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail thedevelopment of product candidates, reduce or delay one or more of our development programs, delay potential commercialization or reduce the scope ofany sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we electto increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may notbe available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bringthem to market and generate product revenue. Provisions in our agreements with Shire and MonoSol may inhibit our ability to enter into future collaborations with third parties. Under our asset purchase agreement with Shire, we granted Shire a right of first refusal to acquire, license or commercialize KP415. The right of firstrefusal may be exercised by Shire for a period of 30 business days following Shire’s receipt of written notice from us of the existence of a bona fide offerfrom a third party to acquire, license or commercialize KP415. We are also party to a termination agreement with MonoSol that may limit the value of any sale, license or commercialization of KP415. Under thistermination agreement, MonoSol has the right to receive an amount equal to a percentage in the low teens of any value generated by KP415, and anyproduct candidates arising therefrom, including royalty payments on any license of KP415, the sale of KP415 to a third party or the commercialization ofKP415. Provisions in our facility agreement with Deerfield may inhibit our ability to enter into specified transactions, including any joint venture, partnershipor any other profit sharing arrangement. Pursuant to the Deerfield facility, we may not enter into specified transactions, including any joint venture, partnership or any other profit sharingarrangement, without the prior approval of Deerfield. Deerfield’s interests may not always coincide with our corporate interests or the interests of our otherstockholders, and Deerfield may act in a manner with which you may not agree or that may not be in the best interests of our other stockholders. IfDeerfield does not approve our entry into specified transactions, it could significantly delay or inhibit the commercialization of our product candidates. 37 Risks Related to Our Intellectual Property If we are unable to obtain and maintain trade secret protection or patent protection for our technology and product candidates or if the scope of thepatent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and drugs similar or identical toours, and our ability to successfully commercialize our technology and product candidates may be impaired. Our success depends in large part on our ability to obtain and maintain trade secret protection of our LAT platform technology as well as patentprotection in the United States and other countries with respect to our product candidates. We seek to protect our proprietary position by filing patentapplications in the United States and abroad related to our product technology and product candidates. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patentapplications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and developmentoutput before it is too late to obtain patent protection. We may not have the right to control the preparation, filing and prosecution of patent applications,or to maintain the rights to patents, licensed to third parties by us. Further, we may also not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights to patents,licensed from third parties to us. Therefore, any such patents and applications may not be prosecuted and enforced in a manner consistent with the bestinterests of our business. If such licensors or licensees fail to maintain such patents, or lose rights to those patents, the rights we have in- or out-licensedmay be reduced or eliminated. The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and hasin recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws ofthe United States or visa-versa. For example, European patent law restricts the patentability of methods of treatment of the human body more than UnitedStates law. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and utility, or equivalent, patent applications inthe United States and other jurisdictions are typically not published until 18 months after the filing date of such patent applications, or in some cases notat all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pendingpatent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability andcommercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued that protectour product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and drugs. Changes ineither the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow thescope of our patent protection. 38 Our patent position is subject to numerous additional risks, including the following: ●we may fail to seek patent protection for inventions that are important to our success; ●our pending patent applications may not result in issued patents; ●we cannot be certain that we are the first to invent the inventions covered by pending patent applications or that we are the first to file suchapplications and, if we are not, we may be subject to priority disputes or lose rights; ●we may be required to disclaim part or all of the term of certain patents or all of the term of certain patent applications; ●we may file patent applications but have claims restricted or we may not be able to supply sufficient data to support our claims and, as a result,may not obtain the original claims desired or we may receive restricted claims; alternatively, it is possible that we may not receive any patentprotection from an application; ●even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningfulprotection, and may not be of sufficient scope or strength to provide us with any commercial advantage; ●our competitors may be able to design around our owned or licensed patents by developing similar or alternative technologies or drugs withoutinfringing on our intellectual property rights; ●we could inadvertently abandon a patent or patent application, resulting in the loss of protection of intellectual property rights in a particularcountry, and we, our collaborators or our patent counsel may take action resulting in a patent or patent application becoming abandoned whichmay not be able to be reinstated or if reinstated, may suffer patent term adjustments; ●the claims of our issued patents or patent applications when issued may not cover our product candidates; ●no assurance can be given that our patents would be declared by a court to be valid or enforceable or that a competitor’s technology or productwould be found by a court to infringe our patents and our patents or patent applications may be challenged by third parties in patent litigation orin proceedings before the USPTO or its foreign counterparts, and may ultimately be declared invalid or unenforceable or narrowed in scope; ●there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim and there may be prior art ofwhich we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found toaffect the validity or enforceability of a claim; ●third parties may develop products that have the same or similar effect as our products without infringing our patents; ●third parties may intentionally circumvent our patents by means of alternate designs or processes or file applications or be granted patents thatwould block or hurt our efforts; ●there may be dominating patents relevant to our product candidates of which we are not aware; ●obtaining regulatory approval for pharmaceutical products is a lengthy and complex process, and as a result, any patents covering our productcandidates may expire before or shortly after such product candidates are approved and commercialized; ●the patent and patent enforcement laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as laws in theUnited States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions;and ●we may not develop additional proprietary technologies that are patentable. Any of these factors could hurt our ability to gain full patent protection for our products. Registered trademarks and trademark applications in the UnitedStates and other countries are subject to similar risks as described above for patents and patent applications, in addition to the risks described below. Further, a third party may misappropriate or reverse engineer our LAT platform technology, which could limit our ability to stop others from using orcommercializing similar or identical technology and resultant product candidates, product technology or prodrugs, or limit the duration of the tradesecret protection of our LAT platform technology. Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, nullity, derivation,reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adversedetermination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties tocommercialize our technology or drugs and compete directly with us, without payment to us or result in our inability to manufacture or commercializedrugs without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications isthreatened, it could dissuade companies from collaborating with us to seek patent protection or to license, develop or commercialize current or futureproduct candidates. In addition, the issuance of a patent is not conclusive as to its inventorship, ownership, scope, validity or enforceability, and our owned and licensedpatents may be challenged in the courts, patent offices and tribunals in the United States and abroad. Such challenges may result in loss of exclusivity orin patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using orcommercializing similar or identical technology and drugs, or limit the duration of the patent protection of our product technology, product candidatesand prodrugs. 39 Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcementor defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number ofsignificant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted in the United States, redefine priorart and may also affect patent litigation. The USPTO recently developed new regulations and procedures to govern administration of the Leahy-SmithAct, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first-to-file provisions, only becameeffective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and itsimplementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of ourissued patents. For instance, the Leahy-Smith Act established the inter partes review and post grant review procedures that has lowered the burden ofproof for invalidity challenges to issued patents and limited the ability to amend patent claims in response to such challenges. In addition, patent reformlegislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement and defense ofour owned and licensed patents and/or patent applications. We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming andunsuccessful. Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to fileinfringement claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke those parties to assertcounterclaims against us alleging that we infringe their intellectual property rights. In addition, in a patent infringement proceeding, a court may decidethat a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using thetechnology at issue on the grounds that our patents do not cover the technology or its prior use by a third party. An adverse result in any litigationproceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly, which would undermine our competitive position. Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertainand could significantly harm business. Our commercial success depends upon our ability, and the ability of any collaborators, to develop, manufacture, market and sell our product candidatesand use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in thebiotechnology and pharmaceutical industries. In particular, we are focused on developing product candidates based on widely used therapeutic agents ordrugs, many of which may be protected by proprietary rights of third parties. Although we seek to develop proprietary prodrug formulations that do not infringe the intellectual property rights of others, we may become party to, orthreatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our prodrugs or other aspects of ourtechnology, including, for example, interference or derivation proceedings before the USPTO. Third parties may assert infringement claims against usbased on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continuedeveloping and marketing our technology and drugs. However, we may not be able to obtain any required license on commercially reasonable terms, or atall. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. Wecould be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable formonetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement couldprevent us from commercializing our product candidates or force us to cease some or all of our business operations. Competing products may also be sold in other countries in which our patent coverage might not exist or be as strong. If we lose a foreign patent lawsuitalleging our infringement of a competitor’s patent, we could be prevented from marketing our products in one or more foreign countries. As a result, ourability to grow our business and compete in the market may be harmed. Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, andcould distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analystsor investors perceive these results to be negative, it could hurt the price of our common stock. Such litigation or proceedings could substantially increaseour operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may nothave sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costsof such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation andcontinuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace. We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commerciallyreasonable terms. A third party may hold intellectual property rights, including patent rights, which are important or necessary to the development of our productcandidates. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our product candidates, in whichcase we would be required to obtain a license from these third parties. Such a license may not be available on commercially reasonable terms, or at all, andwe could be forced to accept unfavorable contractual terms. If we are unable to obtain such licenses on commercially reasonable terms, our business couldbe harmed. If we or our third-party licensors fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties,we could lose rights that are important to our business. We are currently party to a license agreement for technologies that we anticipate using in our product development activities. In the future, we maybecome party to licenses that are important for product development and commercialization. If we or our third-party licensors fail to comply with theobligations under current or future license and funding agreements, our counterparties may have the right to terminate these agreements, we may beforced to terminate these agreement or we may no longer effectively rely on any licenses to us under these agreements, in which event we might not beable to develop, manufacture or market any product or utilize any technology that is covered by these agreements or may face other penalties under theagreements. Such an occurrence could materially and adversely affect the value of a product candidate being developed under any such agreement orcould restrict our drug discovery activities. Termination of these agreements or reduction or elimination of our rights under these agreements may resultin our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including ourrights to important intellectual property or technology. 40 We may be required to reduce the scope of our intellectual property due to third-party intellectual property claims. Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application mayhave priority over our patent applications, which could further require us to obtain rights to issued patents covering such technologies. If another partyhas filed a U.S. patent application on inventions similar to ours that claims priority to an application filed prior to March 16, 2013, we may have toparticipate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The costs of these proceedingscould be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at thesame or similar invention prior to our own invention, resulting in a loss of our U.S. patent position with respect to such inventions. In addition, changesenacted on March 16, 2013 to the U.S. patent laws under the Leahy-Smith Act resulted in the United States changing from a “first to invent” country to a“first to file” country. As a result, we may lose the ability to obtain a patent if a third party files with the USPTO first and could become involved inproceedings before the USPTO to resolve disputes related to inventorship. We may also become involved in similar proceedings in other jurisdictions. Furthermore, recent changes in U.S. patent law under the Leahy-Smith Act allows for post-issuance challenges to U.S. patents, including ex parte re-examinations, inter partes reviews and post-grant reviews. There is significant uncertainty as to how the new laws will be applied. If our U.S. patents arechallenged using such procedures, we may not prevail, possibly resulting in altered or diminished claim scope or loss of patent rights altogether.Similarly, some countries, notably Europe, also have post-grant opposition proceedings that can result in changes in scope or cancellation of patentclaims. We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property, or claimingownership of what we regard as our own intellectual property. Many of our employees were previously employed at other biotechnology or pharmaceutical companies. Although we try to ensure that our employeesdo not use the proprietary information, show-how or know-how of others in their work for us, we may be subject to claims that these employees or we haveinadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s formeremployer. For example, in March 2012, we settled litigation regarding similar matters with Shire. We may also in the future be subject to claims that wehave caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend againstthese potential claims. In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to executeagreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact developsintellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forcedto bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectualproperty. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights orpersonnel. A court could prohibit us from using technologies or features that are essential to our products, if such technologies or features are found toincorporate or be derived from the trade secrets or other proprietary information of the former employers. Even if we are successful in prosecuting ordefending against such claims, litigation could result in substantial costs and could be a distraction to management. In addition, any litigation or threatthereof may adversely affect our ability to hire employees or contract with independent service providers. Moreover, a loss of key personnel or their workproduct could hamper or prevent our ability to commercialize our products. Any trademarks we may obtain may be infringed or successfully challenged, resulting in harm to our business. We expect to rely on trademarks as one means to distinguish any of our product candidates that are approved for marketing from the products of ourcompetitors. We have not yet solicited trademarks for our current product candidates and have not yet begun the process of applying to registertrademarks for our current product candidates. Once we select trademarks and apply to register them, our trademark applications may not be approved.Third parties may oppose or attempt to cancel our trademark applications or trademarks, or otherwise challenge our use of the trademarks. In the eventthat our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and couldrequire us to devote resources to advertising and marketing new brands. Our competitors may infringe our trademarks and we may not have adequateresources to enforce our trademarks. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. In addition to seeking patent and trademark protection for our product candidates, we also rely on trade secrets, including unpatented show-how, know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect our trade secrets, in part, by entering intonon-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientificcollaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignmentagreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietaryinformation, including our trade secrets. Monitoring unauthorized uses and disclosures of our intellectual property, including our trade secrets, is difficult, and we do not know whether the stepswe have taken to protect our intellectual property will be effective. In addition, we may not be able to obtain adequate remedies for any such breaches.Enforcing a claim that a party illegally 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 trade secrets. Moreover, our competitors may independently develop or reverse engineer knowledge, methods, show-how and know-how equivalent to our tradesecrets. Competitors could purchase our products and replicate some or all of the competitive advantages we derive from our development efforts fortechnologies on which we do not have patent protection. If any of our trade secrets were to be lawfully obtained or independently developed by acompetitor, we would have no right to prevent them, or those to whom they communicate 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, our competitive position would beharmed. Outside of the U.S. we cannot be certain that any country’s patent or trademark office will not implement new rules that could seriously affect how wedraft, file, prosecute and maintain patents, trademarks and patent and trademark applications. We cannot be certain that the patent or trademark offices of countries outside the United States will not implement new rules that increase costs fordrafting, filing, prosecuting and maintaining patents, trademarks and patent and trademark applications or that any such new rules will not restrict ourability to file for patent protection. For example, we may elect not to seek patent protection in some jurisdictions or for some inventions in order to savecosts. We may be forced to abandon or return the rights to specific patents due to a lack of financial resources. 41 Risks Related to the Commercialization of Our Product Candidates If we are unable to establish sales, marketing and distribution capabilities for our product candidates, we may not be successful in commercializingthose product candidates in the United States, if and when they are approved. We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achievecommercial success for any product candidate for which we may obtain marketing approval in the United States, we will need to enter into collaborationswith one or more parties or establish our own sales and marketing organization. We have not yet determined our commercialization strategy for any of ourproduct candidates. Should we decide to establish our own sales, marketing and distribution capabilities, we would encounter a number of risks. Forexample, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of aproduct candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would haveprematurely or unnecessarily incurred 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 our product candidates on our own include: ●our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; ●our inability to access government and commercial health plan formularies or secure preferred coverage and adequate reimbursement levels; ●the inability of sales personnel to obtain access to physicians or achieve adequate numbers of physicians to prescribe any future prodrugproducts; ●the lack of complementary drugs to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies withmore extensive product lines; ●liability for personnel, including sales personnel, failing to comply with applicable legal requirements; and ●costs associated with maintaining compliance with the FDA’s marketing and promotional requirements, including ongoing training andmonitoring, as well as unforeseen costs and expenses associated with creating an independent sales and marketing organization. If we decide not to or are unable to establish our own sales, marketing and distribution capabilities and, instead, enter into arrangements with third partiesto perform these services, our product revenue and our profitability, if any, are likely to be lower than if we were to sell, market and distribute any productcandidates that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distributeour product candidates or may be unable to do so on terms that are favorable to us, including as a result of restrictions in the Deerfield facility. We likelywill have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our productcandidates effectively. Further, we may be liable for conduct of third parties acting on our behalf, including failure to comply with legal requirementsapplicable to sales and marketing of our products. If we do not establish sales, marketing and distribution capabilities successfully, either on our own orin collaboration with third parties, we will not be successful in commercializing our product candidates. 42 Even if any of our product candidates receives marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients,third-party payors and others in the medical community necessary for commercial success. If any of our product candidates receives marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients,third-party payors and others in the medical community. If our product candidates do not achieve an adequate level of market acceptance, we may notgenerate significant product revenue and we may not become profitable. The degree of market acceptance of our product candidates, if approved forcommercial sale, will depend on a number of factors, including: ●the efficacy and potential advantages compared to alternative treatments, including less expensive generic treatments; ●the ability to obtain abuse-deterrent claims in the labels for most of our product candidates; ●our ability to offer our prodrug products for sale at competitive prices; ●the clinical indications for which our product candidates are approved; ●the convenience and ease of administration compared to alternative treatments; ●the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; ●the cost of treatment in relation to alternative treatments; ●the steps that prescribers and dispensers must take, since most of our product candidates are controlled substances, as well as the perceived risksbased upon their controlled substance status; ●the ability to manufacture our product in sufficient quantities and yields; ●the strength of marketing and distribution support; ●the availability of third-party coverage and adequate reimbursement or willingness of patients to pay out of pocket in the absence of third-partycoverage; ●the prevalence and severity of any side effects; ●any potential unfavorable publicity; ●any restrictions on the use, sale or distribution of our product candidates, including through REMS; and ●any restrictions on the use of our prodrug products together with other medications. 43 We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than wedo. Our industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We will facecompetition and potential competition from a number of sources, including pharmaceutical and biotechnology companies, specialty pharmaceuticalcompanies, generic drug companies, drug delivery companies and academic and research institutions. Our competitors may develop or market drugs thatare more effective, more convenient, more widely used and less costly or have a better safety profile than our products and these competitors may also bemore successful than us in manufacturing and marketing their products. See "Item 1 - Business - Competition" for more information about our potentialcompetitors. Many of our potential competitors have substantially greater financial, technical and human resources than we do, as well as more experience in thedevelopment of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products.Consequently, our competitors may develop abuse-deterrent or other products for the short-term management of acute pain, or for other indications we arepursuing or may pursue in the future, and such competitors’ products may be more effective, better tolerated and less costly than our product candidates.Our competitors may also be more successful in manufacturing and marketing their products than we are. We will also face competition in recruiting andretaining qualified personnel and establishing clinical trial sites and patient enrollment in clinical trials. Our competitors also may obtain FDA or other regulatory approval for their product candidates 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. If the competitor’s product were similar to ourproduct candidates, we may be required to seek approval via alternative pathways, such as the ANDA, which is used for the development of generic drugproducts. We may also be blocked from product marketing by periods of patent protection or regulatory exclusivity. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic drugs orgiving abuse deterrence sufficient weight in a comparative clinical cost effectiveness analysis. For some of the indications that we are pursuing, drugsused off-label serve as cheaper alternatives to our product candidates. Their lower prices could result in significant pricing pressure, even if our productcandidates are otherwise viewed as a preferable therapy. Additional drugs may become available on a generic basis over the coming years. Many of our potential competitors have substantially greater financial, technical and human resources than we do, as well as more experience in thedevelopment of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of those products. Mergers andacquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of ourcompetitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements withlarge and established companies. Consequently, our competitors may develop abuse-deterrent or other products for the treatment of pain or ADHD or for other indications we may pursuein the future, and such competitors’ products may be more effective, better tolerated and less costly than our product candidates. Our competitors mayalso be more successful in manufacturing and marketing their products than we are. We will also face competition in recruiting and retaining qualifiedpersonnel and establishing clinical trial sites and subject enrollment in clinical trials. 44 We may not be able to obtain either five-year FDA regulatory exclusivity as an NCE or three-year FDA regulatory exclusivity. The FDA provides periods of regulatory exclusivity following their approval of an NDA, which provide the holder of an approved NDA limitedprotection from new competition in the marketplace for the innovation represented by its approved drug. Five-year exclusivity precludes approval of505(b)(2) applications or ANDAs by delaying the submission or approval of the application, while three-year exclusivity precludes the approval of theapplication. We intend to seek NCE status for KP415, and we may seek NCE for other prodrug product candidates as appropriate. Five years ofexclusivity are available to NCEs following the approval of an NDA by the FDA. An NCE is a drug that contains no active moiety that has been approvedby the FDA in any other NDA. If a product is not eligible for the NCE exclusivity, it may be eligible for three years of exclusivity. Three-year exclusivityis available to the holder of an NDA, including a 505(b)(2) NDA, for a particular condition of approval, or change to a marketed product, such as a newformulation for a previously approved product, if one or more new clinical trials, other than bioavailability or bioequivalence trials, were essential to theapproval of the application and were conducted or sponsored by the applicant. There is a risk that the FDA may disagree with any claim that we may make that KP415 or any of our prodrug product candidates are NCEs and thereforeentitled to five-year exclusivity. The FDA may also take the view that the studies that we are conducting are not clinical trials, other than bioavailabilityand bioequivalence studies, that are essential to approval and therefore do not support three-year exclusivity. Further, to the extent that the basis forexclusivity is not clear, the FDA may determine to defer a decision until it receives an application which necessitates a decision. If we do obtain either five or three years of exclusivity, such exclusivity will not block all potential competitors from the market. Competitors may beable to obtain approval for similar products with different forms of abuse-deterrent mechanisms or may be able to obtain approval for similar productswithout an abuse-deterrent mechanism. Even if we are able to commercialize any product candidates, they may be subject to unfavorable pricing regulations, third-party coverage andreimbursement policies or healthcare reform initiatives. Our ability to commercialize any product candidates successfully will depend, in part, on the extent to which coverage and adequate reimbursement forour product candidates will be available from government payor programs at the federal and state levels, including Medicare and Medicaid, privatehealth insurers and managed care plans and other third-party payors. Government authorities and other third-party payors decide which medical productsthey will pay for and establish reimbursement levels, including co-payments. A trend in the U.S. healthcare industry and elsewhere is cost containment.Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particularmedical products. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and arechallenging the prices charged for drugs and products. Coverage and reimbursement may not be available for any product that we commercialize and,even if these are available, the level of reimbursement may not be satisfactory. Inadequate reimbursement levels may adversely affect the demand for, orthe price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for our prodrug productsmay be difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level ofreimbursement relative to other therapies. Moreover, the trend has been for government and commercial health plans and their pharmacy benefit managersto commoditize drug products through therapeutic equivalence determinations, making formulary decisions based on cost. If coverage and adequatereimbursement are not available or reimbursement is available only at limited levels, we may not be able to successfully commercialize any productcandidates for which marketing approval is obtained. There may be significant delays in obtaining coverage and reimbursement for newly approved prodrug products, and coverage may be more limited thanthe indications for which the product is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility forcoverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development,manufacture, sale and distribution expenses. Interim reimbursement levels for new prodrug products, if applicable, may also not be sufficient to cover ourcosts and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, maybe based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices forprodrug products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any futurerelaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Private third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Except for certaingovernment health care programs, such as the Department of Defense’s TRICARE Uniform Formulary, no uniform policy requirement for coverage andreimbursement for drug products exists among third-party payors in the United States. Even state Medicaid programs have their own preferred drug liststhat may disadvantage non-preferred brand drugs. Therefore, coverage and reimbursement can differ significantly from payor to payor. As a result, thecoverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use ofour products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained at all. Ourinability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved prodrugproducts that we develop could significantly harm our operating results, our ability to raise capital needed to commercialize prodrugs and our overallfinancial condition. The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs vary widely from country to country. Current andfuture legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtainingapprovals. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period beginsafter marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuinggovernmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but thenbe subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue able tobe generated from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or moreproduct candidates, even if our product candidates obtain marketing approval. There can be no assurance that our product candidates, if they are approved for sale in the United States or in other countries, will be consideredmedically reasonable and necessary for a specific indication, that they will be considered cost-effective by third-party payors, that coverage or anadequate level of reimbursement will be available, or that third-party payors’ reimbursement policies will not adversely affect our ability to sell ourproduct candidates profitably if they are approved for sale. We may be subject to enforcement action if we engage in improper marketing or promotion of our products. The FDA closely regulates promotional materials and other promotional activities. Even if the FDA initially approves product labeling that includes adescription of the abuse-deterrent claims, the FDA may object to our marketing claims and product advertising campaigns. Failure to comply with theFDA’s promotional, marketing and advertising laws and regulations could lead to the issuance of warning letters, cyber letters, or untitled letters, adversepublicity, the requirement for dear-health-care-provider letters or other corrective information, fines and other monetary penalties, civil or criminalprosecution, including False Claims Act liability, restrictions on our operations and other operating requirements through consent decrees or corporateintegrity agreements, debarment, exclusion from participation in federal health care programs and refusal of government contracts or future orders underexisting contracts, among other consequences. Any of these consequences would harm the commercial success of our products. Further, our promotional materials, statements and training methods must comply with the FDA’s prohibition of the promotion of unapproved, or off-label, use. Physicians may use our products off-label, as the FDA does not restrict or regulate a physician’s independent choice of treatment within thepractice of medicine. However, if the FDA determines that our promotional materials, statements or training constitutes promotion of an off-label use, itcould request that we modify our promotional materials, statements or training methods or subject us to regulatory or enforcement actions, such as theissuance of an untitled letter, a warning letter, injunction, seizure, civil fine, disgorgement of money, operating restrictions or criminal penalties. We mayalso be subject to actions by other governmental entities or private parties, such as the False Claims Act, civil whistleblower or “qui tam” actions. It isalso possible that other federal, state or foreign enforcement authorities might take action if they consider our promotional or training materials toconstitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibitingfalse claims for reimbursement. In that event, our reputation could be damaged and adoption of the products could be impaired. In addition, the off-labeluse of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’sattention, result in substantial damage awards against us and harm our reputation. 45 Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop. We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greaterrisk if we commercialize any prodrug products that we may develop. This includes the risk that our products may be misused. For example, we anticipatethat, if approved, our products may carry boxed warnings regarding lethality if our oral tablets are prepared for injection and hepatotoxicity, as iscommonly done by abusers of opioids. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries,we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: ●decreased demand for any product candidates or products that we may develop; ●injury to our reputation and significant negative media attention; ●termination of clinical trial sites or entire trial programs; ●withdrawal of clinical trial participants; ●initiation of investigations by regulators; ●significant costs to defend the related litigation; ●a diversion of management’s time and our resources; ●substantial monetary awards paid to trial participants or patients; ●product recalls, withdrawals or labeling revisions and marketing or promotional restrictions; ●loss of revenue; ●reduced resources of our management to pursue our business strategy; and ●the inability to commercialize any prodrug products that we may develop. We currently hold $10.0 million in product liability insurance coverage in the aggregate, with a per incident limit of $10.0 million, which may not beadequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials or if we commencecommercialization of our product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at areasonable cost or in an amount adequate to satisfy any liability that may arise. A variety of risks associated with international operations could materially adversely affect our business. We expect to engage in significant cross-border activities, and we will be subject to risks related to international operations, including: ●different regulatory requirements for maintaining approval of drugs in foreign countries; ●reduced protection for contractual and intellectual property rights in some countries; ●unexpected changes in tariffs, trade barriers and regulatory requirements; ●economic weakness, including inflation, or political instability in particular foreign economies and markets; ●compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; ●foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doingbusiness in another country; ●workforce uncertainty in countries where labor unrest is more common than in North America; ●tighter restrictions on privacy and the collection and use of patient data; and ●business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons,floods and fires. 46 Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad. In order to market and sell our products in the European Union and any other jurisdictions, we must obtain separate marketing approvals and comply withnumerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required toobtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generallyincludes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the productbe approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authoritiesoutside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries orjurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries orjurisdictions or by the FDA. However, failure to obtain approval in one jurisdiction may impact our ability to obtain approval elsewhere. We may not beable to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. A variety of risks associated with marketing our product candidates internationally could affect our business. We may seek regulatory approval for our product candidates outside of the United States and, accordingly, we expect that we will be subject to additionalrisks related to operating in foreign countries if we obtain the necessary approvals, including: ●differing regulatory requirements in foreign countries; ●the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to importgoods from a foreign market with low or lower prices rather than buying them locally; ●unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements; ●economic weakness, including inflation, or political instability in particular foreign economies and markets; ●compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; ●foreign taxes, including withholding of payroll taxes; ●foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doingbusiness in another country; ●difficulties staffing and managing foreign operations; ●workforce uncertainty in countries where labor unrest is more common than in the United States; ●potential liability under the FCPA or comparable foreign regulations; ●challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protectintellectual property rights to the same extent as the United States; ●production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and ●business interruptions resulting from geo-political actions, including war and terrorism. These and other risks associated with our international operations may compromise our ability to achieve or maintain profitability. 47 Any product candidate for which we obtain marketing approval could be subject to post-marketing restrictions or recall or withdrawal from themarket, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with ourproduct candidates, when and if any of them are approved. Any product candidate for which we obtain marketing approval will be subject to a comprehensive regulatory scheme, which includes the regulation ofmanufacturing processes, post-approval clinical data, labeling, advertising, marketing, distribution and promotional activities for such product, by theFDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registrationand listing requirements, payment of substantial annual product and establishment fees, labeling requirements, promotional, marketing and advertisingrequirements, requirements related to further development, packaging, storage and distribution requirements, cGMP requirements relating tomanufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution ofsamples to physicians and recordkeeping. If there are any modifications to the drug, including changes in indications, labeling, manufacturing processesor facilities, or new safety issues arise, a new or supplemental NDA, a post-implementation notification or other reporting may be required or requesteddepending on the change, which may require additional data or additional preclinical studies and clinical trials. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product maybe marketed or to the conditions of approval, including the requirement to implement a REMS, which could involve requirements for, among otherthings, a medication guide, special training for prescribers and dispensers, and patient registries. If any of our product candidates receives marketing approval, the accompanying label may limit its approved uses, including more limitedsubject populations, than we request, and regulatory authorities may require that contraindications, warnings or precautions be included in the productlabeling, including a black box warning, or may approve a product candidate with a label that does not include the labeling claims necessary or desirablefor the successful commercialization of that product candidate, which could limit sales of the product. For instance, we expect that at least some of ourproduct candidates would likely be required to carry black box warnings, including warnings regarding tampering, lethality if our oral tablets areprepared for injection and hepatotoxicity. The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of theproduct. The FDA closely regulates the post-approval marketing and promotion of products to ensure products are marketed only for the approvedindications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communicationsregarding off-label use and if we do not market our prodrug products, if any, for their approved indications, we may be subject to enforcement action foroff-label marketing. Violations of the FFDCA relating to the promotion of prescription drugs may lead to a number of actions and penalties, includingwarning letters, cyber letters, or untitled letters, adverse publicity, the requirement for dear-health-care-provider letters or other corrective information,fines and other monetary penalties, civil or criminal prosecution, including False Claims Act liability, restrictions on our operations and other operatingrequirements through consent decrees or corporate integrity agreements, debarment, exclusion from participation in federal health care programs andrefusal of government contracts or future orders under existing contracts, among other consequences. 48 In addition, later discovery of previously unknown adverse events or other problems with our prodrug products, including those related to manufacturersor manufacturing processes, or failure to comply with regulatory requirements, may have negative consequences, including: ●adverse inspectional findings; ●restrictions on such prodrug products, distribution, manufacturers or manufacturing processes; ●restrictions on the labeling or marketing of a drug; ●additional warnings or otherwise restrict the product’s indicated use, label, or marketing; ●issuance of safety alerts, dear-healthcare-provider letters, press releases or other communications containing warnings regarding the product; ●requirement to establish or modify a REMS; ●requirement to conduct post-marketing studies or surveillance; ●restrictions on drug distribution or use; ●requirements to conduct post-marketing studies or clinical trials; ●warning letters; ●recall or withdrawal of the prodrug products from the market; ●refusal to approve pending applications or supplements to approved applications that we submit and other delays; ●clinical holds, or the suspension or termination of ongoing clinical trials; ●fines, restitution or disgorgement of profits or revenue; ●suspension or withdrawal of marketing approvals or other permits or voluntary suspension of marketing; ●refusal to permit the import or export of our prodrug products; ●reputational harm; ●refusal of government contracts or future orders under existing contracts, exclusion from participation in federal health care programs, andcorporate integrity agreements; ●product seizure or detention; or ●injunctions or the imposition of civil or criminal penalties, including False Claims Act liability. Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and with requirements related to thedevelopment of drugs for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with the EuropeanUnion’s requirements regarding the protection of personal information can also lead to significant penalties and sanctions. 49 Our employees, independent contractors, principal investigators, CROs, consultants, commercial collaborators, contract manufacturers, serviceproviders and other vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards andrequirements. We are exposed to the risk of misconduct by employees and independent contractors, such as principal investigators, CROs, consultants, commercialcollaborators, contract manufacturers, service providers and other vendors. Such misconduct could include failures to comply with FDA regulations, toprovide accurate information to the FDA, to comply with manufacturing standards that we have established or that are established by regulation, tocomply with federal and state contracting and healthcare fraud and abuse laws, to report drug pricing, financial information or data accurately or todisclose unauthorized activities to us. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensivelaws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of business activities,including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing, advertising and promotion, sales commissions,customer incentive programs and other business arrangements. Employee and independent contractor misconduct could also involve the improper use ofindividually identifiable information, including, without limitation, information obtained in the course of clinical trials, which could result in regulatorysanctions and serious harm to our reputation. In addition, federal procurement laws impose substantial penalties for misconduct in connection withgovernment contracts and require certain contractors to maintain a code of business ethics and conduct and self-disclose credible evidence of FalseClaims Act violations. It is not always possible to identify and deter employee and independent contractor misconduct, and any precautions we take todetect and prevent improper activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmentalinvestigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, thoseactions could have a significant impact on our business, including the imposition of warning letters, untitled letters, cyber letters, seizure or recall ofproducts, injunctions, withdrawal of product approval or other permits, clinical holds and termination of clinical trials, FDA refusal to approve pendingapplications, product detentions, FDA or DEA consent decrees, restriction or suspension of manufacturing and distribution, debarment, refusal to allowproduct import or export, adverse publicity, refusal of government contracts or future orders under existing contracts, dear-health-care-provider letters orother warnings or corrective information, recalls, delays, civil, criminal and administrative penalties including False Claims Act liability, damages,monetary fines, disgorgement, restitution, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federalhealthcare programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement toresolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings and curtailment orrestructuring of our operations, among other consequences, any of which could adversely affect our ability to operate. Our current and future relationships with healthcare professionals, principal investigators, consultants, customers and third-party payors in the UnitedStates and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency,health information privacy and security and other healthcare laws and regulations, which could expose us to penalties. Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation andprescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals,principal investigators, consultants, customers and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws,including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, that may constrain the business or financialarrangements and relationships through which we sell, market and distribute any product candidates for which we obtain marketing approval. Inaddition, we may be subject to physician payment transparency laws and patient privacy and security regulation by the federal government and by theU.S. states and foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws that may affect our abilityto operate include the following: ●the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering,receiving or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individualfor, or the purchase, lease, order or arranging for the purchase, lease or order of, any good, facility, item or service, for which payment may bemade, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid; ●federal civil and criminal false claims laws, including the federal False Claims Act, which impose criminal and civil penalties, including civilwhistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to thefederal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making or using a falserecord or statement material to a false or fraudulent claim or to avoid, decrease or conceal an obligation to pay money to the federal government,including erroneous pricing information on which mandatory rebates, discounts and reimbursement amounts are based, or in the case of the civilFalse Claims Act, for violations of the Anti-Kickback Statute in connection with a claim for payment or for conduct constituting recklessdisregard for the truth; ●the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to havepresented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that wasnot provided as claimed or is false or fraudulent; ●HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme todefraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money orproperty owned by, or under the custody or control of, any healthcare benefit program, regardless of whether the payor is public or private,knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health careoffense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially falsestatements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; ●HIPAA, as amended by HITECH and their respective implementing regulations, which impose obligations on covered entities, includinghealthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain ortransmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security andtransmission of individually identifiable health information;  ●the federal Open Payments program, created under Section 6002 of the ACA, and its implementing regulations, which imposes annual reportingrequirements for certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare,Medicaid or the Children’s Health Insurance Program, with certain exceptions, to annually report certain payments and transfers of valueprovided to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians andteaching hospitals, and to report annually certain ownership and investment interests held by physicians and their immediate family members;and ●comparable state and foreign laws, which may be broader in scope than the analogous federal laws and may differ from each other in significantways, including, other state legislation, which requires pharmaceutical companies to, among other things, establish marketing complianceprograms, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, orregister their sales representatives, and that prohibits pharmacies and other healthcare entities from providing certain physician prescribing datato pharmaceutical companies for use in sales and marketing, and prohibiting certain other sales and marketing practices. These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens on us. Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare laws and regulations mayinvolve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or futurestatutes, regulations or case law involving applicable fraud and abuse or other healthcare laws, or that our compliance systems are inadequate to detectand report such conduct or to report accurate pricing information to the government. If our operations are found to be in violation of any of these laws orany other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, withoutlimitation, damages, fines, individual imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrityagreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion from participation in government healthcareprograms, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could significantly harm our business. If any ofthe physicians or other healthcare providers or entities with whom we currently, or expect to, do business, including future collaborators, is found not tobe in compliance with applicable laws, they and we may be subject to penalties and potential exclusion from participation in healthcare programs as aresult of their non-compliance. 50 Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our productcandidates and affect the prices we may obtain. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding thehealthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approvalactivities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with thestated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been aparticular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, President Obama signed into law theACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies againstfraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industryand impose additional health policy reforms. Among the provisions of the ACA of importance to our potential product candidates are the following: ●an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportionedamong these entities according to their market share in certain government healthcare programs; ●an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of theaverage manufacturer price for branded drugs and generic drugs, respectively; ●expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigativepowers and enhanced penalties for non-compliance; ●establishment of a new and distinct methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program arecalculated for drugs that are inhaled, infused, instilled, implanted or injected; ●a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiatedprices (generally as negotiated between the Medicare Part D plan and the pharmacy) of applicable brand drugs to eligible beneficiaries duringtheir coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; ●extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed careorganizations and extension of the inflation percentage applicable to existing branded drugs to new formulations for purposes of computing theinflation penalty component of Medicaid rebates; ●expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additionalindividuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal PovertyLevel beginning in 2014, thereby potentially increasing manufacturers’ Medicaid rebate liability; ●expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; ●the new requirements under the federal Open Payments program and its implementing regulations; ●a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and ●a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,along with funding for such research. There have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendmentsin the future. In January 2017, Congress voted to approve the Budget Resolution that authorizes the implementation of legislation that would repealportions of the ACA. The Budget Resolution is not a law; however, it is widely viewed as the first step toward the passage of repeal legislation. Further,on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive,defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states,individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequentlegislation to replace elements of the ACA that are repealed. We cannot predict how the ACA, its possible repeal, or any legislation that may be proposedto replace the ACA will impact our business. 51 In addition, other legislative changes have been proposed and adopted since the ACA was enacted. In August 2011, the Budget Control Act of 2011,among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending atargeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’sautomatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year,which went into effect in April 2013, and will stay in effect through 2025 unless additional Congressional action is taken. In January 2013, PresidentObama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers,and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Further, there has beenincreasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been severalrecent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationshipbetween pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursementmethodologies for drugs. These new laws may result in additional reductions in Medicare and other healthcare funding, which could negatively impactcustomers for our product candidates, if approved, and, accordingly, our financial operations. We expect that the healthcare reform measures that have been adopted and may be adopted in the future, may, among other things, result in more rigorouscoverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement fromMedicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containmentmeasures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our prodrug productcandidates. Legislative and regulatory proposals and enacted statutes have been made to expand post-approval requirements and restrict sales and promotionalactivities for drugs. For instance, the Drug Supply Chain Security Act imposes obligations on manufacturers of pharmaceutical products, among others,related to product tracking and tracing. Among the requirements of this new legislation, manufacturers are required to provide specified informationregarding the drug products they produce to individuals and entities to which product ownership is transferred, label drug products with a productidentifier and keep specified records regarding the drug products. The transfer of information to subsequent product owners by manufacturers willeventually be required to be done electronically. Manufacturers are also required to verify that purchasers of products are appropriately licensed. Further,under this legislation, manufacturers have drug product investigation, quarantine, disposition and FDA and trading-partner notification responsibilitiesrelated to counterfeit, diverted, stolen and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or whichare otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, orwhat the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S.Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labelingand post-marketing testing and other requirements. Governments outside the United States tend to impose strict price controls, which may affect our revenue, if any. In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. Inthese countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. Toobtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our prodrug products is unavailable or limited in scope or amount,or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially. If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that couldharm our business. We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling,use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, includingchemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal ofthese materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resultingfrom our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incursignificant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting fromthe use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance forenvironmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous orradioactive materials. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These currentor future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also mayresult in substantial fines, penalties or other sanctions. Our business and operations would suffer in the event of computer system failures. Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, arevulnerable to damage from malicious human acts, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures.Moreover, despite network security and back-up measures, some of our and our vendors' servers are potentially vulnerable to physical or electronic break-ins, including cyber-attacks, computer viruses and similar disruptive problems. These events could lead to the unauthorized access, disclosure and use ofnon-public information. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originatefrom less regulated and remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequatepreventative measures. If our computer systems are compromised, we could be subject to fines, damages, litigation and enforcement actions, and we couldlose trade secrets, the occurrence of which could harm our business and could result in a material disruption of our drug development programs. Forexample, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts andsignificantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage toour data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of ourproduct candidates could be delayed. 52 Risks Related to Employee Matters and Managing Our Growth Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel. We are highly dependent on the management, research and development, clinical, financial and business development expertise ofTravis C. Mickle, Ph.D., our president and chief executive officer, Gordon K. Johnson, our chief business officer, R. LaDuane Clifton, our chief financialofficer, Sven Guenther, Ph.D., our executive vice president research and development, and Daniel L. Cohen, our executive vice president government andpublic relations, as well as the other members of our scientific and clinical teams. Although we have employment agreements with each of our executiveofficers, these agreements do not obligate them to continue working for our company and they may terminate their employment with us at any time. Dr.Mickle also has consulting obligations to Shire in addition to his duties as our president and chief executive officer, which may limit his availability tous. Recruiting and retaining qualified scientific and clinical personnel and, if we progress the development of our product pipeline toward scaling up forcommercialization, manufacturing and sales and marketing personnel, will also be critical to our success. The loss of the services of our executive officersor other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability tosuccessfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extendedperiod of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop,gain regulatory approval of and commercialize our prodrug product candidates. Competition to hire from this limited pool is intense, and we may beunable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical andbiotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities andresearch institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our researchand development and commercialization strategy. Our consultants and advisors may have commitments under consulting or advisory contracts with otherentities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growthstrategy will be limited. 53 Risks Related to Ownership of Our Common Stock and Our Status as a Public Company An active trading market for our common stock may not be sustained and you may not be able to resell your shares of our common stock for a profit, ifat all. Prior to our initial public offering, there had been no public market for our common stock. An active trading market for our shares may not be sustained. Ifan active market for our common stock is not sustained, it may be difficult for you to sell our shares at an attractive price or at all. The trading price of the shares of our common stock is likely to be volatile, and purchasers of our common stock could incur substantial losses. Our stock price has been, and is likely to continue to be, volatile. Since shares of our common stock were sold in our initial public offering in April 2015at a price of $11.00 per share, our stock price has ranged from $2.90 to $26.15 through March 7, 2017. In addition, the stock market in general and themarket for pharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance ofparticular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price paid for the shares. Themarket price for our common stock may be influenced by many factors, including: ●actual or anticipated variations in our operating results; ●changes in financial estimates by us or by any securities analysts who might cover our stock; ●conditions or trends in our industry; ●stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the pharmaceutical industry; ●announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures; ●announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us; ●​adverse regulatory announcements or determinations regarding our product candidates; ●capital commitments; ●investors’ general perception of us and our business; ●recruitment or departure of key personnel; and ●sales of our common stock, including sales by our directors and officers or specific stockholders. Many of the factors described above are not within our control. For instance, in May 2016, we announced that the Anesthetic and Analgesic DrugProducts Advisory Committee and the Drug Safety and Risk Management Advisory Committee of the FDA voted 16 to four for the approval of Apadaz,but voted 18 to two against inclusion of abuse deterrent labeling for Apadaz. The announcement was followed by a substantial decrease in the tradingprice of our common stock on The NASDAQ Global Market. Additionally, when we announced in June 2016 that the FDA had issued the CRL for ourApadaz NDA, the trading price of our common stock on The NASDAQ Global Market was subject to another substantial decrease. We cannot guaranteethat future announcements will not have similar effects on the trading price of our common stock. In addition, in the past, stockholders have initiated class action lawsuits against pharmaceutical and biotechnology companies following periods ofvolatility in the market prices of these companies’ stock. For instance, in December 2016, we received notice of a class action suit filed against us by astockholder in the Iowa District Court in Johnson county alleging that we, certain of our senior executives and directors who signed the registrationstatement in connection with our initial public offering, and each of the investment banks that acted as underwriters for the offering negligently issueduntrue statements of material facts and omitted to state material facts required to be stated in the registration statement and incorporated offering materialsthat we filed with the SEC in support of the offering. The plaintiff does not quantify any alleged damages in his complaint but, in addition to attorneys'fees and costs, the plaintiff seeks to recover damages and obtain other relief on behalf of himself and all other persons who purchased our common stockpursuant or traceable to the offering and the registration statement and who were allegedly damaged thereby. In January 2017, the suit was removed to theU.S. District Court for the Southern District of Iowa. The plaintiff has since filed a motion to remand the case to the Iowa District Court, and that motion isstill pending. The suit is still in a preliminary stage and has not yet been set for trial. As such, we are unable to predict the timing or outcome of thislitigation as of the date of this report. Such litigation could cause us to incur substantial costs and divert management’s attention and resources from ourbusiness. Further, companies listed on The NASDAQ Global Market, and biotechnology and pharmaceutical companies in particular, have experiencedextreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad marketand industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. 54 If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, ourstock price and trading volume could decline. The trading market for our common stock is influenced by the research and reports that securities or industry analysts publish about us or our business,our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares orchange their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularlypublish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline. We may incur substantial costs as a result of ongoing litigation. In December 2016, we received notice of a class action suit filed against us by a stockholder in the Iowa District Court in Johnson county alleging thatwe, certain of our senior executives and directors who signed the registration statement in connection with our initial public offering, and each of theinvestment banks that acted as underwriters for the offering negligently issued untrue statements of material facts and omitted to state material factsrequired to be stated in the registration statement and incorporated offering materials that we filed with the SEC in support of the offering. The plaintiffdoes not quantify any alleged damages in his complaint but, in addition to attorneys' fees and costs, the plaintiff seeks to recover damages and obtainother relief on behalf of himself and all other persons who purchased our common stock pursuant or traceable to the offering and the registrationstatement and who were allegedly damaged thereby. In January 2017, the suit was removed to the U.S. District Court for the Southern District of Iowa. Theplaintiff has since filed a motion to remand the case to the Iowa District Court, and that motion is still pending. The suit is still in a preliminary stage andhas not yet been set for trial. We cannot predict the timing or outcome of this litigation and irrespective of its outcome, this litigation may cause us toincur substantial costs in related legal fees and divert management's attention and resources from our business. A significant portion of our outstanding warrants and convertible securities are entitled to certain anti-dilution protections which, if triggered, maycause substantial dilution to your investment. As of December 31, 2016, we had outstanding immediately exercisable warrants to purchase 59,714 shares of our common stock at a weighted averageexercise price of $5.85 per share that include anti-dilution provisions pursuant to which the exercise price of such warrants will be adjusted downward ifwe issue any shares of our common stock or any securities convertible into our common stock at a price per share or with an exercise or conversion priceless than the exercise price of such warrants. Upon such an event, the exercise price of these warrants will be automatically adjusted to equal the price pershare paid for, the conversion price of or the exercise price of such securities, as applicable, and the number of shares of common stock issuable uponexercise of each warrant will be proportionately increased. Additionally, in June 2014, we issued to Deerfield (i) a warrant to purchase 14,423,076 shares of Series D redeemable convertible preferred stock at anexercise price of $0.78 per share, which is exercisable until June 2, 2024, or the Deerfield Warrant, and (ii) a secured convertible note, or the DeerfieldNote, in the principal amount of $10.0 million, which bears interest at 9.75% per annum. Upon completion of our initial public offering, the DeerfieldWarrant automatically converted into a warrant to purchase 1,923,077 shares of our common stock at an exercise price of $5.85 per share and theoutstanding principal and accrued interest under the Deerfield Note became convertible into shares of our common stock at a conversion price of $5.85per share. The Deerfield Warrant and Deerfield Note each include an exercise or conversion, as applicable, price protection provision, pursuant to whichthe exercise or conversion, as applicable, price of the warrant or note will be adjusted downward on a broad-based weighted-average basis if we issue orsell any shares of common stock, convertible securities, warrants or options at a sale or exercise price per share less than the greater of the DeerfieldWarrant's exercise price or the Deerfield Note's conversion price, as applicable, or the closing sale price of our common stock as reported on The NASDAQGlobal Market on the last trading date immediately prior to such issuance or, in the case of a firm commitment underwritten offering, on the date ofexecution of the underwriting agreement between us and the underwriters for such offering. Additionally, pursuant to the terms of our fourth amendmentto the Deerfield Warrant and Deerfield Note, if we effect an "at the market offering" as defined in Rule 415 of the Securities Act, of our common stock, theexercise price of the Deerfield Warrant and conversion price of the Deerfield Note will be adjusted downward pursuant to this anti-dilution adjustmentonly if such sales are made at a price less than $5.85 per share. 55 Future sales and issuances of equity and debt securities could result in additional dilution to our stockholders. We expect that we will need significant additional capital in the future to fund our planned operations, including to complete potential clinical trials forour product candidates. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at pricesand in a manner we determine from time to time. Additionally, we previously issued to Deerfield the Deerfield Note in the principal amount of $10.0 million. The Deerfield Note bears interest at 9.75%per annum. Deerfield may convert all or any portion of the outstanding principal and any accrued but unpaid interest on the Deerfield Note into shares ofour common stock at a conversion price of $5.85 per share. According to the terms of the Deerfield Note, in no event may Deerfield convert the Deerfield Note to the extent such conversion would result in Deerfieldbeneficially owning more than 9.985% of the then issued and outstanding shares of our common stock. This conversion limitation may not be waivedand any purported conversion that is inconsistent with this conversion limitation will be null and void. This conversion limitation will not apply to anyconversion made immediately prior to a change of control transaction. If Deerfield is only able to convert the Deerfield Note into a limited number ofshares due to this conversion limitation, the Deerfield Note could subsequently become convertible into the remainder of the shares as a result of a varietyof events. This could occur, for example, if we issue more shares or Deerfield sells some of its existing shares. Without regard to this conversion limitation,the Deerfield Note is convertible into 1,751,296 shares of our common stock, assuming a conversion date of December 31, 2016. The conversion price ofthe Deerfield Note will be adjusted downward if we issue or sell any shares of common stock, convertible securities, warrants or options at a sale orexercise price per share less than the greater of the Deerfield Note’s conversion price or the closing sale price of our common stock as reported on TheNASDAQ Global Market on the last trading date immediately prior to such issuance, or, in the case of a firm commitment underwritten offering, on thedate of execution of the underwriting agreement between us and the underwriters for such offering. Although, if we effect an "at the market offering" asdefined in Rule 415 of the Securities Act, of our common stock, the exercise price of the Deerfield Warrant and conversion price of the Deerfield Note willbe adjusted downward pursuant to this anti-dilution adjustment only if such sales are made at a price less than $5.85 per share. Additionally, in February 2016, we issued the 2021 Notes. The 2021 Notes are convertible at an initial conversion rate of 58.4454 shares of our commonstock per $1,000 principal amount of the 2021 Notes, subject to adjustment under the indenture governing the 2021 Notes, which is equal to an initialconversion price of approximately $17.11 per share of our common stock. Upon conversion, the 2021 Notes will be settled in shares of our commonstock, together with a cash payment in lieu of delivering any fractional shares. The conversion rate will be subject to adjustment in some events but willnot be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, we will increasethe conversion rate for a holder who elects to convert its 2021 Notes in connection with such a corporate event in certain circumstances. Holders whoconvert on or after the date that is one year after the last date of original issuance of the 2021 Notes may also be entitled to receive, under certaincircumstances, an interest make-whole payment payable in shares of common stock. Without regard to this conversion, the 2021 Notes are convertibleinto 5,040,914 shares of our common stock, assuming a conversion date of December 31, 2016. If Deerfield or the holders of the 2021 Notes elect to convert the Deerfield Note or the 2021 Notes, your ownership interest will be diluted and the marketprice of our common stock may be materially and adversely effected. Pursuant to our equity incentive plan, we may grant equity awards and issue additional shares of our common stock to our employees, directors andconsultants, and the number of shares of our common stock reserved for future issuance under this plan will be subject to automatic annual increases inaccordance with the terms of the plans. To the extent that new options are granted and exercised or we issue additional shares of common stock in thefuture, our stockholders may experience additional dilution, which could cause our stock price to fall. Additionally, in October 2016, we entered into a Common Stock Sales Agreement, or the ATM Agreement, with Cowen and Company, LLC, orCowen, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of upto $50,000,000 through Cowen as our sales agent. Cowen may sell common stock under the ATM Agreement by any method permitted by law deemed tobe an "at the market offering" as defined in Rule 415 of the Securities Act, including without limitation sales made by means of ordinary brokers'transactions on The NASDAQ Global Market or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise directed byus. Cowen will use commercially reasonable efforts to sell the common stock from time to time, based upon instructions from us (including any price,time or size limits or other customary parameters or conditions we may impose). To the extent that we direct Cowen to make any sales of our commonstock under the ATM Agreement, our stockholders may experience additional dilution, which could cause our stock price to fall. Our substantial indebtedness may limit cash flow available to invest in the ongoing needs of our business. As of December 31, 2016, we had $96.25 million of convertible notes outstanding, consisting of the $10 million Deerfield Note and $86.25 million of2021 Notes. The Deerfield Note bears interest at 9.75% per annum. Interest accrued on outstanding debt under the Deerfield Note is due quarterly in arrears. Uponnotice to Deerfield, we may choose to have one or more of the first eight of such scheduled interest payments added to the outstanding principal amountof the debt issued under the Deerfield Note, provided that all such interest were due on July 1, 2016. We elected this option on all eight of the scheduledinterest payments through June 30, 2016 and paid such interest on July 1, 2016. We must repay one-third of the outstanding principal amount of all debtissued under the Deerfield Note on the fourth and fifth anniversaries of the Deerfield Note. We are then obligated to repay the balance of the outstandingprincipal amount on February 14, 2020. If we are required to pay additional outstanding amounts due under the Deerfield Note prior to maturity orotherwise incur unanticipated monetary obligations under the Deerfield Note, our cash flow available to invest in the ongoing needs of our business maybe limited. In February 2016, we issued the 2021 Notes. Our ability to make payments on, and to refinance, the 2021 Notes, and to fund planned capitalexpenditures, sales and marketing efforts, research and development efforts, working capital and other general corporate purposes depends on our abilityto generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors,some of which are beyond our control. If we do not ever generate sufficient cash flow from operations or if future borrowings are not available to us in anamount sufficient to repay our indebtedness, including any amounts due under the 2021 Notes at their maturity, or to fund our liquidity needs, we may beforced to refinance all or a portion of the 2021 Notes, on or before the maturity thereof, sell assets, reduce or delay capital expenditures, seek to raiseadditional capital or take other similar actions. We may not be able to affect any of these actions on commercially reasonable terms or at all. Our ability torefinance our indebtedness will depend on our financial condition at the time, the restrictions in the instruments governing our present and potentialfuture indebtedness and other factors, including market conditions. In addition, in the event of a default with respect to the 2021 Notes, the holders of the2021 Notes and/or the trustee under the indenture governing the 2021 Notes may accelerate the payment of our obligations under 2021 Notes. A defaultunder the indenture governing the 2021 Notes could also lead to a default under agreements governing future indebtedness. Our inability to generatesufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, wouldlikely have a material adverse effect on our business, financial condition and results of operations. 56 Despite our current debt levels, we may still incur substantially more debt or take other actions which would intensify the risks discussed above. Despite our current debt levels, we and our future subsidiaries incur substantial additional debt in the future, subject to the restrictions contained in ourdebt instruments, some of which may be secured debt. We are not restricted under the terms of the indenture governing the 2021 Notes from incurringadditional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of theindenture governing the 2021 Notes that could have the effect of diminishing our ability to make payments on the notes when due. The Deerfield facilityrestricts our ability to incur additional indebtedness, including secured indebtedness, subject to certain exceptions, but if the facility matures or is repaid,we may not be subject to such restrictions under the terms of any subsequent indebtedness. The accounting method for the 2021 Notes could have a material effect on our reported financial results. The 2021 Notes contain an embedded derivative, which requires mark-to-market accounting treatment and could result in a gain or loss on a quarterlybasis with regards to the mark-to-market value of that feature. Such accounting treatment could have a material impact on, and could potentially result insignificant volatility in, our quarterly results of operations. Additionally, certain features of the 2021 Notes may result in the yield on the 2021 Notes notbeing deductible by us for tax purposes. Sales of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to dropsignificantly, even if our business is doing well. Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceivesthat our stockholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common stock could declinesignificantly. Certain holders of shares of our common stock and shares of our common stock issuable upon the exercise of outstanding warrants, including Deerfield, ortheir transferees, have rights, subject to some conditions, to require us to file one or more registration statements covering their shares or to include theirshares in registration statements that we may file for ourselves or other stockholders. If we were to register the resale of these shares, they could be freelysold in the public market. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of ourcommon stock could decline. Anti-takeover provisions in our certificate of incorporation and bylaws, as well as provisions of Delaware law and the terms of some or our contracts,might discourage, delay or prevent a change in control of our company or changes in our board of directors or management and, therefore, depress theprice of our common stock. Our certificate of incorporation and bylaws and Delaware law contain provisions that may discourage, delay or prevent a merger, acquisition or otherchange in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of ourcommon stock or transactions that our stockholders might otherwise deem to be in their best interests. These provisions may also prevent or frustrateattempts by our stockholders to replace or remove members of our board of directors or our management. Therefore, these provisions could adverselyaffect the price of our stock. Our corporate governance documents include provisions: ●establishing a classified board of directors with staggered three-year terms so that not all members of our board of directors are elected at onetime; ●providing that directors may be removed by stockholders only for cause; ●preventing the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of ameeting; ●requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations ofcandidates for election to our board of directors; ●permitting the board of directors to issue up to 10,000,000 shares of preferred stock with any rights, preferences and privileges they maydesignate; ●limiting the liability of, and providing indemnification to, our directors and officers; ●providing that vacancies may be filled by remaining directors; ●preventing cumulative voting; and ●providing for a supermajority requirement to amend our bylaws. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State ofDelaware, which prohibits a Delaware corporation from engaging in a broad range of business combinations with any “interested” stockholder for aperiod of three years following the date on which the stockholder became an “interested” stockholder. In addition, the provisions of our termination agreement with MonoSol and our agreements with Deerfield and the holders of our 2021 Notes maydiscourage, delay or prevent a change in control of our company. For example, if we enter into a merger, an asset sale or any other change of controltransaction, then MonoSol will be entitled to a percentage in the low teens of the price being paid to us and our stockholders in such transaction which isattributable to the value of KP415. Pursuant to the Deerfield Note, we may not enter into any major transaction without the prior approval of Deerfield,including a merger, asset sale or change of control transaction, and Deerfield has the option to demand repayment of all outstanding principal, and anyunpaid interest accrued thereon, of the Deerfield Note immediately prior to consummation of such event. Further, under the Deerfield Warrant, Deerfieldhas the right to demand that we redeem the Deerfield Warrant for a cash amount equal to the Black-Scholes value of a portion of the warrant upon theoccurrence of specified events, including a merger, an asset sale or any other change of control transaction. Furthermore, the indenture governing the2021 Notes requires us to repurchase the 2021 Notes for cash if we undergo certain fundamental changes. A takeover of us may trigger the requirementthat we repurchase the 2021 Notes, which could make it more costly for a potential acquirer to engage in a business combination transaction with us. Any provision of our certificate of incorporation, bylaws or Delaware law or any term of our contracts that has the effect of discouraging, delaying orpreventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could alsoaffect the price that some investors are willing to pay for our common stock. 57 Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputesbetween us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,officers or other employees. Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action orproceeding brought on our behalf, any action asserting a breach of fiduciary duty owed by any of our directors, officers or other employees to us or ourstockholders, any action asserting a claim against us arising pursuant to any provisions of the Delaware General Corporation Law, our certificate ofincorporation or our bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision maylimit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees,which may discourage such lawsuits against us and our directors, officers and other employees. If a court were to find the choice of forum provisioncontained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolvingsuch action in other jurisdictions. We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growthcompanies, our common stock may be less attractive to investors. We are an “emerging growth company” as defined in the Jump Start Business Startups Act, or JOBS Act, and we take advantage of some of theexemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including: ●not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; ●not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding asupplement to the auditor’s report providing additional information about the audit and the financial statements; ●reduced disclosure obligations regarding executive compensation; and ●not being required to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute paymentsnot previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our commonstock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may takeadvantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until theearlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have totalannual gross revenue of at least $1.0 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our commonstock that is held by non-affiliates exceeds $700 million as of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as thosestandards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standardsand, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We might not be able to utilize a significant portion of our net operating loss carryforwards, which could adversely affect our profitability. As of December 31, 2016, we had federal net operating loss carryforwards of approximately $103.4 million, due to prior period losses, which if notutilized will begin to expire in 2027. These net operating loss carryforwards could expire unused and be unavailable to offset future income taxliabilities, which could adversely affect our profitability. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, if acorporation undergoes an ‘‘ownership change,’’ which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-changeincome may be limited. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our net operatingloss carryforwards are subject to an annual limitation under Section 382. In addition, we may experience ownership changes in the future as a result ofsubsequent shifts in our stock ownership, including as a result of our initial public offering, the conversion of our outstanding convertible debt or as aresult of future changes in our stock ownership. If we determine that an ownership change has occurred and our ability to use our historical net operatingloss carryforwards is materially limited, it would harm our future operating results by increasing our future tax obligations. 58 If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired. We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the stock market on which ourcommon stock is listed. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internalcontrol over financial reporting. Commencing with our fiscal year ending December 31, 2016, we performed system and process evaluation and testing ofour internal control over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in thisAnnual Report on Form 10-K, as required by Section 404 of the Sarbanes-Oxley Act. We will be required to perform this evaluation and testing of ourinternal control over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting on an annualbasis. This will require that we incur substantial additional professional fees and internal costs and that we expend significant management efforts on anannual basis. We have and will be required to test our internal controls within a specified period, and, as a result, we may experience difficulty in meetingthese reporting requirements. We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement ofour financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter howwell designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherentlimitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or thatall control issues and instances of fraud will be detected. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if we are unable to maintain proper and effective internalcontrols, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline andwe could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC, or other regulatory authorities. Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your solesource of gains and you may never receive a return on your investment. You should not rely on an investment in our common stock to provide dividend income. We have not declared or paid cash dividends on our commonstock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of theDeerfield Note, and any future debt agreements may, preclude us from paying dividends. As a result, capital appreciation, if any, of our common stockwill be your sole source of gain for the foreseeable future. Investors seeking cash dividends should not purchase our common stock. We incur increased costs and demands upon management as a result of being a public company. As a public company listed in the United States, we incur significant additional legal, accounting and other costs, which we estimate to be between $1.0million and $2.0 million annually, that we did not incur as a private company. These additional costs could negatively affect our financial results. Inaddition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by theSEC and The NASDAQ Stock Market, may increase legal and financial compliance costs and make some activities more time consuming. These laws,regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance isprovided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and thisinvestment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generatingactivities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatoryauthorities may initiate legal proceedings against us. Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liabilityinsurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committeesof our board of directors or as members of senior management. 59 ITEM1B.UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2.PROPERTIES We occupy 1,000 square feet of headquarters office and laboratory space in Coralville, Iowa, under a non-cancelable lease agreement that expires inSeptember 2017, and we have the right to extend the term of the lease for successive one year terms upon expiration. We also occupy approximately17,000 square feet of office space in Celebration, Florida, comprised of two contiguous office suites, under a non-cancelable lease agreement thatexpires in August 2025 and February 2026, respectively. We have the right to extend the term of the lease for two successive five-year terms uponexpiration. In addition, we occupy leased spaces in Durham, North Carolina and Blacksburg, Virginia. We believe that our facilities are adequate for ourcurrent needs. ITEM 3.LEGAL PROCEEDINGS In December 2016, we received a class action suit filed against us by a stockholder in the Iowa District Court in Johnson county alleging that we, certainof our senior executives and directors who signed the registration statement in connection with our initial public offering, and each of the investmentbanks that acted as underwriters for the offering negligently issued untrue statements of material facts and omitted to state material facts required to bestated in the registration statement and incorporated offering materials that we filed with the SEC in support of the offering. The plaintiff does notquantify any alleged damages in his complaint but, in addition to attorneys' fees and costs, the plaintiff seeks to recover damages and obtain other reliefon behalf of himself and all other persons who purchased our common stock pursuant or traceable to the offering and the registration statement and whowere allegedly damaged thereby. In January 2017, the suit was removed to the U.S. District Court for the Southern District of Iowa. The plaintiff has since filed a motion to remand the caseto the Iowa District Court, and that motion is still pending. The suit is still in a preliminary stage and has not yet been set for trial. As such, we are unableto predict the timing or outcome of this litigation as of the date of this report. From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normalcourse of our business. As of the date of this report we are unable to predict whether the pending litigation described above could have a material adverseeffect on our results of operations or financial condition. ITEM 4.MINE SAFETY DISCLOSURES Not applicable. 60 PART II ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OFEQUITY SECURITIES Price Range of Common Stock Our common stock has been listed on The NASDAQ Global Market under the symbol “KMPH” since April 16, 2015. Prior to that date, there was nopublic trading market for our common stock. Our initial public offering was priced at $11.00 per share on April 15, 2015. The following table sets forthfor the periods indicated the high and low sales prices per share of our common stock as reported on The NASDAQ Global Market: Low High Year ended December 31, 2015 Second Quarter (beginning April 16, 2015) $10.90 $20.08 Third Quarter $14.60 $26.15 Fourth Quarter $12.79 $21.30 Year Ended December 31, 2016 First Quarter $ 10.16 $ 19.72 Second Quarter $ 3.52 $ 19.75 Third Quarter $ 3.69 $ 5.50 Fourth Quarter $ 2.90 $ 5.09 Holders of our Common Stock As of March 7, 2017, we had 172 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders,and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders ofrecord also does not include stockholders whose shares may be held in trust by other entities. Dividend Policy We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain all of our future earnings, if any, for use in theoperation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. The terms of the Deerfield facility limitour ability to pay dividends. Securities Authorized for Issuance under Equity Compensation Plans The information regarding securities authorized for issuance under equity compensation plans is included in Part III of this report. Recent Sales of Unregistered Securities Not applicable. Issuer Purchases of Equity Securities Not applicable. Use of Proceeds On April 21, 2015, we closed our initial public offering, in which we issued and sold 5,090,909 shares of common stock at a public offering price of$11.00 per share. Subsequently, on May 12, 2015, we sold an additional 763,636 shares of our common stock pursuant to the underwriters’ option topurchase additional shares. In the aggregate, the gross proceeds of our initial public offering, including gross proceeds from the underwriters’ exercise oftheir option to purchase additional shares, were $64.4 million. All of the shares issued and sold in our initial public offering were registered under theSecurities Act pursuant to a registration statement on Form S-1 (File No. 333-202660), which was declared effective by the SEC on April 15, 2015. Cowenand Company, LLC, RBC Capital Markets, LLC, Canaccord Genuity Inc. and Oppenheimer & Co. Inc. acted as the underwriters. The offering commencedon April 15, 2015, and did not terminate before all of the securities registered in the registration statement were sold. The net offering proceeds to us were $59.9 million, after deducting underwriting discounts and commissions totaling $4.5 million. In addition, offeringexpenses totaled $2.8 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or personsowning ten percent or more of any class of our equity securities or to any other affiliates. There has been no material change in the planned use ofproceeds from our initial public offering as described in our prospectus dated April 15, 2015, and filed with the SEC on April 16, 2015, pursuant to Rule424(b) of the Securities Act. Through December 31, 2016, $35.6 million of the net proceeds had been used to fund the development of Apadaz and ourother product candidates and for working capital and other general corporate purposes. ITEM 6.SELECTED FINANCIAL DATA Not applicable. 61 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements andrelated notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or setforth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and relatedfinancing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the“Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by theforward-looking statements contained in the following discussion and analysis. Overview We are a clinical-stage specialty pharmaceutical company engaged in the discovery and development of proprietary prodrugs that we believe will beimproved versions of widely prescribed, approved drugs. We employ our LAT platform technology to create our prodrugs. We are building a pipeline ofprodrug product candidates that target large market opportunities in pain, ADHD and CNS disorders. Our two lead product candidates are KP415, our ERd-threo-methylphenidate product candidate for the treatment of ADHD, and KP201/IR, our APAP-free, single-entity, benzhydrocodone hydrochloride IRabuse-deterrent product candidate designed for the treatment of acute pain. We own worldwide commercial rights for all of our product candidates, exceptthat Shire has a right of first refusal to acquire, license or commercialize KP415. We previously submitted an NDA to the FDA for our product candidate Apadaz, which consists of KP201, our prodrug of hydrocodone, andacetaminophen. In June 2016, the FDA issued the CRL for our Apadaz NDA. Generally, the FDA issues CRLs to indicate that the FDA considers thereview cycle for an application complete and that the application is not ready for approval in its present form. In its CRL, the FDA advised us that it didnot believe our proposed labeling included in the application accurately conveyed the outcome of our abuse deterrence studies of Apadaz. In August2016, we completed our end-of-review meeting with the FDA. At the end-of-review meeting, we discussed with the FDA the issues identified by the FDAin the Apadaz NDA and what we believe is the potential to achieve a path forward for an Apadaz product label that could include abuse deterrence claims.The meeting also involved discussions pertaining to abuse deterrence in relation to the broader IR prescription opioid market, hydrocodone-acetaminophen combination products, and published industry guidance from the FDA concerning the evaluation and labeling of abuse deterrent opioids.In November 2016, we elected to continue the regulatory review process for Apadaz with the submission of a FDRR to the FDA. We anticipate up totwelve months may be required to complete all parts of the FDRR process. We are a development stage company and have not generated any revenue. We have incurred operating losses since our inception and, as of December31, 2016, had an accumulated deficit of $121.3 million. Our losses from operations for the years ended December 31, 2016, 2015 and 2014 were $37.5million, $22.8 million and $16.4 million, respectively. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, and those expenses and losses mayfluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will increase substantially as we: ●continue our ongoing preclinical studies, clinical trials and our product development activities for our pipeline of product candidates; ●seek regulatory approvals for any product candidates that successfully complete clinical trials; ●continue research and preclinical development and initiate clinical trials of our other product candidates; ●seek to discover and develop additional product candidates; ●potentially establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize anyproduct candidates for which we may obtain regulatory approval; ●adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products; ●maintain, expand and protect our intellectual property portfolio; and ●incur additional legal, accounting and other expenses in operating as a public company. Our commercial revenue, if any, will be derived from sales of prodrug products and we do not currently know when, if ever, any of our product candidateswill be commercially available. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequateadditional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity ordebt securities, the terms of these securities may restrict our ability to operate. If we raise additional funds through collaborations, strategic alliances ormarketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights. If we are unable to raise capitalwhen needed or on attractive terms, we could be forced to delay, reduce or altogether cease our research and development programs or futurecommercialization efforts. 62 Third-Party Agreements In November 2009, we entered into the Supply Agreement with JMI, pursuant to which JMI has agreed to supply us with all of the KP201 necessary forclinical trials and commercial sale for a price equal to JMI's manufacturing cost and to provide process optimization and development services for KP201.In exchange, we issued shares of our common stock to JMI, provided that the commercial supply arrangement for KP201 would be exclusive to JMI in theUnited States and agreed to pay JMI royalties on the net sales of any products that utilize KP201 as the API. The percentage royalty rate ranges from thehigh teens at low volumes to the mid-single digits at higher volumes. We are responsible for all costs of any KP201 manufactured during a specified validation process for KP201. After completion of the validation process,but prior to the commercial launch of any products that utilize KP201 as the API, JMI will manufacture batches of KP201 at a price to be negotiated.Failure to agree upon this pricing would result in JMI supplying these batches to us free of charge and we would pay JMI an additional royalty paymenton such batches. The percentage royalty rate ranges from the low teens at low volumes to the low single digits at higher volumes and is additive to anyminimum royalty we may owe JMI on such batch. JMI will manufacture and supply KP201 at a price equal to JMI's fully allocated manufacturing costafter commercial launch should we obtain approval for marketing from the FDA. We must purchase all of our U.S. KP201 needs from JMI and JMI cannot supply KP201 to other companies. After the commercial launch of anyproduct that utilizes KP201 as the API, JMI is required to identify a secondary manufacturing site and qualify and validate that site for the production ofKP201. The term of the Supply Agreement extends as long as we hold a valid and enforceable patent for KP201 or until the tenth anniversary of the commerciallaunch of any product that utilizes KP201 as the API, whichever date is later. Upon the expiration of such term, the agreement will automatically renewfor a period of two years unless either party provides 12 months' prior notice of its intent not to renew. Under our March 2012 asset purchase agreement with Shire, Shire has a right of first refusal to acquire, license or commercialize KP415. Under our March 2012 termination agreement with MonoSol, MonoSol has the right to receive an amount equal to a percentage in the low teens of anyvalue generated by KP415, and any product candidates arising therefrom, including royalty payments on any license of KP415, the sale of KP415 to athird party, the commercialization of KP415 and the portion of any consideration that is attributable to the value of KP415 and paid to us or ourstockholders in a change of control transaction. Components of our Results of Operations Revenue To date, we have not generated any revenue. We do not currently know when, if ever, we will generate revenue. If we fail to complete the development ofour product candidates in a timely manner or fail to obtain their regulatory approval, our ability to generate future revenue would be compromised. Operating Expenses We classify our operating expenses into three categories: research and development expenses, general and administrative expenses and severanceexpense. Salaries and personnel-related costs, including benefits, bonuses and stock-based compensation expense, comprise a significant component ofeach of these expense categories. We allocate expenses associated with our facilities, information technology costs and depreciation and amortizationbetween research and development expenses and general and administrative expenses based on employee headcount and the nature of work performed byeach employee. 63 Research and Development Expense Research and development expense consists of expenses incurred while performing research and development activities to discover and developpotential product candidates. This includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities related toregulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expenseprimarily consists of: ●salaries and personnel-related costs, including benefits and any stock-based compensation, for our scientific personnel performing research anddevelopment activities; ●costs related to executing preclinical studies and clinical trials; ●fees paid to consultants and other third parties who support our product candidate development; ●other costs in seeking regulatory approval of our products; and ●allocated facility-related costs and overhead. We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs byproduct candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific productcandidates or development programs. The following table summarizes our research and development expenses for the years ended December 31, 2016, 2015 and 2014 (in thousands): Year Ended Year Ended Year Ended December 31, December 31, December 31, 2016 2015 2014 Outsourced development costs directly identified toprograms: Apadaz $7,019 $7,342 $9,049 KP201/IR (APAP-free) 18 — — KP415 2,889 111 — KP511 2,511 1,564 — KP606/IR 24 — — Total costs directly identified to programs 12,461 9,017 9,049 Costs not directly allocated to programs: Employee expenses including cash compensation,benefits and share-based compensation 5,198 3,655 1,861 Facilities 394 197 160 Other 2,419 1,062 847 Total costs not directly allocated to programs 8,011 4,914 2,868 Total research and development expenses $20,472 $13,931 $11,917 We plan to increase our research and development expense for the foreseeable future as we continue our efforts to advance the development of ourproduct candidates, subject to the availability of additional funding. The successful commercialization, if approved, and development of our product candidates is highly uncertain. At this time, we cannot reasonablyestimate the nature, timing or costs required to commercialize, if approved, and complete the remaining development of any product candidates. This isdue to the numerous risks and uncertainties associated with the development of product candidates. 64 General and Administrative Expense General and administrative expense consists primarily of salaries and personnel-related costs, including employee benefits and any stock-basedcompensation, for employees performing functions other than research and development. This includes personnel in executive, finance, human resourcesand administrative support functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research anddevelopment expense, professional fees for auditing, tax and legal services, expenses associated with obtaining and maintaining patents, consulting costsand costs of our information systems. We expect that our general and administrative expense will increase as we continue to operate as a public reporting company and continue to develop ourproduct candidates. We believe that these increases will likely include increased costs related to the hiring of additional personnel and increased fees foroutside consultants, lawyers and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls, investorrelations, disclosure and similar requirements applicable to public reporting companies. Severance Expense Severance expense consists primarily of salaries and personnel-related costs, including employee benefits and any stock-based compensation, foremployees terminated in the third quarter of 2016 due to the deferral of commercial operations and realignment of financial resources and operationalpriorities during the period. At this time, we do not expect to incur significant additional severance expense in future periods. Other Income (Expense) Other income (expense) consists primarily of non-cash costs associated with fair value adjustments to our derivative and warrant liability andamortization of debt issuance costs and debt discount to interest expense. Other income (expense) also includes interest expense incurred on ouroutstanding borrowings, as well as, interest and other income consisting primarily of interest earned on investments. Additionally, we recognized a losson extinguishment of debt, for the year ended December 31, 2016, related to the payment of our term note previously issued to Deerfield and for the yearended December 31, 2014 we recognized a gain on extinguishment of debt upon the conversion of our 2013 convertible notes. These items are unrelatedto our core business and thus are recognized as other income (expense) in our statements of operations. Income Tax Benefit (Expense) Income tax benefit (expense) consists of refundable state income tax credits. To date, we have not been required to pay U.S. federal or state income taxesbecause we have not generated taxable income. We have received state income tax credits related to our qualified research activities in Iowa. 65 Results of Operations Comparison of the Years Ended December 31, 2016 and 2015 (in thousands): Year Ended Year Ended Period-to- December 31, December 31, Period 2016 2015 Change Revenue $— $— $— Operating expenses: Research and development 20,472 13,931 6,541 General and administrative 14,000 8,883 5,117 Severance expense 3,010 — 3,010 Total operating expenses 37,482 22,814 14,668 Loss from operations (37,482) (22,814) (14,668)Other income (expense): Loss on extinguishment of debt (4,740) — (4,740)Interest expense related to amortization of debtissuance costs and discount (1,616) (1,909) 293 Interest expense on principal (5,511) (2,671) (2,840)Fair value adjustment 32,465 (27,276) 59,741 Interest and other income 353 32 321 Total other income (expense) 20,951 (31,824) 52,775 Loss before income taxes (16,531) (54,638) 38,107 Income tax benefit (expense) 15 (26) 41 Net loss $(16,516) $(54,664) $38,148 Net Loss Net loss for the year ended December 31, 2016 was $16.5 million, which was a decrease of $38.2 million compared to net loss for the year endedDecember 31, 2015 of $54.7 million. The decrease was primarily attributable to an increase in the non-cash income recognized from fair valueadjustments of $59.7 million, partially offset by an increase in loss from operations of $14.7 million due to increased activity on the developmentprograms for our product candidates, increased personnel-costs related to an increase in headcount and severance expense, as well as recognition of non-cash loss on extinguishment of debt of $4.7 million, and an increase in net interest expense and other items of $2.1 million. Research and Development Research and development expenses increased by $6.6 million, from $13.9 million for the year ended December 31, 2015, to $20.5 million for the yearended December 31, 2016. This increase was primarily attributable to a $3.5 million payment to a third-party to license an abuse deterrent technology, aswell as a $1.2 million increase in personnel-related costs due to increased headcount, a $1.0 million increase in professional fees and other expensesrelated to preparation for, and attendance at, the FDA advisory committee meeting held during the second quarter of 2016, a $0.5 million increase invarious research and development costs related to overhead, and a $0.4 million increase in stock-based compensation expense related to the vesting ofstock awards during the year ended December 31, 2016. General and Administrative General and administrative expenses increased by $5.1 million, from $8.9 million for the year ended December 31, 2015, to $14.0 million for the yearended December 31, 2016. This increase was primarily attributable to a $1.9 million increase in stock-based compensation expense related to the vestingof stock awards, a $1.2 million increase in salaries and personnel-related costs due to increased headcount, a $1.1 million increase in professional fees andother expenses related to Apadaz pre-commercialization efforts, and a $0.9 million increase in various general and administrative costs related tooverhead and corporate governance. Severance Expense Severance expense of $3.0 million was recognized during the year ended December 31, 2016 due to the deferral of commercial operations andrealignment of financial resources and operational priorities during the third quarter of 2016. Severance expense includes $1.1 million of personnel andother related charges and $1.9 million of stock-based compensation expense related to the acceleration of vesting on certain stock options upontermination. We had no severance expense in the year ended December 31, 2015, and we do not expect for severance expense to recur on an annual basisgoing forward. Other Income (Expense) Other income (expense) increased by $52.8 million, from an expense of $31.8 million for the year ended December 31, 2015, to income of $21.0 millionfor the year ended December 31, 2016. This was primarily attributable to the $59.7 million increase in the fair value adjustment related to our derivativeand warrant liability, an increase in interest and other income of $0.3 million and a $0.3 million decrease in the amortization of the debt issuance costsand debt discount during the year ended December 31, 2016. These changes were partially offset by a $4.7 million increase in the loss on extinguishmentof debt recognized in the first quarter of 2016 related to the payment of the term note previously issued to Deerfield and a $2.8 million increase in interestexpense primarily related to the 2021 Notes during the year ended December 31, 2016. 66 Comparison of the Years Ended December 31, 2015 and 2014 (in thousands): Year Ended Year Ended Period-to- December 31, December 31, Period 2015 2014 Change Revenue $— $— $— Operating expenses: Research and development 13,931 11,917 2,014 General and administrative 8,883 4,526 4,357 Total operating expenses 22,814 16,443 6,371 Loss from operations (22,814) (16,443) (6,371)Other income (expenses): Gain on extinguishment of debt — 1,900 (1,900) Interest expense related to amortization of debtissuance costs and discount (1,909) (1,114) (795) Interest expense on principal (2,671) (1,605) (1,066)Fair value adjustment (27,276) (7,223) (20,053)Interest and other income 32 8 24 Total other expenses (31,824) (8,034) (23,790)Loss before income taxes (54,638) (24,477) (30,161)Income tax (expense) benefit (26) 22 (48) Net loss $(54,664) $(24,455) $(30,209) Net Loss Net loss for the year ended December 31, 2015 was $54.7 million, which was an increase of $30.2 million compared to net loss for the year endedDecember 31, 2014 of $24.5 million. The increase was primarily attributable to an increase in non-cash expense recognized from fair value adjustments of$20.1 million, an increase in loss from operations of $6.4 million, the absence of the non-cash gain on extinguishment of debt of $1.9 million, and anincrease in non-cash net interest expense of $1.8 million. Research and Development Research and development expenses increased by $2.0 million, from $11.9 million for the year ended December 31, 2014, to $13.9 million for the yearended December 31, 2015. This increase was primarily attributable to a $1.7 million increase in contracted third-party research and developmentspending on KP511 and KP415, which was offset by a decrease of $1.7 million in contracted third-party research and development spending on Apadaz,as well as a $1.3 million increase in personnel-related costs due to increased headcount, a $0.5 million increase in stock-based compensation expenserelated to the vesting of stock awards during the year ended December 31, 2015, and a $0.2 million increase in miscellaneous research and developmentcosts related to overhead. General and Administrative General and administrative expenses increased by $4.4 million, from $4.5 million for the year ended December 31, 2014, to $8.9 million for the yearended December 31, 2015. This increase was primarily attributable to a $1.9 million increase in personnel-related costs due to increased headcount, a$1.6 million increase in stock-based compensation expense related to the vesting of stock awards, a $0.4 million increase in marketing expenses, and a$0.5 million increase in various general and administrative costs related to overhead, accounting expenses and professional fees. Other Expenses Other expenses increased by $23.8 million, from $8.0 million for the year ended December 31, 2014, to $31.8 million for the year ended December 31,2015. This was primarily attributable to the $20.1 million increase in the fair value adjustment related to our derivative and warrant liability, and a $1.9million decrease in the gain on extinguishment of debt recognized in the second quarter of 2014 related to the conversion of our 2013 convertible notesinto shares of our Series D redeemable convertible preferred stock. In addition, there was a $0.8 million increase in the amortization of the debt issuancecosts and debt discount and a $1.0 million increase in interest expense related to the Deerfield facility during the year ended December 31, 2015. 67 Liquidity and Capital Resources Sources of Liquidity Through December 31, 2016, we have funded our research and development and operating activities primarily through the issuance of $115.9 million ofdebt, $25.3 million of private placements of redeemable convertible preferred stock and the sale of common stock in our initial public offering. Asof December 31, 2016, we had cash and cash equivalents of $16.8 million, restricted cash of $1.1 million, marketable securities of $51.0 million, tradedate receivables of $5.0 million and long-term investments of $8.2 million. We completed the initial closing of our initial public offering in April 2015,with a subsequent closing in May 2015, pursuant to which we received net proceeds, including net proceeds from the underwriters' exercise of theiroption to purchase additional shares, of $59.9 million, after deducting underwriting discounts and commissions of $4.5 million. In addition, we incurredoffering expenses totaling $2.8 million. We filed a registration statement on Form S-3 covering the sale from time to time of up to $150.0 million of our common stock, preferred stock, debtsecurities and/or warrants, which was declared effective by the SEC on October 17, 2016. We have not issued any of our securities under this registrationstatement. On October 3, 2016, we entered into the ATM Agreement with Cowen under which we may offer and sell, from time to time, in our sole discretion, sharesof common stock having an aggregate offering price of up to $50,000,000 through Cowen as our sales agent. The registration statement on Form S-3included a prospectus covering the offering up to $20,000,000 of shares of common stock in accordance with the ATM Agreement. We have not sold anyshares of our common stock pursuant to the terms of the ATM Agreement. We have incurred operating losses since our inception and, as of December 31, 2016, had an accumulated deficit of $121.3 million. We anticipate that wewill continue to incur operating losses for at least the next several years. We expect that our research and development and general and administrativeexpenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may obtain through one or moreequity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements. Convertible Debt As of December 31, 2016, we had $96.25 million of convertible notes outstanding comprised of the $10 million Deerfield Note and $86.25 million of2021 Notes. 68 Deerfield Facility In June 2014, we entered into the $60.0 million multi-tranche credit facility with Deerfield. At the time we entered into the Deerfield facility, we borrowedthe first tranche, which consisted of a $15.0 million term note and the $10.0 million Deerfield Note. We used approximately $18.6 million of the netproceeds from the offering of our 2021 Notes to repay in full the $15.0 million original principal amount on the term note issued under Deerfield facilityplus all accrued but unpaid interest on the term note, a make whole interest payment on the term note and a prepayment premium on the term note.Deerfield is no longer obligated to provide us any additional disbursements under the Deerfield facility. All loans issued under the Deerfield facility, including the Deerfield Note, bear interest at 9.75% per annum. Interest accrued on outstanding debt underthe Deerfield facility is due quarterly in arrears. Upon notice to Deerfield, we may choose to have one or more of the first eight of such scheduled interestpayments added to the outstanding principal amount of the debt issued under the Deerfield facility, provided that all such interest was due on July 1,2016. We elected this option on all eight of the scheduled interest payments through June 30, 2016 and paid all such interest on July 1, 2016. We mustrepay one-third of the outstanding principal amount of all debt issued under the Deerfield facility on the fourth and fifth anniversaries of the Deerfieldfacility. We are then obligated to repay the balance of the outstanding principal amount on February 14, 2020. Prepayment of the outstanding balance is not allowed without written consent of Deerfield. However, in connection with our offering of the 2021 Notes,on February 3, 2016, we entered into an amendment to the Deerfield facility in which Deerfield consented to the prepayment of the term note and theissuance of the 2021 Notes. Pursuant to the Deerfield facility, we issued to Deerfield 1,923,077 shares of our Series D redeemable convertible preferred stock as consideration for theloans provided to us thereunder. Upon closing of our initial public offering, these shares of Series D redeemable convertible preferred stock reclassifiedinto 256,410 shares of our common stock. We also issued the Deerfield Warrant to purchase 14,423,076 shares of our Series D redeemable convertible preferred stock at an initial exercise price of$0.78 per share. Upon closing of our initial public offering, this warrant converted into a warrant exercisable for 1,923,077 shares of our common stock atan exercise price of $5.85 per share. Pursuant to the Deerfield facility, we may not enter into specified transactions, including a debt financing in the aggregate value of $750,000 or more, amerger, an asset sale or any other change of control transaction or any joint venture, partnership or other profit sharing arrangement, without the priorapproval of Deerfield. Additionally, if we were to enter into a major transaction, including a merger, consolidation, sale of substantially all of our assets orother change of control transaction, Deerfield would have the ability to demand that prior to consummation of such transaction we repay all outstandingprincipal and accrued interest of the Deerfield Note. Deerfield has the right to demand that we redeem the Deerfield Warrant for a cash amount equal to theBlack-Scholes value of a portion of the warrant upon the occurrence of specified events, including a merger, an asset sale or any other change of controltransaction. The Deerfield facility also includes high yield discount obligation protections that go into effect in June 2019. After this time, if at any interest paymentdate our outstanding indebtedness under the Deerfield facility would qualify as an "applicable high yield discount obligation" under the InternalRevenue Code, as amended, or the Code, then we are obligated to prepay in cash on each such date the amount necessary to avoid such classification. 2021 Notes In February 2016, we issued the 2021 Notes in aggregate principal amount of $86.25 million. The 2021 Notes were originally issued to Cowen andCompany, LLC and RBC Capital Markets, LLC as representatives of the several initial purchasers, who subsequently resold the 2021 Notes to qualifiedinstitutional buyers in reliance on the exemption from registration provided by Rule 144A under the Securities Act. The 2021 Notes were issued pursuant to an indenture, dated as of February 9, 2016, or the indenture, between the Company and U.S. Bank NationalAssociation, as trustee. Interest on the 2021 Notes is payable semi-annually in cash in arrears on February 1 and August 1 of each year, beginning onAugust 1, 2016, at a rate of 5.50% per year. The 2021 Notes mature on February 1, 2021 unless earlier converted or repurchased. The 2021 Notes are not redeemable prior to the maturity date, and no sinking fund is provided for the 2021 Notes. The 2021 Notes are convertible at aninitial conversion rate of 58.4454 shares of our common stock per $1,000 principal amount of the 2021 Notes, subject to adjustment under the indenture,which is equal to an initial conversion price of approximately $17.11 per share of our common stock. Upon conversion, the 2021 Notes will be settled inshares of our common stock, together with a cash payment in lieu of delivering any fractional shares. The conversion rate will be subject to adjustment insome events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturitydate, we will increase the conversion rate for a holder who elects to convert its 2021 Notes in connection with such a corporate event in certaincircumstances. These notes are not considered participating securities. If we undergo a "fundamental change" (as defined in the indenture), holders may require that we repurchase for cash all or any portion of their 2021 Notesat a fundamental change repurchase price equal to 100% of the principal amount of the 2021 Notes to be repurchased, plus accrued and unpaid interest to,but excluding, the fundamental change repurchase date. Holders who convert on or after the date that is one year after the last date of original issuance of the 2021 Notes may also be entitled to receive, undercertain circumstances, an interest make-whole payment payable in shares of our common stock. The indenture includes customary terms and covenants, including certain events of default after which the 2021 Notes may be due and payableimmediately. 69 Cash Flows (in thousands): Comparison of the Years Ended December 31, 2016 and 2015 (in thousands) Year Ended Year Ended Period-to- December 31, December 31, Period 2016 2015 Change Net cash used in operating activities $(29,772) $(20,268) $(9,504)Net cash used in investing activities (46,947) (19,137) (27,810)Net cash provided by financing activities 61,163 61,468 (305) Net (decrease) increase in cash and cash equivalents $(15,556) $22,063 $(37,619) Operating Activities For the year ended December 31, 2016, net cash used in operating activities of $29.8 million consisted of a net loss of $16.5 million primarily attributableto changes in fair value of our derivative and warrant liabilities and our spending on research and development programs for KP415, KP201/IR andKP511 and $16.6 million in adjustments for non-cash items, partially offset by $3.3 million in changes in working capital. The adjustments for non-cash items primarily consisted of changes in fair value of our derivative and warrant liabilities of $32.5 million and were partially offset by stock-basedcompensation expense of $6.6 million, a loss on extinguishment of debt of $4.7 million related to the repayment of the term note issued under theDeerfield facility, non-cash interest expense of $2.2 million, amortization of debt issuance costs and debt discount of $1.6 million, and $0.7 millionrelated to the write-off of deferred offering costs, depreciation and amortization and loss on disposal of fixed assets. The changes in working capital werecomprised of $1.1 million related to accounts payable and accrued expenses, $2.0 million related to prepaid expenses and other assets, which includes theimpact of the refund of the $2.4 million user fee for the Apadaz NDA, and $0.2 million related to other long-term liabilities. For the year ended December 31, 2015, net cash used in operating activities of $20.3 million consisted of a net loss of $54.7 million, primarilyattributable to our spending on research and development, offset by $34.3 million in adjustments for non-cash items and increased by $0.1 million ofcash provided by changes in working capital. Adjustments for non-cash items primarily consisted of changes in fair value of our derivative and warrantliabilities of $27.3 million, non-cash interest expense of $2.7 million, stock-based compensation expense of $2.4 million, and amortization of debtissuance costs and debt discount of $1.9 million. Investing Activities For the year ended December 31, 2016, net cash used in investing activities was $46.9 million, which was primarily attributable to purchases ofmarketable securities and long-term investments of $89.8 million, cash restricted for collateral of $1.1 million and purchases of property and equipmentof $0.6 million, partially offset by maturities of marketable securities of $44.6 million. For the year ended December 31, 2015, net cash used in investing activities was $19.1 million, which was attributable to the purchase of marketablesecurities of $19.0 million. Financing Activities For the year ended December 31, 2016, net cash provided by financing activities was $61.2 million. Net cash consisted of (i) $82.8 million in proceeds,net of discounts and commissions, from the issuance of the 2021 Notes, of which we used approximately $18.6 million to repay in full the $15.0 millionprincipal amount, accrued but unpaid interest, a make whole interest payment and a prepayment premium all related to the term note issued under theDeerfield facility and (ii) $0.1 million in proceeds from the exercise of common stock options and warrants; partially offset by payment of $1.9 million ofprincipal on the Deerfield Note, related to capitalized interest that was added to principal, payment of debt issuance costs of $1.0 million and payment of$0.2 million of deferred offering costs and obligations under a capital lease. For the year ended December 31, 2015, net cash provided by financing activities was $61.5 million. Net cash consisted of (i) $59.9 million in proceeds,net of underwriter’s discounts, from our initial public offering, in which we issued and sold 5,090,909 shares of our common stock at a public offeringprice of $11.00 per share in April 2015, and subsequently sold an additional 763,636 shares of our common stock pursuant to the underwriters’ option topurchase additional shares in May 2015, and (ii) proceeds of $4.0 million from the issuance of our Series D-1 convertible redeemable preferred stock inFebruary 2015 and $0.5 million of proceeds related to the exercise of stock options and warrants, offset by payment of deferred offering costs of $0.3million and payment of debt and stock issuance costs of $2.5 million. 70 Comparison of the Years Ended December 31, 2015 and 2014 (in thousands): Year Ended Year Ended Period-to- December 31, December 31, Period 2015 2014 Change Net cash used in operating activities $(20,268) $(14,671) $(5,597)Net cash used in investing activities (19,137) (47) (19,090)Net cash provided by financing activities 61,468 23,004 38,464 Net increase in cash and cash equivalents $22,063 $8,286 $13,777 Operating Activities For the year ended December 31, 2015, net cash used in operating activities of $20.3 million consisted of a net loss of $54.7 million, primarilyattributable to changes in fair value of our derivative and warrant liabilities and our spending on research and development, offset by $34.3 million inadjustments for non-cash items and increased by $0.1 million of cash provided by changes in working capital. Adjustments for non-cash items primarilyconsisted of changes in fair value of our derivative and warrant liabilities of $27.3 million, non-cash interest expense of $2.7 million, stock-basedcompensation expense of $2.4 million, and amortization of debt issuance costs and debt discount of $1.9 million. For the year ended December 31, 2014, net cash used in operating activities of $14.7 million consisted of a net loss of $24.5 million, primarilyattributable to our spending on research and development, offset by $8.3 million in adjustments for non-cash items and $1.5 million of cash provided bychanges in working capital. Adjustments for non-cash items primarily consisted of changes in fair value of our derivative and warrant liabilities of $7.2million, non-cash interest expense of $1.6 million, amortization of debt issuance costs and debt discount of $1.1 million and stock-based compensationexpense of $0.2 million, partially offset by a $1.9 million gain on extinguishment of debt. Investing Activities For the year ended December 31, 2015, net cash used in investing activities was $19.1 million, which was primarily attributable to the purchase ofmarketable securities of $19.0 million. For the year ended December 31, 2014, net cash used in investing activities was $47,000, which was attributable to the purchase of property andequipment. Financing Activities For the year ended December 31, 2015, net cash provided by financing activities was $61.5 million. Net cash consisted of (i) $59.9 million in proceeds,net of underwriter's discounts, from our initial public offering, in which we issued and sold 5,090,909 shares of our common stock at a public offeringprice of $11.00 per share in April 2015, and subsequently sold an additional 763,636 shares of our common stock pursuant to the underwriters' option topurchase additional shares in May 2015, and (ii) proceeds of $4.0 million from the issuance of our Series D-1 convertible redeemable preferred stock inFebruary 2015 and $0.5 million of proceeds related to the exercise of stock options and warrants, offset by payment of deferred offering costs of $0.3million and payment of debt and stock issuance costs of $2.5 million. For the year ended December 31, 2014, net cash provided by financing activities consisted of $25.0 million in proceeds from the issuance of a $15.0million term note and a $10.0 million senior secured convertible promissory note under the Deerfield facility. These amounts were partially offset by $1.8million in payments of deferred offering costs, $0.2 million in payments of debt issuance costs and $0.1 million in repayments of debt and capital leases. 71 Future Funding Requirements To date, we have not generated any revenue. We do not know when, or if, we will generate any revenue. We do not expect to generate significant revenueunless and until we obtain regulatory approval of and commercialize one of our product candidates. In addition, we expect our expenses to increase inconnection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatoryapproval for, product candidates. We also expect to incur additional costs associated with operating as a public company. In addition, subject toobtaining regulatory approval of product candidates, we expect to incur significant commercialization expenses for product sales, marketing,manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. Based upon our current operating plan, we believe that our existing cash and cash equivalents, restricted cash, marketable securities and long-terminvestments will enable us to fund our operating expenses and capital expenditure requirements through the second quarter of 2019. We have based ourestimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. To meet anyadditional cash requirements, we may seek to sell additional equity or convertible securities that may result in dilution to our stockholders. Because ofthe numerous risks and uncertainties associated with the development and commercialization of product candidates, we are unable to estimate theamounts of increased capital outlays and operating expenditures necessary to complete the development of any of our product candidates. Our future capital requirements will depend on many factors, including: ●the progress and results of our preclinical studies, clinical trials and other product development and commercialization activities; ●the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates; ●the ability to obtain abuse-deterrent claims in the labels for our product candidates; ●the number and development requirements of other product candidates that we may pursue; ●the costs, timing and outcome of regulatory review of our product candidates; ●the efforts necessary to institute post-approval regulatory compliance requirements; ●the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of ourproduct candidates for which we receive marketing approval; ●the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval, which may be affectedby market conditions, including obtaining coverage and adequate reimbursement of our product candidates from third-party payors,including government programs and managed care organizations, and competition within the therapeutic class to which our product candidatesare assigned; ●the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights anddefending any intellectual property-related claims; and ●the extent to which we acquire or in-license other product candidates and technologies. Our commercial revenue, if any, will be derived from sales of prodrug products and we do not currently know when, if ever, any of our product candidateswill be commercially available. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequateadditional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity ordebt securities, the terms of these securities or this debt may restrict our ability to operate. The Deerfield facility includes, and any future debt financingand equity financing, if available, may involve agreements that include, covenants limiting and restricting our ability to take specific actions, such asincurring additional debt, making capital expenditures, entering into profit-sharing or other arrangements or declaring dividends. If we raise additionalfunds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquishvaluable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not befavorable to us. 72 Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules. Critical Accounting Policies and Significant Judgments and Estimates This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we haveprepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us tomake estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dateof our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and judgments on anongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note B to our audited financial statements appearing elsewhere in this AnnualReport on Form 10-K, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in thepreparation of our financial statements and understanding and evaluating our reported financial results. Accrued Expenses We enter into contractual agreements with third-party vendors who provide research and development, manufacturing, and other services in the ordinarycourse of business. Some of these contracts are subject to milestone-based invoicing and services are completed over an extended period of time. Werecord liabilities under these contractual commitments when an obligation has been incurred. This accrual process involves reviewing open contracts andpurchase orders, communicating with our applicable personnel to identify services that have been performed and estimating the level of serviceperformed and the associated cost when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoiceus monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date based on the facts andcircumstances known to us. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.Examples of estimated accrued expenses include: ● fees paid to CROs in connection with preclinical and toxicology studies and clinical trials; ● fees paid to investigative sites in connection with clinical trials; ● fees paid to contract manufacturers in connection with the production of our raw materials, drug substance and productcandidates; and ● professional fees. We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple researchinstitutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary fromcontract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollmentof patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed andthe level of effort expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we will adjustthe accrual accordingly. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of these costs, our actualexpenses could differ from our estimates. Stock-Based Compensation We record the fair value of stock options issued as of the grant date as compensation expense. We recognize compensation expense over the requisiteservice period, which is equal to the vesting period. Stock-based compensation expense has been reported in our statements of operations as follows (inthousands): Year Ended Year Ended Year Ended December 31, December 31, December 31, 2016 2015 2014 Research and development $1,051 $610 $62 General and administrative 3,639 1,759 152 Severance expense 1,910 — — $6,600 $2,369 $214 73 Determination of the Fair Value of Stock-Based Compensation Grants We calculate the fair value of stock-based compensation arrangements using the Black-Scholes option-pricing model. The Black-Scholes option-pricingmodel requires the use of subjective assumptions, including the expected volatility of our common stock, the assumed dividend yield, the expected termof our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and the fair value of the underlyingcommon stock on the date of grant. In applying these assumptions, we considered the following factors: ●we do not have sufficient history to estimate the volatility of our common stock. We calculate expected volatility based on reported data forselected similar publicly traded companies for which the historical information is available. For the purpose of identifying peer companies, weconsider characteristics such as industry, length of trading history, similar vesting terms and in-the-money option status. We plan to continue touse the guideline peer group volatility information until the historical volatility of our common stock is sufficient to measure expected volatilityfor future option grants; ●the assumed dividend yield is based on our expectation of not paying dividends for the foreseeable future; ●we determine the average expected life of “plain vanilla” stock options based on the simplified method in accordance with SEC StaffAccounting Bulletin Nos. 107 and 110, as our common stock to date has been publicly traded for a limited amount of time. We expect to use thesimplified method until we have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. Foroptions that are not considered “plain vanilla,” such as those with exercise prices in excess of the fair market value of the underlying stock, weuse an expected life equal to the contractual term of the option; ●we determine the risk-free interest rate by reference to implied yields available from U.S. Treasury securities with a remaining term equal to theexpected life assumed at the date of grant; and ●we estimate forfeitures based on our historical analysis of actual stock option forfeitures. We account for stock-based compensation arrangements with directors and consultants that contain only service conditions for vesting using a fair valueapproach. The fair value of these options is measured using the Black-Scholes option pricing model reflecting the same assumptions as applied toemployee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. Forconsultant and other non-employee options subject to vesting, the compensation costs of these arrangements are subject to re-measurement over thevesting period. The following summarizes the assumptions used for estimating the fair value of stock options granted to employees for the periods indicated: Year Ended Year Ended Year Ended December 31, December 31, December 31, 2016 2015 2014 Risk-free interest rate 1.29% - 1.50% 1.40% - 1.99% 0.91% - 2.70% Expected term (in years) 5.50 - 6.25 4.33 - 6.25 7.00 - 10.00 Expected volatility 77.38% - 94.78% 68.79% - 86.84% 86.00% - 95.00% Expected dividend yield 0% 0% 0% Based upon the stock price of $2.95 per share, which is the last sale price of our common stock reported on The NASDAQ Global Market as of December31, 2016, the aggregate intrinsic value of outstanding options to purchase shares of our common stock as of December 31, 2016 and 2015, was $26,000and $9.2 million, respectively, of which $26,000 as of December 31, 2016, and $5.1 million as of December 31, 2015, related to vested options and $0 asof December 31, 2016, and $4.1 million as of December 31, 2015, related to unvested options. Determination of Exercise Price of Stock Options and the Fair Value of Common Stock on Grant Dates Prior to Our Initial Public Offering The following table summarizes by grant date the number of shares of common stock subject to stock options granted between January 1, 2014 andMarch 2, 2015, as well as the associated per-share exercise price and the estimated fair value per share of our common stock on the grant date: Number of Estimated Shares Underlying Exercise Price Fair Value Grant Date Options Granted Per Share Per Share January 1, 2014 14,664 $5.85 $3.90 June 2, 2014 13,333 5.85 5.48 June 9, 2014 666 5.85 5.48 June 18, 2014 6,400 5.85 5.48 July 9, 2014 77,199 5.85 5.48 January 20, 2015 8,640 8.63 8.63 March 2, 2015 145,199 8.63 8.63 In setting the exercise price of the stock options at each of the grant dates through July 9, 2014, management and the board of directors used the $5.85per-share pricing of our latest private placement of Series C redeemable convertible preferred stock in 2012 without taking into consideration any of therights and preferences of our redeemable convertible preferred stock over our common stock. Beginning with the January 20, 2015 grant date through theMarch 2, 2015 grant date, management and the board of directors considered a third-party valuation in determining the exercise price of the stockoptions. In 2014, we undertook third-party valuations of the fair value of our common stock as of June 2, 2014, for financial reporting purposes. The estimated fairvalues per share of our common stock in the table above, as determined by the third-party valuations beginning with June 2, 2014 stock option grants,were used to measure the stock-based compensation expense for options granted during these periods. There is inherent uncertainty in these estimates and, if we had made different assumptions than those described, the fair value of the underlying commonstock and amount of our stock-based compensation expense, net loss and net loss per share amounts would have differed. 74 Common Stock Valuation Methodology—Third-Party Valuations In estimating the fair value of our common stock at June 2, 2014 and December 31, 2014, given the absence of a public trading market for our commonstock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company EquitySecurities Issued as Compensation, management and our third-party valuation specialists utilized the probability weighted expected return method, orPWERM, approach to allocate equity value to our common stock. The PWERM approach employs various market, income or cost approach calculationsdepending on the likelihood of various liquidation scenarios. For each of the various scenarios, an equity value is estimated and the rights andpreferences for each class of stock are then considered to allocate the equity value to common stock. The common stock value is then multiplied by adiscount factor reflecting the calculated discount rate and the timing of the event. Lastly, the common share value is multiplied by an estimatedprobability for each scenario. The probability and timing of each scenario are based on discussions between our board of directors and our managementteam. Under the PWERM, the value of our common stock was estimated based on four possible future events for our company: ●an earlier or later initial public offering, or IPO; ●a strategic merger or sale; ●our remaining a private company; and ●the dissolution of our company. We used the market approach in determining the equity value of our business for use in the early and late IPO, strategic merger or sale and remainingprivate scenarios. We used the cost approach to value our net assets available to common stockholders if we were forced to liquidate our assets anddissolve the company. The cost approach involves identifying our significant tangible assets and liabilities, estimating the individual current marketvalues of each and then totaling them to derive the value of the business as a whole. The market approach estimates the fair value of a company by applying market multiples of comparable publicly traded companies and publiclydisclosed data from arm’s-length strategic merger or sale transactions involving similar companies in the marketplace. We reviewed recent precedentbiopharmaceutical IPOs and merger or sale transactions to develop equity value estimates for application at each measurement date. We gaveconsideration to differences between us and the selected guideline public companies in terms of size, anticipated profitability, market size and othercritical characteristics that generally reflect an investor’s assessment of the business and financial risks inherent in our industry. In particular, we gaveconsideration to the fact that we had only one clinical-stage product candidate under development and that the product candidate is a chemicallymodified form of an existing approved drug with potential, but as yet unproven, differentiation. We also considered that this product candidate isintended to compete in a large existing market characterized by intense competition, low generic pricing and a challenging third-party reimbursementenvironment. In addition, we considered the size of the transaction, anticipated debt outstanding at IPO and number of employees as possible valuationproxies when comparing us with the guideline companies. Determination of Exercise Price of Stock Options made at Our Initial Public Offering For the grants made on April 15, 2015, management and the board of directors relied on our initial public offering price to determine the exercise price ofthe stock options. Determination of Exercise Price of Stock Options after Our Initial Public Offering After completion of our initial public offering, management and the board of directors have relied on the closing sale price of our common stock asreported on The NASDAQ Global Market on the date of grant to determine the exercise price of stock options. Fair Value of Financial Instruments We have common stock warrants, put options embedded within those warrants and fundamental change and make-whole interest provisions embeddedwithin our convertible notes that meet the definition of derivative financial instruments and are accounted for as derivatives. The fair value of thesederivatives are based on Monte Carlo simulation models at each reporting period. The derivative liability for the common stock warrants was $4.2 million at December 31, 2016, and $37.6 million at December 31, 2015. The derivativeliability for the put options embedded within the common stock warrants was $0.4 million at December 31, 2016, and $0.2 million at December 31, 2015.The derivative liability for the fundamental change and make-whole interest provisions embedded within our convertible notes was $6,000 at December31, 2016, and had no value at December 31, 2015, as the convertible notes were issued during 2016. A 10% increase in the enterprise value would resultin an increase of $0.5 million in the estimated fair value of the common stock warrants, an increase of $19,000 in the estimated fair value of the putoptions embedded within the common stock warrants, and an increase of $1,000 in the estimated fair value of the fundamental change and make-wholeinterest provisions embedded within our convertible notes at December 31, 2016. Upon exercise of the warrants, we will adjust the associated derivative liability to fair value with any changes recorded in other income (expense). At suchtime, such derivative liability will also be reclassified to additional paid-in capital, and no further revaluations will be necessary. Utilization of Net Operating Loss Carryforwards and Research and Development Credits As of December 31, 2016, we had federal net operating loss, or NOL, carryforwards of approximately $103.4 million with expiration dates from 2027 to2036. We also had research and development credit carryforwards of $3.2 million with expiration dates ranging from 2027 to 2036. In accordance with Section 382 of the Code, a change in equity ownership of greater than 50% within a three-year period results in an annual limitationon a company’s ability to utilize its NOL carryforwards created during the tax periods prior to the change in ownership. We have not determined if wehave experienced Section 382 ownership changes in the past and if a portion of our NOL carryforwards are subject to an annual limitation under Section382 of the Code. If we experience a Section 382 ownership change in connection with our initial public offering, the conversion of our outstandingconvertible debt or as a result of future changes in our stock ownership, the tax benefits related to the NOL carryforwards may be further limited or lost. Emerging Growth Company Status Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as thosestandards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standardsand, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. 75 Recent Accounting Pronouncements On April 5, 2012, President Obama signed the JOBS Act into law. The JOBS Act contains provisions that, among other things, reduce certain reportingrequirements for an emerging growth company. As an emerging growth company, we may elect to adopt new or revised accounting standards when theybecome effective for non-public companies, which typically is later than public companies must adopt the standards. We have elected not to takeadvantage of the extended transition period afforded by the JOBS Act and, as a result, will comply with new or revised accounting standards on therelevant dates on which adoption of such standards is required for non-emerging growth companies. In June 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2014-12, Compensation - StockCompensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be AchievedAfter the Requisite Service Period, or ASU 2014-12. The amendments require that a performance target that affects vesting and that could be achievedafter the requisite service period be treated as a performance condition. ASU 2014-12 is effective for annual periods and interim periods within thoseannual periods beginning after December 15, 2015. Entities may apply ASU 2014-12 either (a) prospectively to all awards granted or modified after theeffective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presentedin the financial statements and to all new or modified awards thereafter. We prospectively adopted ASU 2014-12 effective January 1, 2016. The adoptionof ASU 2014-12 did not have a material impact on our financial statements as we do not have any performance-based awards whereby performance couldbe achieved after the requisite service period. In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, or ASU 2014-15, which amends ASC Subtopic 205-40 to provide guidance about management's responsibility to evaluate whether there is substantial doubt about anentity's ability to continue as a going concern and to provide related disclosures. Specifically, the amendments (1) provide a definition of the term"substantial doubt", (2) require an evaluation every reporting period, (3) provide principles for considering the mitigating effect of management's plans,(4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans, (5) require an express statement andother disclosures when substantial doubt is not alleviated and (6) require an assessment for a period of one year after the date that financial statements areissued. ASU 2014-15 is effective for fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption ofASU 2014-15 did not have a material impact on our financial statements as we determined there was no substantial doubt about its ability to continue as agoing concern as of December 31, 2016. In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20); Simplifying IncomeStatement Presentation by Eliminating the Concept of Extraordinary Items, or ASU 2015-01, which eliminates from GAAP the concept of extraordinaryitems, stating that the concept causes uncertainty because (1) it is unclear when an item should be considered both unusual and infrequent and (2) usersdo not find the classification and presentation necessary to identify those events and transactions. ASU 2015-01 is effective for fiscal years, and interimperiods within those fiscal years, beginning after December 15, 2015. We adopted ASU 2015-01 effective January 1, 2016. The adoption of ASU 2015-01did not have a material impact on our financial statements as we had no extraordinary and/or unusual items recorded in prior periods. In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), or ASU 2015-03, which requires the debt issuance costsrelated to a recognized debt liability be presented in the balance sheet as direct deduction from the carrying amount of that debt liability, consistent withthe presentation of debt discounts. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, andinterim periods within those fiscal years. The adoption of ASU 2015-03 reduced our assets and liabilities by the amount of the debt issuance costs, whichwas $1.1 million at December 31, 2015. This reclassification had no effect on reported net loss or cash flows. In May 2014, the FASB issued guidance codified in ASC Topic 606, Revenue Recognition - Revenue from Contracts with Customers, which amends theguidance in former ASC 605, Revenue Recognition, and becomes effective beginning January 1, 2018. We do not currently expect this standard to have amaterial effect on its financial statements upon adoption since we are not generating revenue at this time. In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes (Topic 740), or ASU 2015-17, whichrequires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This update applies to all entitiesthat present a classified statement of financial position. This guidance is effective for financial statements issued for fiscal years beginning after December15, 2016, and interim periods within those fiscal years. We do not currently expect this standard to have a material effect on our financial statements anddisclosures upon adoption since we currently maintain a full valuation allowance. In January 2016, the FASB issued ASU 2016-01, Financial Instruments Overall - Recognition and Measurement of Financial Assets and Liabilities(Topic 825-10), or ASU 2016-01, which provides several updates related to Topic 825-10. This update applies to all entities that hold financial assets orowe financial liabilities. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periodswithin those fiscal years. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its financial statements and disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), or ASU 2016-02, which requires lessees to recognize assets and liabilities foroperating leases with lease terms greater than twelve months in the balance sheet. The update also requires improved disclosures to help users of financialstatements better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginningafter December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of theadoption of ASU 2016-02 on our financial statements and disclosures. In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815), Contingent Put and Call Options in Debt Instruments, or ASU2016-06, which clarifies the requirements for assessing whether contingent call and put options that can accelerate the payment of principal on debtinstruments are clearly and closely related to their debt hosts. ASU 2016-06 is effective for fiscal years beginning after December 15, 2016, includinginterim periods within those fiscal years, with early adoption permitted. We do not currently expect this standard to have a material effect on our financialstatements and disclosures upon adoption. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based PaymentAccounting, or ASU 2016-09, which simplifies several aspects of the accounting for stock-based payment transactions, including the income taxconsequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscalyears beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. We do not currently expectthis standard to have a material effect on our financial statements and disclosures upon adoption. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230), orASU 2016-15, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This update applies to allentities that are required to present a statement of cash flows under Topic 230. This guidance is effective for financial statements issued for fiscal yearsbeginning after December 15, 2017, and interim periods within those fiscal years. We are currently evaluating the impact of the adoption of ASU 2016-15on our financial statements and disclosures. In November 2016, the FASB issued ASU 2016-18, Statements of Cash Flows (Topic 320) - Restricted Cash, or ASU 2016-18, which addresses thetreatment of restricted cash and restricted cash equivalents in the statement of cash flows. This update applies to all entities that have restricted cash orrestricted cash equivalents and are required to present a statement of cash flows. This guidance is effective for financial statements issued for fiscal yearsbeginning after December 15, 2017, and interim periods within those fiscal years. We are currently evaluating the impact of the adoption of ASU 2016-15on our financial statements and disclosures. 76 ITEM7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this item are set forth beginning in Item 15 of this report and are incorporated herein by reference. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM9A.CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure thatinformation required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allowtimely decisions regarding required disclosure. Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controlsand procedures as of December 31, 2016. Based on the evaluation of our disclosure controls and procedures as of December 31, 2016, our chief executiveofficer and our chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurancelevel. Management’s Report on Internal Control over Financial Reporting Internal control over financial reporting refers to the process designed by, or under the supervision of, our chief executive officer and chief financialofficer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includesthose policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions anddispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizationsof our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the company's assets that could have a material effect on the financial statements. Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(e) under the Exchange Act. Under the supervision and with the participation of our management, including our chief executive officerand chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has used theframework set forth in the report entitled "Internal Control – Integrated Framework (2013)" published by the Committee of Sponsoring Organizations ofthe Treadway Commission to evaluate the effectiveness of our internal control over financial reporting. Based on its evaluation, management hasconcluded that our internal control over financial reporting was effective as of December 31, 2016, the end of our most recent fiscal year. Our independent registered public accounting firm has not performed an evaluation of our internal control over financial reporting during any period inaccordance with the provisions of the Sarbanes-Oxley Act. For as long as we remain an "emerging growth company"​ as defined in the JOBS Act, we intendto take advantage of the exemption permitting us not to comply with the requirement that our independent registered public accounting firm provide anattestation on the effectiveness of our internal control over financial reporting. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting. Inherent Limitations on Effectiveness of Controls Our management, including our chief executive officer and our chief financial officer, believes that our disclosure controls and procedures and internalcontrol over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurancelevel. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will preventall errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgmentsin decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by theindividual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls alsois based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achievingits stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree ofcompliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to erroror fraud may occur and not be detected. ITEM9B.OTHER INFORMATION None. 77 PART III ITEM10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this Item 10 will be set forth under the headings “Proposal 1 - Election of Directors,” “Executive Officers,” “InformationRegarding the Board of Directors and Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxystatement for our 2017 annual meeting of stockholders, or the proxy statement, and, is incorporated herein by reference. We have adopted a Code of Business Conduct and Ethics, or the Code of Conduct, applicable to all of our employees, executive officers and directors.The Code of Conduct is available on our website at www.kempharm.com. The nominating and corporate governance committee of our board of directorsis responsible for overseeing the Code of Conduct and must approve any waivers of the Code of Conduct for employees, executive officers and directors.We intend to post any amendments to the Code of Conduct or any waivers of its requirements on our website. ITEM11.EXECUTIVE COMPENSATION The information required by this Item 11 will be set forth under the headings “Executive Compensation” and “Information Regarding the Board ofDirectors and Corporate Governance” in our proxy statement and is incorporated herein by reference. ITEM12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information required by this Item 12 will be set forth under the headings “Security Ownership of Certain Beneficial Owners and Management” and“Securities Authorized for Issuance under the Equity Compensation Plans” in the proxy statement and is incorporated herein by reference. ITEM13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item 13 will be set forth under the headings “Information Regarding the Board of Directors and Corporate Governance”and “Transactions with Related Persons” in the proxy statement and is incorporated herein by reference. ITEM14.PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item 14 will be set forth under the headings “Proposal 2 - Ratification of Selection of Independent Registered PublicAccounting Firm” in the proxy statement and is incorporated herein by reference. 78 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: (1) Index list to Financial Statements: Page Report of Independent Registered Public Accounting Firm 80 Balance Sheets as of December 31, 2016 and 2015 81 Statements of Operations for the years ended December 31, 2016, 2015 and 2014 82 Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit forthe years ended December 31, 2016, 2015 and 2014 83 Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 84 Notes to Financial Statements 85 (2) Financial Statement Schedules All other schedules are omitted because they are not required or the required information is included in the financial statements or notesthereto. (3) Exhibits The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this report. 79 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of KemPharm, Inc. We have audited the accompanying balance sheets of KemPharm, Inc. as of December 31, 2016 and 2015, and the related statements of operations,changes in redeemable convertible preferred stock and stockholders' deficit and cash flows for each of the three years in the period ended December 31,2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were notengaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control overfinancial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for ouropinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of KemPharm, Inc. at December 31,2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity withU.S. generally accepted accounting principles. As discussed in Note A to the financial statements, the Company changed its presentation of debt issuance costs as a result of the adoption of FASBAccounting Standards Update 2015-03, Interest- Imputation of Interest (Subtopic 835-30), effective January 1, 2016. /s/ Ernst & Young LLPCertified Public Accountants Tampa, FloridaMarch 10, 2017 80 KEMPHARM, INC.BALANCE SHEETS(in thousands, except share and par value amounts) December 31, 2016 2015 Assets Current assets: Cash and cash equivalents $16,762 $32,318 Restricted cash 1,100 — Marketable securities 51,003 19,002 Trade date receivables 5,003 — Prepaid expenses and other current assets 489 2,758 Total current assets 74,357 54,078 Property and equipment, net 1,970 403 Long-term investments 8,200 — Other long-term assets 360 109 Total assets $84,887 $54,590 Liabilities and stockholders’ deficit Current liabilities: Accounts payable and accrued expenses $6,444 $4,906 Current portion of convertible notes — 1,369 Current portion of term notes — 2,041 Current portion of capital lease obligation 157 26 Other current liabilities 41 — Total current liabilities 6,642 8,342 Convertible notes, net 91,170 7,412 Term notes, net — 11,118 Derivative and warrant liability 4,618 37,839 Other long-term liabilities 1,153 — Total liabilities 103,583 64,711 Commitments and contingencies (Note G) Stockholders' deficit: Common stock, $0.0001 par value, 250,000,000 shares authorized, 14,646,982 shares issued andoutstanding as of December 31, 2016; 14,490,954 shares issued and outstanding as of December 31,2015 1 1 Additional paid-in capital 102,643 94,702 Preferred stock, $0.0001 par value, 10,000,000 shares authorized, no shares issued or outstanding as ofDecember 31, 2016 or December 31, 2015 — — Accumulated deficit (121,340) (104,824)Total stockholders' deficit (18,696) (10,121)Total liabilities and stockholders' deficit $84,887 $54,590 See accompanying notes to financial statements 81 KEMPHARM, INC.STATEMENTS OF OPERATIONS(in thousands, except share and per share amounts) Year ended December 31, 2016 2015 2014 Revenue $— $— $— Operating expenses: Research and development 20,472 13,931 11,917 General and administrative 14,000 8,883 4,526 Severance expense 3,010 — — Total operating expenses 37,482 22,814 16,443 Loss from operations (37,482) (22,814) (16,443)Other income (expense): (Loss) gain on extinguishment of debt (4,740) — 1,900 Interest expense related to amortization of debt issuance costs and discount (1,616) (1,909) (1,114)Interest expense on principal (5,511) (2,671) (1,605)Fair value adjustment 32,465 (27,276) (7,223) Interest and other income 353 32 8 Total other income (expense) 20,951 (31,824) (8,034)Loss before income taxes (16,531) (54,638) (24,477)Income tax benefit (expense) 15 (26) 22 Net loss $(16,516) $(54,664) $(24,455) Net loss per share: Basic and diluted $(1.13) $(7.42) $(10.27) Weighted average common shares outstanding: Basic and diluted 14,597,053 7,368,681 2,381,041 See accompanying notes to financial statements 82 KEMPHARM, INC.STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT(in thousands) Redeemable Convertible Preferred Stock Additional Total Series Common Paid-in Preferred Accumulated Stockholders' A B C D D-1 Total Stock Capital Stock Deficit Equity Balance as ofJanuary 1, 2014 $3,343 $3,313 $11,892 $— $— $18,548 $1,438 $— $— $(25,705) $(24,267)Net loss — — — — — — — — — (24,455) (24,455)Stock-basedcompensationexpense — — — — — — — 214 — — 214 Change in parvalue — — — — — — (1,438) 1,438 — — — Conversionof 2013convertiblenotes intoSeries Dpreferredstock — — — 4,159 — 4,159 — — — — — Issuance ofSeries Dpreferredstock asfinancing fee — — — 1,500 — 1,500 — — — — — Balance as ofDecember 31,2014 $3,343 $3,313 $11,892 $5,659 $— $24,207 $— $1,652 $— $(50,160) $(48,508)Net loss — — — — — — — — — (54,664) (54,664)Stock-basedcompensationexpense — — — — — — — 2,369 — — 2,369 Exercise ofstock optionsand warrants — — — — — — — 4,749 — — 4,749 Issuance ofSeries D-1preferredstock — — — — 4,000 4,000 — — — — — Issuance ofcommonstock inconnectionwith IPO, netof discountsandcommissions — — — — — — 1 59,891 — — 59,892 Conversionof 2013warrants toequityclassification — — — — — — — 1,110 — — 1,110 Conversionof preferredstock intocommonstock uponIPO (3,343) (3,313) (11,892) (5,659) (4,000) (28,207) — 28,207 — — 28,207 Offeringexpensescharged toequity — — — — — — — (3,276) — — (3,276) Balance as ofDecember 31,2015 $— $— $— $— $— $— $1 $94,702 $— $(104,824) $(10,121)Net loss — — — — — — — — — (16,516) (16,516)Stock-basedcompensationexpense — — — — — — — 6,600 — — 6,600 Exercise ofstock optionsand warrants — — — — — — — 896 — — 896 Write-off ofdeferredoffering costs — — — — — — — 445 — — 445 Balance as ofDecember 31,2016 $— $— $— $— $— $— $1 $102,643 $— $(121,340) $(18,696) See accompanying notes to financial statements 83 KEMPHARM, INC.STATEMENTS OF CASH FLOWS(in thousands) Year ended December 31, 2016 2015 2014 Cash flows from operating activities: Net loss $(16,516) $(54,664) $(24,455)Adjustments to reconcile net loss to net cash used in operating activities: Loss (gain) on extinguishment of debt 4,740 — (1,900)Write-off of deferred offering costs 445 — — Stock-based compensation expense 6,600 2,369 214 Non-cash interest expense 2,222 2,671 1,602 Amortization of debt issuance costs and debt discount 1,616 1,909 1,114 Depreciation and amortization expense 175 84 75 Fair value adjustment (32,465) 27,276 7,223 Loss on disposal of fixed assets 91 — — Change in assets and liabilities: Prepaid expenses and other assets 2,018 (1,228) 523 Accounts payable and accrued expenses 1,118 1,315 933 Other long-term liabilities 184 — — Net cash used in operating activities (29,772) (20,268) (14,671) Cash flows from investing activities: Purchases of property and equipment (643) (135) (47) Restricted cash for collateral (1,100) — — Purchases of marketable securities and long-term investments (89,849) (19,002) — Maturities of marketable securities and long-term investments 44,645 — — Net cash used in investing activities (46,947) (19,137) (47) Cash flows from financing activities: Proceeds from issuance of debt, net of discounts and commissions 82,800 — 25,000 Repayment of term notes and related accrued interest (18,621) — — Payment of principal on convertible notes arising from capitalized interest (1,931) — — Payment of deferred offering costs (164) (315) (1,767) Payment of debt and stock issuance costs (983) (2,533) (163)Repayment of obligations under capital lease (79) (32) (31) Proceeds from exercise of common stock options and warrants 141 413 — Proceeds from issuance of Series D-1 redeemable convertible preferred stock — 4,000 — Proceeds from initial public offering, net of discounts and commissions — 59,892 — Proceeds from exercise of Series D preferrred stock warrants — 43 Repayment of line of credit — — (35) Net cash provided by financing activities 61,163 61,468 23,004 Net (decrease) increase in cash and cash equivalents (15,556) 22,063 8,286 Cash and cash equivalents, beginning of year 32,318 10,255 1,969 Cash and cash equivalents, end of year $16,762 $32,318 $10,255 Supplemental cash flow information: Cash paid for interest $3,289 $— $3 Transfer of warrants to equity upon exercise 755 4,293 — Fixed assets included in accounts payable and accrued expenses 281 — — Deferred offering costs included in accounts payable and accrued expenses 85 428 315 Fixed assets financed under a capital lease agreement 867 — — Trade date receivables 5,003 — — Unpaid offering costs charged to equity — 3,276 — Conversion of preferred stock into common stock upon initial public offering — 28,207 — Reclassification of 2013 warrants to equity — 1,110 — Embedded put option on Deerfield warrant — — 220 Issuance of Series D preferred stock as transaction fee — — 1,500 Conversion of 2013 convertible notes and interest into Series D preferred stock — — 4,159 Issuance of 2013 warrants and Deerfield warrant — — 7,610 See accompanying notes to financial statements 84 KEMPHARM, INC.NOTES TO FINANCIAL STATEMENTS A.Description of Business and Basis of Presentation KemPharm, Inc. (the “Company”) is a clinical-stage specialty pharmaceutical company engaged in the discovery and development of proprietaryprodrugs. Through the use of its Ligand Activated Therapy (“LAT”) platform technology, the Company is able to initiate and pursue the development ofimproved versions of widely prescribed, approved drugs. The Company was formed on October 30, 2006, and incorporated in Iowa, and reorganized inDelaware on May 30, 2014. The Company has experienced recurring losses from operations and negative operating cash flows due to its ongoing research and development of itspotential product candidates. The Company also has an accumulated deficit at December 31, 2016. Various internal and external factors will affectwhether and when the candidates become approved drugs and how significant their market share will be. The length of time and cost of developing andcommercializing these candidates and/or failure of them at any stage of the drug approval process will materially affect the Company’s financialcondition and future operations. Reverse Stock Split On April 2, 2015, the Company effected a 1-for-7.5 reverse stock split of its issued common stock. All applicable share data, per share amounts and relatedinformation in the financial statements and notes thereto have been adjusted retroactively to give effect to the 1-for-7.5 reverse stock split. Initial Public Offering In April 2015, the Company completed an initial public offering (“IPO”) of its common stock. In connection with the initial closing of the IPO, theCompany sold an aggregate of 5,090,909 shares of common stock at a price to the public of $11.00 per share. In May 2015, the underwriters in the IPOexercised their option to purchase additional shares pursuant to which the Company sold an additional 763,636 shares of common stock at a price equalto the public price of $11.00 per share. In the aggregate, net proceeds from the IPO, including net proceeds from the underwriters’ exercise of their optionto purchase additional shares, were $59.9 million, after deducting underwriting discounts and commissions of $4.5 million. In addition, offering expensestotaled $2.8 million. Upon completion of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock were converted orreclassified into 5,980,564 shares of common stock and all outstanding warrants to acquire shares of the Company’s redeemable convertible preferredstock became warrants to acquire the Company’s common stock. In connection with the IPO, the Company amended and restated its Amended andRestated Certificate of Incorporation to change the authorized capital stock to 250,000,000 shares, designated as common stock, and 10,000,000 shares,designated as preferred stock, each with a par value of $0.0001 per share. Entry into ATM Agreement On October 3, 2016, the Company entered into a Common Stock Sales Agreement (the “ATM Agreement”) with Cowen and Company (“Cowen”) underwhich the Company may offer and sell, from time to time, in its sole discretion, shares of common stock having an aggregate offering price of up to$50,000,000 through Cowen as the Company's sales agent. The registration statement on Form S-3 included a prospectus covering the offering up to$20,000,000 of shares of common stock in accordance with the ATM Agreement. The Company’s registration statement on Form S-3 contemplated under the ATM Agreement was declared effective by the SEC on October 17, 2016. Cowen may sell common stock under the ATM Agreement by any method permitted by law deemed to be an “at the market offering” as defined in Rule415 of the Securities Act, including without limitation sales made by means of ordinary brokers’ transactions on The NASDAQ Global Market orotherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise directed by the Company. Cowen will use commerciallyreasonable efforts to sell the common stock from time to time, based upon instructions from the Company (including any price, time or size limits or othercustomary parameters or conditions the Company may impose). The Company will pay Cowen a commission of up to three percent (3.0%) of the grosssales proceeds of any common stock sold through Cowen under the ATM Agreement, and also has provided Cowen with customary indemnificationrights. The Company is not obligated to make any sales of common stock under the ATM Agreement. The offering of shares of common stock pursuant tothe ATM Agreement will terminate upon the earlier of (i) the sale of all common stock subject to the ATM Agreement, or (ii) termination of the ATMAgreement in accordance with its terms. As of December 31, 2016, the Company had deferred offering costs recorded within other long-term assets in theamount of $0.2 million. Reclassifications During the first quarter of 2016, the Company adopted Accounting Standards Update (“ASU”) 2015-03, Interest – Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which requires the debt issuance costs related to a recognized debt liability be presented in the balance sheet as direct deductionfrom the carrying amount of that debt liability, consistent with the presentation of debt discounts. The adoption of ASU 2015-03 reduced the Company’sassets and liabilities by the amount of the debt issuance costs, which was $1.1 million at December 31, 2015. This reclassification had no effect onreported net loss or cash flows. 85 B.Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requiresthe Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual resultscould differ from those estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the useful lives of property and equipment, and assumptions usedfor purposes of determining stock-based compensation, income taxes, and the fair value of the derivative and warrant liability, among others. TheCompany bases its estimates on historical experience and on various other assumptions that it believes to be reasonable, the results of which form thebasis for making judgments about the carrying value of assets and liabilities. Concentration of Credit Risk Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash on deposit with multiple financialinstitutions, the balances of which frequently exceed insured limits. Cash and Cash Equivalents The Company considers any highly liquid investments with an original maturity of three months or less to be cash equivalents. Marketable Securities and Long-term Investments The Company maintains investment securities that are classified as trading securities. These securities are carried at fair value with unrealized gains andlosses included in other income (expense) on the statements of operations. The securities primarily consist of certificates of deposit, U.S. Treasurysecurities and U.S. government-sponsored agency securities. As of December 31, 2016 and 2015, respectively, the Company held marketable securitiesand long-term investments with an aggregate fair value of $50.4 million and $10.1 million that contained aggregate unrealized losses of $50,000 and$6,000, respectively. These marketable securities and long-term investments have been in a continuous unrealized loss position for less than 12 monthsand the Company expects these investments to fully recovery prior to their maturity. Property and Equipment The Company records property and equipment at cost less accumulated depreciation and amortization. Costs of renewals and improvements that extendthe useful lives of the assets are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is determined on a straight-line basis over theestimated useful lives of the assets, which generally range from three to fifteen years. Leasehold improvements are amortized over the shorter of the usefullife of the asset or the term of the related lease. Upon retirement or disposition of assets, the costs and related accumulated depreciation and amortizationare removed from the accounts with the resulting gains or losses, if any, reflected in results of operations. Debt Issuance Costs Debt issuance costs incurred in connection with financing arrangements are amortized over the life of the respective financing arrangement using theeffective interest method. Supply Arrangements The Company enters into supply arrangements for the supply of components of its product candidates. These arrangements also may include a share offuture revenue if related product candidates reach commercialization. Costs under these supply arrangements, if any, are expensed as incurred (Note H). Impairment of Long-Lived Assets Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of theassets may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected futurecash flows. If the undiscounted cash flows are insufficient to recover the carrying values, an impairment loss is recorded for the difference between thecarrying values and fair values of the asset. No such impairment occurred for the years ended December 31, 2016, 2015 and 2014. 86 Fair Value of Financial Instruments The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair valuemeasurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specificasset or liability. The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well asassets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires theCompany to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers aredefined as follows: ●Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; ●Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace foridentical or similar assets and liabilities; and ●Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. Research and Development Major components of research and development costs include cash compensation, stock-based compensation, depreciation and amortization expense onresearch and development property and equipment, costs of preclinical studies, clinical trials and related clinical manufacturing, costs of drugdevelopment, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants and otherentities that conduct certain research and development activities on the Company’s behalf. Costs incurred in research and development are expensed asincurred. The Company records nonrefundable advance payments it makes for future research and development activities as prepaid expenses. Prepaid expenses arerecognized as expense in the statements of operations as the Company receives the related goods or services. The Company enters into contractual agreements with third-party vendors who provide research and development, manufacturing, and other services inthe ordinary course of business. Some of these contracts are subject to milestone-based invoicing and services are completed over an extended period oftime. The Company records liabilities under these contractual commitments when an obligation has been incurred. This accrual process involvesreviewing open contracts and purchase orders, communicating with the applicable personnel to identify services that have been performed and estimatingthe level of service performed and the associated cost when the Company has not yet been invoiced or otherwise notified of actual cost. The majorityof the service providers invoice the Company monthly in arrears for services performed. The Company makes estimates of the accrued expenses as of eachbalance sheet date based on the facts and circumstances known. The Company periodically confirms the accuracy of the estimates with the serviceproviders and make adjustments if necessary. Patent Costs Patent costs, including related legal costs, are expensed as incurred and recorded within general and administrative expenses on the statements ofoperations. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financialreporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measuredusing the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled.Valuation allowances are recorded to reduce deferred tax assets to the amount the Company believes is more likely than not to be realized. Uncertain tax positions are recognized only when the Company believes it is more likely than not that the tax position will be upheld on examination bythe taxing authorities based on the merits of the position. The Company recognizes interest and penalties, if any, related to unrecognized income taxuncertainties in income tax expense. The Company did not have any accrued interest or penalties associated with uncertain tax positions as of December31, 2016 and 2015. The Company files income tax returns in the United States for federal and various state jurisdictions. With few exceptions, the Company is no longersubject to U.S. federal and state and local income tax examinations for years prior to 2012, although carryforward attributes that were generated prior to2012 may still be adjusted upon examination by the Internal Revenue Service if used in a future period. No income tax returns are currently underexamination by taxing authorities. Stock-Based Compensation The Company measures and recognizes compensation expense for all stock-based payment awards made to employees, officers and directors based on theestimated fair values of the awards as of the grant date. The Company records the value of the portion of the award that is ultimately expected to vest asexpense over the requisite service period. The Company also accounts for equity instruments issued to non-employees using a fair value approach underAccounting Standards Codification ("ASC") subtopic 505-50. The Company values equity instruments and stock options granted using the Black-Scholes option pricing model. The value of non-employee stock-based compensation is subject to periodic adjustments as the underlying equityinstruments vest and is recognized as an expense over the term of the related financing or the period over which services are received. Basic and Diluted Net Loss per Share of Common Stock The Company uses the two-class method to compute net loss per common share because the Company has issued securities, other than common stock,that contractually entitle the holders to participate in dividends and earnings of the Company. The two-class method requires earnings for the period to beallocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings. Holdersof each series of the Company’s redeemable convertible preferred stock are entitled to participate in distributions, when and if declared by the board ofdirectors, that are made to common stockholders and, as a result, are considered participating securities. Segment and Geographic Information Operating segments are defined as components of an enterprise (business activity from which it earns revenue and incurs expenses) for which discretefinancial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessingperformance. The Company’s chief operating decision maker (CODM) is its Chief Executive Officer. The Company views its operations and manages itsbusiness as a single operating and reporting segment. All assets of the Company were held in the United States as of December 31, 2016 and 2015. 87 Application of New or Revised Accounting Standards—Adopted From time to time, the Financial Accounting Standards Board (the “FASB”) or other standard-setting bodies issue accounting standards that are adoptedby the Company as of the specified effective date. On April 5, 2012, President Obama signed the Jump-Start Our Business Startups Act (the “JOBS Act”) into law. The JOBS Act contains provisions that,among other things, reduce certain reporting requirements for an emerging growth company. As an emerging growth company, the Company may elect toadopt new or revised accounting standards when they become effective for non-public companies, which typically is later than public companies mustadopt the standards. The Company has elected not to take advantage of the extended transition period afforded by the JOBS Act and, as a result, willcomply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growthcompanies. In June 2014, the FASB issued ASU 2014-12, Compensation–Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms ofan Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period (“ASU 2014-12”). The amendments require that aperformance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 iseffective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Entities may apply ASU 2014-12 either(a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstandingas of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Companyprospectively adopted ASU 2014-12 effective January 1, 2016. The adoption of ASU 2014-12 did not have a material impact on the financial statementsas the Company does not have any performance-based awards whereby performance could be achieved after the requisite service period. In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which amends ASC Subtopic 205-40 to provide guidance about management’s responsibility to evaluate whether there is substantial doubt aboutan entity’s ability to continue as a going concern and to provide related disclosures. Specifically, the amendments (1) provide a definition of the term“substantial doubt,” (2) require an evaluation every reporting period, (3) provide principles for considering the mitigating effect of management’s plans,(4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement andother disclosures when substantial doubt is not alleviated and (6) require an assessment for a period of one year after the date that financial statements areissued. ASU 2014-15 is effective for fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption ofASU 2014-15 did not have a material impact on the Company’s financial statements as the Company determined there was no substantial doubt about itsability to continue as a going concern as of December 31, 2016. In January 2015, the FASB issued ASU No. 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20); Simplifying IncomeStatement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”), which eliminates from GAAP the concept of extraordinaryitems, stating that the concept causes uncertainty because (1) it is unclear when an item should be considered both unusual and infrequent and (2) usersdo not find the classification and presentation necessary to identify those events and transactions. ASU 2015-01 is effective for fiscal years, and interimperiods within those fiscal years, beginning after December 15, 2015. The Company adopted ASU 2015-01 effective January 1, 2016. The adoption ofASU 2015-01 did not have a material impact on the Company’s financial statements as the Company had no extraordinary and/or unusual items recordedin prior periods. In April 2015, the FASB issued ASU 2015-03, which requires the debt issuance costs related to a recognized debt liability be presented in the balancesheet as direct deduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. This guidance is effective forfinancial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of ASU 2015-03 reduced the Company’s assets and liabilities by the amount of the debt issuance costs, which was $1.1 million at December 31, 2015. Thisreclassification had no effect on reported net loss or cash flows. Application of New or Revised Accounting Standards—Not Yet Adopted In May 2014, the FASB issued guidance codified in ASC Topic 606, Revenue Recognition—Revenue from Contracts with Customers ("ASC 606"), whichamends the guidance in former ASC 605, Revenue Recognition, and becomes effective beginning January 1, 2018. The Company does not currentlyexpect this standard to have a material effect on its financial statements upon adoption since the Company is not generating revenue at this time. In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes (Topic 740) (“ASU 2015-17”), whichrequires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. This update applies to all entitiesthat present a classified statement of financial position. This guidance is effective for financial statements issued for fiscal years beginning after December15, 2016, and interim periods within those fiscal years. The Company does not currently expect this standard to have a material effect on its financialstatements and disclosures upon adoption since the Company currently maintains a full valuation allowance. In January 2016, the FASB issued ASU 2016-01, Financial Instruments Overall – Recognition and Measurement of Financial Assets and Liabilities(Topic 825-10) (“ASU 2016-01”), which provides several updates related to Topic 825-10. This update applies to all entities that hold financial assets orowe financial liabilities. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periodswithin those fiscal years. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its financial statements and disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize assets and liabilities foroperating leases with lease terms greater than twelve months in the balance sheet. The update also requires improved disclosures to help users of financialstatements better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginningafter December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating theimpact of the adoption of ASU 2016-02 on its financial statements and disclosures. In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815), Contingent Put and Call Options in Debt Instruments (“ASU 2016-06”), which clarifies the requirements for assessing whether contingent call and put options that can accelerate the payment of principal on debtinstruments are clearly and closely related to their debt hosts. ASU 2016-06 is effective for fiscal years beginning after December 15, 2016, includinginterim periods within those fiscal years, with early adoption permitted. The Company does not currently expect this standard to have a material effect onits financial statements and disclosures upon adoption. In March 2016, the FASB issued ASU 2016-09, Compensation–Stock Compensation (Topic 718), Improvements to Employee Share-Based PaymentAccounting (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based payment transactions, including the income taxconsequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscalyears beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company does notcurrently expect this standard to have a material effect on its financial statements and disclosures upon adoption. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (Topic 230)(“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This update applies toall entities that are required to present a statement of cash flows under Topic 230. This guidance is effective for financial statements issued for fiscal yearsbeginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption ofASU 2016-15 on its financial statements and disclosures. In November 2016, the FASB issued ASU 2016-18, Statements of Cash Flows (Topic 320) – Restricted Cash (“ASU 2016-15”), which addresses thetreatment of restricted cash and restricted cash equivalents in the statement of cash flows. This update applies to all entities that have restricted cash orrestricted cash equivalents and are required to present a statement of cash flows. This guidance is effective for financial statements issued for fiscal yearsbeginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption ofASU 2016-15 on its financial statements and disclosures. 88 C.Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands): December 31, 2016 2015 Prepaid insurance $333 $290 Other receivables 58 2,375 Other prepaid expenses and current assets 98 93 Total $489 $2,758 D.Property and Equipment Property and equipment consists of the following (in thousands): December 31, 2016 2015 Laboratory equipment $842 $530 Furniture and office equipment 733 169 Computers and hardware 231 176 Leasehold improvements 769 6 Total property and equipment 2,575 881 Less: accumulated depreciation and amortization (605) (478)Property and equipment, net $1,970 $403 The Company leases various equipment and leasehold improvements under capital lease agreements. The assets under capital leases are included inproperty and equipment as follows (in thousands): December 31, 2016 2015 Laboratory equipment $271 $— Furniture and office equipment 537 94 Leasehold improvements 59 — Total property and equipment financed under a capital lease agreement 867 94 Less: accumulated depreciation and amortization (31) (22)Property and equipment financed under a capital lease agreement, net $836 $72 The estimated useful lives of property and equipment are as follows: Useful Life Asset Category (in years) Laboratory equipment 10 Furniture and office equipment 5 - 10 Computers and hardware 3 - 7 Leasehold improvements 9 Depreciation and amortization expense, including amounts pertaining to assets held under capital leases, was approximately $175,000, $84,000and $75,000 for the years ended December 31, 2016, 2015 and 2014, respectively. 89 E.Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following (in thousands): December 31, December 31, 2016 2015 Accrued interest $2,222 $698 Accrued banking fees 700 700 Accrued severance 646 — Accrued payroll 1,024 947 Accounts payable 469 1,252 Other accrued expenses 1,383 1,309 Total $6,444 $4,906 F.Debt Obligations Deerfield Facility Agreement On June 2, 2014, the Company entered into a $60 million facility agreement (the “Deerfield Facility Agreement”) with Deerfield Private Design Fund III,LP (“Deerfield”). The first payment to the Company under the terms of the Deerfield Facility Agreement consisted of a term loan of $15 million (the“Term Notes”) and a senior secured loan of $10 million (the “Deerfield Convertible Notes”). Deerfield is no longer obligated to provide the Company anyadditional disbursements under the Deerfield Facility Agreement. All loans issued under the Deerfield Facility Agreement bear interest at 9.75% perannum. Deerfield may convert any portion of the outstanding principal and any accrued but unpaid interest on the Deerfield Convertible Notes intoshares of the Company’s common stock at an initial conversion price of $5.85 per share. The Company also issued to Deerfield a warrant to purchase 14,423,076 shares of Series D redeemable convertible preferred stock (“Series D Preferred”) atan exercise price of $0.78 per share, which is exercisable until June 2, 2024 (the “Deerfield Warrant”). Upon completion of the IPO, the Deerfield Warrantautomatically converted into a warrant to purchase 1,923,077 shares of the Company’s common stock at an exercise price of $5.85 per share. This warrantqualifies as a participating security under ASC Topic 260, Earnings per Share, and is treated as such in the earnings per share calculation (Note I). In theevent that a Major Transaction occurs, as defined below, Deerfield may require the Company to redeem the Deerfield Warrant for a cash amount equal tothe Black-Scholes value of the portion of the Deerfield Warrant to be redeemed (the “Put Option”). A Major Transaction is (i) a consolidation, merger,exchange of shares, recapitalization, reorganization, business combination or other similar event; (ii) the sale or transfer in one transaction or a series ofrelated transactions of all or substantially all of the assets of the Company; (iii) a third-party purchase, tender or exchange offer made to the holders ofoutstanding shares, such that following such purchase, tender or exchange offer a change of control has occurred; (iv) the liquidation, bankruptcy,insolvency, dissolution or winding-up affecting the Company; (v) the shares of the Company’s common stock cease to be listed on any eligible market;and (vi) at any time, the shares of the Company’s common stock cease to be registered under Section 12 of the Securities Exchange Act of 1934, asamended (the “Exchange Act”). In addition, the Company issued to Deerfield 1,923,077 shares of Series D Preferred as consideration for the loans provided to the Company under theDeerfield Facility Agreement. Upon completion of the IPO, these shares automatically reclassified into 256,410 shares of the Company’s common stock.The Company recorded the fair value of the shares of Series D Preferred of $1.5 million, to debt issuance costs on the date of issuance. The Companyrecorded the fair value of the Deerfield Warrant and the embedded Put Option to debt discount on the date of issuance. The debt issuance costs and debtdiscount are amortized over the term of the related debt and the expense is recorded as interest expense in the statements of operations. Pursuant to the Deerfield Facility Agreement, the Company may not enter into specified transactions, including a debt financing in the aggregate value of$750,000 or more, a merger, an asset sale or any other change of control transaction or any joint venture, partnership or other profit sharing arrangement,without the prior approval of Deerfield. Additionally, if the Company were to enter into a major transaction, including a merger, consolidation, sale ofsubstantially all of its assets or other change of control transaction, Deerfield would have the ability to demand that prior to consummation of suchtransaction the Company repay all outstanding principal and accrued interest of any notes issued under the Deerfield Facility Agreement. Under the termsof the Deerfield Warrant, Deerfield has the right to demand that we redeem the warrant for a cash amount equal to the Black-Scholes value of a portion ofthe Deerfield Warrant upon the occurrence of specified events, including a merger, an asset sale or any other change of control transaction. The Company must repay one-third of the outstanding principal amount of all debt issued under the Deerfield Facility Agreement on the fourth and fifthanniversaries of the Deerfield Facility Agreement. The Company is then also obligated to repay the balance of the outstanding principal amount onFebruary 14, 2020. The Company prepaid all outstanding interest and principal on the Term Notes in February 2016. Interest accrued on outstanding debt under the Deerfield Facility Agreement is due quarterly in arrears. Upon notice to Deerfield, the Company maychoose to have one or more of the first eight of such scheduled interest payments added to the outstanding principal amount of the debt issued under theDeerfield Facility Agreement, provided that all such interest was due on July 1, 2016. The Company elected this option on all eight of the scheduledinterest payments through June 30, 2016. The accrued interest added to outstanding principal, was paid to Deerfield on July 1, 2016. This accrued interestadded to outstanding principal, is reflected as a cash outflow from financing activities in the statement of cash flows. 90 Second Amendment to Senior Secured Convertible Note and Warrant On January 6, 2016, the Company entered into a Second Amendment (the “Second Amendment”) to the Deerfield Convertible Notes and DeerfieldWarrant, by and between the Company and Deerfield. The Second Amendment, among other things, clarified the calculation of an anti-dilutionadjustment of the conversion price and exercise price of the Deerfield Convertible Notes and Deerfield Warrant, respectively, in the event that theCompany effects a firm commitment underwritten public offering of its securities. Except as modified by the Second Amendment, the Third Amendment(as described below) and the Fourth Amendment (as described below), all terms and conditions of the Deerfield Convertible Notes and Deerfield Warrantremain in full force and effect. Issuance of 5.50% Senior Convertible Notes and Third Amendment to Senior Secured Convertible Note and Warrant On February 9, 2016, the Company issued $86.25 million aggregate principal amount of its 5.50% Senior Convertible Notes due 2021 (the “2021 Notes”)to Cowen and Company, LLC and RBC Capital Markets, LLC., as representatives of the several initial purchasers (the “Initial Purchasers”), whosubsequently resold the 2021 Notes to qualified institutional buyers (the “Note Offering”) in reliance on the exemption from registration provided byRule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the Note Offering were approximately $82.8 million, after deducting the Initial Purchasers’ discount and estimated offeringexpenses. Concurrent with the Note Offering, the Company used approximately $18.6 million of the net proceeds from the Note Offering to repay in fullthe Term Notes, plus all accrued but unpaid interest, a make-whole interest payment and a prepayment premium on the Term Notes. This principal,accrued but unpaid interest, make-whole interest payment and prepayment premium on the Term Notes is reflected as a cash outflow from financingactivities in the statement of cash flows. The 2021 Notes were issued pursuant to an Indenture, dated as of February 9, 2016 (the “Indenture”), between the Company and U.S. Bank NationalAssociation, as trustee. Interest on the 2021 Notes is payable semi-annually in cash in arrears on February 1 and August 1 of each year, beginning onAugust 1, 2016, at a rate of 5.50% per year. The 2021 Notes mature on February 1, 2021 unless earlier converted or repurchased. The 2021 Notes are notredeemable prior to the maturity date, and no sinking fund is provided for the 2021 Notes. The 2021 Notes are convertible at an initial conversion rate of 58.4454 shares of the Company’s common stock per $1,000 principal amount of the 2021Notes, subject to adjustment under the Indenture, which is equal to an initial conversion price of approximately $17.11 per share of common stock. Uponconversion, the 2021 Notes will be settled in shares of the Company’s common stock, together with a cash payment in lieu of delivering any fractionalshare. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. Inaddition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects toconvert its 2021 Notes in connection with such a corporate event in certain circumstances. If the Company undergoes a “fundamental change” (as defined in the Indenture), holders may require that the Company repurchase for cash all or anyportion of their 2021 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2021 Notes to be repurchased, plusaccrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, holders who convert their 2021 Notes on or after thedate that is one year after the last date of original issuance of the 2021 Notes may also be entitled to receive, under certain circumstances, an interestmake-whole payment payable in shares of the Company’s common stock. The Company is bifurcating the fundamental change and make-whole interestpayment provisions as embedded derivatives and marking them to fair value each reporting period (Note L). The Indenture includes customary terms and covenants, including certain events of default after which the 2021 Notes may be due and payableimmediately. In connection with the Note Offering, on February 3, 2016, the Company entered into a Third Amendment (the “Third Amendment”) to the DeerfieldFacility Agreement, Deerfield Convertible Notes and Deerfield Warrant with Deerfield. The Third Amendment, among other things, eliminated theCompany’s ability to require Deerfield to convert the Deerfield Convertible Notes into Company common stock. In addition, pursuant to the ThirdAmendment, Deerfield consented to the prepayment of the Term Notes and the issuance of the 2021 Notes. Except as modified by the Third Amendmentand the Fourth Amendment (as described below), all terms and conditions of the Deerfield Facility Agreement remain in full force and effect. Fourth Amendment to Deerfield Convertible Notes and Deerfield Warrant In connection with entering into the ATM Agreement, on October 3, 2016, the Company entered into a Fourth Amendment (the “Fourth Amendment”) tothe Deerfield Convertible Note and the Deerfield Warrant, by and between the Company and Deerfield. The Fourth Amendment, among other things,clarifies the calculation of an anti-dilution adjustment of the conversion price and exercise price of the Deerfield Convertible Note and Deerfield Warrant,respectively, in the event that the Company effects an “at the market offering” as defined in Rule 415 of the Securities Act of its common stock. Line of Credit During the second quarter of 2016, the Company opened a line of credit with a total borrowing capacity of $1.1 million with City National Bankof Florida (the "Line of Credit Agreement") to support several irrevocable letters of credit issued by the bank on behalf of the Company. As of December31, 2016 the Company had unused letters of credit in the amount of $0.4 million. The line of credit has a maturity date of January 31, 2018. Asof December 31, 2016, the Company had no outstanding balance under the line of credit. The Line of Credit Agreement is collateralized by a restrictedmoney market account, equal to the total amount of the borrowing capacity under the line of credit, held by the same bank institution. The money marketaccount is reported as restricted cash on the balance sheet. The line of credit contains no financial covenants. Borrowings under the Line of CreditAgreement carry interest at a rate equal to the 1-month London Interbank Offered Rate plus 2.00% per annum. The interest rate under the Line of CreditAgreement was 2.77%, as of December 31, 2016. 91 G.Commitments and Contingencies Legal Matters From time to time, the Company is involved in various legal proceedings arising in the normal course of business. For some matters, a liability is notprobable or the amount cannot be reasonably estimated and, therefore, an accrual has not been made. However, for such matters when it is probable thatthe Company has incurred a liability and can reasonably estimate the amount, the Company accrues and discloses such estimates. As of December 31,2016, no accruals have been made related to commitments and contingencies. As of December 31, 2015, the Company had accrued $20,000 related tocommitments and contingencies. In 2014, a former financial advisor of the Company filed a request with the Iowa District Court to declare valid a purported right of first refusal to serve asthe Company’s exclusive financial advisor for specified strategic transactions and to receive fees for the specified strategic transactions irrespective ofwhether any such specified transaction occurred during or after the term of the financial advisor’s service agreement. This filing by the former financialadvisor was made in response to an action initiated by the Company in 2013 seeking a declaratory judgement finding that such purported right wasinvalid and unenforceable. Two former members of the Company’s board of directors (the “Board”) joined the lawsuit as intervenors based on the formerfinancial advisor’s purported assignment of its rights, or a portion thereof, under the agreement to the intervenors. In September 2015, the court grantedsummary judgement in favor of the Company with respect to the Company’s declaratory judgement action and the former financial advisor’scounterclaims and the Company separately entered into settlement agreements with each of the intervenors. The settlements reached with the intervenorsdid not differ from the accrual previously recorded by the Company by a material amount. The former financial advisor subsequently filed a notice ofappeal of the court’s ruling with the Supreme Court of Iowa. On January 6, 2016, the Company entered into a Settlement Agreement and Mutual Release(the “Settlement Agreement”) with the former financial advisor and Donald DeWaay, Jr. pursuant to which, among other things, the former financialadvisor agreed, in exchange for the consideration described therein, to dismiss with prejudice its pending appeal. DeWaay Financial Network’s appealwas subsequently dismissed by the Supreme Court of Iowa on January 7, 2016. The settlement amount was commensurate with the contingency recordedin the books and records of the Company. The consideration in the settlement agreement did not differ from the accrual previously recorded by theCompany by a material amount. In December 2016, the Company received notice of a class action suit filed against it by a stockholder in the Iowa District Court in Johnson countyalleging that the Company, certain of is senior executives and directors who signed the registration statement in connection with its initial publicoffering, and each of the investment banks that acted as underwriters for the offering negligently issued untrue statements of material facts and omitted tostate material facts required to be stated in the registration statement and incorporated offering materials that the Company filed with the U.S Securitiesand Exchange Commission in support of the offering. The plaintiff does not quantify any alleged damages in his complaint but, in addition to attorneys'fees and costs, the plaintiff seeks to recover damages and obtain other relief on behalf of himself and all other persons who purchased the Company'scommon stock pursuant or traceable to the offering and the registration statement and who were allegedly damaged thereby. In January 2017, the suit was removed to the U.S. District Court for the Southern District of Iowa. The plaintiff has since filed a motion to remand the caseto the Iowa District Court, and that motion is still pending. The suit is still in a preliminary stage and has not yet been set for trial. As such, the Companyunable to predict the timing or outcome of this litigation as of the date of this report. 92 Lease Agreements Iowa The Company leases office and laboratory facilities in Iowa under a non-cancelable operating lease. The Company’s lease for its Iowa facilities expires inSeptember 2017 and includes a renewal option that could extend the lease for successive one year terms upon expiration. Florida The Company leases office space in Florida, comprised of two contiguous office suites, under a non-cancelable operating lease, which expires in August2025 and February 2026, as to each space respectively, and includes the right to extend the term of the lease for two successive five year terms uponexpiration. Virginia The Company leases office and laboratory facilities in Virginia under a non-cancelable operating lease. In February 2017, the Company modified thelease to expand the amount of office space in the current facility. The Company’s lease for its Virginia facilities expires in August 2017. North Carolina The Company leases office space in North Carolina under a non-cancelable operating lease. The expiration date of the Company’s lease is May 2020, andincludes renewal options that could extend the lease for an additional three years. Capital Lease The Company leases various laboratory equipment, furniture and office equipment and leasehold improvements that are accounted for as capital leasesand that require ongoing payments, including interest expense. The capital leases are financed through various financial institutions and arecollateralized by the underlying assets. As of December 31, 2016, the interest rates for assets under remaining capital leases were 7.19% and 8.05%. Rent expense for non-cancelable operating and capital leases was $0.6 million, $0.3 million and $0.2 million for the years ended December 31, 2016,2015 and 2014, respectively. Future minimum lease payments under capital leases and non-cancelable operating leases as of December 31, 2016, were as follows (in thousands): Capital Operating Year Ending December 31, Leases Leases 2017 $214 $555 2018 208 585 2019 208 569 2020 208 499 2021 127 449 Thereafter — 1,836 Total minimum lease payments 965 $4,493 Less: amounts representing interest (152) Total $813 93 H.Supply Arrangement As of December 31, 2016, the Company has one manufacturing arrangement that involves potential future expenditures related to research anddevelopment. In November 2009, the Company entered into a supply agreement (the “Supply Agreement”) with Johnson Matthey Inc. (“JMI”) whereby JMI has agreedto supply the Company with all of the KP201 necessary for clinical trials and commercial sale for a price equal to JMI’s manufacturing cost and toprovide process optimization and development services for KP201. The Company’s product candidate, KP201/IR, contains KP201 and is underdevelopment to treat acute pain. No expense was recorded under this agreement for the years ended December 31, 2016, 2015 and 2014. The Companymust purchase all of its U.S. KP201 needs from JMI and JMI cannot supply KP201 to other companies. The term of the Supply Agreement extends as longas the Company holds a valid and enforceable patent for KP201 or until the tenth anniversary of KP201’s commercial launch, whichever date is later.Upon the expiration of such term, the agreement will automatically renew for a period of two years unless either party provides 12 months prior notice ofits intent not to renew. Under the agreement, JMI will receive a tiered-based royalty share on the net sales on the commercial sale of a FDA approved drugincorporating KP201. No reliable estimate of the future payments can be made at this time. I.Preferred Stock and Warrants Authorized, Issued, and Outstanding Preferred Stock In April 2015, the Company amended and restated its Certificate of Incorporation to decrease the number of its authorized shares of preferred stock to10,000,000 shares with a par value of $0.0001 per share. As described in Note A, in April 2015, the Company completed an IPO of its common stock.Upon completion of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock were automatically converted or reclassifiedinto an aggregate of 5,980,564 shares of the Company’s common stock. As of December 31, 2016, the Company had 10,000,000 shares of authorized andundesignated preferred stock, and did not have any preferred stock outstanding. Preferred Stock Activity The following table summarizes redeemable convertible preferred stock activity for the years ended December 31, 2016, 2015 and 2014: Shares of Series APreferred Series BPreferred Series CPreferred Series DPreferred Series D-1Preferred TotalBalance, January 1, 2014 9,704,215 6,220,000 18,557,408 — — 34,481,623 Shares issued uponconversion of 2013Convertible Notes — — — 5,332,348 — 5,332,348 Shares issued for financingfee to Deerfield — — — 1,923,077 — 1,923,077 Balance, December 31, 2014 9,704,215 6,220,000 18,557,408 7,255,425 — 41,737,048 Issuance of Series D-1preferred stock — — — — 3,200,000 3,200,000 Exercise of Series Dpreferred warrants — — — 3,205 — 3,205 Effect of reverse stock split (8,410,377) (5,390,766) (16,083,286) (6,290,844) (2,784,416) (38,959,689) Less: Conversion ofpreferred stock intocommon stock upon IPO (1,293,838) (829,234) (2,474,122) (967,786) (415,584) (5,980,564) Balance, December 31, 2015 — — — — — — Balance, December 31, 2016 — — — — — — Series D-1 Redeemable Convertible Preferred Stock In February 2015, the Company entered into a stock purchase agreement with Cowen KP Investment LLC in which Cowen KP Investment LLC agreed topurchase and the Company agreed to sell 3,200,000 shares of the Company’s Series D-1 redeemable convertible preferred stock for $1.25 per share, or anaggregate of $4.0 million. Upon completion of the IPO, these shares automatically converted into 415,584 shares of the Company’s common stock. Warrants As described in Note A, in April 2015, the Company completed an IPO of its common stock. Upon completion of the IPO, warrants to purchase15,499,324 shares of Series D preferred stock were reclassified into warrants to purchase 2,066,543 shares of the Company’s common stock. During 2013, the Company issued $3.8 million of convertible notes and the warrants (the “2013 Warrants”) to purchase 1,079,453 shares of equitysecurities in a future financing meeting specified criteria (a “Qualified Financing”). The 2013 Warrants allow the holders to purchase shares of the sameclass and series of equity securities issued in the Qualified Financing for an exercise price equal to the per share price paid by the purchasers of suchequity securities in the Qualified Financing. When the Company entered into the Deerfield Facility Agreement, the 2013 Warrants became warrants topurchase 1,079,453 shares of Series D preferred stock. Upon completion of the IPO, the 2013 Warrants automatically converted into warrants to purchase143,466 shares of the Company’s common stock at an exercise price of $5.85 per share. The 2013 Warrants, if unexercised, expire on the earlier of June 2,2019, or upon a liquidation event. On June 2, 2014, pursuant to the terms of the Deerfield Facility Agreement, the Company issued the Deerfield Warrant to purchase 14,423,076 shares ofSeries D preferred stock (Note F). The Company recorded the fair value of the Deerfield Warrant as a debt discount and a warrant liability. The DeerfieldWarrant, if unexercised, expires on the earlier of June 2, 2024, or upon a liquidation event. Upon completion of the IPO, the Deerfield Warrantautomatically converted into a warrant to purchase 1,923,077 shares of the Company’s common stock at an exercise price of $5.85 per share. TheCompany is amortizing the debt discount to interest expense over the term of the Deerfield Convertible Notes. The Company determined that the 2013 Warrants and Deerfield Warrant should be recorded as a liability and stated at fair value at each reporting periodupon inception. As stated above, upon completion of the IPO, the 2013 Warrants and the Deerfield Warrant automatically converted into warrants topurchase the Company’s common stock. The Company marked the 2013 Warrants to fair value and reclassified them to equity upon closing of the IPO.The Deerfield Warrant remains classified as a liability and is recorded at fair value at each reporting period since it can be settled in cash. Changes to thefair value of the warrant liability are recorded through the statements of operations as a fair value adjustment (Note L). 94 J.Common Stock and Warrants Authorized, Issued, and Outstanding Common Shares In April 2015, the Company amended its Certificate of Incorporation to increase the number of its authorized shares of common stock to 250,000,000shares. Of the authorized shares, 14,646,982 and 14,490,954 shares of common stock were issued and outstanding at December 31, 2016 and 2015,respectively. At December 31, 2016 and 2015, the Company had reserved authorized shares of common stock for future issuance as follows: December 31, 2016 2015 Conversion of Deerfield Convertible Notes 1,751,296 1,991,219 Conversion of 2021 Notes 5,040,914 — Outstanding awards under equity incentive plans 1,990,260 1,397,511 Outstanding common stock warrants 2,087,477 2,325,383 Possible future issuances under equity incentive plans 1,244,671 1,410,848 Total common shares reserved for future issuance 12,114,618 7,124,961 Common Stock Activity The following table summarizes common stock activity for the year ended December 31, 2016, 2015 and 2014: Shares of Common Stock Balance at January 1, 2014 2,381,041 Balance at December 31, 2014 2,381,041 Issuance of common stock in connection with the IPO 5,854,545 Conversion of preferred stock to common stock in connection with the IPO 5,980,564 Common stock warrants exercised 270,038 Common stock options exercised 4,766 Balance at December 31, 2015 14,490,954 Common stock warrants exercised 141,095 Common stock options exercised 14,933 Balance at December 31, 2016 14,646,982 The Company calculates the fair value of common stock warrants using a Monte Carlo simulation. There were warrants exercised for an aggregateof 141,095 and 270,038 shares of common stock during the years ended December 31, 2016 and 2015, respectively. No warrants were exercised duringthe year ended December 31, 2014. From 2008 through 2012, the Company issued warrants to purchase 595,920 shares of common stock in its privateplacement offerings of Series A redeemable convertible preferred stock, Series B redeemable convertible preferred stock and Series C redeemableconvertible preferred stock (the “Underwriter Warrants”) and for leasing laboratory space. The Company accounted for the Underwriter Warrants as aderivative liability, which is adjusted to fair value at each reporting period, with the change in fair value recorded within other expenses in the statementsof operations. K.Stock-Based Compensation The Company maintains a stock-based compensation plan (the “Incentive Stock Plan”) that governs stock awards made to employees and directors priorto completion of the IPO. In November 2014, the Board, and in April 2015, the Company’s stockholders, approved the Company’s 2014 Equity Incentive Plan (the “2014 Plan”)which became effective in April 2015. The 2014 Plan provides for the grant of stock options, other forms of equity compensation, and performance cashawards. The maximum number of shares of common stock that may be issued under the 2014 Plan is 2,846,304, as of December 31, 2016. In addition, thenumber of shares of common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year, beginning on January1, 2016, and ending on and including January 1, 2024, by 4% of the total number of shares of the Company’s capital stock outstanding on December 31of the preceding calendar year, or a lesser number of shares determined by the Board. Pursuant to the terms of the 2014 Plan, on January 1, 2017, thecommon stock reserved for issuance under the 2014 Plan automatically increased by 585,879 shares. During the year ended December 31, 2016, stock options to acquire 14,933 shares of common stock were exercised for approximately $71,000 with anintrinsic value of $169,000. During the year ended December 31, 2015, stock options to acquire 4,766 shares of common stock were exercised forapproximately $28,000 with an intrinsic value of $54,000. No stock options were exercised during the year ended December 31, 2014. Stock-based compensation expense recorded under the Incentive Stock Plan and the 2014 Plan is included in the following line items in theaccompanying statements of operations (in thousands): Year ended December 31, 2016 2015 2014 Research and development $1,051 $610 $62 General and administrative 3,639 1,759 152 Severance expense 1,910 — — $6,600 $2,369 $214 95 Stock Option Awards The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, which requires the use of subjective assumptions,including the expected term of the option, the expected stock price volatility, expected dividend yield and the risk-free interest rate for the expected termof the option. The expected term represents the period of time the stock options are expected to be outstanding. Due to the lack of sufficient historicalexercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options, the Company uses the simplifiedmethod to estimate the expected term for its “plain vanilla” stock options. Under the simplified method, the expected term of an option is presumed to bethe mid-point between the vesting date and the end of the contractual term. Some options, for example those that have exercise prices in excess of the fairvalue of the underlying stock, are not considered “plain vanilla” stock options. For these options, the Company uses an expected term equal to thecontractual term of the option. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimatedexpected term of the stock options. The Company assumes no dividend yield because dividends are not expected to be paid in the near future, which isconsistent with the Company’s history of not paying dividends. The Company recognizes compensation expense related to stock-based payment transactions upon satisfaction of the requisite service or vestingrequirements. Forfeitures are estimated at the time of grant and revised based on actual forfeitures, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates. Using the Black-Scholes option-pricing model, the weighted-average fair value of awards granted during the years ended December 31, 2016, 2015 and2014, fair value was $9.25, $10.63 and $4.50 per share, respectively. The assumptions used to estimate fair value are as follows: December 31, December 31, December 31, 2016 2015 2014 Risk-free interest rate 1.29% - 1.50% 1.40% - 1.99% 0.91% - 2.70% Expected term (in years) 5.50 - 6.26 4.33 - 6.25 7.00 - 10.00 Expected volatility 77.38% - 94.78% 68.79% - 86.84% 86.00% - 95.00% Expected dividend yield 0% 0% 0% The activity under the Incentive Stock Plan and the 2014 Plan for the year ended December 31, 2016, is summarized as follows: WeightedAverage Number of WeightedAverage RemainingContractual AggregateIntrinsic Options Exercise Price Term (inyears) Value Outstanding balance at January 1, 2016 1,397,511 $13.28 8.58 $9,204,403 Granted 959,375 $13.31 Exercised (14,933) $4.78 Canceled, forfeited or expired (351,693) $11.65 Outstanding balance at December 31, 2016 1,990,260 $13.64 8.27 $26,400 Exercisable at December 31, 2016 637,492 $10.77 6.78 $26,400 Vested and expected to vest at December 31, 2016 1,978,260 $13.62 8.27 $26,400 96 Information regarding currently outstanding and exercisable options as of December 31, 2016, is as follows: Options Outstanding Options Exercisable Weighted Average Weighted Average Number of RemainingContractual Number of RemainingContractual Exercise Price Shares Term (in years) Shares Term (in years) $0.75 12,000 0.50 12,000 0.50 $3.00 20,666 1.54 20,666 1.54 $3.80 99,000 9.81 — — $4.65 35,994 2.06 35,994 2.06 $5.85 298,661 6.26 261,661 6.07 $ 6.05 50,000 9.40 — — $8.63 21,306 8.12 10,826 8.15 $11.00 21,333 8.25 5,333 8.25 $11.41 88,000 8.41 88,000 8.41 $ 12.62 340,000 9.11 — — $ 13.96 22,500 9.13 — — $ 16.06 12,000 9.26 — — $ 16.25 98,750 9.17 — — $ 16.31 13,500 9.17 — — $16.61 11,250 8.93 2,812 8.93 $ 17.93 4,500 9.27 — — $ 18.10 140,000 9.29 — — $18.29 205,000 8.48 51,250 8.48 $ 18.38 54,000 9.28 — — $18.61 32,000 8.65 8,000 8.65 $19.02 62,000 8.65 54,000 8.65 $20.45 335,000 8.68 83,750 8.68 $21.37 6,400 8.69 1,600 8.69 $22.12 6,400 8.70 1,600 8.70 1,990,260 8.27 637,492 6.78 The total fair value of stock options vested during the years ended December 31, 2016, 2015 and 2014, was $5.4 million, $1.1 million and $0.2 million,respectively. Unvested stock options as of December 31, 2016 and 2015, were as follows: Number of Unvested Shares December 31, December 31, Exercise Price 2016 2015 $3.80 99,000 — $5.85 37,000 97,633 $6.05 50,000 — $8.63 10,480 147,973 $11.00 16,000 21,333 $11.41 — 82,035 $12.62 340,000 — $13.96 22,500 — $16.06 12,000 — $16.25 98,750 — $16.31 13,500 — $16.61 8,438 11,250 $17.93 4,500 — $18.10 140,000 — $18.29 153,750 205,000 $18.38 54,000 — $18.61 24,000 38,400 $19.02 8,000 62,000 $20.45 251,250 335,000 $21.37 4,800 6,400 $22.12 4,800 6,400 1,352,768 1,013,424 As of December 31, 2016, there was $10.6 million of total unrecognized compensation cost related to unvested share-based compensation arrangementsgranted under the Incentive Stock Plan and 2014 Plan. That compensation cost is expected to be recognized over a weighted-average period of 2.86years. During the year ended December 31, 2016, the Company recognized $44,000 of stock-based compensation expense related to performance-based awardsincluded in research and development expenses. These awards were in connection with the strategic initiatives set for the award that were achieved in2016 exercisable for an aggregate of 13,333 shares of common stock during the year ended December 31, 2016. During the year ended December 31,2015, the Company recognized $0.7 million of stock-based compensation expense related to performance-based awards included in general andadministrative expenses and $0.2 million of stock-based compensation expense related to performance-based awards included in research anddevelopment expenses. These awards were in connection with the grant of fully vested stock options exercisable for an aggregate of 163,998 shares ofcommon stock during the year ended December 31, 2015. The Company did not recognize any stock-based compensation expense related toperformance-based incentive awards during the year ended December 31, 2014, since the strategic initiatives set for the awards were not achieved orprobable of achievement. 97 L.Fair Value of Financial Instruments The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash and accounts payable, approximate theirrespective fair values due to the short-term nature of such instruments. The fair value of the Deerfield Convertible Notes was $10.2 million and $42.0 million, respectively, at December 31, 2016 and 2015. The fair value of the2021 Notes, which were issued during the first quarter of 2016, was $46.3 million at December 31, 2016. Both the Deerfield Convertible Notes and 2021Notes fall within Level 3 of the fair value hierarchy as their value is based on the credit worthiness of the Company, which is an unobservable input. TheCompany used a Tsiveriotis-Fernandes model to value the Deerfield Convertible Notes at December 31, 2016 and 2015 and the 2021 Notes at December31, 2016. Assets and Liabilities Measured at Fair Value on a Recurring Basis The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level inwhich to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes theconclusions reached regarding fair value measurements as of December 31, 2016 and 2015 (in thousands): Quoted Pricesin Balance at ActiveMarkets for SignificantOther Significant December 31, IdenticalAssets ObservableInputs UnobservableInputs 2016 (Level 1) (Level 2) (Level 3) Underwriter Warrant liability $16 $— $— $16 Deerfield Warrant liability 4,231 — — 4,231 Embedded Put Option 365 — — 365 Fundamental change and make-whole interestprovisions embedded in 2021 Notes 6 — — 6 Total liabilities $4,618 $— $— $4,618 Trading securities: Certificates of deposit 7,788 7,788 — — U.S. Treasury securities 37,066 37,066 — — U.S. government-sponsored agency securities 14,349 — 14,349 — Total assets $59,203 $44,854 $14,349 $— Quoted Pricesin Balance at ActiveMarkets for SignificantOther Significant December 31, IdenticalAssets ObservableInputs UnobservableInputs 2015 (Level 1) (Level 2) (Level 3) Underwriter Warrant liability $3,877 $— $— $3,877 Deerfield Warrant liability 33,750 — — 33,750 Embedded Put Option 212 — — 212 Total liabilities $37,839 $— $— $37,839 Trading securities: Certificates of deposit 8,951 8,951 — — U.S. Treasury securities 4,996 4,996 — — U.S. government-sponsored agency securities 5,055 5,055 — — Total assets $ 19,002 $ 19,002 $ — $ — The Company’s Underwriter Warrant liability, Deerfield Warrant liability, embedded Put Option and the fundamental change and the make-whole interestprovisions embedded in the 2021 Notes, as well as the trading securities are measured at fair value on a recurring basis. As of December 31, 2016 and2015, the Underwriter Warrant liability, Deerfield Warrant liability and embedded Put Option are reported on the balance sheet in derivative and warrantliability, while the trading securities are reported on the balance sheet in marketable securities and long-term investments. The 2021 Notes were issuedduring the first quarter of 2016 and the fundamental change and make-whole interest provisions embedded in the 2021 Notes are reported on the balancesheet in derivative and warrant liability. The Company used a Monte Carlo simulation to value the Underwriter Warrant liability, Deerfield Warrantliability and the embedded Put Option at December 31, 2016 and 2015. A Monte Carlo simulation was also used to value the fundamental change andmake-whole interest provisions embedded in the 2021 Notes as of the issuance date and December 31, 2016. Significant unobservable inputs used inmeasuring the fair value of these financial instruments included the Company’s estimated enterprise value, an estimate of the timing of a liquidity orfundamental change event, a present value discount rate and an estimate of the Company’s stock volatility using the volatilities of guideline peercompanies. Changes in the fair value of the Underwriter Warrant liability, the Deerfield Warrant liability, the embedded Put Option and the fundamentalchange and make-whole interest provisions embedded in the 2021 Notes are reflected in the statements of operations as a fair value adjustment. A reconciliation of the beginning and ending balances for the derivative and warrant liability measured at fair value on a recurring basis using significantunobservable inputs (Level 3) is as follows (in thousands): 2016 2015 Balance at beginning of period $37,839 $15,966 Reclassification of 2013 warrants to equity — (1,110) Exercise of warrants (756) (4,293) Adjustment to fair value (32,465) 27,276 Balance at end of period $4,618 $37,839 98 M.Income Taxes The Company’s financial statements include a total state tax benefit of $15,000, $15,000 and $22,000 on a loss before income taxes of $16.5 million,$54.6 million and $24.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. A reconciliation of the difference between thebenefit for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows (in thousands): Year ended December 31, 2016 2015 2014 Federal statutory rate 34.00% 34.00% 34.00%Effect of: Change in valuation allowance (69.31) (19.25) (32.88)Return to provision and deferred true-up (23.83) — 0.36 Change in rate (14.63) — — State tax benefit (net of federal) 15.64 4.06 5.96 Warrant liability 68.44 (15.28) (9.39) State research and development credit 0.09 0.03 0.09 Federal research and development credit 5.65 0.84 3.29 Amortization (3.15) — — Conversion feature and put option on 2013 convertiblenotes — (1.68) (1.26)Interest expense — — 0.21 Stock-based compensation (12.71) (1.28) — Other (0.10) (1.42) (0.29)Federal income tax provision effective rate 0.09% 0.02% 0.09% The components of deferred tax assets and liabilities are as follows (in thousands): December 31, December 31, December 31, 2016 2015 2014 Deferred tax assets relating to: Net operating loss carryforwards $44,984 $26,617 $16,390 Research and development tax carryforward 3,166 2,254 1,793 Compensation 715 232 83 Total gross deferred tax assets 48,865 29,103 18,266 Deferred tax liabilities relating to: Property and equipment 89 80 170 Total gross deferred tax liabilities 89 80 170 Deferred tax assets less liabilities 48,776 29,023 18,096 Valuation allowance (48,776) (29,023) (18,096)Net deferred tax asset (liability) $— $— $— In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred taxassets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods inwhich those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxableincome and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxableincome over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realizethe benefits of these deductible differences in the future. The Company had the following federal net operating loss carryforward and research activities credits as of December 31, 2016 (in thousands): Net Operating Research Year Incurred LossCarryforwards Activities Credit Expiration 2007 $454 $30 2027 2008 1,178 65 2028 2009 3,060 176 2029 2010 3,423 149 2030 2011 9,929 176 2031 2012 — 170 2032 2013 4,353 133 2033 2014 15,819 894 2034 2015 24,189 461 2035 2016 40,959 912 2036 $103,364 $3,166 The Company also has certain state net operating loss carryforwards totaling $108.6 million that expire between 2027 and 2036. Due to potentialownership changes that may have occurred or would occur in the future, IRC Section 382 may place additional limitations on the Company’s ability toutilize the net operating loss carryforward. Financial Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, uses the term “more likely than not” to evaluate whether or not atax position will be sustained upon examination. The Company has not identified any tax positions that do not meet the more likely than not threshold. 99 N.Net Loss Per Share Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable tocommon stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to commonstockholders is computed by subtracting from net income the portion of current year earnings that participating securities would have been entitled toreceive pursuant to their dividend rights had all of the year’s earnings been distributed. No such adjustment to earnings is made during periods with a netloss as the holders of the participating securities have no obligation to fund losses. Diluted net loss per common share is computed under the two-classmethod by using the weighted average number of shares of common stock outstanding plus, for periods with net income attributable to commonstockholders, the potential dilutive effects of stock options and warrants. In addition, the Company analyzes the potential dilutive effect of theoutstanding participating securities under the if-converted method when calculating diluted earnings per share in which it is assumed that theoutstanding participating securities convert into common stock at the beginning of the period. The Company reports the more dilutive of the approaches(two-class or if-converted) as its diluted net income per share during the period. The following table summarizes the computation of basic and diluted net loss and net loss per share of the Company (in thousands, except share and pershare amounts): Year ended December 31, 2016 2015 2014 Net loss - basic and diluted $(16,516) $(54,664) $(24,455)Weighted-average number of common shares - basicand diluted 14,597,053 7,368,681 2,381,041 Net loss per share - basic and diluted $(1.13) $(7.42) $(10.27) Diluted net loss per share is the same as basic net loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutivegiven the Company’s net loss. The following securities, presented on a common stock equivalent basis, have been excluded from the calculation ofweighted average common shares outstanding because their effect is anti-dilutive: December 31, December 31, December 31, 2016 2015 2014 Redeemable convertible preferred stock: Series A — — 1,293,838 Series B — — 829,234 Series C — — 2,474,122 Series D — — 967,359 Total redeemable convertible preferred stock — — 5,564,553 Warrants to purchase common stock 2,087,477 2,325,383 595,920 Warrants to purchase Series D preferred stock — — 2,066,970 Awards under equity incentive plans 1,990,260 1,397,511 395,185 Deerfield Convertible Notes 1,751,296 1,991,219 1,808,353 2021 Notes 5,040,914 — — Total 10,869,947 5,714,113 10,430,981 O.Severance Expense On September 15, 2016, the Company announced its intention to defer its commercial operations and realign its financial resources and operationalpriorities towards its product development pipeline. The activities related to the deferral and realignment were completed during the yearended December 31, 2016. As part of these activities, the Company reduced its workforce by three employees. Personnel and other related charges ofapproximately $1.1 million and stock compensation expense of approximately $1.9 million related to the acceleration of vesting on certain stockoptions, related to the workforce reduction, are presented as severance expense in the statements of operations. As of December 31, 2016, the Companyhad accrued severance expense recorded within accounts payable and accrued expenses in the amount of $0.6 million. P.Employee Benefit Plan The Company has a 401(k) retirement plan (the “401(k) Plan”) that covers substantially all employees. The Company may provide a discretionary matchwith a maximum amount of 4% of the participant’s compensation, which vests immediately. The Company made matching contributions under the401(k) Plan of $213,000, $113,000 and $69,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The Company has a discretionary profit sharing plan (the “Profit Sharing Plan”) that covers all employees. Employees become eligible participants in theProfit Sharing Plan once they have provided three years of service to the Company. The Company made no contributions to the Profit Sharing Plan in2016, 2015 or 2014. 100 Q.Quarterly Results of Operations (unaudited) The following tables set forth unaudited quarterly statements of operations data for each of the quarters indicated. The financial statements for each ofthese quarters have been prepared on the same basis as the audited financial statements included herein and, in the opinion of management, include alladjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. You shouldread this information together with our financial statements and related notes included herein. These quarterly operating results are not necessarilyindicative of the results for any future period. Three-Months Ended Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, 2016 2016 2016 2016 2015 2015 2015 2015 Revenue $— $— $— $— $— $— $— $— Operating expenses: Research and development 7,963 4,287 4,988 3,234 4,716 4,328 2,768 2,119 General and administrative 2,873 3,104 4,287 3,736 2,566 2,152 3,188 977 Restructuring charges — 3,010 — — — — — — Total operating expenses 10,836 10,401 9,275 6,970 7,282 6,480 5,956 3,096 Loss from operations (10,836) (10,401) (9,275) (6,970) (7,282) (6,480) (5,956) (3,096)Other (expense) income: Loss on extinguishment ofdebt — — — (4,740) — — — — Interest expense related toamortization of debtissuance costs and discount (391) (390) (393) (442) (475) (479) (477) (477)Interest expense onprincipal (1,445) (1,441) (1,475) (1,150) (698) (687) (654) (632)Fair value adjustment 2,723 (1,299) 20,763 10,278 (764) (2,089) (22,661) (1,762)Interest and other income 9 98 144 102 15 11 5 — Total other income(expense) 896 (3,032) 19,039 4,048 (1,922) (3,244) (23,787) (2,871)(Loss) income before incometaxes (9,940) (13,433) 9,764 (2,922) (9,204) (9,724) (29,743) (5,967)Income tax benefit (expense) 4 19 4 (12) 1 (20) — (7)Net (loss) income $(9,936) $(13,414) $9,768 $(2,934) $(9,203) $(9,744) $(29,743) $(5,974) Net (loss) income per share: Basic $(0.68) $(0.92) $0.59 $(0.20) $(0.64) $(0.68) $(2.45) $(2.50)Diluted $(0.68) $(0.92) $(0.58) $(0.20) $(0.64) $(0.68) $(2.45) $(2.50) 101 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized. KEMPHARM, INC. Dated: March 10, 2017 By: /s/ Travis C. Mickle Travis C. Mickle, Ph.D. President and Chief Executive Officer(Principal Executive Officer) Dated: March 10, 2017 By: /s/ R. LaDuane Clifton R. LaDuane Clifton, CPA Chief Financial Officer, Secretary and Treasurer(Principal Financial Officer) 102 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that each person whose signature appears below hereby constitute and appoint Travis C. Mickle and R. LaDuaneClifton, and each of them (with full power to each of them to act alone), as his true and lawful attorneys-in-fact and agents, with full power of substitutionand resubstitution in each of them for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments to this report,and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting untosaid attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to bedone in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that saidattorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date/s/ Travis C. Mickle President, Chief Executive Officer and Chairman of theBoard of Directors(Principal Executive Officer) March 10, 2017Travis C. Mickle, Ph.D. /s/ R. LaDuane Clifton Chief Financial Officer, Secretary and Treasurer(Principal Financial Officer) March 10, 2017R. LaDuane Clifton, CPA /s/ Timothy J. Sangiovanni Vice President, Corporate Controller(Principal Accounting Officer) March 10, 2017Timothy J. Sangiovanni, CPA /s/ Danny L. Thompson Director March 10, 2017Danny L. Thompson /s/ Matthew R. Plooster Director March 10, 2017Matthew R. Plooster /s/ Richard W. Pascoe Director March 10, 2017Richard W. Pascoe /s/ Joseph B. Saluri Director March 10, 2017Joseph B. Saluri /s/ David S. Tierney Director March 10, 2017David S. Tierney 103 EXHIBIT INDEX Exhibit No. Description2.1+ Asset Purchase Agreement, by and between Shire LLC and Travis C. Mickle, Ph.D. and the Registrant, dated as of March 21, 2012(incorporated herein by reference to the Registrant’s Amendment No. 1 to Registration Statement on Form S-1/A (File No. 333-202660) asfiled with the SEC on April 3, 2015).3.1 Amended and Restated Certificate of Incorporation of KemPharm, Inc. (incorporated herein by reference to the Registrant’s CurrentReport on Form 8-K as filed with the SEC on April 21, 2015).3.2 Amended and Restated Bylaws, as currently in effect, of KemPharm, Inc. (incorporated herein by reference to the Registrant’s CurrentReport on Form 8-K as filed with the SEC on April 21, 2015).4.1 Reference is made to Exhibits 3.1 and 3.2 hereof.4.2 Specimen stock certificate evidencing shares of Common Stock (incorporated herein by reference to the Registrant’s Amendment No. 2 toRegistration Statement on Form S-1/A (File No. 333-202660) as filed with the SEC on April 9, 2015).4.3 Indenture, by and between the Registrant and U.S. Bank National Association, dated as of February 9, 2016 (incorporated herein byreference to the Registrant’s Current Report on Form 8-K filed with the SEC on February 9, 2016).4.4 Form of Note representing the Company’s 5.50% Senior Convertible Notes due 2021 (included as Exhibit A to the Indenture filed heretoas Exhibit 4.3) (incorporated herein by reference to the Registrant’s Current Report on Form 8-K as filed with the SEC on February 9,2016).10.1+ Material Supply Agreement, by and between the Registrant and Johnson Matthey, Inc., dated as of November 2, 2009 (incorporated byreference Registrant’s Amendment No. 1 to Registration Statement on Form S-1/A (File No. 333-202660) as filed with the SEC on April3, 2015).10.2 Facility Agreement, by and between the Registrant and Deerfield Private Design Fund III, L.P., dated as of June 2, 2014 (incorporated byreference to the Registrant’s Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11, 2015).10.2.1 First Amendment to Facility Agreement, Senior Secured Convertible Note and Warrant, by and between Registrant and Deerfield PrivateDesign Fund III, L.P., dated March 6, 2015 (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.333-202660) as filed with the SEC on March 11, 2015).10.2.2 Second Amendment to Facility Agreement by and between Registrant and Deerfield Private Design Fund III, L.P., dated December 17,2015 (incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-208633) as filed with the SEC onDecember 18, 2015).10.2.3 Third Amendment to Facility Agreement, Senior Secured Convertible Note and Warrant, by and between Registrant and Deerfield PrivateDesign Fund III, L.P., dated February 3, 2016 (incorporated herein by reference to the Registrant’s Current Report on Form 8-K as filedwith the SEC on February 9, 2016).10.3 Senior Secured Convertible Note issued to Deerfield Private Design Fund III, L.P., dated as of June 2, 2014 (incorporated by reference tothe Registrant’s Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11, 2015).10.3.1 Second Amendment to Senior Secured Convertible Note and Warrant, by and between Registrant and Deerfield Private Design Fund III,L.P., dated January 6, 2016 (incorporated by reference to the Registrant’s Current Report on Form 8-K as filed with the SEC on January11, 2016).10.3.2 Fourth Amendment to Senior Secured Convertible Note and Warrant, effective as of October 3, 2016, by and between KemPharm, Inc. andDeerfield Private Design Fund III, L.P. (incorporated herein by reference to the Registrant's Current Report on Form 8-K as filed with theSEC on October 3, 2016).10.4 Amended and Restated Investors’ Rights Agreement, dated as of February 19, 2015, by and among the Registrant and certain of itsstockholders (incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-202660) as filed withthe SEC on March 11, 2015).10.5 Warrant to Purchase Shares of Series D Preferred Stock issued to Deerfield Private Design Fund III, L.P., dated as of June 2, 2014(incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC onMarch 11, 2015).10.6 Form of Stock Purchase Warrant to purchase shares of Series D Convertible Preferred Stock issued in bridge financing, along with aschedule of warrantholders (incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11, 2015).10.7.1 Form of Common Stock Purchase Warrants issued by KemPharm, Inc., an Iowa corporation, along with a schedule of warrantholders(incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC onMarch 11, 2015).10.7.1 Form of Common Stock Purchase Warrants issued by KemPharm, Inc., a Delaware corporation, along with a schedule of warrantholders(incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC onMarch 11, 2015)10.8+ Agreement to Terminate CLA, by and between MonoSol Rx, LLC and the Registrant, dated as of March 20, 2012 (incorporated herein byreference to the Registrant's Amendment No. 1 to Registration Statement on Form S-1/A (File No. 333-202660) as filed with the SEC onApril 3, 2015).10.9# Incentive Stock Plan, as amended to date (incorporated herein by reference to the Registrant's Registration Statement on Form S-1 (FileNo. 333-202660) as filed with the SEC on March 11, 2015).10.10# Form of Incentive Stock Option Agreement under Incentive Stock Plan (incorporated herein by reference to the Registrant's RegistrationStatement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11, 2015).10.11# Form of Nonqualified Stock Option Agreement under Incentive Stock Plan (incorporated herein by reference to the Registrant'sRegistration Statement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11, 2015).10.12# Form of 2014 Equity Incentive Plan (incorporated herein by reference to Registrant's Amendment No. 1 to Registration Statement onForm S-1/A (File No. 333-202660) as filed with the SEC on April 3, 2015).10.13# Form of Stock Option Grant Notice and Stock Option Agreement under 2014 Equity Incentive Plan (incorporated herein by reference tothe Registrant's Registration Statement on Form S-1 File No. 333-202660) as filed with the SEC on March 11, 2015).10.14# Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under 2014 Equity Incentive Plan (incorporated hereinby reference to the Registrant's Registration Statement on Form S-1 File No. 333-202660) as filed with the SEC on March 11, 2015).10.15# Non-Employee Director Compensation Policy (incorporated herein by reference to the Registrant's Annual Report on Form 10-K as filedwith the SEC on March 15, 2016).10.16# Form of Indemnification Agreement with the Registrant's directors and executive officers (incorporated herein by reference to theRegistrant's Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11, 2015).10.17# Amended and Restated Employment Agreement by and between the Registrant and R. LaDuane Clifton, dated as of June 25, 2015(incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q as filed with the SEC on August 14, 2015). 104 EXHIBIT INDEX Exhibit No. Description10.17.1# Amendment to Amended and Restated Employment Agreement by and between the Registrant and R. LaDuane Clifton, dated as ofOctober 13, 2015 (incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q as filed with the SEC on November13, 2015).10.18# Employment Agreement by and between the Registrant and Christal M.M. Mickle, dated as of May 30, 2014 (incorporated herein byreference to the Registrant's Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11, 2015).10.18.1# Amendment to Employment Agreement by and between the Registrant and Christal M.M. Mickle, dated as of October 13, 2015(incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 13,2015).10.19# Amended and Restated Employment Agreement by and between the Registrant and Gordon K. Johnson, dated as of June 25, 2015(incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q as filed with the SEC on August 14, 2015).10.19.1# Amendment to Amended and Restated Employment Agreement by and between the Registrant and Gordon K. Johnson, dated as ofOctober 13, 2015 (incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q as filed with the SEC on November13, 2015).10.20# Employment Agreement by and between the Registrant and Travis C. Mickle, Ph.D., dated as of May 30, 2014 (incorporated herein byreference to the Registrant's Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11, 2015).10.20.1# Amendment to Employment Agreement by and between the Registrant and Travis C. Mickle, Ph.D., dated as of October 13, 2015(incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on November 13, 2015).10.21# Employment Agreement by and between the Registrant and Tracy Woody, dated as of March 30, 2015 (incorporated herein by referenceto the Registrant's Quarterly Report on Form 10-Q as filed with the SEC on May 29, 2015).10.21.1# Amendment to Employment Agreement by and between the Registrant and Tracy M. Woody, dated as of September 4, 2015 (incorporatedherein by reference to the Registrant's Quarterly Report on Form 10-Q as filed with the SEC on November 13, 2015).10.22# Board of Directors Services Agreement by and between Registrant and Richard W. Pascoe, dated as of January 1, 2014 (incorporatedherein by reference to the Registrant's Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11,2015).10.23# Board of Directors Services Agreement by and between Registrant and Joseph B. Saluri, dated as of January 1, 2014 (incorporated hereinby reference to the Registrant's Registration Statement on Form S-1 (File No. 333-202660) as filed with the SEC on March 11, 2015).10.24# Employment Agreement by and between the Registrant and Daniel L. Cohen, dated as of April 13, 2016 (incorporated herein by referenceto the Registrant's Quarterly Report on Form 10-Q as filed with the SEC on May 13, 2016).10.25# Amended and Restated Employment Agreement by and between the Registrant and Sven Guenther, dated as of April 13, 2016(incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q as filed with the SEC on May 13, 2016).10.26 Common Stock Sales Agreement, dated October 3, 2016, by and between KemPharm, Inc. and Cowen and Company, LLC (incorporatedherein by reference to the Registrant's Current Report on Form 8-K as filed with the SEC on October 3, 2016).10.27 Lease Agreement, by and between KemPharm, Inc. and the Board of Regents, State of Iowa for the Use and Benefit of the University ofIowa, dated as of September 15, 2016. (incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q as filed withthe SEC on November 10, 2016).10.28* Lease Agreement, by and between KemPharm, Inc. and BRE/COH FL LLC, dated as of November 3, 2014.10.29* First Amendment to the Lease Agreement, by and between KemPharm, Inc. and BRE/COH FL LLC, dated as of April 21, 2015.10.30* Second Amendment to the Lease Agreement, by and between KemPharm, Inc. and BRE/COH FL LLC, dated as of December 22, 2015.10.31* Third Amendment to the Lease Agreement, by and between KemPharm, Inc. and BRE/COH FL LLC, dated as of July 15, 2016.23.1* Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.24.1* Power of Attorney (included on signature page).31.1* Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, asamended.31.2* Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, asamended.32.1* Certification of the Principal Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)32.2* Certification of the Principal Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)101.INS** XBRL Instance Document.101.SCH** XBRL Taxonomy Extension Schema Document.101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document.101.DEF** XBRL Taxonomy Extension Definition Linkbase Document.101.LAB** XBRL Taxonomy Extension Label Linkbase Document.101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document. * Filed herewith** Attached as Exhibit 101 to this Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL (ExtensibleBusiness Reporting Language): (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Changes in Redeemable ConvertiblePreferred Stock and Stockholders’ Deficit, (iv) Statements of Cash Flows, and (v) Notes to Financial Statements, tagged as blocks of textand including detailed tags.# Indicates management contract or compensatory plan.+ Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a grant for confidential treatment and have been separatelyfiled with the Securities and Exchange Commission.(1) This certification accompanies the Annual Report on Form 10-K to which it relates, is not deemed filed with the SEC and is not to beincorporated by reference into any filing of the Registrant under the Securities Act or the Exchange Act (whether made before or after thedate of the Annual Report on Form 10-K), irrespective of any general incorporation language contained in such filing. 105 Exhibit 10.28 Office Lease CELEBRATION OFFICE CENTER II1170 CELEBRATION BOULEVARDCELEBRATION, FLORIDA Between BRE/COH FL LLC, a Delaware limited liability company as Landlord, and KEMPHARM, INC., a Delaware corporation as Tenant  OFFICE LEASE This Office Lease (this “Lease”), dated as of the date set forth in Section 1.1, is made by and between BRE/COH FL LLC, a Delaware limitedliability company (“Landlord”), and KEMPHARM, INC., a Delaware corporation (“Tenant”). The following exhibits are incorporated herein andmade a part hereof: Exhibit A (Outline of Premises); Exhibit B (Work Letter); Exhibit C (Form of Confirmation Letter); Exhibit D (Rules andRegulations); Exhibit E (Additional Provisions); and Exhibit F (Potential Offering Space). 1 BASIC LEASE INFORMATION 1.1Date:November 3, 20141.2Premises. 1.2.1“Building”:1170 Celebration Boulevard, Celebration, Florida, commonly known as Celebration OfficeCenter II.1.2.2“Premises”:Subject to Section 2.1.1, 3,221 rentable square feet of space located on the first floor of theBuilding and commonly known as Suite 103, the outline and location of which is set forthin Exhibit A. If the Premises include any floor in its entirety, all corridors and restroomfacilities located on such floor shall be considered part of the Premises.1.2.3“Property”:The Building, the parcel(s) of land upon which it is located, and, at Landlord’s discretion,any parking facilities and other improvements serving the Building and the parcel(s) ofland upon which such parking facilities and other improvements are located. 1.2.4“Project”:The Property or, at Landlord’s discretion, any project containing the Property and anyother land, buildings or other improvements.1.3Term 1.3.1Term:The term of this Lease (the “Term”) shall commence on the Commencement Date and endon the Expiration Date (or any earlier date on which this Lease is terminated as providedherein).1.3.2“Commencement Date”:The earlier of (i) the first date on which Tenant conducts business in the Premises, or (ii) thedate referenced in Section 1.1 above; provided, however, that if Landlord fails to deliverthe Premises to Tenant pursuant to this Lease on or before the date described in thepreceding clause (ii) as a result of any holdover or unlawful possession by another party,the Commencement Date shall be the date on which Landlord delivers possession of thePremises to Tenant pursuant to this Lease free from occupancy by any party.1.3.3“Expiration Date”:The last day of the 36th full calendar month commencing on or after the CommencementDate.  1.4“Base Rent”: Period DuringTermAnnual Base Rent Per RentableSquare FootMonthly Base Rent Per RentableSquare Foot (rounded to thenearest 100th of a dollar)MonthlyInstallmentof Base Rent Commencement Date throughlast day of 12th full calendarmonth of Term$23.00$1.92$6,173.58 13th through 24th full calendarmonths of Term$23.69$1.97$6,358.79 25th full calendar month ofTerm through Expiration Date$24.40$2.03$6,549.37 1.5“Base Year” for Expenses:Calendar year 2014.“Base Year” for Taxes:Calendar year 2014.1.6“Tenant’s Share”:4.0043% (based upon a total of 80,439 rentable square feet in the Building), subject toSection 2.1.1.1.7“Permitted Use”:General office use consistent with a first-class office building.1.8.“Security Deposit”:$24,694.32, as more particularly described in Section 21.Prepaid Base Rent:$6,173.58, as more particularly described in Section 3.1.9Parking: 16 unreserved parking spaces, at the rate of $0 per space per month, as such rate may beadjusted from time to time to reflect Landlord’s then current rates.1.10Address of Tenant:Before the Commencement Date: 2656 Crosspark RoadSuite 100Coralville, IA 52241From and after the Commencement Date: the Premises.  1.11Address of Landlord: BRE/COH FL LLCc/o Equity Office2311 Cedar Springs, Suite 300Dallas, Texas 75201Attn: Rob Shults with copies to: BRE/COH FL LLCc/o Equity Office 2655 Campus Drive, Suite 100San Mateo, California 94403Attn: Managing Counsel and BRE/COH FL LLCc/o Equity OfficeTwo North Riverside PlazaSuite 2100Chicago, Illinois 60606Attn: Lease Administration1.12Broker(s):Century 21- Metro Lifestyles (“Tenant’s Broker”), representing Tenant, and Jones LangLaSalle (“Landlord’s Broker”), representing Landlord. 1.13Building HVAC Hours and Holidays: “Building HVAC Hours” means 8:00 a.m. to 6:00 p.m., Monday through Friday and 8:00 a.m.to 1:00 p.m. on Saturday, excluding the day of observation of New Year’s Day, Presidents Day,Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and, atLandlord’s discretion, any other locally or nationally recognized holiday that is observed byother buildings comparable to and in the vicinity of the Building (collectively, “Holidays”). 1.14“Transfer Radius”:None.1.15“Tenant Improvements”:Defined in Exhibit B, if any.1.16“Guarantor”:None. 2 PREMISES AND COMMON AREAS. 2.1 The Premises. 2.1.1 Subject to the terms hereof, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord.Landlord and Tenant acknowledge that the rentable square footage of the Premises is as set forth in Section 1.2.2 and the rentable square footage of theBuilding is as set forth in Section 1.6; provided, however, that Landlord may from time to time re-measure the Premises and/or the Building in accordancewith any generally accepted measurement standards selected by Landlord and adjust Tenant’s Share based on such re-measurement; provided further,however, that any such re-measurement shall not affect the amount of Base Rent payable for, or the amount of any tenant allowance applicable to, theinitial Term. At any time Landlord may deliver to Tenant a notice substantially in the form of Exhibit C, as a confirmation of the information set forththerein. Tenant shall execute and return (or, by notice to Landlord, reasonably object to) such notice within five (5) days after receiving it, and if Tenantfails to do so, Tenant shall be deemed to have executed and returned it without exception. 2.1.2 Except as expressly provided herein, the Premises are accepted by Tenant in their configuration and condition existing on the datehereof (or in such other configuration and condition as any existing tenant of the Premises may cause to exist in accordance with its lease), without anyobligation of Landlord to perform or pay for any alterations to the Premises, and without any representation or warranty regarding the configuration orcondition of the Premises, the Building or the Project or their suitability for Tenant’s business.  2.2 Common Areas. Tenant may use, in common with Landlord and other parties and subject to the Rules and Regulations (defined inExhibit D), any portions of the Property that are designated from time to time by Landlord for such use (the “Common Areas”). 3 RENT. Tenant shall pay all Base Rent and Additional Rent (defined below) (collectively, “Rent”) to Landlord or Landlord’s agent, without priornotice or demand or any setoff or deduction, at the place Landlord may designate from time to time, in money of the United States of America that, at thetime of payment, is legal tender for the payment of all obligations. As used herein, “Additional Rent” means all amounts, other than Base Rent, thatTenant is required to pay Landlord hereunder. Monthly payments of Base Rent and monthly payments of Additional Rent for Expenses (defined inSection 4.2.2), Taxes (defined in Section 4.2.3) and parking (collectively, “Monthly Rent”) shall be paid in advance on or before the first day of eachcalendar month during the Term; provided, however, that the installment of Base Rent for the first full calendar month for which Base Rent is payablehereunder shall be paid upon Tenant’s execution and delivery hereof. Except as otherwise provided herein, all other items of Additional Rent shall bepaid within 30 days after Landlord’s request for payment. Rent for any partial calendar month shall be prorated based on the actual number of days insuch month. Without limiting Landlord’s other rights or remedies, (a) if any installment of Rent is not received by Landlord or its designee within five (5)business days after its due date, Tenant shall pay Landlord a late charge equal to 5% of the overdue amount; and (b) any Rent that is not paid within10 days after its due date shall bear interest, from its due date until paid, at the lesser of 18% per annum or the highest rate permitted by Law (defined inSection 5). Tenant’s covenant to pay Rent is independent of every other covenant herein. 4 EXPENSES AND TAXES. 4.1 General Terms. In addition to Base Rent, Tenant shall pay, in accordance with Section 4.4, for each Expense Year (defined in Section 4.2.1),an amount equal to the sum of (a) Tenant’s Share of any amount (the “Expense Excess”) by which Expenses for such Expense Year exceed Expenses forthe Base Year, plus (b) Tenant’s Share of any amount (the “Tax Excess”) by which Taxes for such Expense Year exceed Taxes for the Base Year. Nodecrease in Expenses or Taxes for any Expense Year below the corresponding amount for the Base Year shall entitle Tenant to any decrease in Base Rentor any credit against amounts due hereunder. Tenant’s Share of the Expense Excess and Tenant’s Share of the Tax Excess for any partial Expense Yearshall be prorated based on the number of days in such Expense Year. 4.2 Definitions. As used herein, the following terms have the following meanings: 4.2.1 “Expense Year” means each calendar year (other than the Base Year and any preceding calendar year) in which any portion of theTerm occurs. 4.2.2 “Expenses” means all expenses, costs and amounts that Landlord pays or accrues during the Base Year or any Expense Year becauseof or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Property. Landlord shallact in a reasonable manner in incurring Expenses. Expenses shall include (i) the cost of supplying all utilities, the cost of operating, repairing,maintaining and renovating the utility, telephone, mechanical, sanitary, storm-drainage, and elevator systems, and the cost of maintenance and servicecontracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections, the cost of contesting any Laws that may affect Expenses,and the costs of complying with any governmentally-mandated transportation-management or similar program; (iii) the cost of all insurance premiumsand deductibles; (iv) the cost of landscaping and relamping; (v) the cost of parking-area operation, repair, restoration, and maintenance; (vi) amanagement fee in the amount (which is hereby acknowledged to be reasonable) of 3% of gross annual receipts from the Building (excluding themanagement fee), together with other fees and costs, including consulting fees, legal fees and accounting fees, of all contractors and consultants inconnection with the management, operation, maintenance and repair of the Property; (vii) payments under any equipment-rental agreements and the fairrental value of any management office space; (viii) wages, salaries and other compensation, expenses and benefits, including taxes levied thereon, of allpersons engaged in the operation, maintenance and security of the Property, and costs of training, uniforms, and employee enrichment for such persons;(ix) the costs of operation, repair, maintenance and replacement of all systems and equipment (and components thereof) of the Property; (x) the cost ofjanitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in Common Areas, maintenance andreplacement of curbs and walkways, repair to roofs and re-roofing; (xi) rental or acquisition costs of supplies, tools, equipment, materials and personalproperty used in the maintenance, operation and repair of the Property; (xii) the cost of capital improvements or any other items that are (A) intended toeffect economies in the operation or maintenance of the Property, reduce current or future Expenses, enhance the safety or security of the Property or itsoccupants, or enhance the environmental sustainability of the Property’s operations, (B) replacements or modifications of the nonstructural portions ofthe Base Building (defined in Section 7) or Common Areas that are required to keep the Base Building or Common Areas in good condition, or(C) required under any Law; (xiii) the cost of tenant-relation programs reasonably established by Landlord; and (xiv) payments under any existing orfuture reciprocal easement agreement, transportation management agreement, cost-sharing agreement or other covenant, condition, restriction or similarinstrument affecting the Property.  Notwithstanding the foregoing, Expenses shall not include: (a) capital expenditures not described in clauses (xi) or (xii) above (in addition, anycapital expenditure shall be included in Expenses only if paid or accrued after the Base Year and shall be amortized (including actual or imputed intereston the amortized cost) over such period of time as Landlord shall reasonably determine); (b) depreciation; (c) principal payments of mortgage or othernon-operating debts of Landlord; (d) costs of repairs to the extent Landlord is reimbursed by insurance or condemnation proceeds; (e) except as providedin clause (xiii) above, costs of leasing space in the Building, including brokerage commissions, lease concessions, rental abatements and constructionallowances granted to specific tenants; (f) costs of selling, financing or refinancing the Building; (g) fines, penalties or interest resulting from latepayment of Taxes or Expenses; (h) organizational expenses of creating or operating the entity that constitutes Landlord; or (i) damages paid to Tenanthereunder or to other tenants of the Building under their respective leases. If, during any portion of the Base Year or any Expense Year, the Building is not 95% occupied (or a service provided by Landlord to tenants ofthe Building generally is not provided by Landlord to a tenant that provides such service itself, or any tenant of the Building is entitled to free rent, rentabatement or the like), Expenses for such year shall be determined as if the Building had been 95% occupied (and all services provided by Landlord totenants of the Building generally had been provided by Landlord to all tenants, and no tenant of the Building had been entitled to free rent, rentabatement or the like) during such portion of such year. If insurance, security or utility costs for any Expense Year are less than insurance, security orutility costs, respectively, for the Base Year, then, for purposes of determining Expenses for such Expense Year, such costs for such Expense Year shall bedeemed to be increased so as to be equal to such corresponding costs for the Base Year. Notwithstanding any contrary provision hereof, Expenses for theBase Year shall exclude (a) any market-wide cost increases resulting from extraordinary circumstances, including Force Majeure (defined in Section 25.2),boycotts, strikes, conservation surcharges, embargoes or shortages, and (b) at Landlord’s option, the cost of any repair or replacement that Landlordreasonably expects will not recur on an annual or more frequent basis. 4.2.3 “Taxes” means all federal, state, county or local governmental or municipal taxes, fees, charges, assessments, levies, licenses or otherimpositions, whether general, special, ordinary or extraordinary, that are paid or accrued during the Base Year or any Expense Year (without regard to anydifferent fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing or operation of theProperty. Taxes shall include (a) real estate taxes; (b) general and special assessments; (c) transit taxes; (d) leasehold taxes; (e) personal property taxesimposed upon the fixtures, machinery, equipment, apparatus, systems, appurtenances, furniture and other personal property used in connection with theProperty; (f) any tax on the rent, right to rent or other income from any portion of the Property or as against the business of leasing any portion of theProperty; and (g) any assessment, tax, fee, levy or charge imposed by any governmental agency, or by any non-governmental entity pursuant to anyprivate cost-sharing agreement, in order to fund the provision or enhancement of any fire-protection, street-, sidewalk- or road-maintenance, refuse-removal or other service that is normally provided by governmental agencies to property owners or occupants without charge (other than through realproperty taxes). Any costs and expenses (including reasonable attorneys’ and consultants’ fees) incurred in attempting to protest, reduce or minimizeTaxes shall be included in Taxes for the year in which they are incurred. Notwithstanding any contrary provision hereof, Taxes shall be determinedwithout regard to any “green building” credit and shall exclude (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance andsuccession taxes, estate taxes, federal and state income taxes, and other taxes to the extent (x) applicable to Landlord’s general or net income (as opposedto rents, receipts or income attributable to operations at the Property), or (y) measured solely by the square footage, rent, fees, services, tenant allowancesor similar amounts, rights or obligations described or provided in or under any particular lease, license or similar agreement or transaction at the Building;(ii) any Expenses, and (iii) any items required to be paid or reimbursed by Tenant under Section 4.5. 4.3 Allocation. Landlord, in its reasonable discretion, may equitably allocate Expenses among office, retail or other portions or occupants of theProperty. If Landlord incurs Expenses or Taxes for the Property together with another property, Landlord, in its reasonable discretion, shall equitablyallocate such shared amounts between the Property and such other property. 4.4 Calculation and Payment of Expense Excess and Tax Excess. 4.4.1 Statement of Actual Expenses and Taxes; Payment by Tenant. Landlord shall endeavor to give to Tenant, after the end of eachExpense Year, a statement (the “Statement”) setting forth the actual Expenses, Taxes, Expense Excess and Tax Excess for such Expense Year. If theamount paid by Tenant for such Expense Year pursuant to Section 4.4.2 is less or more than the sum of Tenant’s Share of the actual Expense Excess plusTenant’s Share of the actual Tax Excess (as such amounts are set forth in such Statement), Tenant shall pay Landlord the amount of such underpayment,or receive a credit in the amount of such overpayment, with or against the Rent then or next due hereunder; provided, however, that if this Lease hasexpired or terminated and Tenant has vacated the Premises, Tenant shall pay Landlord the amount of such underpayment, or Landlord shall pay Tenantthe amount of such overpayment (less any Rent due), within 30 days after delivery of such Statement. Any failure of Landlord to timely deliver theStatement for any Expense Year shall not diminish either party’s rights under this Section 4.  4.4.2 Statement of Estimated Expenses and Taxes. Landlord shall endeavor to give to Tenant, for each Expense Year, a statement (the“Estimate Statement”) setting forth Landlord’s reasonable estimates of the Expenses, Taxes, Expense Excess (the “Estimated Expense Excess”) and TaxExcess (the “Estimated Tax Excess”) for such Expense Year. Upon receiving an Estimate Statement, Tenant shall pay, with its next installment of BaseRent, an amount equal to the excess of (a) the amount obtained by multiplying (i) the sum of Tenant’s Share of the Estimated Expense Excess plusTenant’s Share of the Estimated Tax Excess (as such amounts are set forth in such Estimate Statement), by (ii) a fraction, the numerator of which is thenumber of months that have elapsed in the applicable Expense Year (including the month of such payment) and the denominator of which is 12, over(b) any amount previously paid by Tenant for such Expense Year pursuant to this Section 4.4.2. Until Landlord delivers a new Estimate Statement (whichLandlord may do at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the sum ofTenant’s Share of the Estimated Expense Excess plus Tenant’s Share of the Estimated Tax Excess, as such amounts are set forth in the previous EstimateStatement. Any failure of Landlord to timely deliver any Estimate Statement shall not diminish Landlord’s rights to receive payments and revise anyprevious Estimate Statement under this Section 4. 4.4.3 Retroactive Adjustment of Taxes. Notwithstanding any contrary provision hereof, if, after Landlord’s delivery of any Statement, anincrease or decrease in Taxes occurs for the applicable Expense Year or for the Base Year (whether by reason of reassessment, error, or otherwise), Taxesfor such Expense Year or the Base Year, as the case may be, and the Tax Excess for such Expense Year shall be retroactively adjusted. If, as a result of suchadjustment, it is determined that Tenant has under- or overpaid Tenant’s Share of such Tax Excess, Tenant shall pay Landlord the amount of suchunderpayment, or receive a credit in the amount of such overpayment, with or against the Rent then or next due hereunder; provided, however, that if thisLease has expired or terminated and Tenant has vacated the Premises, Tenant shall pay Landlord the amount of such underpayment, or Landlord shall payTenant the amount of such overpayment (less any Rent due), within 30 days after such adjustment is made. 4.5 Charges for Which Tenant Is Directly Responsible. Tenant shall pay, 10 days before delinquency, any taxes levied against Tenant’sequipment, furniture, fixtures and other personal property located in or about the Premises. If any such taxes are levied against Landlord or its property (orif the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or otherpersonal property of Tenant), Landlord may pay such taxes (or such increased assessment) regardless of their (or its) validity, in which event Tenant, upondemand, shall repay to Landlord the amount so paid. If the Leasehold Improvements (defined in Section 7.1) are assessed for real property tax purposes ata valuation higher than the valuation at which tenant improvements conforming to Landlord’s “building standard” in other space in the Building areassessed, the Taxes levied against Landlord or the Property by reason of such excess assessed valuation shall be deemed taxes levied against Tenant’spersonal property for purposes of this Section 4.5. Notwithstanding any contrary provision hereof, Tenant shall pay 10 days before delinquency (orreimburse to Landlord upon demand, if the same is required by Law to be paid by Landlord): (i) any rent tax, sales tax, service tax, transfer tax, valueadded tax, use tax, business tax, gross income tax, gross receipts tax, or other tax, assessment, fee, levy or charge measured solely by the square footage,Rent, services, tenant allowances or similar amounts, rights or obligations described or provided in or under this Lease; and (ii) any taxes assessed uponthe possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of any portion of the Property. 4.6 Books and Records. Within 60 days after receiving any Statement (the “Review Notice Period”), Tenant may give Landlord notice (“ReviewNotice”) stating that Tenant elects to review Landlord’s calculation of the Expense Excess and/or Tax Excess for the Expense Year to which suchStatement applies and identifying with reasonable specificity the records of Landlord reasonably relating to such matters that Tenant desires to review.Within a reasonable time after receiving a timely Review Notice (and, at Landlord’s option, an executed confidentiality agreement as described below),Landlord shall deliver to Tenant, or make available for inspection at a location reasonably designated by Landlord, copies of such records. Within 60days after such records are made available to Tenant (the “Objection Period”), Tenant may deliver to Landlord notice (an “Objection Notice”) statingwith reasonable specificity any objections to the Statement, in which event Landlord and Tenant shall work together in good faith to resolve Tenant’sobjections. Tenant may not deliver more than one Review Notice or more than one Objection Notice with respect to any Expense Year. If Tenant fails togive Landlord a Review Notice before the expiration of the Review Notice Period or fails to give Landlord an Objection Notice before the expiration ofthe Objection Period, Tenant shall be deemed to have approved the Statement. Notwithstanding any contrary provision hereof, Landlord shall not berequired to deliver or make available to Tenant records relating to the Base Year, and Tenant may not object to Expenses or Taxes for the Base Year, otherthan in connection with the first review for an Expense Year performed by Tenant pursuant to this Section 4.6. If Tenant retains an agent to reviewLandlord’s records, the agent must be with a CPA firm licensed to do business in the State of Florida and its fees shall not be contingent, in whole or inpart, upon the outcome of the review. Tenant shall be responsible for all costs of such review. The records and any related information obtained fromLandlord shall be treated as confidential, and as applicable only to the Premises, by Tenant, its auditors, consultants, and any other parties reviewing thesame on behalf of Tenant (collectively, “Tenant’s Auditors”). Before making any records available for review, Landlord may require Tenant and Tenant’sAuditors to execute a reasonable confidentiality agreement, in which event Tenant shall cause the same to be executed and delivered to Landlord within30 days after receiving it from Landlord, and if Tenant fails to do so, the Objection Period shall be reduced by one day for each day by which suchexecution and delivery follows the expiration of such 30-day period. Notwithstanding any contrary provision hereof, Tenant may not examine Landlord’srecords or dispute any Statement if any Rent remains unpaid past its due date. If, for any Expense Year, Landlord and Tenant determine that the sum ofTenant’s Share of the actual Expense Excess plus Tenant’s Share of the actual Tax Excess is less or more than the amount reported, Tenant shall receive acredit in the amount of its overpayment against Rent then or next due hereunder, or pay Landlord the amount of its underpayment with the Rent next duehereunder; provided, however, that if this Lease has expired or terminated and Tenant has vacated the Premises, Landlord shall pay Tenant the amount ofits overpayment (less any Rent due), or Tenant shall pay Landlord the amount of its underpayment, within 30 days after such determination.  5 USE; COMPLIANCE WITH LAWS. Tenant shall not (a) use the Premises for any purpose other than the Permitted Use, or (b) do anything in orabout the Premises that violates any of the Rules and Regulations, damages the reputation of the Project, interferes with, injures or annoys otheroccupants of the Building, or constitutes a nuisance. Tenant, at its expense, shall comply with all Laws relating to (i) the operation of its business at theProject, (ii) the use, condition, configuration or occupancy of the Premises, or (iii) the Building systems located in or exclusively serving the Premises. If,in order to comply with any such Law, Tenant must obtain or deliver any permit, certificate or other document evidencing such compliance, Tenant shallprovide a copy of such document to Landlord promptly after obtaining or delivering it. If a change to any Common Area, the Building structure, or anyBuilding system located outside of and not exclusively serving the Premises becomes required under Law (or if any such requirement is enforced) as aresult of any Tenant-Insured Improvement (defined in Section 10.2.2), the installation of any trade fixture, or any particular use of the Premises (asdistinguished from general office use), then Tenant, upon demand, shall (x) at Landlord’s option, either make such change at Tenant’s cost or payLandlord the cost of making such change, and (y) pay Landlord a coordination fee equal to 10% of the cost of such change. As used herein, “Law” meansany existing or future law, ordinance, regulation or requirement of any governmental authority having jurisdiction over the Project or the parties. 6 SERVICES. 6.1 Standard Services. Landlord shall provide the following services on all days (unless otherwise stated below): (a) subject to limitationsimposed by Law, customary heating, ventilation and air conditioning (“HVAC”) in season during Building HVAC Hours; (b) electricity supplied by theapplicable public utility, stubbed to the Premises; (c) water supplied by the applicable public utility (i) for use in lavatories and any drinking facilitieslocated in Common Areas within the Building, and (ii) stubbed to the Building core for use in any plumbing fixtures located in the Premises;(d) janitorial services to the Premises, except on weekends and Holidays; and (e) elevator service (subject to scheduling by Landlord, and payment ofLandlord’s standard usage fee, for any freight service). 6.2 Above-Standard Use. Landlord shall provide HVAC service outside Building HVAC Hours if Tenant gives Landlord such prior notice andpays Landlord such hourly cost per zone as Landlord may require; provided that Landlord shall not charge for service on Saturdays between 9:00 a.m.and 1:00 p.m. so long as Tenant provides the prior notice required by Landlord from time to time. Tenant shall not, without Landlord’s prior consent, useequipment that may affect the temperature maintained by the air conditioning system or consume above-Building-standard amounts of any waterfurnished for the Premises by Landlord pursuant to Section 6.1. If Tenant’s consumption of electricity or water exceeds the rate Landlord reasonablydeems to be standard for the Building, Tenant shall pay Landlord, upon billing, the cost of such excess consumption, including any costs of installing,operating and maintaining any equipment that is installed in order to supply or measure such excess electricity or water. For purposes of the precedingsentence, any consumption of electricity in a computer server room shall be deemed to exceed the standard rate for the Building. The connectedelectrical load of Tenant’s incidental-use equipment shall not exceed the Building-standard electrical design load, and Tenant’s electrical usage shallnot exceed the capacity of the feeders to the Project or the risers or wiring installation.  6.3 Interruption. Subject to Section 11, any failure to furnish, delay in furnishing, or diminution in the quality or quantity of any serviceresulting from any application of Law, failure of equipment, performance of maintenance, repairs, improvements or alterations, utility interruption, orevent of Force Majeure (each, a “Service Interruption”) shall not render Landlord liable to Tenant, constitute a constructive eviction, or excuse Tenantfrom any obligation hereunder. Notwithstanding the foregoing, if all or a material portion of the Premises is made untenantable or inaccessible for morethan five (5) consecutive business days after notice from Tenant to Landlord by a Service Interruption that does not result from a Casualty (defined inSection 11) and that Landlord can correct through reasonable efforts, then, as Tenant’s sole remedy, Monthly Rent shall abate for the period beginning onthe day immediately following such 5-business-day period and ending on the day such Service Interruption ends, but only in proportion to thepercentage of the rentable square footage of the Premises made untenantable or inaccessible. 7 REPAIRS AND ALTERATIONS. 7.1 Repairs. Subject to Section 11, Tenant, at its expense, shall perform all maintenance and repairs (including replacements) to the Premises, andkeep the Premises in as good condition and repair as existed when Tenant took possession and as thereafter improved by Landlord and/or Tenant, exceptfor reasonable wear and tear and repairs that are Landlord’s express responsibility hereunder. Tenant’s maintenance and repair obligations shall include(a) all leasehold improvements in the Premises, whenever and by whomever installed or paid for, including any Tenant Improvements, any Alterations(defined in Section 7.2), and any leasehold improvements installed pursuant to any prior lease, but excluding the Base Building (the “LeaseholdImprovements”); (b) all supplemental heating, ventilation and air conditioning units, kitchens (including hot water heaters, dishwashers, garbagedisposals, insta-hot dispensers, and plumbing) and similar facilities exclusively serving Tenant, whether located inside or outside of the Premises, andwhenever and by whomever installed or paid for; and (c) all Lines (defined in Section 23) and trade fixtures. Notwithstanding the foregoing, Landlordmay, at its option, perform such maintenance and repairs on Tenant’s behalf, in which case Tenant shall pay Landlord, upon demand, the cost of suchwork plus a coordination fee equal to 10% of such cost. Landlord shall perform all maintenance and repairs to (i) the roof and exterior walls and windowsof the Building, (ii) the Base Building, and (iii) the Common Areas. As used herein, “Base Building” means the structural portions of the Building,together with all mechanical (including HVAC), electrical, plumbing and fire/life-safety systems serving the Building in general, whether located insideor outside of the Premises. 7.2 Alterations. Tenant may not make any improvement, alteration, addition or change to the Premises or to any mechanical, plumbing or HVACfacility or other system serving the Premises (an “Alteration”) without Landlord’s prior consent, which consent shall be requested by Tenant not less than30 days before commencement of work and shall not be unreasonably withheld by Landlord. Notwithstanding the foregoing, Landlord’s prior consentshall not be required for any Alteration that is decorative only (e.g., carpet installation or painting) and not visible from outside the Premises, providedthat Landlord receives 30 business days’ prior notice. For any Alteration, (a) Tenant, before commencing work, shall deliver to Landlord, and obtainLandlord’s approval of, plans and specifications; (b) Landlord, in its discretion, may require Tenant to obtain security for performance satisfactory toLandlord; (c) Tenant shall deliver to Landlord “as built” drawings (in CAD format, if requested by Landlord), completion affidavits, full and final lienwaivers, and all governmental approvals; and (d) Tenant shall pay Landlord upon demand (i) Landlord’s reasonable out-of-pocket expenses incurred inreviewing the work, and (ii) a coordination fee equal to 10% of the cost of the work; provided, however, that this clause (d) shall not apply to any TenantImprovements. 7.3 Tenant Work. Before commencing any repair or Alteration (“Tenant Work”), Tenant shall deliver to Landlord, and obtain Landlord’sapproval of, (a) names of contractors, subcontractors, mechanics, laborers and materialmen; (b) evidence of contractors’ and subcontractors’ insurance;and (c) any required governmental permits. Tenant shall perform all Tenant Work (i) in a good and workmanlike manner using materials of a qualityreasonably approved by Landlord; (ii) in compliance with any approved plans and specifications, all Laws, the National Electric Code, and Landlord’sconstruction rules and regulations; and (iii) in a manner that does not impair the Base Building. If, as a result of any Tenant Work, Landlord becomesrequired under Law to perform any inspection, give any notice, or cause such Tenant Work to be performed in any particular manner, Tenant shall complywith such requirement and promptly provide Landlord with reasonable documentation of such compliance. Landlord’s approval of Tenant’s plans andspecifications shall not relieve Tenant from any obligation under this Section 7.3. In performing any Tenant Work, Tenant shall not use contractors,services, labor, materials or equipment that, in Landlord’s reasonable judgment, would disturb labor harmony with any workforce or trades engaged inperforming other work or services at the Project.  8 LANDLORD’S PROPERTY. All Leasehold Improvements shall become Landlord’s property upon installation and without compensation to Tenant.Notwithstanding the foregoing, if any Tenant-Insured Improvements are not, in Landlord’s reasonable judgment, Building-standard, then before theexpiration or earlier termination hereof, Tenant shall, at Landlord’s election, either (a) at Tenant’s expense, and except as otherwise notified by Landlord,remove such Tenant-Insured Improvements, repair any resulting damage to the Premises or Building, and restore the affected portion of the Premises to itsconfiguration and condition existing before the installation of such Tenant-Insured Improvements (or, at Landlord’s election, to a Building-standardtenant-improved configuration and condition as determined by Landlord), or (b) pay Landlord an amount equal to the estimated cost of such work, asreasonably determined by Landlord. If Tenant fails to timely perform any work required under clause (a) of the preceding sentence, Landlord may performsuch work at Tenant’s expense. 9 LIENS. Tenant shall keep the Project free from any lien arising out of any work performed, material furnished or obligation incurred by or on behalfof Tenant. Tenant shall remove any such lien within 10 business days after notice from Landlord, and if Tenant fails to do so, Landlord, without limitingits remedies, may pay the amount necessary to cause such removal, whether or not such lien is valid. The amount so paid, together with reasonableattorneys’ fees and expenses, shall be reimbursed by Tenant upon demand. Tenant will notify Landlord in writing at least 30 days prior to commencingany Alterations in order to provide Landlord the opportunity to record and post notices of non-responsibility or such other protective notices available toLandlord under applicable Law. NOTHING IN THIS LEASE SHALL BE DEEMED TO BE, OR CONSTRUED IN ANY WAY AS CONSTITUTING, THE CONSENT TO ORREQUEST OF LANDLORD, EXPRESS OR IMPLIED, BY INFERENCE OR OTHERWISE, ANY PERSON, FIRM, CORPORATION, OR OTHER ENTITYFOR THE PERFORMANCE OF ANY LABOR OR THE FURNISHING OF ANY MATERIALS FOR ANY CONSTRUCTION, REBUILDING,ALTERATION, OR REPAIR OF OR TO THE PREMISES, THE BUILDING, THE PROPERTY, THE PROJECT, OR ANY PART THEREOF, OR ASGIVING TENANT ANY RIGHT, POWER, OR AUTHORITY TO CONTRACT FOR OR PERMIT THE RENDERING OF ANY SERVICES OR THEFURNISHING OF ANY MATERIALS THAT IN ANY WAY GIVE RISE TO THE RIGHT TO FILE ANY LIEN AGAINST THE PREMISES, THEBUILDING, THE PROPERTY, THE PROJECT, OR LANDLORD’S INTEREST THEREIN. TENANT SHALL NOTIFY ANY CONTRACTORPERFORMING ANY CONSTRUCTION WORK IN THE PREMISES OR AT THE PROPERTY ON BEHALF OF TENANT THAT THIS LEASESPECIFICALLY PROVIDES THAT THE INTERESTS OF LANDLORD IN THE PREMISES, THE BUILDING, THE PROPERTY, AND THE PROJECTSHALL NOT BE SUBJECT TO LIENS FOR IMPROVEMENTS MADE BY TENANT, AND NO MECHANIC’S LIEN OR OTHER LIEN FOR ANY SUCHLABOR, SERVICES, MATERIALS, SUPPLIES, MACHINERY, FIXTURES, OR EQUIPMENT SHALL ATTACH TO OR AFFECT THE ESTATE ORINTEREST OF LANDLORD IN AND TO THE PREMISES, THE BUILDING, THE PROPERTY, THE PROJECT, OR ANY PORTION THEREOF. INADDITION, LANDLORD SHALL HAVE THE RIGHT TO POST AND KEEP POSTED AT ALL TIMES ON OR AT THE PREMISES OR PROPERTY ANYNOTICES THAT MAY BE REQUIRED OR ADVISABLE FOR THE PROTECTION OF LANDLORD AND THE PREMISES, THE PROPERTY, THEPROJECT, OR THE BUILDING, FROM ANY SUCH LIEN. TENANT AGREES TO PROMPTLY EXECUTE ANY SUCH INSTRUMENTS INRECORDABLE FORM AND IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF FLORIDA STATUTES, SECTION 713.10. 10 INDEMNIFICATION; INSURANCE. 10.1 Waiver and Indemnification. Tenant waives all claims against Landlord, its Security Holders (defined in Section 17), Landlord’s managingagent(s), their (direct or indirect) owners, and the beneficiaries, trustees, officers, directors, employees and agents of each of the foregoing (includingLandlord, the “Landlord Parties”) for (i) any damage to person or property (or resulting from the loss of use thereof), except to the extent such damage iscaused by any gross negligence, willful misconduct or breach of this Lease of or by any Landlord Party, or (ii) any failure to prevent or control anycriminal or otherwise wrongful conduct by any third party or to apprehend any third party who has engaged in such conduct. Tenant shall indemnify,defend, protect, and hold the Landlord Parties harmless from any obligation, loss, claim, action, liability, penalty, damage, cost or expense (includingreasonable attorneys’ and consultants’ fees and expenses) (each, a “Claim”) that is imposed or asserted by any third party and arises from (a) any cause in,on or about the Premises, or (b) occupancy of the Premises by, or any negligence, willful misconduct or breach of this Lease of or by, Tenant, any partyclaiming by, through or under Tenant, their (direct or indirect) owners, or any of their respective beneficiaries, trustees, officers, directors, employees,agents, contractors, licensees or invitees, except to the extent such Claim arises from any gross negligence, willful misconduct or breach of this Lease ofor by any Landlord Party. 10.2 Tenant’s Insurance. Tenant shall maintain the following coverages in the following amounts: 10.2.1 Commercial General Liability Insurance covering claims of bodily injury, personal injury and property damage arising out ofTenant’s operations and contractual liabilities, including coverage formerly known as broad form, on an occurrence basis, with combined primary andexcess/umbrella limits of $3,000,000 each occurrence and $4,000,000 annual aggregate.  10.2.2 Property Insurance covering (i) all office furniture, trade fixtures, office equipment, free-standing cabinet work, movable partitions,merchandise and all other items of Tenant’s property in the Premises installed by, for, or at the expense of Tenant, and (ii) any Leasehold Improvementsinstalled by or for the benefit of Tenant, whether pursuant to this Lease or pursuant to any prior lease or other agreement to which Tenant was a party(“Tenant-Insured Improvements”). Such insurance shall be written on a special cause of loss form for physical loss or damage, for the full replacementcost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance, and shall include coverage for damage or other loss caused by fire or other peril, including vandalism andmalicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion. 10.2.3 Workers’ Compensation statutory limits and Employers’ Liability limits of $1,000,000. 10.3 Form of Policies. The minimum limits of insurance required to be carried by Tenant shall not limit Tenant’s liability. Such insurance shallbe issued by an insurance company that has an A.M. Best rating of not less than A-VIII and shall be in form and content reasonably acceptable toLandlord. Tenant’s Commercial General Liability Insurance shall (a) name the Landlord Parties and any other party designated by Landlord (“AdditionalInsured Parties”) as additional insureds; and (b) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord isexcess and non-contributing with Tenant’s insurance. Landlord shall be designated as a loss payee with respect to Tenant’s Property Insurance on anyTenant-Insured Improvements. Tenant shall deliver to Landlord, on or before the Commencement Date and at least 15 days before the expiration datesthereof, certificates from Tenant’s insurance company on the forms currently designated “ACORD 25” (Certificate of Liability Insurance) and “ACORD28” (Evidence of Commercial Property Insurance) or the equivalent. Attached to the ACORD 25 (or equivalent) there shall be an endorsement naming theAdditional Insured Parties as additional insureds, and attached to the ACORD 28 (or equivalent) there shall be an endorsement designating Landlord as aloss payee with respect to Tenant’s Property Insurance on any Tenant-Insured Improvements, and each such endorsement shall be binding on Tenant’sinsurance company. Upon Landlord’s request, Tenant shall deliver to Landlord, in lieu of such certificates, copies of the policies of insurance required tobe carried under Section 10.2 showing that the Additional Insured Parties are named as additional insureds and that Landlord is designated as a loss payeewith respect to Tenant’s Property Insurance on any Tenant-Insured Improvements. 10.4 Subrogation. Each party waives, and shall cause its insurance carrier to waive, any right of recovery against the other party, any of its (director indirect) owners, or any of their respective beneficiaries, trustees, officers, directors, employees or agents for any loss of or damage to property whichloss or damage is (or, if the insurance required hereunder had been carried, would have been) covered by the waiving party’s property insurance. Forpurposes of this Section 10.4 only, (a) any deductible with respect to a party’s insurance shall be deemed covered by, and recoverable by such partyunder, valid and collectable policies of insurance, and (b) any contractor retained by Landlord to install, maintain or monitor a fire or security alarm forthe Building shall be deemed an agent of Landlord. 10.5 Additional Insurance Obligations. Tenant shall maintain such increased amounts of the insurance required to be carried by Tenant underthis Section 10, and such other types and amounts of insurance covering the Premises and Tenant’s operations therein, as may be reasonably requested byLandlord, but not in excess of the amounts and types of insurance then being required by landlords of buildings comparable to and in the vicinity of theBuilding.  11 CASUALTY DAMAGE. With reasonable promptness after discovering any damage to the Premises (other than trade fixtures), or to any CommonArea or Building system necessary for access to or tenantability of the Premises, resulting from any fire or other casualty (a “Casualty”), Landlord shallnotify Tenant of Landlord’s reasonable estimate of the time required to substantially complete repair of such damage (the “Landlord Repairs”). If,according to such estimate, the Landlord Repairs cannot be substantially completed within 270 days after the date of Casualty, either party may terminatethis Lease upon 60 days’ notice to the other party delivered within 10 days after Landlord’s delivery of such estimate. Within 90 days after discoveringany damage to the Project resulting from any Casualty, Landlord may, whether or not the Premises are affected, terminate this Lease by notifying Tenantif (i) any Security Holder terminates any ground lease or requires that any insurance proceeds be used to pay any mortgage debt; (ii) any damage toLandlord’s property is not fully covered by Landlord’s insurance policies; (iii) Landlord decides to rebuild the Building or Common Areas so that it orthey will be substantially different structurally or architecturally; (iv) the damage occurs during the last 12 months of the Term; or (v) any owner, otherthan Landlord, of any damaged portion of the Project does not intend to repair such damage. If this Lease is not terminated pursuant to this Section 11,Landlord shall promptly and diligently perform the Landlord Repairs, subject to reasonable delays for insurance adjustment and other events of ForceMajeure. The Landlord Repairs shall restore the Premises (other than trade fixtures) and any Common Area or Building system necessary for access to ortenantability of the Premises to substantially the same condition that existed when the Casualty occurred, except for (a) any modifications required byLaw or any Security Holder, and (b) any modifications to the Common Areas that are deemed desirable by Landlord, are consistent with the character ofthe Project, and do not materially impair access to or tenantability of the Premises. Notwithstanding Section 10.4, Tenant shall assign to Landlord (or itsdesignee) all insurance proceeds payable to Tenant under Tenant’s insurance required under Section 10.2 with respect to any Tenant-InsuredImprovements, and if the estimated or actual cost of restoring any Tenant-Insured Improvements exceeds the insurance proceeds received by Landlordfrom Tenant’s insurance carrier, Tenant shall pay such excess to Landlord within 15 days after Landlord’s demand. No Casualty and no restorationperformed as required hereunder shall render Landlord liable to Tenant, constitute a constructive eviction, or excuse Tenant from any obligationhereunder; provided, however, that if the Premises (other than trade fixtures) or any Common Area or Building system necessary for access to ortenantability of the Premises is damaged by a Casualty, then, during any time that, as a result of such damage, any portion of the Premises is inaccessibleor untenantable and is not occupied by Tenant, Monthly Rent shall be abated in proportion to the rentable square footage of such portion of the Premises. 12 NONWAIVER. No provision hereof shall be deemed waived by either party unless it is waived by such party expressly and in writing, and nowaiver of any breach of any provision hereof shall be deemed a waiver of any subsequent breach of such provision or any other provision hereof.Landlord’s acceptance of Rent shall not be deemed a waiver of any preceding breach of any provision hereof, other than Tenant’s failure to pay theparticular Rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of such acceptance. No acceptance of payment of anamount less than the Rent due hereunder shall be deemed a waiver of Landlord’s right to receive the full amount of Rent due, whether or not anyendorsement or statement accompanying such payment purports to effect an accord and satisfaction. No receipt of monies by Landlord from Tenant afterthe giving of any notice, the commencement of any suit, the issuance of any final judgment, or the termination hereof shall affect such notice, suit orjudgment, or reinstate or extend the Term or Tenant’s right of possession hereunder. 13 CONDEMNATION. If any part of the Premises, Building or Project is taken for any public or quasi-public use by power of eminent domain or byprivate purchase in lieu thereof (a “Taking”) for more than 180 consecutive days, Landlord may terminate this Lease. If more than 25% of the rentablesquare footage of the Premises is Taken, or access to the Premises is substantially impaired as a result of a Taking, for more than 180 consecutive days,Tenant may terminate this Lease. Any such termination shall be effective as of the date possession must be surrendered to the authority, and theterminating party shall provide termination notice to the other party within 45 days after receiving written notice of such surrender date. Except asprovided above in this Section 13, neither party may terminate this Lease as a result of a Taking. Tenant shall not assert any claim for compensationbecause of any Taking; provided, however, that Tenant may file a separate claim for any Taking of Tenant’s personal property or any fixtures that Tenantis entitled to remove upon the expiration hereof, and for moving expenses, so long as such claim does not diminish the award available to Landlord orany Security Holder and is payable separately to Tenant. Under no circumstances may Tenant seek any award or compensation for loss or taking ofTenant’s leasehold interest, and Tenant hereby expressly, unconditionally, and irrevocably waives any such claims. If this Lease is terminated pursuant tothis Section 13, all Rent shall be apportioned as of the date of such termination. If a Taking occurs and this Lease is not so terminated, Monthly Rent shallbe abated for the period of such Taking in proportion to the percentage of the rentable square footage of the Premises, if any, that is subject to, or renderedinaccessible by, such Taking. 14 ASSIGNMENT AND SUBLETTING. 14.1 Transfers. Tenant shall not, without Landlord’s prior consent, assign, mortgage, pledge, hypothecate, encumber, permit any lien to attachto, or otherwise transfer this Lease or any interest hereunder, permit any assignment or other transfer hereof or any interest hereunder by operation of law,enter into any sublease or license agreement, otherwise permit the occupancy or use of any part of the Premises by any persons other than Tenant and itsemployees and contractors, or permit a Change of Control (defined in Section 14.6) to occur (each, a “Transfer”). If Tenant desires Landlord’s consent toany Transfer, Tenant shall provide Landlord with (i) notice of the terms of the proposed Transfer, including its proposed effective date (the“Contemplated Effective Date”), a description of the portion of the Premises to be transferred (the “Contemplated Transfer Space”), a calculation of theTransfer Premium (defined in Section 14.3), and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, and(ii) current financial statements of the proposed transferee (or, in the case of a Change of Control, of the proposed new controlling party(ies)) certified byan officer or owner thereof and any other information reasonably required by Landlord in order to evaluate the proposed Transfer (collectively, the“Transfer Notice”). Within 30 days after receiving the Transfer Notice, Landlord shall notify Tenant of (a) its consent to the proposed Transfer, (b) itsrefusal to consent to the proposed Transfer, or (c) its exercise of its rights under Section 14.4. Any Transfer made without Landlord’s prior consent shall, atLandlord’s option, be void and shall, at Landlord’s option, constitute a Default (defined in Section 19). Tenant shall pay Landlord a fee of $1,500.00 forLandlord’s review of any proposed Transfer, whether or not Landlord consents to it.  14.2 Landlord’s Consent. Subject to Section 14.4, Landlord shall not unreasonably withhold its consent to any proposed Transfer. Withoutlimiting other reasonable grounds for withholding consent, it shall be deemed reasonable for Landlord to withhold its consent to a proposed Transfer if: 14.2.1 The proposed transferee is not a party of reasonable financial strength in light of the responsibilities to be undertaken inconnection with the Transfer on the date the Transfer Notice is received; or 14.2.2 The proposed transferee has a character or reputation or is engaged in a business that is not consistent with the quality of theBuilding or the Project; or 14.2.3 The proposed transferee is a governmental entity or a nonprofit organization; or 14.2.4 In the case of a proposed sublease, license or other occupancy agreement, the rent or occupancy fee charged by Tenant to thetransferee during the term of such agreement, calculated using a present value analysis, is less than 95% of the rent being quoted by Landlord or itsAffiliate (defined in Section 14.8) at the time of such Transfer for comparable space in the Project for a comparable term, calculated using a present valueanalysis; or 14.2.5 The proposed transferee or any of its Affiliates, on the date the Transfer Notice is received, leases or occupies (or, at any time duringthe 6-month period ending on the date the Transfer Notice is received, has negotiated with Landlord to lease) space in the Project. Notwithstanding any contrary provision hereof, (a) if Landlord consents to any Transfer pursuant to this Section 14.2 but Tenant does not enter intosuch Transfer within six (6) months thereafter, such consent shall no longer apply and such Transfer shall not be permitted unless Tenant again obtainsLandlord’s consent thereto pursuant and subject to the terms of this Section 14; and (b) if Landlord unreasonably withholds its consent under thisSection 14.2, Tenant’s sole remedies shall be contract damages (subject to Section 20) or specific performance, and Tenant waives all other remedies,including any right to terminate this Lease. 14.3 Transfer Premium. If Landlord consents to a Transfer, Tenant shall pay Landlord an amount equal to 75% of any Transfer Premium(defined below). As used herein, “Transfer Premium” means (a) in the case of an assignment, any consideration (including payment for LeaseholdImprovements) paid by the assignee for such assignment; (b) in the case of a sublease, license or other occupancy agreement, for each month of the term ofsuch agreement, the amount by which all rent and other consideration paid by the transferee to Tenant pursuant to such agreement exceeds the MonthlyRent payable by Tenant hereunder with respect to the Contemplated Transfer Space; and (c) in the case of a Change of Control, any consideration(including payment for Leasehold Improvements) paid by the new controlling party(ies) to the prior controlling party(ies) on account of this Lease.Payment of Landlord’s share of the Transfer Premium shall be made (x) in the case of an assignment or a Change of Control, within 10 days after Tenant orthe prior controlling party(ies), as the case may be, receive(s) the consideration described above, and (y) in the case of a sublease, license or otheroccupancy agreement, with respect to each month of the term of such agreement, within five (5) business days after Tenant receives the rent and otherconsideration described above. Notwithstanding any contrary provision of this Section 14.3, Tenant shall not be required to pay Landlord any portion ofany Transfer Premium arising from any Change of Control that occurs for a good faith operating business purpose and not in order to evade therequirements of this Section 14.3. 14.4 Landlord’s Right to Recapture. Notwithstanding any contrary provision hereof, except in the case of a Permitted Transfer (defined inSection 14.8), Landlord, by notifying Tenant within 30 days after receiving the Transfer Notice, may terminate this Lease with respect to theContemplated Transfer Space as of the Contemplated Effective Date. If the Contemplated Transfer Space is less than the entire Premises, then Base Rent,Tenant’s Share, and the number of parking spaces to which Tenant is entitled under Section 1.9 shall be deemed adjusted on the basis of the percentage ofthe rentable square footage of the portion of the Premises retained by Tenant. Upon request of either party, the parties shall execute a written agreementprepared by Landlord memorializing such termination. 14.5 Effect of Consent. If Landlord consents to a Transfer, (i) such consent shall not be deemed a consent to any further Transfer, (ii) Tenant shalldeliver to Landlord, promptly after execution, an executed copy of all documentation pertaining to the Transfer in form reasonably acceptable toLandlord, and (iii) Tenant shall deliver to Landlord, upon Landlord’s request, a complete statement, certified by an independent CPA or Tenant’s chieffinancial officer, setting forth in detail the computation of any Transfer Premium. In the case of an assignment, the assignee shall assume in writing, forLandlord’s benefit, all of Tenant’s obligations hereunder. No Transfer, with or without Landlord’s consent, shall relieve Tenant or any guarantor hereoffrom any liability hereunder. Notwithstanding any contrary provision hereof, Tenant, with or without Landlord’s consent, shall not enter into, or permitany party claiming by, through or under Tenant to enter into, any sublease, license or other occupancy agreement that provides for payment based inwhole or in part on the net income or profit of the subtenant, licensee or other occupant thereunder.  14.6 Change of Control. As used herein, “Change of Control” means (a) if Tenant is a closely held professional service firm, the withdrawal orchange (whether voluntary, involuntary or by operation of law) of more than 50% of its equity owners within a 12-month period; and (b) in all othercases, any transaction(s) resulting in the acquisition of a Controlling Interest (defined below) by one or more parties that did not own a ControllingInterest immediately before such transaction(s). As used herein, “Controlling Interest” means any direct or indirect equity or beneficial ownershipinterest in Tenant that confers upon its holder(s) the direct or indirect power to direct the ordinary management and policies of Tenant, whether throughthe ownership of voting securities, by contract or otherwise (but not through the ownership of voting securities listed on a recognized securitiesexchange). 14.7 Effect of Default. If Tenant is in Default, Landlord is irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any transfereeunder any sublease, license or other occupancy agreement to make all payments under such agreement directly to Landlord (which Landlord shall applytowards Tenant’s obligations hereunder) until such Default is cured. Such transferee shall rely upon any representation by Landlord that Tenant is inDefault, whether or not confirmed by Tenant. 14.8 Permitted Transfers. Notwithstanding any contrary provision hereof, if Tenant is not in Default, Tenant may, without Landlord’s consentpursuant to Section 14.1, permit a Change of Control to occur or assign this Lease to (a) an Affiliate of Tenant (other than pursuant to a merger orconsolidation), (b) a successor to Tenant by merger or consolidation, or (c) a successor to Tenant by purchase of all or substantially all of Tenant’s assets(a “Permitted Transfer”), provided that (i) at least 10 business days before the Transfer, Tenant notifies Landlord of such Transfer and delivers toLandlord any documents or information reasonably requested by Landlord relating thereto (provided that if advanced notice is prohibited by aconfidentiality agreement or applicable law or is otherwise impracticable, then Tenant shall give Landlord written notice and deliver such documentswithin 10 days after the effective date of the Permitted Transfer), including reasonable documentation that the Transfer satisfies the requirements of thisSection 14.8; (ii) in the case of an assignment pursuant to clause (a) or (c) above, the assignee executes and delivers to Landlord, at least 10 business daysbefore the assignment, a commercially reasonable instrument pursuant to which the assignee assumes, for Landlord’s benefit, all of Tenant’s obligationshereunder; (iii) in the case of an assignment pursuant to clause (b) above, (A) the successor entity has a net worth (as determined in accordance withGAAP, but excluding intellectual property and any other intangible assets (“Net Worth”)) immediately after the Transfer that is not less than the NetWorth of Tenant immediately before the Transfer, and (B) if Tenant is a closely held professional service firm, at least 50% of its equity owners existing12 months before the Transfer are also equity owners of the successor entity; (iv) except in the case of a Change of Control, the transferee is qualified toconduct business in the State of California; (v) in the case of a Change of Control, (A) Tenant is not a closely held professional service firm, and (B)Tenant’s Net Worth immediately after the Change of Control is not less than its Net Worth immediately before the Change of Control; and (vi) theTransfer is made for a good faith operating business purpose and not in order to evade the requirements of this Section 14. As used herein, “Affiliate”means, with respect to any party, a person or entity that controls, is under common control with, or is controlled by such party. 15 SURRENDER. Upon the expiration or earlier termination hereof, and subject to Sections 8 and 11 and this Section 15, Tenant shall surrenderpossession of the Premises to Landlord in as good condition and repair as existed when Tenant took possession and as thereafter improved by Landlordand/or Tenant, except for reasonable wear and tear and repairs that are Landlord’s express responsibility hereunder. Before such expiration or termination,Tenant, without expense to Landlord, shall (a) remove from the Premises all debris and rubbish and all furniture, equipment, trade fixtures, Lines, free-standing cabinet work, movable partitions and other articles of personal property that are owned or placed in the Premises by Tenant or any partyclaiming by, through or under Tenant (except for any Lines not required to be removed under Section 23), and (b) repair all damage to the Premises andBuilding resulting from such removal. If Tenant fails to timely perform such removal and repair, Landlord may do so at Tenant’s expense (includingstorage costs). If Tenant fails to remove such property from the Premises, or from storage, within 30 days after notice from Landlord, any part of suchproperty shall be deemed, at Landlord’s option, either (x) conveyed to Landlord without compensation, or (y) abandoned. 16 HOLDOVER. If Tenant fails to surrender the Premises upon the expiration or earlier termination hereof, Tenant’s tenancy shall be subject to theterms and conditions hereof; provided, however, that such tenancy shall be a tenancy at sufferance only, without claim of right, for the entire Premises,and Tenant shall pay Monthly Rent (on a per-month basis without reduction for any partial month) at a rate equal to twice the Monthly Rent applicableduring the last calendar month of the Term. Nothing in this Section 16 shall limit Landlord’s rights or remedies or be deemed a consent to any holdover. IfLandlord is unable to deliver possession of the Premises to a new tenant or to perform improvements for a new tenant as a result of Tenant’s holdover,Tenant shall be liable for all resulting damages, including lost profits, incurred by Landlord.  17 SUBORDINATION; ESTOPPEL CERTIFICATES. This Lease shall be subject and subordinate to all existing and future ground or underlyingleases, mortgages, deeds of trust, deeds to secure debt, and other encumbrances against the Building or Project, all renewals, extensions, modifications,consolidations and replacements thereof (each, a “Security Agreement”), and all advances made upon the security of such mortgages, deeds of trust ordeeds to secure debt, unless in each case the holder of such Security Agreement (each, a “Security Holder”) requires in writing that this Lease be superiorthereto. Upon any termination or foreclosure (or any delivery of a deed in lieu of foreclosure) of any Security Agreement (a “Succession”), Tenant, uponrequest, shall attorn, without deduction or set-off, to the Security Holder or purchaser or any successor thereto and shall recognize such party (the“Successor”) as the lessor hereunder if the Successor agrees not to disturb Tenant’s occupancy so long as Tenant timely pays the Rent and otherwiseperforms its obligations hereunder; provided, however, that the Successor shall not be liable for or bound by (i) any payment of Rent made to Landlordmore than 30 days before its due date, (ii) any act or omission of or default by Landlord hereunder (but the Successor shall be subject to Landlord’scontinuing obligations hereunder to the extent arising after the Succession and to the extent of the Successor’s interest in the Property), (iii) any credits,claims, setoffs or defenses that Tenant may have against Landlord, (iv) any modification or amendment to this Lease for which the Security Holder’sconsent is required, but has not been obtained, under the Security Agreement, or (v) any obligation hereunder to maintain a fitness facility at theBuilding. Within 10 days after request by Landlord, Tenant shall execute such further instruments as Landlord may reasonably deem necessary to confirmsuch attornment and evidence the subordination or superiority of this Lease to any Security Agreement. Tenant waives any right it may have under Lawto terminate or otherwise adversely affect this Lease or Tenant’s obligations hereunder upon a foreclosure. Within 10 business days after Landlord’srequest, Tenant shall execute and deliver to Landlord a commercially reasonable estoppel certificate in favor of such parties as Landlord may reasonablydesignate, including current and prospective Security Holders and prospective purchasers. 18 ENTRY BY LANDLORD. At all reasonable times and upon reasonable notice to Tenant, or in an emergency, Landlord may enter the Premises to(i) inspect the Premises; (ii) show the Premises to prospective purchasers, current or prospective Security Holders or insurers, or, during the last 12 monthsof the Term (or while an uncured Default exists), prospective tenants; (iii) post notices of non-responsibility; or (iv) perform maintenance, repairs oralterations. At any time and without notice to Tenant, Landlord may enter the Premises to perform required services. If reasonably necessary, Landlordmay temporarily close any portion of the Premises to perform maintenance, repairs or alterations. In an emergency, Landlord may use any means it deemsproper to open doors to and in the Premises. No entry into or closure of any portion of the Premises pursuant to this Section 18 shall render Landlordliable to Tenant, constitute a constructive eviction, or excuse Tenant from any obligation hereunder. 19 DEFAULTS; REMEDIES. 19.1 Events of Default. The occurrence of any of the following shall constitute a “Default”: 19.1.1 Any failure by Tenant to pay any Rent when due unless such failure is cured within five (5) business days after notice; or 19.1.2 Except where a specific time period is otherwise set forth for Tenant’s cure herein (in which event Tenant’s failure to cure withinsuch time period shall be a Default), and except as otherwise provided in this Section 19.1, any breach by Tenant of any other provision hereof wheresuch breach continues for 30 days after notice from Landlord; provided that if such breach cannot reasonably be cured within such 30-day period, Tenantshall not be in Default as a result of such breach if Tenant diligently commences such cure within such period, thereafter diligently pursues such cure, andcompletes such cure within 60 days after Landlord’s notice; or 19.1.3 Abandonment or vacation of all or a substantial portion of the Premises by Tenant; or 19.1.4 Any breach by Tenant of Sections 5, 14, 17 or 18 where such breach continues for more than two (2) business days after notice fromLandlord; or 19.1.5 Tenant becomes in breach of Section 25.3. If Tenant breaches a particular provision hereof (other than a provision requiring payment of Rent) on three (3) separate occasions during any 12-month period, Tenant’s subsequent breach of such provision shall be, at Landlord’s option, an incurable Default. The notice periods provided herein arein lieu of, and not in addition to, any notice periods provided by Law, and Landlord shall not be required to give any additional notice in order to beentitled to commence an unlawful detainer proceeding.  19.2 Remedies Upon Default. Upon any Default, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity(which shall be cumulative and nonexclusive), the option to pursue any one or more of the following remedies (which shall be cumulative andnonexclusive) without any notice or demand: 19.2.1 Landlord may terminate this Lease, or terminate Tenant’s right of possession to the Premises without terminating this Lease, with orwithout reentering and repossessing the Premises, and in any such event, Tenant shall immediately surrender the Premises to Landlord, and if Tenant failsto do so, Landlord may, without prejudice to any other remedy it may have for possession or arrearages in Rent, enter upon and take possession of thePremises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecutionor any claim or damages therefor; and Landlord may recover from Tenant the following: (a) The worth at the time of award of the unpaid Rent which has been earned at the time of such termination; plus (b) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to performits obligations hereunder or which in the ordinary course of things would be likely to result therefrom, including brokerage commissions, advertisingexpenses, expenses of remodeling any portion of the Premises for a new tenant (whether for the same or a different use), and any special concessions madeto obtain a new tenant; plus (c) At Landlord’s option, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time byLaw. As used in Section 19.2.1(a), the “worth at the time of award” shall be computed by allowing interest at a rate per annum equal to the lesser of(i) the annual “Bank Prime Loan” rate cited in the Federal Reserve Statistical Release Publication G.13(415), published on the first Tuesday of eachcalendar month (or such other comparable index as Landlord shall reasonably designate if such rate ceases to be published) plus two (2) percentagepoints, or (ii) the highest rate permitted by Law. The amounts described in Sections 19.2.1(a), (b), and (c) above are, collectively, “Damages.” 19.2.2 If Landlord elects to terminate Tenant’s right to possession of the Premises without terminating this Lease, Tenant shall continue tobe liable for all Rent and all other Damages, and Landlord may (but shall not be obligated to, except to the extent expressly required by Law) relet thePremises, or any part thereof, to a substitute tenant or tenants, for a period of time equal to or lesser or greater than the remainder of the Term on any termsand conditions Landlord, in its sole discretion, deems advisable. Notwithstanding any provision in this Section 19.2.2 to the contrary, Landlord may (a)at any time after reletting the Premises elect to exercise its rights under Section 19.2.3 below for any previous Default; and (b) upon the default of anysubstitute tenant or upon the expiration of the lease term of such substitute tenant before the expiration of the Term, either relet to another substitutetenant or exercise its rights under Section 19.2.3 below. 19.2.3 Landlord may declare all Rent and charges due under this Lease to be immediately due and payable, in which case all suchamounts due to the end of the Term shall be accelerated; provided, however, such accelerated amounts shall be discounted to present value (using thethen-current discount rate of the Federal Reserve Bank of Atlanta) from the respective dates that such amounts would have otherwise have been due underthis Lease. In the event that any charges due under this Lease cannot be exactly determined as of the date of acceleration, the amount of such chargesshall be determined by Landlord in a reasonable manner based on historical increases in such charges. 19.2.4 Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in additionto those rights and remedies available under Sections 19.2.1, 19.2.2, and 19.2.3 or any Law or other provision hereof), without prior demand or noticeexcept as required by Law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violationor breach of any provision hereof. 19.3 Efforts to Relet. Unless Landlord provides Tenant with express notice to the contrary, no re-entry, repossession, repair, maintenance,change, alteration, addition, reletting, appointment of a receiver or other action or omission by Landlord shall (a) be construed as an election by Landlordto terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, or (b) operate to release Tenant from any of its obligationshereunder. Tenant waives, for Tenant and for all those claiming by, through or under Tenant, any existing or future rights to redeem or reinstate, by orderor judgment of any court or by any legal process or writ, this Lease or Tenant’s right of occupancy of the Premises after any termination hereof.  19.4 Landlord Default. Landlord shall not be in default hereunder unless it fails to begin within 30 days after notice from Tenant, or fails topursue with reasonable diligence thereafter, the cure of any breach by Landlord of its obligations hereunder. Before exercising any remedies for a defaultby Landlord, Tenant shall give notice and a reasonable time (not to exceed 180 days) to cure to any Security Holder of which Tenant has been notified. 20 LANDLORD EXCULPATION. Notwithstanding any contrary provision hereof, (a) the liability of the Landlord Parties to Tenant shall be limited toan amount equal to the lesser of (i) Landlord’s interest in the Building, or (ii) the equity interest Landlord would have in the Building if the Building wereencumbered by third-party debt in an amount equal to 80% of the value of the Building (as such value is determined by Landlord); (b) Tenant shall looksolely to Landlord’s interest in the Building for the recovery of any judgment or award against any Landlord Party; (c) no Landlord Party shall have anypersonal liability for any judgment or deficiency, and Tenant waives and releases such personal liability on behalf of itself and all parties claiming by,through or under Tenant; and (d) no Landlord Party shall be liable for any injury or damage to, or interference with, Tenant’s business, including loss ofprofits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, or for any form of special or consequential damage. 21 SECURITY DEPOSIT. 21.1 Concurrently with its execution and delivery hereof, Tenant shall deposit with Landlord the Security Deposit, if any, as security for Tenant’sperformance of its obligations hereunder. If Tenant breaches any provision hereof, Landlord may, at its option, without notice to Tenant, apply all or partof the Security Deposit to pay any past-due Rent, cure any breach by Tenant, or compensate Landlord for any other loss or damage caused by such breach.If Landlord so applies any portion of the Security Deposit, Tenant, within three (3) days after demand therefor, shall restore the Security Deposit to itsoriginal amount. The Security Deposit is not an advance payment of Rent or measure of damages. Any unapplied portion of the Security Deposit shall bereturned to Tenant within 60 days after the latest to occur of (a) the expiration of the Term, (b) Tenant’s surrender of the Premises as required hereunder, or(c) determination of the final Rent due from Tenant. Landlord shall not be required to keep the Security Deposit separate from its other accounts. 21.2. Subject to the remaining terms of this Section 21, and provided that, during the 12 month period immediately preceding the effective dateof any reduction of the Security Deposit, Tenant has timely paid all Rent and no default has occurred under this Lease (the “Security ReductionConditions”), Tenant shall have the right to reduce the amount of the Security Deposit so that the new Security Deposit amount will be $18,520.74effective as of the first day of the 13th month following the Commencement Date. Notwithstanding anything to the contrary contained herein, if Tenanthas been in default under this Lease at any time prior to the effective date of any reduction of the Security Deposit and Tenant has failed to cure suchdefault within any applicable cure period, then Tenant shall have no right to reduce the amount of the Security Deposit as described herein. If Tenant isentitled to a reduction in the Security Deposit, Tenant shall provide Landlord with written notice requesting that the Security Deposit be reduced asprovided above (the “Security Reduction Notice”). If Tenant provides Landlord with a Security Reduction Notice, and Tenant is entitled to reduce theSecurity Deposit as provided herein, Landlord shall refund the applicable portion of the Security Deposit to Tenant within 60 days after the later to occurof (a) Landlord’s receipt of the Security Reduction Notice, or (b) the date upon which Tenant is entitled to a reduction in the Security Deposit as providedabove. 22 RELOCATION. Landlord, after giving notice, may move Tenant to other space in the Project comparable in size and utility to the Premises. In suchevent, all terms hereof shall apply to the new space, except that Base Rent and Tenant’s Share shall not increase as a result of such relocation. Landlord, atits expense, shall provide Tenant with tenant improvements in the new space at least equal in quality to those in the Premises. Landlord shall reimburseTenant for Tenant’s reasonable moving, re-cabling and stationery-replacement costs. The parties shall execute a written agreement prepared by Landlordmemorializing the relocation. 23 COMMUNICATIONS AND COMPUTER LINES. All Lines installed pursuant to this Lease shall be (a) installed in accordance with Section 7; and(b) clearly marked with adhesive plastic labels (or plastic tags attached to such Lines with wire) to show Tenant’s name, suite number, and the purpose ofsuch Lines (i) every six (6) feet outside the Premises (including the electrical room risers and any Common Areas), and (ii) at their termination points.Landlord may designate specific contractors for work relating to vertical Lines. Sufficient spare cables and space for additional cables shall be maintainedfor other occupants, as reasonably determined by Landlord. Unless otherwise notified by Landlord, Tenant, at its expense and before the expiration orearlier termination hereof, shall remove all Lines and repair any resulting damage. As used herein, “Lines” means all communications or computer wiresand cables serving the Premises, whenever and by whomever installed or paid for, including any such wires or cables installed pursuant to any prior lease.  24 PARKING. Tenant may park in the Building’s parking facilities (the “Parking Facility”), in common with other tenants of the Building, upon thefollowing terms and conditions. Tenant shall not use more than the number of unreserved and/or reserved parking spaces set forth in Section 1.9. Tenantshall pay Landlord, in accordance with Section 3, any fees for the parking spaces described in Section 1.9. Tenant shall pay Landlord any fees, taxes orother charges imposed by any governmental or quasi-governmental agency in connection with the Parking Facility, to the extent such amounts areallocated to Tenant by Landlord. Landlord shall not be liable to Tenant, nor shall this Lease be affected, if any parking is impaired by (or any parkingcharges are imposed as a result of) any Law. Tenant shall comply with all rules and regulations established by Landlord from time to time for the orderlyoperation and use of the Parking Facility, including any sticker or other identification system and the prohibition of vehicle repair and maintenanceactivities in the Parking Facility. Landlord may, in its discretion, allocate and assign parking passes among Tenant and the other tenants in the Building.Tenant’s use of the Parking Facility shall be at Tenant’s sole risk, and Landlord shall have no liability for any personal injury or damage to or theft of anyvehicles or other property occurring in the Parking Facility or otherwise in connection with any use of the Parking Facility by Tenant, its employees orinvitees. Landlord may alter the size, configuration, design, layout or any other aspect of the Parking Facility, and, in connection therewith, temporarilydeny or restrict access to the Parking Facility, in each case without abatement of Rent or liability to Tenant. Landlord may delegate its responsibilitieshereunder to a parking operator, in which case (i) such parking operator shall have all the rights of control reserved herein by Landlord, (ii) Tenant shallenter into a parking agreement with such parking operator, (iii) Tenant shall pay such parking operator, rather than Landlord, any charge establishedhereunder for the parking spaces, and (iv) Landlord shall have no liability for claims arising through acts or omissions of such parking operator except tothe extent caused by Landlord’s gross negligence or willful misconduct. Tenant’s parking rights under this Section 24 are solely for the benefit ofTenant’s employees and invitees and such rights may not be transferred without Landlord’s prior consent, except pursuant to a Transfer permitted underSection 14. 25 MISCELLANEOUS. 25.1 Notices. No notice, demand, statement, designation, request, consent, approval, election or other communication given hereunder (“Notice”)shall be binding upon either party unless (a) it is in writing; (b) it is (i) sent by certified or registered mail, postage prepaid, return receipt requested,(ii) delivered by a nationally recognized courier service, or (iii) delivered personally; and (c) it is sent or delivered to the address set forth in Section 1.10or 1.11, as applicable, or to such other place (other than a P.O. box) as the recipient may from time to time designate in a Notice to the other party. AnyNotice shall be deemed received on the earlier of the date of actual delivery or the date on which delivery is refused, or, if Tenant is the recipient and hasvacated its notice address without providing a new notice address, three (3) days after the date the Notice is deposited in the U.S. mail or with a courierservice as described above. 25.2 Force Majeure. If either party is prevented from performing any obligation hereunder by any strike, act of God, war, terrorist act, shortage oflabor or materials, governmental action, civil commotion or other cause beyond such party’s reasonable control (“Force Majeure”), such obligation shallbe excused during (and any time period for the performance of such obligation shall be extended by) the period of such prevention; provided, however,that this Section 25.2 shall not (a) permit Tenant to hold over in the Premises after the expiration or earlier termination hereof, or (b) excuse any ofTenant’s obligations under Sections 3, 4, 5, 21 or 25.3 or any of Tenant’s obligations whose nonperformance would interfere with another occupant’s use,occupancy or enjoyment of its premises or the Project. 25.3 Representations and Covenants. Tenant represents, warrants and covenants that (a) Tenant is, and at all times during the Term will remain,duly organized, validly existing and in good standing under the Laws of the state of its formation and qualified to do business in the state of Florida;(b) neither Tenant’s execution of nor its performance under this Lease will cause Tenant to be in violation of any agreement or Law; (c) Tenant (and anyguarantor hereof) has not, and at no time during the Term will have, (i) made a general assignment for the benefit of creditors, (ii) filed a voluntarypetition in bankruptcy or suffered the filing of an involuntary petition by creditors, (iii) suffered the appointment of a receiver to take possession of all orsubstantially all of its assets, (iv) suffered the attachment or other judicial seizure of all or substantially all of its assets, (v) admitted in writing its inabilityto pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally; and (d) no party that (other thanthrough the passive ownership of interests traded on a recognized securities exchange) constitutes, owns, controls, or is owned or controlled by Tenant,any guarantor hereof or any subtenant of Tenant is, or any time during the Term will be, (i) in violation of any Laws relating to terrorism or moneylaundering, or (ii) among the parties identified on any list compiled pursuant to Executive Order 13224 for the purpose of identifying suspected terroristsor on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website,http://www.treas.gov/ofac/tllsdn.pdf or any replacement website or other replacement official publication of such list.  25.4 Signs. Landlord shall include Tenant’s name in any tenant directory located in the lobby on the first floor of the Building. If any part of thePremises is located on a multi-tenant floor, Landlord, at Tenant’s cost, shall provide identifying suite signage for Tenant comparable to that provided byLandlord on similar floors in the Building. Tenant may not install (a) any signs outside the Premises, or (b) without Landlord’s prior consent in its soleand absolute discretion, any signs, window coverings, blinds or similar items that are visible from outside the Premises. 25.5 Supplemental HVAC. If any supplemental HVAC unit (a “Unit”) serves the Premises, then (a) Tenant shall pay the costs of all electricityconsumed in the Unit’s operation, together with the cost of installing a meter to measure such consumption; (b) Tenant, at its expense, shall (i) operateand maintain the Unit in compliance with all applicable Laws and such reasonable rules and procedures as Landlord may impose; (ii) keep the Unit in asgood working order and condition as exists upon its installation (or, if later, on the date Tenant takes possession of the Premises), subject to normal wearand tear and damage resulting from Casualty; (iii) maintain in effect, with a contractor reasonably approved by Landlord, a contract for the maintenanceand repair of the Unit, which contract shall require the contractor, at least once every three (3) months, to inspect the Unit and provide to Tenant a reportof any defective conditions, together with any recommendations for maintenance, repair or parts-replacement; (iv) follow all reasonable recommendationof such contractor; and (v) promptly provide to Landlord a copy of such contract and each report issued thereunder; (c) the Unit shall become Landlord’sproperty upon installation and without compensation to Tenant; provided, however, that upon Landlord’s request at the expiration or earlier terminationhereof, Tenant, at its expense, shall remove the Unit and repair any resulting damage; (d) the Unit shall be deemed (i) a Leasehold Improvement (exceptfor purposes of Section 8), and (ii) for purposes of Section 11, part of the Premises; (e) if the Unit exists on the date of mutual execution and deliveryhereof, Tenant accepts the Unit in its “as is” condition, without representation or warranty as to quality, condition, fitness for use or any other matter; (f) ifthe Unit connects to the Building’s condenser water loop (if any), then Tenant shall pay to Landlord, as Additional Rent, Landlord’s standard one-timefee for such connection and Landlord’s standard monthly per-ton usage fee; and (g) if any portion of the Unit is located on the roof, then (i) Tenant’saccess to the roof shall be subject to such reasonable rules and procedures as Landlord may impose; (ii) Tenant shall maintain the affected portion of theroof in a clean and orderly condition and shall not interfere with use of the roof by Landlord or any other tenants or licensees; and (iii) Landlord mayrelocate the Unit and/or temporarily interrupt its operation, without liability to Tenant, as reasonably necessary to maintain and repair the roof orotherwise operate the Building. 25.6 Attorneys’ Fees. In any action or proceeding between the parties, including any appellate or alternative dispute resolution proceeding, theprevailing party may recover from the other party all of its costs and expenses in connection therewith, including reasonable attorneys’ fees and costs.Tenant shall pay all reasonable attorneys’ fees and other fees and costs that Landlord incurs in interpreting or enforcing this Lease or otherwise protectingits rights hereunder (a) where Tenant has failed to pay Rent when due, or (b) in any bankruptcy case, assignment for the benefit of creditors, or otherinsolvency, liquidation or reorganization proceeding involving Tenant or this Lease. 25.7 Brokers. Tenant represents to Landlord that it has dealt only with Tenant’s Broker as its broker in connection with this Lease. Tenant shallindemnify, defend, and hold Landlord harmless from all claims of any brokers, other than Tenant’s Broker, claiming to have represented Tenant inconnection with this Lease. Landlord shall indemnify, defend and hold Tenant harmless from all claims of any brokers, including Landlord’s Broker,claiming to have represented Landlord in connection with this Lease. Tenant acknowledges that any Affiliate of Landlord that is involved in thenegotiation of this Lease is representing only Landlord, and that any assistance rendered by any agent or employee of such Affiliate in connection withthis Lease or any subsequent amendment or other document related hereto has been or will be rendered as an accommodation to Tenant solely infurtherance of consummating the transaction on behalf of Landlord, and not as agent for Tenant. 25.8 Governing Law; WAIVER OF TRIAL BY JURY. This Lease shall be construed and enforced in accordance with the Laws of the State ofFlorida. THE PARTIES KNOWINGLY AND VOLUNTARILY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BYJURY IN ANY LITIGATION ARISING OUT OF OR RELATING TO THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT’SUSE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE OR ANY EMERGENCY OR STATUTORY REMEDY.  25.9 Interpretation. As used herein, the capitalized term “Section” refers to a section hereof unless otherwise specifically provided herein. Asused in this Lease, the terms “herein,” “hereof,” “hereto” and “hereunder” refer to this Lease and the term “include” and its derivatives are not limiting.Any reference herein to “any part” or “any portion” of the Premises, the Property or any other property shall be construed to refer to all or any part of suchproperty. Wherever this Lease requires Tenant to comply with any Law, rule, regulation, procedure or other requirement or prohibits Tenant fromengaging in any particular conduct, this Lease shall be deemed also to require Tenant to cause each of its employees, licensees, invitees and subtenants,and any other party claiming by, through or under Tenant, to comply with such requirement or refrain from engaging in such conduct, as the case may be.Wherever this Lease requires Landlord to provide a customary service or to act in a reasonable manner (whether in incurring an expense, establishing arule or regulation, providing an approval or consent, or performing any other act), this Lease shall be deemed also to provide that whether such service iscustomary or such conduct is reasonable shall be determined by reference to the practices of owners of buildings that (i) are comparable to the Building insize, age, class, quality and location, and (ii) at Landlord’s option, have been, or are being prepared to be, certified under the U.S. Green BuildingCouncil’s Leadership in Energy and Environmental Design (LEED) rating system or a similar rating system. Tenant waives the benefit of any rule that awritten agreement shall be construed against the drafting party. 25.10 Entire Agreement. This Lease sets forth the entire agreement between the parties relating to the subject matter hereof and supersedes anyprevious agreements (none of which shall be used to interpret this Lease). Tenant acknowledges that in entering into this Lease it has not relied upon anyrepresentation, warranty or statement, whether oral or written, not expressly set forth herein. This Lease can be modified only by a written agreementsigned by both parties. 25.11 Other. Landlord, at its option, may cure any Default, without waiving any right or remedy or releasing Tenant from any obligation, inwhich event Tenant shall pay Landlord, upon demand, the cost of such cure. If any provision hereof is void or unenforceable, no other provision shall beaffected. Submission of this instrument for examination or signature by Tenant does not constitute an option or offer to lease, and this instrument is notbinding until it has been executed and delivered by both parties. If Tenant is comprised of two or more parties, their obligations shall be joint and several.Time is of the essence with respect to the performance of every provision hereof in which time of performance is a factor. So long as Tenant performs itsobligations hereunder, Tenant shall have peaceful and quiet possession of the Premises against any party claiming by, through or under Landlord, subjectto the terms hereof. Landlord may transfer its interest herein, in which event Landlord shall be released from, Tenant shall look solely to the transferee forthe performance of, and the transferee shall be deemed to have assumed, all of Landlord’s obligations arising hereunder after the date of such transfer(including the return of any Security Deposit) and Tenant shall attorn to the transferee. Landlord reserves all rights not expressly granted to Tenanthereunder, including the right to make alterations to the Project. No rights to any view or to light or air over any property are granted to Tenant hereunder.The expiration or termination hereof shall not relieve either party of any obligation that accrued before, or continues to accrue after, such expiration ortermination. 25.12 Radon Gas. The following disclosure is required by Florida Law: “Radon is a naturally occurring radioactive gas that, when it hasaccumulated in a structure in sufficient quantities, may present health risks to persons who are exposed to it. Levels of radon that exceed federal and stateguidelines have been found in buildings in the State of Florida. Additional information regarding radon and radon testing may be obtainable from thecounty public health unit.” Landlord makes no representation to Tenant concerning the presence or absence of radon gas in or at the Premises, theBuilding, or the Project at any time or in any quantity. By executing this Lease, and notwithstanding any provision herein to the contrary, Tenantexpressly releases Landlord and all other Landlord Parties from any loss, claim, liability, or damage now or hereafter arising from or relating to thepresence at any time of such substances in or at the Premises, the Building, or the Project. 25.13 Underlying Documents. Tenant agrees that (i) Tenant’s rights under this Lease are subject and subordinate to the Underlying Documents(defined below), (ii) Tenant shall not cause Landlord to be in breach of the Underlying Documents and (iii) to the extent applicable to Tenant’s use andoccupancy of the Premises and/or Tenant’s use of the Building and the Common Areas, Tenant shall comply with the terms of the Underlying Documentsat its sole cost and expense. As used herein, the term “Underlying Documents” means, other than the the Security Agreement (which document isaddressed elsewhere in this Lease), any covenants, conditions restrictions and other documents of record applicable to the Project. [SIGNATURES ARE ON THE FOLLOWING PAGE]  IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written. WITNESSES: /s/ Heather BradleyPrint Name: Heather Bradley /s/ Kimberly SummersPrint Name: Kimberly SummersLANDLORD: BRE/COH FL LLC, a Delaware limited liability company By:/s/ Rob ShultsName:Rob ShultsTitle:VP, Asset Management /s/ Travis MicklePrint Name: Travis Mickle /s/ Les SessomsPrint Name: Les Sessoms Print Name: Print Name:TENANT: KEMPHARM, INC., a Delaware corporation By:/s/ Christal Mickle Name:Christal MickleTitle:VP, Operations & Product Development By:Name:Title:  EXHIBIT A CELEBRATION OFFICE CENTER II1170 CELEBRATION BOULEVARDCELEBRATION, FLORIDA OUTLINE OF PREMISES  EXHIBIT B CELEBRATION OFFICE CENTER II1170 CELEBRATION BOULEVARDCELEBRATION, FLORIDA WORK LETTER As used in this Exhibit B (this “Work Letter”), the following terms shall have the following meanings: (i)“Tenant Improvements” means all improvements to be constructed in the Premises pursuant to this Work Letter; (ii)“Tenant Improvement Work” means the construction of the Tenant Improvements, together with any related work (includingdemolition) that is necessary to construct the Tenant Improvements; (iii)“Agreement” means the lease of which this Work Letter is a part. 1ALLOWANCE. 1.1 Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the “Allowance”) in the amount of $2.50 per rentablesquare foot of the Premises to be applied toward the Allowance Items (defined in Section 1.2 below). Tenant shall be responsible for all costs associatedwith the Tenant Improvement Work, including the costs of the Allowance Items, to the extent such costs exceed the lesser of (a) the Allowance, or (b) theaggregate amount that Landlord is required to disburse for such purpose pursuant to this Work Letter. Notwithstanding any contrary provision of thisAgreement, if Tenant fails to use the entire Allowance by within one (1) year following the Commencement Date, the unused amount shall revert toLandlord and Tenant shall have no further rights with respect thereto. 1.2 Disbursement. Except as otherwise provided in this Work Letter, the Allowance shall be disbursed by Landlord only for the following items(the “Allowance Items”): (a) the fees of the Architect (defined in Section 2.1 below); (b) the cost of preparing the Engineering Drawings (defined inSection 3.2.1 below); (c) plan-check, permit and license fees relating to performance of the Tenant Improvement Work; (d) the cost of performing theTenant Improvement Work, including after hours charges, testing and inspection costs, freight elevator usage, hoisting and trash removal costs, andcontractors’ fees and general conditions; (e) the cost of any change to the base, shell or core of the Premises or Building required by the Plans (defined inSection 4 below) (including if such change is due to the fact that such work is prepared on an unoccupied basis), including all direct architectural and/orengineering fees and expenses incurred in connection therewith; (f) the cost of any change to the Plans or the Tenant Improvement Work required byLaw; (g) the Landlord Supervision Fee (defined in Section 3.4.1 below); (h) sales and use taxes; and (i) all other costs expended by Landlord inconnection with the performance of the Tenant Improvement Work. 2ARCHITECTURAL PLANS; PRICING. 2.1 Selection of Architect. Landlord shall retain the architect/space planner of Landlord’s choice (the “Architect”) to prepare the ArchitecturalDrawings (defined in Section 2.5 below). 2.2 [Intentionally Omitted.] 2.3 Space Plan. Tenant shall prepare a space plan for the Tenant Improvements, including a layout and designation of all offices, rooms andother partitioning, and equipment to be contained in the Premises, together with their intended use (the “Space Plan”), and shall deliver four (4) copies ofthe Space Plan, signed by Tenant, to Landlord for its approval. The Space Plan shall (a) comply with the drawing format and specifications required byLandlord, (b) be consistent with Landlord’s requirements for avoiding aesthetic, engineering or other conflicts with the design and function of thebalance of the Building (collectively, the “Landlord Requirements”), and (c) otherwise be subject to Landlord’s reasonable approval. Landlord shallprovide Tenant with notice approving or reasonably disapproving the Space Plan within 10 business days after the later of Landlord’s receipt thereof orthe mutual execution and delivery of this Agreement. If Landlord disapproves the Space Plan, Landlord’s notice of disapproval shall describe withreasonable specificity the basis for such disapproval and Tenant shall revise the Space Plan and resubmit it for Landlord’s approval. Such procedure shallbe repeated as necessary until Landlord has approved the Space Plan. Such approved Space Plan shall be referred to herein as the “Approved SpacePlan.” Landlord and Tenant acknowledge that, as of the date of mutual execution and delivery of this Agreement, Tenant has previously delivered toLandlord, and Landlord has approved, the Space Plan dated August 8, 2014 prepared by KemPharm, Inc., as required under this Section 2.3.  2.4 Additional Programming Information. After Landlord approves the Space Plan, Tenant shall deliver to Landlord, in writing, allinformation (including all interior and special finishes) that, when combined with the Approved Space Plan, will be sufficient to complete theArchitectural Drawings, together with all information (including all electrical requirements, telephone requirements, special HVAC requirements, andplumbing requirements) that, when combined with the Approved Space Plan, will be sufficient to complete the Engineering Drawings (collectively, the“Additional Programming Information”). The Additional Programming Information shall be (a) consistent with the Approved Space Plan and theLandlord Requirements, and (b) otherwise subject to Landlord’s reasonable approval. Landlord shall provide Tenant with notice approving or reasonablydisapproving the Additional Programming Information within five (5) business days after the later of Landlord’s receipt thereof or the mutual executionand delivery of this Agreement. If Landlord disapproves the Additional Programming Information, Landlord’s notice of disapproval shall describe withreasonable specificity the basis for such disapproval and Tenant shall modify the Additional Programming Information and resubmit it for Landlord’sapproval. Such procedure shall be repeated as necessary until Landlord has approved the Additional Programming Information. Such approvedAdditional Programming Information shall be referred to herein as the “Approved Additional Programming Information.” If requested by Tenant,Landlord, in its sole and absolute discretion, may assist Tenant, or cause the Architect and/or other contractors or consultants of Landlord to assist Tenant,in preparing all or a portion of the Additional Programming Information; provided, however, that, whether or not the Additional ProgrammingInformation is prepared with such assistance, Tenant shall be solely responsible for the timely preparation and delivery of the Additional ProgrammingInformation and for all elements thereof and, subject to Section 1 above, all costs relating thereto. Landlord and Tenant acknowledge that, as of the dateof mutual execution and delivery of this Agreement, Tenant has previously delivered to Landlord, and Landlord has approved, the AdditionalProgramming Information, as required under this Section 2.4. 2.5 Architectural Drawings. After approving the Additional Programming Information, Landlord shall cause the Architect to prepare and deliverto Tenant the final architectural (and, if applicable, structural) working drawings for the Tenant Improvement Work that are in a form that (a) whencombined with any Approved Additional Programming Information that is not expressly incorporated into such working drawings, will be sufficient toenable the Contractor (defined in Section 3.1 below) and its subcontractors to bid on the Tenant Improvement Work, and (b) when combined with anyEngineering Drawings that satisfy the Engineering Requirements (defined in Section 3.2.1 below), will be sufficient to obtain the Permits (defined inSection 3.3 below) (the “Architectural Drawings”). The Architectural Drawings shall conform to the Approved Space Plan and the Approved AdditionalProgramming Information. The Architect’s preparation and delivery of the Architectural Drawings shall occur within 10 business days after the later ofLandlord’s approval of the Additional Programming Information or the mutual execution and delivery of this Agreement. Tenant shall approve ordisapprove the Architectural Drawings by notice to Landlord. If Tenant disapproves the Architectural Drawings, Tenant’s notice of disapproval shallspecify any revisions Tenant desires in the Architectural Drawings. After receiving such notice of disapproval, Landlord shall cause the Architect to revisethe Architectural Drawings and resubmit them to Tenant, taking into account the reasons for Tenant’s disapproval; provided, however, that Landlord shallnot be required to cause the Architect to make any revision to the Architectural Drawings that conflicts with the Landlord Requirements or is otherwisereasonably disapproved by Landlord. Such revision and resubmission shall occur within five (5) business days after the later of Landlord’s receipt ofTenant’s notice of disapproval or the mutual execution and delivery of this Agreement if such revision is not material, and within such longer period oftime as may be reasonably necessary (but not more than 15 business days after the later of such receipt or such mutual execution and delivery) if suchrevision is material. Such procedure shall be repeated as necessary until Tenant has approved the Architectural Drawings. Such approved ArchitecturalDrawings shall be referred to herein as the “Approved Architectural Drawings.” 2.6 Construction Pricing. 2.6.1 Construction Pricing Proposal. Within 10 business days after the Architectural Drawings are approved by Landlord and Tenant,Landlord shall provide Tenant with Landlord’s reasonable estimate (the “Construction Pricing Proposal”) of the cost of all Allowance Items to beincurred by Tenant in connection with the performance of the Tenant Improvement Work pursuant to the Approved Architectural Drawings and theApproved Additional Programming Information. Tenant shall provide Landlord with notice approving or disapproving the Construction PricingProposal. If Tenant disapproves the Construction Pricing Proposal, Tenant’s notice of disapproval shall be accompanied by proposed revisions to theApproved Architectural Drawings and/or the Approved Additional Programming Information that Tenant requests in order to resolve its objections to theConstruction Pricing Proposal, and Landlord shall respond as required under Section 2.7 below. Such procedure shall be repeated as necessary until theConstruction Pricing Proposal is approved by Tenant. Upon Tenant’s approval of the Construction Pricing Proposal, Landlord may purchase the items setforth in the Construction Pricing Proposal and begin construction relating to such items.  2.6.2 Over-Allowance Amount. If the Construction Pricing Proposal exceeds the Allowance, then Tenant, concurrently with its deliveryto Landlord of its approval of the Construction Pricing Proposal, shall deliver to Landlord cash in the amount of such excess (the “Over-AllowanceAmount”). Any Over-Allowance Amount shall be disbursed by Landlord before the Allowance and pursuant to the same procedure as the Allowance. If,after the Construction Pricing Proposal is approved by Tenant, (a) any revision is made to the Approved Additional Programming Information or theApproved Architectural Drawings, or Tenant disapproves any Engineering Drawings that satisfy the Engineering Requirements, or the TenantImprovement Work is otherwise changed, in each case in a way that increases the Construction Pricing Proposal, or (b) the Construction Pricing Proposalis otherwise increased to reflect the actual cost of all Allowance Items to be incurred by Tenant in connection with the performance of the TenantImprovement Work pursuant to the terms hereof, then Tenant shall deliver any resulting Over-Allowance Amount (or any resulting increase in the Over-Allowance Amount) to Landlord immediately upon Landlord’s request. 2.7 Revisions to Approved Architectural Drawings, Approved Additional Programming Information, or Approved Space Plan. 2.7.1 Approved Architectural Drawings. If Tenant requests any revision to the Approved Architectural Drawings, Landlord shall provideTenant with notice approving or reasonably disapproving such revision, and, if Landlord approves such revision, Landlord shall have such revision madeand delivered to Tenant, together with notice of any resulting change in the most recent Construction Pricing Proposal, if any, within 10 business daysafter the later of Landlord’s receipt of such request or the mutual execution and delivery of this Agreement if such revision is not material, and withinsuch longer period of time as may be reasonably necessary (but not more than 15 business days after the later of such receipt or such execution anddelivery) if such revision is material, whereupon Tenant, within one (1) business day, shall notify Landlord whether it desires to proceed with suchrevision. If Landlord has begun performing the Tenant Improvement Work, then, in the absence of such authorization, Landlord shall have the option tocontinue such performance disregarding such revision. Landlord shall not revise the Approved Architectural Drawings without Tenant’s consent, whichshall not be unreasonably withheld or conditioned. Tenant shall approve, or reasonably disapprove (and state, with reasonable specificity, its reasons fordisapproving), any revision to the Approved Architectural Drawings within two (2) business days after receiving Landlord’s request for approval thereof.For purposes hereof, any change order affecting the Approved Architectural Drawings shall be deemed a revision to the Approved Architectural Drawings. 2.7.2 Approved Additional Programming Information. If Tenant requests Landlord’s approval of any revision to the ApprovedAdditional Programming Information, Landlord shall provide Tenant with notice approving or reasonably disapproving such revision, together withnotice of any resulting change in the most recent Construction Pricing Proposal, if any, within five (5) business days after the later of Landlord’s receipt ofsuch request or the mutual execution and delivery of this Agreement, whereupon Tenant, within one (1) business day, shall notify Landlord whether itdesires to proceed with such revision. If Landlord has begun performing the Tenant Improvement Work, then, in the absence of such authorization,Landlord shall have the option to continue such performance disregarding such revision. Landlord shall not revise the Approved AdditionalProgramming Information without Tenant’s consent, which shall not be unreasonably withheld or conditioned. Tenant shall approve, or reasonablydisapprove (and state, with reasonable specificity, its reasons for disapproving), any revision to the Approved Additional Programming Informationwithin two (2) business days after receiving Landlord’s request for approval thereof. 2.7.3 Approved Space Plan. If Tenant requests Landlord’s approval of any revision to the Approved Space Plan, Landlord shall provideTenant with notice approving or reasonably disapproving such revision within five (5) business days after the later of Landlord’s receipt of such requestor the mutual execution and delivery of this Agreement. If Landlord has begun performing the Tenant Improvement Work, then, in the absence of suchauthorization, Landlord shall have the option to continue such performance disregarding such revision. Landlord shall not revise the Approved SpacePlan without Tenant’s consent, which shall not be unreasonably withheld or conditioned. Tenant shall approve, or reasonably disapprove (and state, withreasonable specificity, its reasons for disapproving), any revision to the Approved Space Plan within two (2) business days after receiving Landlord’srequest for approval thereof. 2.8 Tenant’s Approval Deadline. Tenant shall approve the Construction Pricing Proposal pursuant to Section 2.6.1 above on or before Tenant’sApproval Deadline (defined below). As used in this Work Letter, “Tenant’s Approval Deadline” means the date occurring 30 days after the mutualexecution and delivery of this Agreement; provided, however, that Tenant’s Approval Deadline shall be extended by one (1) day for each day, if any, bywhich Tenant’s approval of the Construction Pricing Proposal pursuant to Section 2.6.1 above is delayed by any failure of Landlord to perform itsobligations under this Section 2.  3CONSTRUCTION. 3.1 Contractor. Landlord shall retain a contractor of its choice (the “Contractor”) to perform the Tenant Improvement Work. In addition,Landlord may select and/or approve of any subcontractors, mechanics and materialmen used in connection with the performance of the TenantImprovement Work. 3.2 Engineering Drawings. 3.2.1 Preparation. Landlord shall cause the engineering working drawings for the mechanical, electrical, plumbing, fire-alarm and firesprinkler work in the Premises (the “Engineering Drawings”) to (a) be prepared by one or more of the Architect, the Contractor, and/or engineers or otherconsultants selected and/or retained by the Architect, the Contractor or Landlord, and (b) conform to the Approved Space Plan, the Approved AdditionalProgramming Information, the first sentence of Section 4 below, and any then-existing Approved Architectural Drawings (collectively, the “EngineeringRequirements”). 3.2.2 Design Build. Except as provided in Section 3.2.3 below: A. Delivery and Approval. The Engineering Drawings shall be delivered to Tenant within 10 business days after the later ofTenant’s approval of the Architectural Drawings pursuant to Section 2.5 above or the mutual execution and delivery of this Agreement. Tenant shallapprove, or reasonably disapprove (and state, with reasonable specificity, its reasons for disapproving), the Engineering Drawings within two (2) businessdays after the latest of (a) Tenant’s receipt of the Engineering Drawings, (b) Tenant’s approval of the Architectural Drawings, or (c) the mutual executionand delivery of this Agreement. After receiving any such notice of reasonable disapproval, Landlord shall cause the Contractor to revise the EngineeringDrawings and resubmit them to Tenant, taking into account the reasons for Tenant’s disapproval; provided, however, that Landlord shall not be requiredto make any revision to the Engineering Drawings that conflicts with the Engineering Requirements or the Landlord Requirements or is otherwisereasonably disapproved by Landlord. Such procedure shall be repeated as necessary until Tenant has reasonably approved the Engineering Drawings.Such approved Engineering Drawings shall be referred to herein as the “Approved Engineering Drawings”. B. Revisions. If Tenant requests any revision to the Approved Engineering Drawings, Landlord shall provide Tenant with noticeapproving or reasonably disapproving such revision, and, if Landlord approves such revision, Landlord shall have such revision made and delivered toTenant, together with notice of any resulting change in the most recent Construction Pricing Proposal, within five (5) business days after the later ofLandlord’s receipt of such request or the mutual execution and delivery of this Agreement if such revision is not material, and within such longer periodof time as may be reasonably necessary (but not more than 10 business days after the later of such receipt or such execution and delivery) if such revisionis material, whereupon Tenant, within one (1) business day, shall notify Landlord whether it desires to proceed with such revision. If Landlord has begunperforming the Tenant Improvement Work, then, in the absence of such authorization, Landlord shall have the option to continue such performancedisregarding such revision. Landlord shall not revise the Approved Engineering Drawings without Tenant’s consent, which shall not be unreasonablywithheld or conditioned. Tenant shall approve, or reasonably disapprove (and state, with reasonable specificity, its reasons for disapproving), anyrevision to the Approved Engineering Drawings within two (2) business days after receiving Landlord’s request for approval thereof. Any change orderaffecting the Approved Engineering Drawings shall be deemed a revision to the Approved Engineering Drawings. 3.2.3 Design Bid Build. If Landlord, at its option, causes the Engineering Drawings to be delivered to Tenant on or before the date onwhich the Architectural Drawings are first delivered to Tenant pursuant to Section 2.5 above, then (a) Section 3.2.2 above shall not apply; (b) Tenant’sreview and approval of, and any revisions to, the Engineering Drawings shall be governed by Sections 2.5 and 2.7 above as if the Engineering Drawingswere part of the Architectural Drawings; and (c) the Engineering Drawings, as approved by Tenant pursuant to Section 2.5 above, shall be referred toherein as the “Approved Engineering Drawings”. 3.3 Permits. Landlord shall cause the Contractor to submit the Approved Architectural Drawings and the Approved Engineering Drawings(collectively, the “Approved Construction Drawings”) to the appropriate municipal authorities and otherwise apply for and obtain from such authoritiesall permits necessary for the Contractor to complete the Tenant Improvement Work (the “Permits”). 3.4 Construction. 3.4.1 Performance of Tenant Improvement Work. Landlord shall cause the Contractor to perform the Tenant Improvement Work inaccordance with the Approved Construction Drawings. Tenant shall pay a construction supervision and management fee (the “Landlord SupervisionFee”) to Landlord in an amount equal to 4% of the aggregate amount of all Allowance Items other than the Landlord Supervision Fee.  3.4.2 Contractor’s Warranties. Tenant waives all claims against Landlord relating to any defects in the Tenant Improvements; provided,however, that if, within 30 days after substantial completion of the Tenant Improvement Work, Tenant provides notice to Landlord of any non-latentdefect in the Tenant Improvements, or if, within 11 months after substantial completion of the Tenant Improvement Work, Tenant provides notice toLandlord of any latent defect in the Tenant Improvements, then Landlord shall promptly cause such defect to be corrected. 4 COMPLIANCE WITH LAW; SUITABILITY FOR TENANT’S USE. Landlord shall cause the Architect and the Contractor to use the RequiredLevel of Care (defined below) to cause the Architectural Drawings and the Engineering Drawings to comply with Law; provided, however, that Landlordshall not be responsible for any violation of Law resulting from (a) any particular use of the Premises (as distinguished from general office use), or (b) anyfailure of the Approved Space Plan or the Approved Additional Programming Information to comply with Law. As used herein, “Required Level of Care”means the level of care that reputable architects and engineers customarily use to cause architectural and engineering plans, drawings and specificationsto comply with Law where such plans, drawings and specifications are prepared for spaces in buildings comparable in quality to the Building. Except asprovided above in this Section 4, Tenant shall be responsible for ensuring that the Space Plan, the Additional Programming Information, the ArchitecturalDrawings and the Engineering Drawings (collectively, the “Plans”) are suitable for Tenant’s use of the Premises and comply with Law, and neither thepreparation of any of the Plans by the Architect or the Contractor nor Landlord’s approval of the Plans shall relieve Tenant from such responsibility. Tothe extent that either party (the “Responsible Party”) is responsible under this Section 4 for causing the Plans to comply with Law, the Responsible Partymay contest any alleged violation of Law in good faith, including by seeking a waiver or deferment of compliance, asserting any defense allowed by Law,and exercising any right of appeal (provided that the other party incurs no liability as a result of such contest and that, after completing such contest, theResponsible Party makes any modification to the Plans or any alteration to the Premises that is necessary to comply with any final order or judgment). 5 COMPLETION. Tenant acknowledges and agrees that the Tenant Improvement Work may be performed during Building HVAC Hours before orafter the Commencement Date. Landlord and Tenant shall cooperate with each other in order to enable the Tenant Improvement Work to be performed ina timely manner and with as little inconvenience to the operation of Tenant’s business as is reasonably possible. Notwithstanding any contrary provisionof this Agreement, any delay in the completion of the Tenant Improvement Work or inconvenience suffered by Tenant during the performance of theTenant Improvement Work shall not delay the Commencement Date, nor shall it subject Landlord to any liability for any loss or damage resultingtherefrom or entitle Tenant to any credit, abatement or adjustment of rent or other sums payable under the Lease. 6 MISCELLANEOUS. Notwithstanding any contrary provision of this Agreement, if Tenant defaults under this Agreement before the TenantImprovement Work is completed, Landlord’s obligations under this Work Letter shall be excused until such default is cured and Tenant shall beresponsible for any resulting delay in the completion of the Tenant Improvement Work. This Work Letter shall not apply to any space other than thePremises.  EXHIBIT C CELEBRATION OFFICE CENTER II1170 CELEBRATION BOULEVARDCELEBRATION, FLORIDA CONFIRMATION LETTER _____________________, 20__ To:____________________________________________________________________________________________Re:Office Lease (the “Lease”) dated ______________, 20____, between BRE/COH FL LLC, a Delaware limited liability company(“Landlord”), and KEMPHARM, INC., a Delaware corporation (“Tenant”), concerning Suite 103 on the first floor of the building located at1170 Celebration Boulevard, Celebration, Florida. Lease ID: _____________________________Business Unit Number: __________________ Dear _________________: In accordance with the Lease, Tenant accepts possession of the Premises and confirms the following: 1.The Commencement Date is _____________ and the Expiration Date is _______________. 2.The exact number of rentable square feet within the Premises is 3,221 square feet, subject to Section 2.1.1 of the Lease. 3.Tenant’s Share, based upon the exact number of rentable square feet within the Premises, is 4.0043%, subject to Section 2.1.1 of theLease. Please acknowledge the foregoing by signing all three (3) counterparts of this letter in the space provided below and returning two (2) fullyexecuted counterparts to my attention. Please note that, pursuant to Section 2.1.1 of the Lease, if Tenant fails to execute and return (or, by notice toLandlord, reasonably object to) this letter within five (5) days after receiving it, Tenant shall be deemed to have executed and returned it withoutexception. Landlord’s Witnesses: Print Name: Print Name:“Landlord”:BRE/COH FL LLC, a Delaware limited liability company By:Name:Title:Agreed and Accepted as of , 20__.“Tenant”:KEMPHARM, INC., a Delaware corporation By:Name:Title: Tenant’s Witnesses: Print Name: Print Name:  EXHIBIT D CELEBRATION OFFICE CENTER II1170 CELEBRATION BOULEVARDCELEBRATION, FLORIDA RULES AND REGULATIONS Tenant shall comply with the following rules and regulations (as modified or supplemented from time to time, the “Rules and Regulations”).Landlord shall not be responsible to Tenant for the nonperformance of any of the Rules and Regulations by any other tenants or occupants of the Project.In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control. 1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtainingLandlord’s prior consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two (2) keys will be furnished by Landlord for thePremises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. Upon thetermination of this Lease, Tenant shall restore to Landlord all keys of stores, offices and toilet rooms furnished to or otherwise procured by Tenant, and ifany such keys are lost, Tenant shall pay Landlord the cost of replacing them or of changing the applicable locks if Landlord deems such changesnecessary. 2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises. 3. Landlord may close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparablebuildings in the vicinity of the Building. Tenant shall cause its employees, agents, contractors, invitees and licensees who use Building doors duringsuch hours to securely close and lock them after such use. Any person entering or leaving the Building during such hours, or when the Building doors areotherwise locked, may be required to sign the Building register, and access to the Building may be refused unless such person has proper identification orhas a previously arranged access pass. Landlord will furnish passes to persons for whom Tenant requests them. Tenant shall be responsible for all personsfor whom Tenant requests passes and shall be liable to Landlord for all acts of such persons. Landlord and its agents shall not be liable for damages forany error with regard to the admission or exclusion of any person to or from the Building. In case of invasion, mob, riot, public excitement or othercommotion, Landlord may prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safetyand protection of life and property. 4. No furniture, freight or equipment shall be brought into the Building without prior notice to Landlord. All moving activity into or out of theBuilding shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates. Landlord may prescribe the weight,size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of theBuilding. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properlydistribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property. Any damage to the Building, its contents,occupants or invitees resulting from Tenant’s moving or maintaining any such safe or other heavy property shall be the sole responsibility and expense ofTenant (notwithstanding Sections 7 and 10.4 of this Lease). 5. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators, exceptbetween such hours, in such specific elevator and by such personnel as shall be designated by Landlord. 6. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions fromLandlord. 7. No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or theBuilding without Landlord’s prior consent. Tenant shall not disturb, solicit, peddle or canvass any occupant of the Project. 8. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed,and no foreign substance shall be thrown therein. Notwithstanding Sections 7 and 10.4 of this Lease, Tenant shall bear the expense of any breakage,stoppage or damage resulting from any violation of this rule by Tenant or any of its employees, agents, contractors, invitees or licensees.  9. Tenant shall not overload the floor of the Premises, or mark, drive nails or screws or drill into the partitions, woodwork or drywall of thePremises, or otherwise deface the Premises, without Landlord’s prior consent. Tenant shall not purchase bottled water, ice, towel, linen, maintenance orother like services from any person not approved by Landlord. 10. Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines other thanfractional horsepower office machines shall be installed, maintained or operated in the Premises without Landlord’s prior consent. 11. Tenant shall not, without Landlord’s prior consent, use, store, install, disturb, spill, remove, release or dispose of, within or about thePremises or any other portion of the Project, any asbestos-containing materials, any solid, liquid or gaseous material now or subsequently consideredtoxic or hazardous under the provisions of 42 U.S.C. Section 9601 et seq. or any other applicable environmental Law, or any inflammable, explosive ordangerous fluid or substance; provided, however, that Tenant may use, store and dispose of such substances in such amounts as are typically found insimilar premises used for general office purposes provided that such use, storage and disposal does not damage any part of the Premises, Building orProject and is performed in a safe manner and in accordance with all Laws. Tenant shall comply with all Laws pertaining to and governing the use of suchmaterials by Tenant and shall remain solely liable for the costs of abatement and removal. No burning candle or other open flame shall be ignited or keptby Tenant in or about the Premises, Building or Project. 12. Tenant shall not, without Landlord’s prior consent, use any method of heating or air conditioning other than that supplied by Landlord. 13. Tenant shall not use or keep any foul or noxious gas or substance in or on the Premises, or occupy or use the Premises in a manneroffensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors or vibrations, or interfere with other occupants or thosehaving business therein, whether by the use of any musical instrument, radio, CD player or otherwise. Tenant shall not throw anything out of doors,windows or skylights or down passageways. 14. Tenant shall not bring into or keep within the Project, the Building or the Premises any animals (other than service animals), birds,aquariums, or, except in areas designated by Landlord, bicycles or other vehicles. 15. No cooking shall be done in the Premises, nor shall the Premises be used for lodging, for living quarters or sleeping apartments, or for anyimproper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens maybe used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and invitees, provided that such usecomplies with all Laws. 16. The Premises shall not be used for manufacturing or for the storage of merchandise except to the extent such storage may be incidental tothe Permitted Use. Tenant shall not occupy the Premises as an office for a messenger-type operation or dispatch office, public stenographer or typist, or forthe manufacture or sale of liquor, narcotics or tobacco, or as a medical office, a barber or manicure shop, or an employment bureau, without Landlord’sprior consent. Tenant shall not engage or pay any employees in the Premises except those actually working for Tenant in the Premises, nor advertise forlaborers giving an address at the Premises. 17. Landlord may exclude from the Project any person who, in Landlord’s judgment, is intoxicated or under the influence of liquor or drugs, orwho violates any of these Rules and Regulations. 18. Tenant shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any CommonAreas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means ofingress and egress for the Premises. 19. Tenant shall not waste electricity, water or air conditioning, shall cooperate with Landlord to ensure the most effective operation of theBuilding’s heating and air conditioning system, and shall not attempt to adjust any controls. Tenant shall install and use in the Premises only ENERGYSTAR rated equipment, where available. Tenant shall use recycled paper in the Premises to the extent consistent with its business requirements. 20. Tenant shall store all its trash and garbage inside the Premises. No material shall be placed in the trash or garbage receptacles if, under Law,it may not be disposed of in the ordinary and customary manner of disposing of trash and garbage in the vicinity of the Building. All trash, garbage andrefuse disposal shall be made only through entryways and elevators provided for such purposes at such times as Landlord shall designate. Tenant shallcomply with Landlord’s recycling program, if any.  21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or anygovernmental agency. 22. Any persons employed by Tenant to do janitorial work shall be subject to Landlord’s prior consent and, while in the Building and outsideof the Premises, shall be subject to the control and direction of the Building manager (but not as an agent or employee of such manager or Landlord), andTenant shall be responsible for all acts of such persons. 23. No awning or other projection shall be attached to the outside walls of the Building without Landlord’s prior consent. Other thanLandlord’s Building-standard window coverings, no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, anywindow or door of the Premises. All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescentand/or of a quality, type, design and a warm white bulb color approved in advance by Landlord. Neither the interior nor exterior of any windows shall becoated or otherwise sunscreened without Landlord’s prior consent. Tenant shall abide by Landlord’s regulations concerning the opening and closing ofwindow coverings. 24. Tenant shall not obstruct any sashes, sash doors, skylights, windows or doors that reflect or admit light or air into the halls, passageways orother public places in the Building, nor shall Tenant place any bottles, parcels or other articles on the windowsills. 25. Tenant must comply with requests by Landlord concerning the informing of their employees of items of importance to the Landlord. 26. Smoking of cigarettes, pipes, cigars or any other substance is prohibited at all times within the interior portions of the Building and Project(including, without limitation, the Premises) and in any exterior portions of the Project other than areas, if any, designated by Landlord for smoking.Tenant must comply with the Florida Clean Indoor Air Act (Florida Statutes, Chapter 386, Part II, and any Florida Administrative Code rules promulgatedwith respect thereto) and with any local “No-Smoking” ordinance that is not superseded by such law. 27. Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by Law. 28. All office equipment of an electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, toabsorb or prevent any vibration, noise or annoyance. 29. Tenant shall not use any hand trucks except those equipped with rubber tires and rubber side guards. 30. No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without Landlord’s priorconsent. 31. Without Landlord’s prior consent, Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project orBuilding in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises. Landlord may from time to time modify or supplement these Rules and Regulations in a manner that, in Landlord’s reasonable judgment, isappropriate for the management, safety, care and cleanliness of the Premises, the Building, the Common Areas and the Project, for the preservation ofgood order therein, and for the convenience of other occupants and tenants thereof. Landlord may waive any of these Rules and Regulations for thebenefit of any tenant, but no such waiver shall be construed as a waiver of such Rule and Regulation in favor of any other tenant nor prevent Landlordfrom thereafter enforcing such Rule and Regulation against any tenant.  EXHIBIT E CELEBRATION OFFICE CENTER II1170 CELEBRATION BOULEVARDCELEBRATION, FLORIDA ADDITIONAL PROVISIONS 1. Right of First Offer. 1.1.Grant of Option; Conditions. A.Subject to the terms of this Section 1, Tenant shall have a right of first offer (“Right of First Offer”) with respect to thefollowing suite (and with respect to each portion of such suite) (such suite or portion thereof, a “Potential Offering Space”):the 1,418 rentable square feet known as Suite 101 on the first floor of the Building shown on the demising plan attached to theLease as Exhibit F. Tenant’s Right of First Offer shall be exercised as follows: At any time after Landlord has determined that aPotential Offering Space has become Available (defined below), but before leasing such Potential Offering Space to a thirdparty, Landlord, subject to the terms of this Section 1, shall provide Tenant with a written notice (for purposes of this Section 1,an “Advice”) advising Tenant of the material terms on which Landlord is prepared to lease such Potential Offering Space(sometimes referred to herein as an “Offering Space”) to Tenant, which terms shall be consistent with Section 1.2 below. Forpurposes hereof, a Potential Offering Space shall be deemed to become “Available” as follows: (i) if such Potential OfferingSpace is not leased to a third party as of the date of mutual execution and delivery of this Lease, such Potential Offering Spaceshall be deemed to become Available when Landlord has located a prospective tenant that may be interested in leasing suchPotential Offering Space; and (ii) if such Potential Offering Space is leased to a third party as of, the date of mutual executionand delivery of this Lease, such Potential Offering Space shall be deemed to become Available when Landlord has determinedthat such third-party tenant, and any occupant of such Potential Offering Space claiming under such third-party tenant, will notextend or renew the term of its lease, or enter into a new lease, for such Potential Offering Space. Upon receiving an Advice,Tenant may lease the Offering Space, in its entirety only, under the terms set forth in the Advice, by delivering to Landlord awritten notice of exercise (for purposes of this Section 1, a “Notice of Exercise”) within five (5) days after receiving theAdvice. B.If Tenant receives an Advice but does not deliver a Notice of Exercise within the period of time required under Section 1.1.Aabove, Landlord may lease the Offering Space to any party on any terms determined by Landlord in its sole and absolutediscretion. C.Notwithstanding any contrary provision hereof, (i) Landlord shall not be required to provide Tenant with an Advice if any ofthe following conditions exists when Landlord would otherwise deliver the Advice; and (ii) if Tenant receives an Advice fromLandlord, Tenant shall not be entitled to lease the Offering Space based on such Advice if any of the following conditionsexists: (1)a Default exists; (2)all or any portion of the Premises is sublet); (3)the Lease has been assigned; or (4)Tenant is not occupying the Premises. If, by operation of the preceding sentence, Landlord is not required to provide Tenant with an Advice, or Tenant, afterreceiving an Advice, is not entitled to lease the Offering Space based on such Advice, then Landlord may lease the OfferingSpace to any party on any terms determined by Landlord in its sole and absolute discretion. 1.2.Terms for Offering Space. A.The term for the Offering Space shall be coterminous with the term for the balance of the Premises.  B.The term for the Offering Space shall commence on the commencement date stated in the Advice and thereupon the OfferingSpace shall be considered a part of the Premises subject to the provisions of the Lease; provided, however, that the provisionsof the Advice shall prevail to the extent they conflict with the provisions of the Lease. C.Tenant shall pay Monthly Rent for the Offering Space in accordance with the provisions of the Advice. The Advice shallreflect the Prevailing Market (defined in Section 1.5 below) rate for the Offering Space as determined in Landlord’s reasonablejudgment. D.Except as may be otherwise provided in the Advice, (i) the Offering Space (including improvements and personalty, if any)shall be accepted by Tenant in its configuration and condition existing on the earlier of the date Tenant takes possession of theOffering Space or the commencement date for the Offering Space; and (ii) if Landlord is delayed in delivering possession of theOffering Space by any holdover or unlawful possession of the Offering Space by any party, Landlord shall use reasonableefforts to obtain possession of the Offering Space and any obligation of Landlord to tender possession of, permit entry to, orperform alterations to the Offering Space shall be deferred until after Landlord has obtained possession of the Offering Space. 1.3.Termination of Right of First Offer. A.Notwithstanding any contrary provision hereof, Landlord shall not be required to provide Tenant with an Advice, and Tenantshall not be entitled to exercise its Right of First Offer, after September 30, 2016. B.Notwithstanding any contrary provision hereof, Landlord shall not be required to provide Tenant with an Advice, and Tenantshall not be entitled to exercise its Right of First Offer, with respect to any Potential Offering Space after the date, if any, onwhich Landlord becomes entitled to lease such Potential Offering Space to a third party under Section 1.1.B or 1.1.C above. 1.4.Offering Amendment. If Tenant validly exercises its Right of First Offer, Landlord, within a reasonable period of time thereafter, shallprepare and deliver to Tenant an amendment (the “Offering Amendment”) adding the Offering Space to the Premises on the terms setforth in the Advice and reflecting the changes in the Base Rent, the rentable square footage of the Premises, Tenant’s Share, and otherappropriate terms in accordance with this Section 1. Tenant shall execute and return the Offering Amendment to Landlord within15 days after receiving it, but an otherwise valid exercise of the Right of First Offer shall be fully effective whether or not the OfferingAmendment is executed. 1.5.Definition of Prevailing Market. For purposes of this Section 1, “Prevailing Market” means the arms-length, fair-market, annual rentalrate per rentable square foot, under renewal and expansion leases and amendments entered into on or about the date on which thePrevailing Market is being determined hereunder, for space comparable to the Offering Space in the Building and office buildingscomparable to the Building in the Celebration, Florida area. The determination of Prevailing Market shall take into account (i) anymaterial economic differences between the terms of the Lease and any comparison lease or amendment, such as rent abatements,construction costs and other concessions, and the manner, if any, in which the landlord under any such lease is reimbursed for operatingexpenses and taxes; and (ii) any material differences in configuration or condition between the Offering Space and any comparisonspace. 1.6.Subordination. Notwithstanding any contrary provision hereof, Tenant’s Right of First Offer shall be subject and subordinate to theexpansion rights (whether such rights are designated as a right of first offer, right of first refusal, expansion option or otherwise) of anytenant of the Project existing on the date hereof. In addition, if Landlord, as permitted under Section 1.1.B or 1.1.C above, leases anyPotential Offering Space to a third party on terms including a right of first offer, right of first refusal, expansion option or otherexpansion right with respect to any other Potential Offering Space (and if, in the case of any such lease permitted under Section 1.1.Babove, such expansion right was disclosed in the Advice received by Tenant), then Tenant’s Right of First Offer with respect to suchother Potential Offering Space shall be subject and subordinate to such expansion right in favor of such third party.  EXHIBIT F CELEBRATION OFFICE CENTER II1170 CELEBRATION BOULEVARDCELEBRATION, FLORIDA POTENTIAL OFFERING SPACE Exhibit 10.29FIRST AMENDMENT THIS FIRST AMENDMENT (this "Amendment") is made and entered into as of April 21, 2015, by and between BRE/COH FL LLC, aDelaware limited liability company ("Landlord"), and KEMPHARM, INC., a Delaware corporation ("Tenant"). RECITALS A.Landlord and Tenant are parties to that certain lease dated November 3, 2014 (the "Lease"). Pursuant to the Lease, Landlord has leased toTenant space currently containing approximately 3,221 rentable square feet (the "Existing Premises") described as Suite I03 on the first floorof the building commonly known as Celebration Office Center II located at 1170 Celebration Boulevard, Celebration , Florida (the"Building".) B.The Lease will expire by its terms on October 31, 2017 (the "Existing Expiration Date"), and the parties wish to extend the term of the Leaseon the following terms and conditions. C.The parties wish to expand the Premises (defined in the Lease) to include additional space, containing approximately 1,418 rentable squarefeet described as Suite I02B on the first floor of the Building and shown on Exhibit A attached hereto (the "Expansion Space"), on thefollowing terms and conditions. NOW, THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenants andconditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged , Landlord and Tenantagree as follows: 1.Extension. The term of the Lease is hereby extended through the last day of the 36th full calendar month beginning on or after the ExpansionEffective Date (defined in Section 2.2 below) (the "Extended Expiration Date"). The portion of the term of the Lease beginning on the dateimmediately following the Existing Expiration Date (the "Extension Date") and ending on the Extended Expiration Date shall be referred toherein as the "Extended Term". 2.Expansion. 2.1.Effect of Expansion. Effective as of the Expansion Effective Date (defined in Section 2.2 below), the Premises shall be increased from3,221 rentable square feet on the first floor to 4,639 rentable square feet on the first floor by the addition of the Expansion Space, and,from and after the Expansion Effective Date, the Existing Premises and the Expansion Space shall collectively be deemed thePremises. The term of the Lease for the Expansion Space (the "Expansion Term") shall commence on the Expansion Effective Dateand, unless sooner terminated in accordance with the Lease, end on the Extended Expiration Date. From and after the ExpansionEffective Date, the Expansion Space shall be subject to all the terms and conditions of the Lease except as provided herein. Except asmay be expressly provided herein, (a) Tenant shall not be entitled to receive, with respect to the Expansion Space, any allowance, freerent or other financial concession granted with respect to the Existing Premises, and (b) no representation or warranty made byLandlord with respect to the Existing Premises shall apply to the Expansion Space. 2.2.Expansion Effective Date. As used herein, "Expansion Effective Date" means the earlier to occur of (i) the first date on which Tenantconducts business in the Expansion Space, or (ii) the date on which the Tenant Improvement Work (defined in Exhibit B attachedhereto) is Substantially Complete (defined in Exhibit B attached hereto), which is anticipated to be May I, 2015 (the "TargetExpansion Effective Date"). The adjustment of the Expansion Effective Date and, accordingly, the postponement of Tenant'sobligation to pay rent for the Expansion Space shall be Tenant's sole remedy if the Tenant Improvement Work is not SubstantiallyComplete on the Target Expansion Effective Date. 2.3.Confirmation Letter. At any time after the Expansion Effective Date, Landlord may deliver to Tenant a notice substantially in theform of Exhibit C attached hereto, as a confirmation of the information set forth therein. Tenant shall execute and return (or, bywritten notice to Landlord, reasonably object to) such notice within five (5) days after receiving it.  3.Base Rent. 3.1. Existing Premises During Extended Term. With respect to the Existing Premises during the Extended Term, the schedule of BaseRent shall be as follows: Period of Extended TermAnnual Rate Per SquareFoot (rounded to the nearest 100th ofa dollar)hMonthly Base Rent11/1/17 - 4/30/18$24.93$6,691.63 All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease. 3.2. Expansion Space During Expansion Term. With respect to the Expansion Space during the Expansion Term, the schedule of BaseRent shall be as follows: Period During ExpansionTermAnnual Rate Per Square Foot(rounded to thenearest 100th of a dollar)Monthly Base RentExpansion Effective Date through lastday of t 2'h full calendar month ofExpansion Term $23.50$2,776.9213h1 through 24h1 full calendarmonths of Expansion Term$24.21$2,860.82251 full calendar monthhof Expansion Term throughlast day of Expansion Term$24.93$2,945.90 All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease. 4. Security Deposit. No additional security deposit shall be required in connection with this Amendment. 5.Tenant's Share. With respect to the Expansion Space during the Expansion Term, Tenant's Share shall be 1.7628%. 6.Expenses and Taxes. 6.1.Existing Premises During Extended Term. With respect to the Existing Premises during the Extended Term, Tenant shall pay forTenant's Share of Expenses and Taxes in accordance with the terms of the Lease; provided, however, that, with respect to theExisting Premises during the Extended Term, the Base Year for Expenses and Taxes shall be 2015. 6.2.Expansion Space During Expansion Term. With respect to the Expansion Space during the Expansion Term, Tenant shall pay forTenant's Share of Expenses and Taxes in accordance with the terms of the Lease; provided, however, that, with respect to theExpansion Space during the Expansion Term, the Base Year for Expenses and Taxes shall be 2015. 7.Improvements to Existing Premises and Expansion Space. 7.1.Configuration and Condition of Existing Premises and Expansion Space. Tenant acknowledges that it is in possession of theExisting Premises and that it has inspected the Expansion Space, and agrees to accept each such space in its existing configurationand condition (or, in the case of the Expansion Space, in such other configuration and condition as any existing tenant of theExpansion Space may cause to exist in accordance with its lease), without any representation by Landlord regarding itsconfiguration or condition and without any obligation on the part of Landlord to perform or pay for any alteration or improvement,except as may be otherwise expressly provided in this Amendment.  7.2.Responsibility for Improvements to Existing Premises and Expansion Space. Landlord shall perform improvements to theExpansion Space in accordance with Exhibit B attached hereto. 8.Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date of this Amendment (unless different effective date(s)is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects: 8.1.Parking. Effective as of the Expansion Effective Date, the first sentence of Section 1.9 of the Lease is hereby amended by replacingthe number " I 6" with the number " 23". 9.Miscellaneous. 9.I . This Amendment and the attached exhibits, which are hereby incorporated into and made a part of this Amendment, set forth theentire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or writtenrepresentations or agreements. Tenant shall not be entitled, in connection with entering into this Amendment, to any free rent,allowance, alteration, improvement or similar economic incentive to which Tenant may have been entitled in connection withentering into the Lease, except as may be otherwise expressly provided in this Amendment. 9.2.Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full forceand effect. 9.3.In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shallgovern and control. 9.4.Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offerby Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered it to Tenant. 9.5.Capitalized terms used but not defined in this Amendment shall have the meanings given in the Lease. 9.6.Tenant shall indemnify and hold Landlord, its trustees, members, principals, beneficiaries, partners, officers, directors, employees,mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any brokers (otherthan TLC Home Management, LLC, a Florida limited liability company) claiming to have represented Tenant in connection with thisAmendment. Landlord shall indemnify and hold Tenant, its trustees, members, principals, beneficiaries, partners, officers, directors,employees, and agents, and the respective principals and members of any such agents harmless from all claims of any brokersclaiming to have represented Landlord in connection with this Amendment. Tenant acknowledges that any assistance rendered byany agent or employee of any affiliate of Landlord in connection with this Amendment has been made as an accommodation toTenant solely in furtherance of consummating the transaction on behalf of Landlord, and not as agent for Tenant. 9.7.If Tenant has any expansion right (whether such right is designated as a right of first offer, right of first refusal, expansion option orotherwise) that was granted to Tenant under the Lease (as determined without giving effect to this Amendment) and that, by virtue ofthis Amendment, will continue in effect during the Extended Term , then, from and after the Extension Date, such expansion rightshall be subject and subordinate to any expansion right (whether such right is designated as a right of first offer, right of first refusal,expansion option or otherwise) of any tenant of the Building or Project existing on the date of mutual execution and delivery hereof. 9.8.If Tenant has any expansion right (whether such right is designated as a right of first offer, right of first refusal, expansion option orotherwise) that was granted to Tenant under the Lease (as determined without giving effect to this Amendment) and that, by virtue ofthis Amendment, will apply to space different from or in addition to the space to which such expansion right previously applied,then, as applied to such different or additional space, such expansion right shall be subject and subordinate to any expansion right(whether such right is designated as a right of first offer, right of first refusal, expansion option or otherwise) of any tenant of theBuilding or Project existing on the date of mutual execution and delivery hereof.  {SIGNATURES ARE ON FOLLOWING PAGE}  IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written. WITNESSES: LANDLORD: /s/ Blanca Colón-Flynn BRE/COH FL LLC, a Delaware limited liability companyPrint Name:Blanca Colón-Flynn /s/ Rob Shults Name:Rob Shults/s/ Heather Bradley Title:VP – Asset ManagementPrint Name:Heather Bradley WITNESSES: TENANT: /s/ R. LaDuane Clifton KEMPHARM, INC, a Delaware corporationPrint Name:R. LaDuane Clifton /s/ Christal Mickle Name:Christal Mickle/s/ Christina Cruz Title:VP, Operations and Product DevelopmentPrint Name:Christina Cruz  EXHIBIT A OUTLINE AND LOCATION OF EXPANSION SPACE  EXHIBIT BWORK LETTERAs used in this Exhibit B (this "Work Letter"), the following terms shall have the following meanings: (i)"Tenant Improvements" means all improvements to be constructed in the Premises pursuant to this WorkLetter; and (ii)"Tenant Improvement Work'' means the construction of the Tenant Improvements, together with anyrelated work (including demolition) that is necessary to construct the Tenant Improvements. 1 ALLOWANCE. 1.1 Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the "Allowance") in the amountof$9,926.00 (i.e., $7.00 per rentable square foot of the Expansion Space) to be applied toward the Allowance Items (defined in Section1.2 below). Tenant shall be responsible for all costs associated with the Tenant Improvement Work, including the costs of the AllowanceItems, to the extent such costs exceed the lesser of (a) the Allowance, or (b) the aggregate amount that Landlord is required to disbursefor such purpose pursuant to this Work Letter. Notwithstanding any contrary provision of this Amendment, if Tenant fails to use theentire Allowance by December 31, 2015, the unused amount shall revert to Landlord and Tenant shall have no further rights with respectthereto. 1.2 Disbursement. Except as otherwise provided in this Work Letter, the Allowance shall be disbursed by Landlord only for thefollowing items (the "Allowance Items''): (a) [Intentionally Omitted};(b) [Intentionally Omitted}; (c) plan-check, permit and license fees relating to performance of the Tenant Improvement Work; (d) thecost of performing the Tenant Improvement Work, including after hours charges, testing and inspection costs, freight elevator usage,hoisting and trash removal costs, and contractors' fees and general conditions; (e) the cost of any change to the base, shell or core of theExpansion Space or Building required by the Work List (defined in Section 2.1 below) (including if such change is due to the fact thatsuch work is prepared on an unoccupied basis) , including all direct architectural and/or engineering fees and expenses incurred inconnection therewith; (f) the cost of any change to the Work List or the Tenant Improvement Work required by Law; (g) the LandlordSupervision Fee (defined in Section 3.4.1 below); (h) sales and use taxes; and (i) all other costs expended by Landlord in connectionwith the performance of the Tenant Improvement Work. 2WORK LIST AND PRICING. 2.1 Work List. Landlord shall perform Tenant Improvement Work in accordance with the following work list (the "WorkList") using Building-standard methods, materials and finishes. WORK LIST ITEMA. Demo wall between suites.B. Install 4 tele/data back boxes.C. Replace VCT in demo area with carpet.D. Touch-up paint in demo area.E. Add door between existing conference room and new suite. 2.2[Intentionally Omitted] 2.3[Intentionally Omitted} 2.4[Intentionally Omitted] 2.5[Intentionally Omitted] 2.6Construction Pricing. 2.6.1 Construction Pricing Proposal. Within five (5) business days after the mutual execution and delivery of thisAmendment, Landlord shall provide Tenant with Landlord's reasonable estimate (the "Construction Pricing Proposal") of the cost ofall Allowance Items to be incurred by Tenant in connection with the performance of the Tenant Improvement Work pursuant to theWork List.  Tenant in connection with the performance of the Tenant Improvement Work pursuant to the Work List. Tenant shall provide Landlord with noticeapproving or disapproving the Construction Pricing Proposal. If Tenant disapproves the Construction Pricing Proposal, Tenant' s notice of disapprovalshall be accompanied by proposed revisions to the Work List that Tenant requests in order to resolve its objections to the Construction PricingProposal, and Landlord shall respond as required under Section 2.7 below. Such procedure shall be repeated as necessary until the Construction PricingProposal is approved by Tenant. Upon Tenant's approval of the Construction Pricing Proposal, Landlord may purchase the items set forth in theConstruction Pricing Proposal and begin construction relating to such items. 2.6.2 Over-Allowance Amount. If the Construction Pricing Proposal exceeds the Allowance, then Tenant, concurrently with its deliveryto Landlord of its approval of the Construction Pricing Proposal, shall deliver to Landlord cash in the amount of such excess (the "Over-AllowanceAmount"). Any Over-Allowance Amount shall be disbursed by Landlord before the Allowance and pursuant to the same procedure as the Allowance.If, after the Construction Pricing Proposal is approved by Tenant, (a) any revision is made to the Work List or the Tenant Improvement Work isotherwise changed, in each case in a way that increases the Construction Pricing Proposal, or (b) the Con st ruction Pricing Proposal is otherwiseincreased to reflect the actual cost of all Allowance Items to be incurred by Tenant in connection with the performance of the Tenant ImprovementWork pursuant to the terms hereof, then Tenant shall deliver any resulting Over-Allowance Amount (or any resulting increase in the Over-AllowanceAmount) to Landlord immediately upon Landlord's request. 2.7 Revisions to Work List. The Work List shall not be revised without Landlord's agreement, which agreement may be withheld or conditioned in Landlord's sole and absolute discretion. If Tenant requests any revision to the Work List, Landlord shall provide Tenant with notice approving or disapprovingsuch revision, and, if Landlord approves such revision, Landlord shall have such revision made and delivered to Tenant, together with notice of anyresulting change in the most recent Construction Pricing Proposal, if any, within three (3) business s days after the later of Landlord's receipt of suchrequest or the mutual execution and delivery of this Amendment if such revision is not material, and within such longer period of time as may bereasonably necessary (but not more than four (4) business days after the later of such receipt or such execution and delivery) if such revision is material,whereupon Tenant, within one (I) business day, shall notify Landlord whether it desires to proceed with such revision . If Landlord has begun performingthe Tenant Improvement Work, then, in the absence of such authorization, Landlord shall have the option to continue such performance disregardingsuch revision. Landlord shall not revise the Work List without Tenant's consent, which shall not be unreasonably withheld, conditioned or delayed.2.8 Tenant's Approval Deadline. Tenant shall approve the Construction Pricing Proposal pursuant to Section 2.6.1 above on or beforeTenant's Approval Deadline (defined below). As used in this Work Letter, "Tenant's Approval Deadline" means the date occurring 10 business daysafter the mutual execution and delivery of this Amendment; provided, however, that Tenant' s Approval Deadline shall be extended by one (I) day foreach day, if any, by which Tenant' s approval of the Construction Pricing Proposal pursuant to Section 2.6. I above is delayed by any failure ofLandlord to perform its obligations under this Section 2. 3CONSTRUCTION. 3.1 Contractor. Landlord shall retain a contractor of its choice (the "Contractor") to perform the Tenant Improvement Work. In addition,Landlord may select and/or approve of any subcontractors, mechanics and materialmen used in connection with the performance of the TenantImprovement Work. 3.2[Intentionally Omitted] 3.3 Permits. Landlord shall cause the Contractor to apply to the appropriate municipal authorities for, and obtain from such authorities, allpermits necessary for the Contractor to complete the Tenant Improvement Work (the "Permits"). 3.4Construction. 3.4 .1 Performance of Tenant Improvement Work. Landlord shall cause the Contractor to perform the Tenant Improvement Work inaccordance with the Work List. Tenant shall pay a construction supervision and management fee (the "Landlord Supervision Fee") to Landlord in anamount equal to 4% of the aggregate amount of all Allowance Items other than the Landlord Supervision Fee.  3.4.2 Contractor's Warranties. Tenant waives all claims against Landlord relating to any defects in the Tenant Improvements; provided,however, that if, within 30 days after substantial completion of the Tenant Improvement Work, Tenant provides notice to Landlord of any non-latentdefect in the Tenant Improvements, or if, within 11 months after substantial completion of the Tenant Improvement Work, Tenant provides notice toLandlord of any latent defect in the Tenant Improvements, then Landlord shall promptly cause such defect to be corrected. 4 COMPLIANCE WITH LAW; SUITABILITY FOR TENANT'S USE. Landlord shall cause its consultants to use the Required Level of Care(defined below) to cause the Work List to comply with Law; provided, however, that Landlord shall not be responsible for any violation of Lawresulting from any particular use of the Expansion Space (as distinguished from general office use). As used herein, "Required Level of Care" meansthe level of care that reputable consultants customarily use to cause plans and specifications similar to the Work List to comply with Law where suchplans and specifications are prepared for spaces in buildings comparable in quality to the Building. Except as provided above in this Section 4, Tenantshall be responsible for ensuring that the Work List is suitable for Tenant's use of the Expansion Space and complies with Law, and neither thepreparation nor the approval of the Work List by Landlord or its consultants shall relieve Tenant from such responsibility. To the extent that eitherparty (the "Responsible Party") is responsible under this Section 4 for causing the Work List to comply with Law, the Responsible Party may contestany alleged violation of Law in good faith, including by seeking a waiver or deferment of compliance , asserting any defense allowed by Law, andexercising any right of appeal (provided that the other party incurs no liability as a result of such contest and that, after completing such contest, theResponsible Party makes any modification to the Work List or any alteration to the Expansion Space that is necessary to comply with any final order orjudgment). 5COMPLETION. 5.1 Substantial Completion. For purposes of Section 2.2 of this Amendment, and subject to Section 5.2 below, the Tenant Improvement Work shall bedeemed to be "Substantially Complete" upon the completion of the Tenant Improvement Work pursuant to the Work List (as reasonably determined byLandlord), with the exception of any details of construction, mechanical adjustment or any other similar matter the non-completion of which does notmaterially interfere with Tenant's use of the Expansion Space.5.2 Tenant Cooperation; Tenant Delay. Tenant shall use reasonable efforts to cooperate with Landlord, the Contractor, and Landlord's otherconsultants to provide any necessary approvals relating to the Work List, approve the Construction Pricing Proposal, obtain the Permits, and completethe Tenant Improvement Work as soon as possible, and Tenant shall meet with Landlord, in accordance with a schedule determined by Landlord, todiscuss the parties' progress. Without limiting the foregoing, if(i) the Tenant Improvements include the installation of electrical connections for furniture stations to be installed by Tenant, and (ii) any electrical orother portions of such furniture stations must be installed in order for Landlord to obtain any governmental approval required for occupancy of theExpansion Space, then (x) Tenant, upon five (5) business days' notice from Landlord, shall promptly install such portions of such furniture stations inaccordance with Sections 7.2 and 7.3 of this Lease, and (y) during the period of Tenant's entry into the Expansion Space for the purpose of performingsuch installation, all of Tenant's obligations under this Amendment relating to the Expansion Space shall apply, except for the obligation to pay MonthlyRent. In addition, without limiting the foregoing, if the Substantial Completion of the Tenant Improvement Work is delayed (a "Tenant Delay") as aresult of (a) any failure of Tenant to approve the Construction Pricing Proposal pursuant to Section 2.6. l above on or before Tenant's Approval Deadline;(b) [Intentionally Omitted]; (c) any failure of Tenant to timely approve any other matter requiring Tenant's approval; (d) any breach by Tenant of thisWork Letter or this Amendment; (e) any request by Tenant for any revision to, or for Landlord's approval of any revision to, the Work List (except to theextent that such delay results from a breach by Landlord of its obligation s under Section 2.7 above); (f) [Intentionally Omitted); (g) [IntentionallyOmitted]; or (h) any other act or omission of Tenant or any of its agents, employees or representatives, then, notwithstanding any contrary provision ofthis Amendment, and regardless of when the Tenant Improvement Work is actually Substantially Completed, the Tenant Improvement Work shall bedeemed to be Substantially Completed on the date on which the Tenant Improvement Work would have been Substantially Completed if no such TenantDelay had occurred. Notwithstanding the foregoing, Landlord shall not be required to tender possession of the Expansion Space to Tenant before theTenant Improvement Work has been Substantially Completed, as determined without giving effect to the preceding sentence. 6MISCELLANEOUS. Notwithstanding any contrary provision of this Amendment, if Tenant defaults under this Amendment before the TenantImprovement Work is completed, Landlord's obligations under this Work Letter shall be excused until such default is cured and Tenant shall be responsible for any resulting delay in the completion of the Tenant Improvement Work. This Work Letter shall not apply to any space other than theExpansion Space.  EXHIBIT C NOTICE OF LEASE TERM DATES To: Re: Amendment (the "Amendment"), dated ____________, 20 , to alease agreement dated _____________, 20 , between _____________________________, a("Landlord"), and ________________________________________ a_________ (Tenant"), concerning Suite on the________floor of the building located at California (the "Expansion Space"). LeaseID:------------Business Unit Number:-------- Dear _ In accordance with the Amendment, Tenant accepts possession of the Expansion Space and confirms that (a) the Expansion Effective Date is_____________, 20_, and (b) the expiration date of the Lease is __________________, 20__._ Please acknowledge the foregoing by signing all three (3) counterparts of this letter in the space provided below and returning two (2) fullyexecuted counterparts to my attention. Please note that, under Section 2.3 of the Amendment, Tenant is required to execute and return (or reasonablyobject in writing to) this letter within five (5) days after receiving it. "Landlord": By: Name: Title: Agreed and Accepted as of , 20_. "Tenant": By: Name: Title: Exhibit 10.30SECOND AMENDMENT THIS SECOND AMENDMENT (this "Amendment") is made and entered into as of December 22nd 2015, by and between BRE/COH FLLLC, a Delaware limited liability company ("Landlord"), and KEMPHARM, INC., a Delaware corporation ("Tenant"). RECITALS A.Landlord and Tenant are parties to that certain lease dated November 3, 2014, and that certain First Amendment dated April 21, 2015 (asamended, the "Lease"). Pursuant to the Lease, Landlord has leased to Tenant space currently containing approximately 4,639 rentable squarefeet (the "Existing Premises") described as Suites 102 Band 103 on the first floor of the building commonly known as Celebration OfficeCenter II located at 1170 Celebration Boulevard, Celebration, Florida. B.The Lease will expire by its terms on June 30, 2018 (the "Existing Expiration Date"), and the parties wish to extend the term of the Lease onthe following terms and conditions. C.The parties wish to relocate the Premises (defined in the Lease) from the Existing Premises to the space containing approximately 10,772rentable square feet described as Suites No. 103 & 104 on the first (1st) floor of the building commonly known as Celebration Office Center Ilocated at 1180 Celebration Boulevard, Celebration, Florida and shown on Exhibit A attached hereto (the "Substitution Space"), on thefollowing terms and conditions. Prior to the Substitution Effective Date (defined in Section 2.1 A below), all references in the Lease to the"Building" shall refer to Celebration Office Center II located at 1170 Celebration Boulevard, Celebration, Florida. From and after theSubstitution Effective Date, all references in the Lease to the "Building" shall refer to Celebration Office Center I located at 1180Celebration Boulevard, Celebration, Florida. NOW, THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenants andconditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenantagree as follows: l. Extension. The term of the Lease is hereby extended through the last day of the 108th full calendar month beginning on or after theSubstitution Effective Date (the "Extended Expiration Date"). The portion of the term of the Lease beginning on the date immediatelyfollowing the Existing Expiration Date (the "Extension Date") and ending on the Extended Expiration Date shall be referred to herein as the"Extended Term". 2.Substitution. 2.1.Substitution Term. From and after the Substitution Effective Date (defined in Section 2.1.A below), the Premises shall be theSubstitution Space, subject to the terms hereof (the "Substitution"). The term of the Lease for the Substitution Space (the"Substitution Term") shall commence on the Substitution Effective Date and, unless sooner terminated in accordance with theLease, end on the Extended Expiration Date. From and after the Substitution Effective Date, the Substitution Space shall be subjectto all the terms and conditions of the Lease except as provided herein. Except as may be expressly provided herein, (a) Tenant shallnot be entitled to receive, with respect to the Substitution Space, any allowance, free rent or other financial concession granted withrespect to the Existing Premises, and (b) no representation or warranty made by Landlord with respect to the Existing Premises shallapply to the Substitution Space. A.Substitution Effective Date. As used herein, "Substitution Effective Date" means the earlier to occur of (i) the first date onwhich Tenant conducts business in the Substitution Space, or (ii) the date on which the Tenant Improvement Work (definedin Exhibit B attached hereto) is Substantially Complete (defined in Exhibit B attached hereto), which is anticipated to beMarch 1, 2016 (the "Target Substitution Effective Date"). The adjustment of the Substitution Effective Date and,accordingly, the postponement of Tenant's obligation to pay rent for the Substitution Space shall be Tenant's sole remedy ifthe Tenant Improvement Work is not Substantially Complete on the Target Substitution Effective Date. Without limitingthe foregoing, during any period that the  Substitution Effective Date is delayed, Tenant shall continue to pay rent for the Existing Premises in accordance with theterms of the Lease. [If the Substitution Effective Date is delayed, the expiration date under the Lease shall not be similarlyextended. B.Confirmation Letter. At any time after the Substitution Effective Date, Landlord may deliver to Tenant a notice substantiallyin the form of Exhibit C attached hereto, as a confirmation of the information set forth therein. Tenant shall execute andreturn (or, by written notice to Landlord, reasonably object to) such notice within five (5) days after receiving it. 2.2.Existing Premises. Subject to the terms hereof, effective as of the Existing Premises Expiration Date (defined below), the term of theLease shall expire with respect to the Existing Premises with the same force and effect as if such term were, by the provisions of theLease, fixed to expire with respect to the Existing Premises on the Existing Premises Expiration Date. As used herein, "ExistingPremises Expiration Date" means the day prior to the Substitution Effective Date. Without limiting the foregoing: A.Tenant shall surrender the Existing Premises to Landlord in accordance with the terms of the Lease on or before the ExistingPremises Expiration Date. B.Tenant shall remain liable for all Rent and other amounts payable under the Lease with respect to the Existing Premises forthe period up to and including the Existing Premises Expiration Date, even though billings for such amounts may occur afterthe Existing Premises Expiration Date. C.Tenant's restoration obligations with respect to the Existing Premises shall be as set forth in the Lease. D.If Tenant fails to surrender any portion of the Existing Premises on or before the Existing Premises Expiration Date, Tenant'stenancy with respect to the Existing Premises shall be subject to Article 16 of the Lease. Notwithstanding the foregoing,Tenant shall have a grace period of up to seven (7) days from the Substitution Effective Date in which to complete theremoval of Tenant's furniture, equipment and other personal property from the Existing Premises. Tenant shall not berequired to pay Base Rent or Additional Rent for the Existing Premises during such seven (7) day grace period. E.Any other rights or obligations of Landlord or Tenant under the Lease relating to the Existing Premises that, in the absenceof the Substitution, would have survived the expiration date of the Lease shall survive the Existing Premises ExpirationDate.  3.Base Rent. 3.1.Substitution Space During Substitution Term. With respect to the Substitution Space during the Substitution Term, the scheduleof Base Rent shall be as follows: Period During SubstitutionTermAnnual Rate Per Square Foot(rounded to thenearest 100th of a dollar)Monthly Base RentSubstitution Effective Date throughlast day of 12th full calendar monthof Substitution Term$23.75$21,319.5813th through 24th full calendarmonths of Substitution Term$24.34$21,849.2125th through 361h full calendarmonths of Substitution Term$24.95$22,396.7837th through 48th full calendarmonths of Substitution Term$25.58$22,962.3149th through 60111 fullcalendar months ofSubstitution Term$26.22$23,536.8261st through 72nd full calendarmonths of Substitution Term$26.87$24,120.3073rd through 84th full calendarmonths of Substitution Term$27.54$24,721.7485th through 96th full calendarmonths of Substitution Term$28.23$25,341.1397th full calendar month ofSubstitution Term through last dayof Substitution Term$28.94$25,978.47 All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease. Notwithstanding the foregoing, Base Rent for the Substitution Space shall be abated, in the amount of $21,319.58 per month, forthe first six (6) full calendar months of the Substitution Term; provided, however, that if a Default exists when any such abatementwould otherwise apply, such abatement shall be deferred until the date, if any, on which such Default is cured. 4.Additional Security Deposit. Upon Tenant's execution hereof, Tenant shall pay Landlord the sum of $57,805.68, which shall be added toand become part of the Security Deposit held by Landlord pursuant to Section 21 of the Lease. Accordingly, simultaneously with theexecution hereof, the Security Deposit is hereby increased from $24,694.32 to $82,500. Effective as of the date hereof, Section 21.2 of theLease is deleted and replaced with the following: "Subject to the remaining terms of this Section 21. and provided that, during the 12 month period immediately preceding the effective dateof any reduction of the Security Deposit. Tenant has timely paid all Rent and no default has occurred under this Lease beyond anyapplicable cure period (the "Security Reduction Conditions''), Tenant shall have the right to reduce the amount of the Security Deposit sothat the new Security Deposit amount will be: (i) $62,994.83 effective as of the first day of the 30'h full calendar month of the SubstitutionTerm; (ii)$43,489.66 effective as of the first day of the 42nd full calendar month of the Substitution Term; and (iii) $23,984.50 effective as of thefirst day of the 54th full calendar month of the Substitution Term. Notwithstanding anything to the contrary contained herein. if Tenanthas been in default under this Lease at any time prior to the effective date of any reduction of the Security Deposit and Tenant has failedto cure such default within any applicable cure period, then Tenant shallhave no right to reduce the amount of the Security Deposit as described herein. If Tenant is  entitled to a reduction in the Security Deposit, Tenant shall provide Landlord with written noticerequesting that the Security Deposit be reduced as provided above (the "Security Reduction Notice"). If Tenant provides Landlord with aSecurity Reduction Notice, and Tenant is entitledto reduce the Security Deposit as provided herein, Landlord shall refund the applicable portion of the Security Deposit to Tenant within 45days after the later to occur of (a) Landlord's receipt of the Security Reduction Notice, or (b) the date upon which Tenant is entitled to areduction in the Security Deposit as provided above. " 5.Tenant's Share. With respect to the Substitution Space during the Substitution Term, Tenant's Share shall be 13.2362% (based upon a totalof 81,383 rentable square feet in the Building). 6.Expenses and Taxes for Substitution Space During Substitution Term. With respect to the Substitution Space during the Substitution Term,Tenant shall pay for Tenant's Share of Expenses and Taxes in accordance with the terms of the Lease; provided, however, that, with respect tothe Substitution Space during the Substitution Term, the Base Year for Expenses and Taxes shall be 2016. Notwithstanding any contraryprovision hereof, Controllable Expenses (defined below) shall not increase after the Base Year by more than 5% per calendar year, asdetermined on a compounding and cumulative basis. By way of example and not of limitation, if Controllable Expenses for the Base Year are$10.00 per rentable square foot, then Controllable Expenses for the first calendar year after the Base Year shall not exceed $10.50 per rentablesquare foot; Controllable Expenses for the second calendar year after the Base Year shall not exceed $11.025 per rentable square foot; and soon. As used herein, "Controllable Expenses" means all Expenses other than (i) costs of utilities, (ii) insurance premiums and deductibles, (iii)capital expenditures required by changes in Law, and (iv) any market-wide cost increases resulting from extraordinary circumstances,including Force Majeure, boycotts, strikes, conservation surcharges, embargoes and shortages. For purposes of determining ControllableExpenses, any management fee shall be calculated without regard to any free rent, abated rent, or the like. 7.Improvements to Substitution Space. 7.1.Condition and Configuration of Substitution Space. Tenant acknowledges that it has inspected the Substitution Space and agrees toaccept it in its existing condition and configuration, without any representation by Landlord regarding its condition or configurationand without any obligation on the part of Landlord to perform or pay for any alteration or improvement, except as may be otherwiseexpressly provided in this Amendment. 7.2.Responsibility for Improvements to Substitution Space. Landlord shall perform the Tenant Improvement Work in accordance withthe terms and conditions set forth in Exhibit B attached hereto. 8.Representations. Tenant represents and warrants that, as of the date hereof and the Existing Premises Expiration Date: (a) Tenant is therightful owner of all of the Tenant's interest in the Lease; (b) Tenant has not made any disposition, assignment, sublease, or conveyance of theLease or Tenant's interest therein; (c) Tenant has no knowledge of any fact or circumstance which would give rise to any claim, demand,obligation, liability, action or cause of action arising out of or in connection with Tenant's occupancy of the Existing Premises; (d) no otherperson or entity has an interest in the Lease, collateral or otherwise; and (e) there are no outstanding contracts for the supply of labor ormaterial and no work has been done or is being done in, to or about the Existing Premises which has not been fully paid for and for whichappropriate waivers of mechanic's liens have not been obtained. 9.Extension Options. 9.1.Grant of Option; Conditions. Subject to the terms herein, Tenant shall have the right to extend the Extended Term (the "FirstExtension Option") for one additional period of 5 years commencing on the day following the Extended Expiration Date and endingon the 5th anniversary of the Extended Expiration Date (the "First Extension Term"), and, if Tenant properly exercised the FirstExtension Option and the Extended Term was extended as a result thereof, Tenant shall also have the right to extend the ExtendedTerm (the "Second Extension Option") for one additional period of 5 years commencing on the date following the last day of theFirst Extension Term and ending on the 5th anniversary of the last day of the First Extension Term (the "Second Extension Term").Throughout the remainder of this provision, unless specifically provided otherwise, the First Extension Option and Second ExtensionOption are each referred to  as an "Extension Option", and the First Extension Term and the Second Extension Term are each referred to as an "ExtensionTerm". It is agreed that Tenant may exercise an Extension Option only if: A.Not less than 9 and not more than 12 full calendar months before the applicable expiration date, Tenant delivers writtennotice to Landlord (the "Extension Notice") electing to exercise the Extension Option and stating Tenant's estimate of thePrevailing Market (defined in Section 9.5 below) rate for the Extension Term; B.Tenant is not in Default under the Lease beyond any applicable cure period when Tenant delivers the Extension Notice; C.No part of the Premises is sublet (other than to an Affiliate of Tenant) when Tenant delivers the Extension Notice ; and D.The Lease has not been assigned (other than pursuant to a Permitted Transfer) before Tenant delivers the Extension Notice. 9.2.Tem1s Applicable to Extension Term. A.During the Extension Term, (a) the initial Base Rent rate per rentable square foot shall be equal to the Prevailing Market rateper rentable square foot as of the commencement of the Extension Term and shall be subject to annual increases inaccordance with the determination of Prevailing Market; and (b) Base Rent shall be payable in monthly installments inaccordance with the terms and conditions of the Lease. Except as otherwise expressly provided in this Amendment, the termsand conditions set forth in the Lease, as amended from time to time, shall apply during the Extension Tenn. B.During the Extension Term Tenant shall pay Tenant's Share of Expenses and Taxes for the Premises in accordance with theLease. During the Extension Term the Base Year for Expenses and Taxes shall be the calendar year in which the ExtensionTerm commences. C.Any free rent, construction allowance or similar concession may be part of the negotiations pertinent to determining thePrevailing Market with respect to the Extension Term. 9.3.Procedure for Determining Prevailing Market. A.Initial Procedure. Within 30 days after receiving the Extension Notice, Landlord shall give Tenant either (i) written notice("Landlord's Binding Notice") accepting Tenant's estimate of the Prevailing Market rate for the Extension Term stated inthe Extension Notice, or (ii) written notice ("Landlord's Rejection Notice") rejecting such estimate and stating Landlord'sestimate of the Prevailing Market rate for the Extension Term. If Landlord gives Tenant a Landlord's Rejection Notice,Tenant, within 15 days thereafter, shall give Landlord either (i) written notice ("Tenant's Binding Notice") acceptingLandlord's estimate of the Prevailing Market rate for the Extension Term stated in such Landlord's Rejection Notice, or (ii)written notice ("Tenant's RejectionNotice") rejecting such estimate. If Tenant gives Landlord a Tenant's Rejection Notice, Landlord and Tenant shall worktogether in good faith to agree in writing upon the Prevailing Market rate and terms for the Extension Tenn. If, within 30days after delivery of a Tenant's Rejection Notice, the parties fail to agree in writing upon the Prevailing Market rate andterms, the provisions of Section 9.3.B below shall apply. B.Dispute Resolution Procedure. I.If, within 30 days after delivery of a Tenant's Rejection Notice, the parties fail to agree in writing upon thePrevailing Market rate and terms, Landlord and Tenant, within five (5) days thereafter, shall each simultaneouslysubmit to the other, in a sealed envelope, its good faith  estimate of the Prevailing Market rate and terms for the Extension Term (collectively, the "Estimates"). If thehigher of such Estimates is not more than 105% of the lower of such Estimates, the Prevailing Market rate shall bedeemed to be the average of the two Estimates. Otherwise, within seven (7) days after the exchange of Estimates,Landlord and Tenant shall each select an appraiser to determine which of the two Estimates most closely reflects thePrevailing Market rate and terms for the Extension Term. Each appraiser so selected shall be certified as an MAIappraiser or as an ASA appraiser and shall have had at least five (5) years experience within the previous 10 years asa real estate appraiser working in Celebration/Orlando, Florida, with working knowledge of current rental rates andleasing practices relating to buildings similar to the Building. For purposes hereof, an "MAI" appraiser means anindividual who holds an MAI designation conferred by, and is an independent member of, the American Institute ofReal Estate Appraisers (or its successor organization, or in the event there is no successor organization, theorganization and designation most similar), and an "ASA" appraiser means an individual who holds the SeniorMember designation conferred by, and is an independent member of, the American Society of Appraisers (or itssuccessor organization, or, in the event there is no successor organization, the organization and designation mostsimilar). 2. If each party selects an appraiser in accordance with Section 9.3.B.1 above, the parties shall cause their respectiveappraisers to work together in good faith to agree upon which of the two Estimates most closely reflects thePrevailing Market rate and terms for the Extension Term. The Estimate, if any, so agreed upon by such appraisersshall be final and binding on both parties as the Prevailing Market rate and terms for the Extension Term and maybe entered in a court of competent jurisdiction. If the appraisers fail to reach such agreement within 20 days aftertheir selection, then, within 10 days after the expiration of such 20-day period, the parties shall instruct theappraisers to select a third appraiser meeting the above criteria (and if the appraisers fail to agree upon such thirdappraiser within 10 days after being so instructed, either party may cause a court of competent jurisdiction to selectsuch third appraiser). Promptly upon selection of such third appraiser, the parties shall instruct such appraiser (or, ifonly one of the parties has selected an appraiser within the 7-day period described above, then promptly after theexpiration of such 7-day period the parties shall instruct such appraiser) to determine, as soon as practicable but inany case within 14 days after his selection, which of the two Estimates most closely reflects the Prevailing Marketrate and terms. Such determination by such appraiser (the "Final Appraiser") shall be final and binding on bothparties as the Prevailing Market rate and terms for the Extension Term and may be entered in a court of competentjurisdiction. If the Final Appraiser believes that expert advice would materially assist him, he may retain one ormore qualified persons to provide such expert advice. The parties shall share equally in the costs of the FinalAppraiser and of any experts retained by the Final Appraiser. Any fees of any other appraiser, counsel or expertengaged by Landlord or Tenant shall be borne by the party retaining such appraiser, counsel or expert. C.If the Prevailing Market rate and terms has not been determined by the commencement date of the Extension Term, Tenantshall pay Base Rent for the Extension Term upon the terms and conditions in effect during the last month ending on orbefore the Expiration Date until such time as the Prevailing Market rate and terms has been determined. Upon suchdetermination, the Base Rent for the Extension Term shall be retroactively adjusted. If such adjustment results in an under-or overpayment of Base Rent by Tenant, Tenant shall pay Landlord the amount of such underpayment, or receive a credit inthe amount of such overpayment, with or against the next Base Rent due under the Lease. 9.4. Extension Amendment. If Tenant is entitled to and properly exercises its Extension  Option, and if the Prevailing Market rate and terms for the Extension Term is determined in accordance with Section 9.3 above,Landlord, within a reasonable time thereafter, shall prepare and deliver to Tenant an amendment (the "Extension Amendment")reflecting changes in the Base Rent, the Term, the expiration date, and other appropriate terms, and Tenant shall execute andreturn the Extension Amendment to Landlord within 15 days after receiving it. Notwithstanding the foregoing, upondetermination of the Prevailing Market rate and terms for the Extension Term in accordance with Section 9.3 above, an otherwisevalid exercise of the Extension Option shall be fully effective whether or not the Extension Amendment is executed. 9.5.Definition of Prevailing Market. For purposes of this Extension Option, "Prevailing Market" shall mean the arms-length, fair-market, initial annual rental rate per rentable square foot and other business terms under extension and renewal leases andamendments entered into on or about the date on which the Prevailing Market is being determined hereunder for spacecomparable to the Premises in the Building and other comparable buildings in the Celebration Business Center submarket. Thedetermination of Prevailing Market shall take into account any material economic differences between the terms of the Lease andany comparison lease or amendment, such as rent abatements, construction costs and other concessions, and the manner, if any,in which the landlord under any such lease is reimbursed for operating expenses and taxes. The determination of PrevailingMarket shall also take into consideration any reasonably anticipated changes in the Prevailing Market rate from the time suchPrevailing Market rate is being determined and the time such Prevailing Market rate will become effective under the Lease. 9.6.Subordination. Notwithstanding anything herein to the contrary, Tenant's Extension Option is subject and subordinate to theexpansion rights (whether such rights are designated as a right of first offer, right of first refusal, expansion option or otherwise) ofany tenant of the Building or the Project existing on the date hereof. 10.Right of Refusal 10.1Grant of Option: Conditions. Subject to Section 10.5 below, Tenant shall have the one time right of refusal (the "Right ofRefusal") with respect to Suite 102A containing approximately 6,302 rentable square feet on the first floor of the Building (i.e.Celebration Office Center I) (the "Refusal Space"). Tenant's Right of Refusal shall be exercised as follows: when Landlord has aprospective tenant, other than the existing tenant in the Refusal Space (the "Prospect"), interested in leasing the Refusal Space(as evidenced by a signed letter of intent or an exchange of good faith proposals and a tenant request to prepare leasedocuments), Landlord shall advise Tenant (the "Advice") of the terms under which Landlord is prepared to lease the RefusalSpace to such Prospect and Tenant may lease the Refusal Space, under such terms, by providing Landlord with written notice ofexercise (the "Notice of Exercise") within 5 business days after the date of the Advice. In the event that another Tenant hassuperior rights to the Refusal Space in accordance with Section 10.5, Landlord shall have the right to either: (i) send Tenant anAdvice only after such superior rights have lapsed or been rejected; or (ii) concurrently send an Advise to Tenant and the tenantwith superior rights on the condition that Tenant's right to exercise its Right of Refusal will be conditioned and contingentupon the lapse or rejection of all superior rights to lease the Refusal Space. Notwithstanding the foregoing, Tenant shall onlyhave a Right of Refusal if: A.Tenant is not in Default under the Lease beyond any applicable cure period when Tenant delivers the Notice ofExercise; B.No part of the Leased Premises is sublet (other than to a Tenant Affiliate in accordance with the terms of the Lease, asamended hereby) when Tenant delivers the Notice of Exercise; and C.The Lease, as amended, has not been assigned (other than pursuant to a Permitted Transfer) before Tenant delivers theNotice or Exercise. 10.2.Terms for Refusal Space. A.The term for the Refusal Space shall commence upon the commencement date stated in the Advice and thereupon suchRefusal Space shall be considered a part  of the Premises, subject to the terms and conditions of the Lease, provided, however, that all of the terms stated in theAdvice, including the termination date set forth in the Advice, shall govern Tenant's leasing of the Refusal Space andonly to the extent that they do not conflict with the Advice, the terms and conditions of the Lease shall apply to theRefusal Space. Tenant shall pay Base Rent and Tenant's Pro Rata Share of Operating Expenses for the Refusal Space inaccordance with the terms and conditions of the Advice. Tenant's right, if any, to receive an abatement of rent, tenantimprovement allowance and/or other concession shall be in accordance with the terms of the Advice. B.The Refusal Space (including improvements and personalty, if any) shall be accepted by Tenant in its condition and as-built configuration existing on the earlier of the date Tenant takes possession of the Refusal Space or the date the term forsuch Refusal Space commences, unless the Advice specifies work to be performed by Landlord in the Refusal Space, inwhich case Landlord shall perform such work in the Refusal Space. If Landlord is delayed delivering possession of theRefusal Space due to the holdover or unlawful possession of such space by any party, Landlord shall use reasonableefforts to obtain possession of the space, and the commencement of the term for the Refusal Space shall be postponeduntil the date Landlord delivers possession of the Refusal Space to Tenant free from occupancy by any party. 10.3.Termination of Right of Refusal. The rights of Tenant hereunder with respect to the Refusal Space shall terminate on the earlier tooccur of (i) the date on which there is less than one (1) year remaining in the term of the Lease and Tenant has no further options toextend the term of the Lease; (ii) Tenant's failure to exercise its Right of Refusal within the 5 business day period provided inSection 10.1 above; and (iii) the date Landlord would have provided Tenant an Advice for the Refusal Space if Tenant had notbeen in violation of one or more of the conditions set forth in Section 10. l above. 10.4.Refusal Space Amendment. If Tenant is entitled to and properly exercises its Right of Refusal, Landlord, within a reasonable timethereafter, shall prepare and deliver to Tenant an amendment in commercially reasonable form and substance (for purposes of thisAmendment, the "Refusal Amendment") reflecting changes in the Base Rent, the term of the Lease for the Refusal Space, theexpiration date of the Lease for the Refusal Space, and other reasonably appropriate terms related to the Refusal Space; and, within15 days after receiving it, Tenant shall either execute and return the Refusal Amendment to Landlord or provide to Landlordreasonable comments thereto. Such process shall be repeated until the Refusal Amendment is acceptable to both parties, asevidenced by their mutual execution and delivery thereof. Notwithstanding the foregoing, an otherwise valid exercise of the Rightof Refusal shall be fully effective whether or not the Refusal Amendment is executed. 10.5.Subordination. Notwithstanding anything herein to the contrary, Tenant's Right of Refusal is subject and subordinate to (i) therenewal or extension rights of any tenant leasing all or any portion of the Refusal Space, and (ii) the expansion rights (whethersuch rights are designated as a right of first offer, right of first refusal, expansion option or otherwise) of any tenant of the Buildingexisting on the date hereof. 10.6 Alternative Space Option. If Tenant is not entitled to lease the Refusal Space as a result of another tenant's exercise of superior rightsunder Section 10.5, Tenant shall have the right to provide written notice to Landlord of its desire to lease additional space in theBuilding (the "Alternate Space Notice"), which Alternate Space Notice shall specify the approximate additional square footagethat Tenant desires to lease. Upon receipt of an Alternate Space Notice, Landlord shall advise Tenant (the "Alternate SpaceAdvice") as to whether any such space is available in the Building that satisfies Tenant's criteria and, if space is available, thePrevailing Market terms under which it would be willing to lease such space to Tenant. If Tenant does not desire to lease suchspace upon the terms and conditions designated by Landlord, Tenant shall provide Landlord with written notice of rejection (the"Rejection Notice") within fifteen (15) days after the date of Landlord's Alternate Space Advice. If Tenant provides Landlord with aRejection Notice in a timely manner, Landlord and Tenant shall work together in good faith to agree upon mutually acceptableterms and conditions. Upon agreement between Landlord and Tenant, Landlord and Tenant shall enter into an amendment to addsuch additional space to the Premises. If Landlord and Tenant are unable to agree upon the terms for such  additional space, neither party shall have any obligation to the other hereunder. Notwithstanding anything herein to the contrary,Landlord's obligation to work with Tenant in good faith shall be subject to space being available in the building that meets Tenant'scriteria. The availability of space shall be determined by Landlord in its reasonable discretion taking into consideration the rights ofother tenants in the Building and Landlord's plan for the leasing and marketing of the Building. 11.Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date of this Amendment (unless different effective date(s)is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects: 11.1Parking. Effective as of the Substitution Effective Date, the first sentence of Section 1.9 of the Lease, as previously amended by theFirst Amendment, is hereby amended by replacing the number "23" with the number "53". 11.2Holdover. Section 16 of the Lease is hereby deleted and replaced with the following: "HOLDOVER. If Tenant fails to surrender the Premises upon the expiration or earlier termination hereof, Tenant's tenancy shallbe subject to the terms and conditions hereof provided, however, that such tenancy shall be a tenancy at sufferance only, withoutclaim of right, for the entire Premises, and Tenant shall pay Monthly Rent (on a per- month basis without reduction for any partialmonth) at a rate equal to 150% of the Monthly Rent applicable during the last calendar month of the Term. Nothing in this Section16 shall limit Landlord's rights or remedies or be deemed a consent to anyholdover. If Landlord is unable to deliver possession of the Premises to a new tenant orto perform improvements for a new tenant as a result of Tenant's holdover and such holdover continues for a period of 30 daysafter written notice from Landlord to Tenant advising Tenant of Landlord's inability to deliver possession or performimprovements, Tenant shall be liable for all resulting damages, including lost profits, incurred by Landlord. " 11.3Relocation. Section 22 of the Lease is hereby deleted in its entirety and rendered null and void and of no further force or effect. 11.4Signage. Landlord, as part of the Tenant Improvement Work (and subject to the Maximum Amount), shall provide Tenant withBuilding standard lobby and suite signage with respect to the Substitution Space. 11.5Right of First Offer. Section 1 of Exhibit E of the Lease is hereby deleted in its entirety and rendered null and void and of nofurther force or effect. 11.6Landlord's Waiver and Consent. Concurrently with its execution of this Amendment, Landlord shall execute and deliver to Tenantthe form of Landlord's Waiver and Consent attached hereto as Exhibit D. 12.Miscellaneous. 12.1.This Amendment and the attached exhibits, which are hereby incorporated into and made a part of this Amendment, set forth theentire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or writtenrepresentations or agreements. Tenant shall not be entitled, in connection with entering into this Amendment, to any free rent,allowance, alteration, improvement or similar economic incentive to which Tenant may have been entitled in connection withentering into the Lease, except as may be otherwise expressly provided in this Amendment. 12.2.Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full forceand effect. 12.3.In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shallgovern and control. 12.4.Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offerby Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered it to Tenant.  12.5.Capitalized terms used but not defined in this Amendment shall have the meanings given in the Lease. 12.6.Tenant shall indemnify and hold Landlord, its trustees, members, principals, beneficiaries, partners, officers, directors,employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims ofany brokers (other than Cresa Partners Orlando) claiming to have represented Tenant in connection with this Amendment.Landlord shall indemnify and hold Tenant, its trustees, members, principals, beneficiaries, partners, officers, directors,employees, and agents, and the respective principals and members of any such agents harmless from all claims of any brokersclaiming to have represented Landlord in connection with this Amendment. Tenant acknowledges that any assistance renderedby any agent or employee of any affiliate of Landlord in connection with this Amendment has been made as an accommodationto Tenant solely in furtherance of consummating the transaction on behalf of Landlord, and not as agent for Tenant. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written. WITNESSES: LANDLORD: /s/ Sarah Grella BRE/COH FL LLC, a Delaware limited liability companyPrint Name:Sarah Grella /s/ Mark W. Smith Name:Mark W. Smith/s/ Nina H. Siegel Title:Managing DirectorPrint Name:Nina H. Siegel WITNESSES: TENANT: /s/ Susan Smoker KEMPHARM, INC, a Delaware corporationPrint Name:Susan Smoker /s/ R. LaDuane Clifton Name:R. LaDuane Clifton/s/ Katy Powell Title:CFOPrint Name:Katy Powell  EXHIBIT A OUTLINE AND LOCATION OF SUBSTITUTION SPACE SU1TE 103/104 (10,772 RSF)  EXHIBITB WORK LETTER As used in this Exhibit B (this "Work Letter"), the following terms shall have the following meanings: "Agreement" means the Lease ofwhich this Work Letter is a part. "Tenant Improvements" means all improvements to be constructed in the Substitution Space pursuant to this WorkLetter. "Tenant Improvement Work" means the construction of the Tenant Improvements, together with any related work (including demolition) thatis necessary to construct the Tenant Improvements. 1.ALLOWANCE. Intentionally Omitted. 2.PLANS. 2.1 Approved Space Plan. Landlord and Tenant acknowledge and agree that they have approved the detailed space plan prepared by C4Architecture (the "Architect") and attached hereto as Exhibit B-1 (the "Approved Space Plan"). Tenant shall be responsible for ensuring that allelements of the design of the Approved Space Plan are suitable for Tenant's use of the Premises, and neither the preparation of the Approved Space Planby the Architect nor Landlord's approval of the Approved Space Plan or Approved Construction Drawings (hereinafter defined) shall relieve Tenantfrom such responsibility. Except as noted in the Approved Space Plan to the contrary, the Tenant Improvements shall be performed using buildingstandard materials. 2.2 Construction Drawings. If necessary based on the scope of the work to be performed, Landlord shall cause the Architect to prepare anddeliver to Tenant construction drawings that conform to the Approved Space Plan. Tenant shall approve or disapprove the construction drawings bynotice to Landlord within two (2) business days after Tenant's receipt of the construction drawings. If Tenant disapproves the construction drawings,Tenant's notice of disapproval shall specify any revisions Tenant desires in the construction drawings. After receiving such notice of disapproval,Landlord shall cause the Architect to revise the construction drawings, taking into account the reasons for Tenant's disapproval (provided, however,that Landlord shall not be required to cause the Architect to make any revision to the construction drawings that is inconsistent with the ApprovedSpace Plan or Landlord's requirements for avoiding aesthetic, engineering or other conflicts with the design and function of the balance of theBuilding), and resubmit the construction drawings to Tenant for its approval. Such revision and resubmission shall occur within 5 business days afterLandlord's receipt of Tenant's notice of disapproval if such revision is not material, and within such longer period of time as may be reasonablynecessary if such revision is material. Such procedure shall be repeated as necessary until Tenant has approved the construction drawings. Theconstruction drawings approved by Landlord and Tenant are referred to in this Work Letter as the "Approved Construction Drawings". 2.3 Time Deadlines. Tenant shall use its best efforts to cooperate with Landlord and its architect, engineers and other consultants to completeall phases of the plans and obtain the permits for the Tenant Improvement Work as soon as possible after the execution of this Agreement, and Tenantshall meet with Landlord, in accordance with a schedule determined by Landlord, to discuss the parties' progress. 3 CONSTRUCTION. 3.l Contractor. A contractor designated by Landlord (the "Contractor") shall perform the Tenant Improvement Work in accordance with theApproved Space Plan or, if applicable, the Approved Construction Drawings. In addition, Landlord may select and/or approve of any subcontractors,mechanics and materialmen used in connection with the performance of the Tenant Improvement Work. 3.2 Cost of Tenant Improvement Work. Except as provided in Section 3.3 below, the Tenant Improvement Work shall be performed atLandlord's expense. 3.3Maximum Amount; Revisions. 3.3.1 Landlord and Tenant acknowledge that it is not possible to determine the exact cost of the Tenant Improvement Work at this time.Accordingly, Landlord and Tenant agree that Landlord's obligation to pay for the cost of Tenant Improvement Work (inclusive of the cost of preparingplans, obtaining permits and other related costs) shall be limited to $377,020.00 (i.e. $35.00 per rentable square foot of the Premises) (the "MaximumAmount"), and that Tenant shall be responsible for the cost of Tenant Improvement Work, plus any applicable state sales or use tax, if any, to theextent that it exceeds the Maximum Amount. Notwithstanding the foregoing, the calculation of the Maximum Amount shall exclude any increase inthe cost of the Tenant Improvement that occurs as a direct result of: (i)  Landlord's failure to timely approve any matter requiring Landlord' s approval, (ii) any failure by Landlord to perform its obligations under this WorkLetter or the Lease; or (iii) any other willful misconduct or act or omission of Landlord. If Landlord determines that the cost of the TenantImprovement Work will, or its likely to, exceed the Maximum Amount, Landlord shall provide Tenant with Landlord's reasonable estimate (the"Construction Pricing Proposal") of the cost of the Tenant Improvement Work (inclusive of the cost of preparing plans, obtaining permits and otherrelated costs). Tenant shall provide Landlord with notice approving or disapproving the Construction Pricing Proposal. If Tenant disapproves theConstruction Pricing Proposal, Tenant's notice of disapproval shall be accompanied by proposed revisions to the Approved Construction Drawingsthat Tenant requests in order to resolve its objections to the Construction Pricing Proposal, and Landlord shall respond as required under Section3.3.2 below. Such procedure shall be repeated as necessary until the Construction Pricing Proposal is approved by Tenant. Upon Tenant's approval ofthe Construction Pricing Proposal, Landlord may purchase the items set forth in the Construction Pricing Proposal and commence constructionrelating to such items. Tenant, within 10 days after request by Landlord, shall pay Landlord the amount, if any, by which the approved ConstructionPricing Proposal exceeds the Maximum Amount. 3.3.2 If Tenant requests any revision to the Approved Space Plan or, if applicable, the Approved Construction Drawings (a"Revision"), Landlord shall provide Tenant with notice approving or reasonably disapproving such Revision, and, if Landlord approves suchRevision, Landlord shall have such Revision made and delivered to Tenant, together with notice of any resulting change in the total cost associatedwith the Tenant Improvement Work, within five (5) business days after the later of Landlord' s receipt of such request or the mutual execution anddelivery of this Agreement if such Revision is not material, and within such longer period of time as may be reasonably necessary (but not more thanten(10) business days after the later of such receipt or such execution and delivery) if such Revision is material, whereupon Tenant, within one businessday, shall notify Landlord whether it desires to proceed with such Revision. If Landlord has commenced performance of the Tenant ImprovementWork, then, in the absence of such authorization, Landlord shall have the option to continue such performance disregarding such Revision. Tenantshall reimburse Landlord, immediately upon demand, for any increase in the total cost associated with the Tenant Improvement Work that resultsfrom any Revision (including the cost of preparing the Revision); but only to the extent that the total cost of the Tenant Improvement Work exceedsthe Maximum Amount. It shall be deemed reasonable for Landlord to disapprove any proposed revision to the Approved Space Plan or the ApprovedConstruction Drawings that, in Landlord's reasonable judgment, would fail to comply with law or Landlord's requirements for avoiding aesthetic,engineering or other conflicts with the design and function of the balance of the Building. 3.4 Contractor's Warranties . Tenant waives all claims against Landlord relating to any defects in the Tenant Improvements; provided,however, that Landlord shall obtain a commercially reasonable one-year warranty from Contractor with respect to the performance of the TenantImprovement Work (the "Warranty"). If , within the period covered by the Warranty, Tenant provides notice to Landlord of any defect in the TenantImprovements, then Landlord shall, at Landlord's expense, use reasonable efforts to enforce such Warranty directly against the Contractor for Tenant'sbenefit. 4COMPLETION. 4.1 Substantial Completion. For purposes of this Agreement, and subject to Section 4.2 below, the Tenant Improvement Work shall bedeemed to be "Substantially Complete" upon the completion of the Tenant Improvement Work pursuant to the Approved Construction Drawings (asreasonably determined by Landlord), with the exception of any details of construction, mechanical adjustment or any other similar matter the non-completion of which does not materially interfere with Tenant's use of the Premises ("Substantial Completion"). 4.2 Tenant Delay. If the Substantial Completion of the Tenant Improvement Work is delayed (a "Tenant Delay") as a result of (a) Tenant'sfailure to timely approve any matter requiring Tenant's approval; (b) any breach by Tenant of this Work Letter or the Lease; (c) any request by Tenantfor a revision to the Approved Construction Drawings (except to the extent such delay results from any failure of Landlord to perform its obligationsunder Section 3.3 above); (d) Tenant's requirement for materials, components, finishes or improvements that are not available in a commerciallyreasonable time given the anticipated date of Substantial Completion of the Tenant Improvement Work as set forth in this Agreement; or (e) any otheract or omission of Tenant or any of its agents, employees or representatives, then, notwithstanding any contrary provision of this Agreement, andregardless of when the Tenant Improvement Work is actually Substantially Completed, the Tenant Improvement Work shall be deemed to beSubstantially Completed on the date on which the Tenant Improvement Work would have been Substantially Completed if no such Tenant Delay hadoccurred. Notwithstanding the foregoing, Landlord shall not be required to tender possession of the Premises to Tenant before the Tenant  Improvement Work has been Substantially Completed, as determined without giving effect to the preceding sentence. 5. MISCELLANEOUS. Notwithstanding any contrary provision of this Agreement, if Tenant defaults under this Agreement before the TenantImprovement Work is Substantially Completed, Landlord's obligations under this Work Letter shall be excused until such default is cured and Tenantshall be responsible for any resulting delay in the completion of the Tenant Improvement Work. This Work Letter shall not apply to any space otherthan the Premises.  EXHIBIT B-1 APPROVED SPACE PLAN  EXHIBITC NOTICE OF LEASE TERM DATES _,20 To: Re: Amendment (the "Amendment"), dated ___________, 20 __, to a lease agreement dated _____________, 20_______,between_____________________________, a ________________________ ("Landlord"), and_______________________________________, a___________________ ("Tenant"), concerning Suite _______on the floor of the building located at , California (the "Substitution Space"). Lease ID:- - - - - - - - - - - - -Business Unit Number: - - - - - - - - Dear - - - - - - - - In accordance with the Amendment, Tenant accepts possession of the Substitution Space and confirms that (a) the Substitution Effective Dateis 20_, and (b) the expiration date of the Lease is . 20 Please acknowledge the foregoing by signing all three (3) counterparts of this letter in the space provided below and returning two (2) fullyexecuted counterparts to my attention. Please note that, under Section 2.1.B of the Amendment, Tenant is required to execute and return (or reasonablyobject in writing to) this letter within five (5) days after receiving it. "Landlord": By: Name: Title: Agreed and Accepted as of ,20_. "Tenant": By: Name: Title:  EXHIBITB COPY OF LEASE OF PREMISES See attached.  EXHIBIT D *January 17th, 2016* LANDLORD'S WAIVER AND CONSENT THIS LANDLORD'S WAIVER AND CONSENT ("Waiver and Consent") is made and entered into as of January 19th, 2016, by and amongBRE/COH FL LL(:, a Delaware limited liability company ("Landlord") and Deerfield Private Design Fund III, L.P. ("Lender"). A. Landlord is the owner of the real property commonly known as Celebration Office Center II with an address of 1170 CelebrationBoulevard, Celebration, Florida (the "Building") and legally (or otherwise) described on Exhibit A attached hereto and in the Lease (as defined below). B. Landlord has entered into that certain Lease dated November 3, 2014 (as amended, restated, supplemented or otherwise modified from timeto time, the "Lease"), with KemPharm, Inc. ("Tenant") pursuant to which Tenant has acquired a leasehold interest in a portion of the Buildingcontaining approximately 10,772 rentable square feet described as Suites No. 103 & 104 on the first (151 floor of the Building (the "Premises").Notwithstanding the foregoing, Landlord and Lender acknowledge that: (i) as of the date hereof, the Premises under the Lease consists of approximately4,639 rentable square feet (the "Existing Premises") described as Suites 102 B and 103 on the first floor of the building commonly known asCelebration Office Center II located at 1170 Celebration Boulevard, Celebration, Florida; and (ii) upon completion of certain improvements to thePremises, Tenant will relocate from the Existing Premises to the Premises. C. Tenant and certain affiliates of Tenant have previously entered into or, on or about the date hereof, are entering into certain financingtransactions with Lender (the "Financing Agreements"), and to secure such financing, Tenant and its affiliates have granted to Lender securityinterests in and liens upon certain tangible property of Tenant and its affiliates, including, without limitation, all of Tenant's and its affiliates'inventory, goods, machinery, equipment, furniture and fixtures, together with all additions, substitutions, replacements and improvements to, andproceeds of, the foregoing (collectively, the "Collateral"). For the avoidance of doubt, the parties hereto agree that the term "Collateral" shall notinclude any tenant improvements located on or affixed to the Premises (collectively, the "Landlord Property"), which Landlord Property is, inaccordance with the Lease, the property of and owned by Landlord; provided that to the extent that Landlord conveys the Landlord Property to Tenantat the end of the lease term or at any other time, from and after the time of such conveyance, such conveyed Landlord Property shall be deemed to be"Collateral" subject to this Waiver and Consent. NOW, THEREFORE, in consideration of any financial accommodation extended by Lender to Tenant and its affiliates at any time, and othergood and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Landlord acknowledges that (a) a true and correct copy of the Lease and all amendments thereto as in effect as of the date hereof isattached hereto as Exhibit B, (b) the Lease is in full force and effect, and (c) Landlord is not aware of any existing default or breach under the Lease. 2. Landlord agrees to use reasonable efforts to provide Lender with (a) a copy of any cancellation, amendment, consent or waiver under theLease, and (b) written notice of any default or breach by Tenant or claimed default or breach under the Lease (a "Default Notice") at the same time as itsends such notice to Tenant; provided that Landlord shall not be liable to Lender in any form or manner as a result of Landlord's failure to provideLender with a Default Notice. No action by Lender pursuant to this Waiver and Consent shall constitute or be deemed to be an assumption by Lenderof any  obligation under the Lease, and except as provided in paragraphs 6 and 7 below, Lender shall not have any obligation to Landlord. 3. Tenant has not granted Landlord any lien or security interest in any of the Collateral. Landlord acknowledges the validity of Lenders'lien on the Collateral and, until such time as all obligations of Tenant and its affiliates to all Lenders are indefeasibly paid in full in cash and thecommitments of the Lenders to extend credit have terminated, Landlord waives any interest in the Collateral and agrees not to distrain or levy uponany Collateral or to assert any landlord lien, right of distraint or other claim against the Collateral for any reason. 4. Landlord agrees that the Collateral may be stored, utilized and/or installed at the Premises and shall not be deemed a fixture or part of thereal estate but shall at all times be considered personal property, whether or not any Collateral becomes so related to the real estate that an interesttherein would otherwise arise under applicable law. 5. Prior to termination of the Lease, Lender and its representatives and invitees may enter upon the Premises at any time or times withoutcharge and without any interference by Landlord to, among other things, inspect, remove, realize upon or otherwise deal with any or all of theCollateral. Notwithstanding the forgoing: (i) any such entry shall be subject to Landlord's reasonably rules and regulations for the performance of workin the Building, including, without limitation, evidence of insurance from all parties entering the Building; and (ii) in no event shall the Premises beused for conducting any public or private sale. 6. In addition to the preceding paragraph, notwithstanding any cancellation or termination of the Lease, action to evict Tenant orrepossession of the Premises, Landlord grants Lender and its representatives and invitees the right to possess, occupy, remain on and use the Premisesfor purposes of removing the Collateral from the Premises; provided, that (a) such period of occupation (the "Disposition Period") shall not exceed theearlier to occur of: (i) 30 days from the date on which Landlord provides notice in writing to Lender that Landlord has acquired possession of thePremises from Tenant through cancellation or termination of the Lease, eviction or otherwise, or (ii) 30 days from the date that Landlord notifiesLender in writing that Landlord is required to provide possession of the Premises to, or start construction for, a third party tenant in connection withany reletting of the Premises by Landlord, provided if Landlord is required to provide possession of the Premises to, or start construction for, a thirdparty tenant prior to the end of the Disposition Period, Landlord shall have the right to move the Collateral from the Premises to other space in theBuilding, in which case Lender shall have the right to remove the Collateral from such other space in accordance with the terms hereof, (b) for theactual period of occupancy by Lender, and only to the extent that Landlord is not otherwise receiving rental payments under the Lease, Lender willpay to Landlord the basic rent due under the Lease pro- rated on a per diem basis determined on a 30-day month, and (c) such amounts paid by Lenderto Landlord shall exclude any rent adjustments, indemnity payments or similar amounts payable under the Lease for default, holdover status or othersimilar charges. During any Disposition Period, (i) the Lender shall use commercially reasonable efforts to complete the removal of the Collateral at theearliest possible date, and (ii) the Lender shall make the Premises available for inspection by Landlord and prospective tenants and shall cooperate inLandlord's reasonable efforts to re-lease the Premises. 7. Upon Lender's removal of any Collateral from the Premises, such Collateral shall be free and clear of any and all claims of Landlordthereto, whether in law, contract or equity, and Landlord hereby disclaims and relinquishes all of the foregoing upon any such removal. Lender shallpromptly reimburse Landlord for the cost of repairing any physical damage to the Premises actually caused by the  removal of Collateral by or through Lender (ordinary wear and tear excluded). Lender shall not be liable for any diminution in value of the Premisescaused by the absence of Collateral actually removed or by any necessity of replacing the Collateral, and Lender shall not have any duty or obligationto remove or dispose of any Collateral or any other property left on the Premises by Tenant. 8. Any transfer of any capital stock or other equity securities of Tenant due to the exercise of remedies by Lender shall not create a defaultunder, or require Landlord's consent under, any applicable provisions of the Lease, if any, and shall be fully effective notwithstanding any provision tothe contrary contained in the Lease. 9. Lender may, without any notice to or consent from Landlord and without affecting the validity of this Waiver and Consent, extend,amend or in any way modify the terms of the Financing Agreements to which they are a party. This Waiver and Consent shall continue in force until allof Tenant's obligations and liabilities to Lender under all of the Financing Agreements are paid and satisfied in full, and all obligations of Lenderunder all of the Financing Agreements have been terminated. 10. All notices and other communications under this Waiver and Consent shall be in writing and shall be deemed to have been given threedays after deposit in the mail, first class mail, postage prepaid, or one day after being entrusted to a reputable commercial overnight delivery service, orwhen sent out by facsimile transmission addressed to the party to which such notice is directed at its address determined as provided in this paragraph10: If to Lender at: c/o Deerfield Management Company, L.P.780 Third Avenue, 37th Floor New York, New York 10017Attn: David Clark If to Landlord at: BRE/COH FL LLC c/o Equity Office2311 Cedar Springs, Suite 300Dallas, TX 75201 Attn: Rob Shults 11. This Waiver and Consent may be executed in any number of several counterparts, which shall constitute an original and collectivelyand separately constitute a single instrument or agreement. Delivery of an executed counterpart of a signature page to this Waiver and Consent byfacsimile or electronic transmission shall be effective as delivery of a manually executed counterpart thereof. This Waiver and Consent shall begoverned and controlled by, and interpreted under, the laws of the State of Florida, and shall inure to the benefit of Lender and its successors andassigns and shall be binding upon Landlord and its successors and assigns (including any transferees of the Premises). Landlord agrees and consents tothe filing of this document for recording in the land records of the county in which the Premises is located. 12.The agreements contained herein may not be modified or terminated orally. [Signature pages follow.]  IN WITNESS WHEREOF, this Landlord's Waiver and Consent is entered into as of the date first set forth above. LANDLORD:BRE/COH FL LLC, a Delaware limited liability company By:/s/ Mark W. Smith Name:Mark W. Smith Title:Managing Director LENDER:DEERFIELD PRIVATE DESIGN FUND III, L.P. By: Deerfield Mgmt III, L.P., General Partner By: J.E. Flynn Capital III, LLC, General Partner By:/s/ David J. Clark Name:David J. Clark Title:Authorized Signatory Exhibit 10.31THIRD AMENDMENT THIS THIRD AMENDMENT (this “Third Amendment”) is made and entered into as of July 15th 2016, by and between BRE/COH FLLLC, a Delaware limited liability company (“Landlord”) and KEMPHARM, INC., a Delaware corporation ("Tenant"). RECITALS A.Landlord and Tenant are parties to that certain lease dated November 3, 2014 (the "Original Lease"), as previously amended by that certainConfirmation Letter dated November 10, 2014 (re: the Original Lease), that certain First Amendment dated April 21, 2015 (the "FirstAmendment"), that certain Notice of Lease Term Dates dated June 12, 2015 (re: First Amendment) and that certain Second Amendment datedJanuary 8, 2016 (the "Second Amendment") (as amended, the "Lease"). Pursuant to the Lease, Landlord has leased to Tenant space currentlycontaining approximately 4,639 rentable square feet (the "Existing Premises") described as Suite Nos. 102B and 103 on the first (1st) floor ofthe building commonly known as Celebration Office Center II located at 1170 Celebration Boulevard, Celebration, Florida, which premisesare scheduled to be relocated to the Substitution Space (defined in the Second Amendment) in the building commonly known as CelebrationOffice Center I located at 1180 Celebration Boulevard, Celebration, Florida. B.The parties wish to expand the Premises (defined in the Lease) to include additional space, containing approximately 6,302 rentable squarefeet described as Suite No. 108 on the first (1st) floor of the building commonly known as Celebration Office Center I located at 1180Celebration Boulevard, Celebration, Florida and shown on Exhibit A attached hereto (the “Suite 108 Expansion Space"), on the followingterms and conditions. NOW, THEREFORE, in consideration of the above recitals which by this reference are incorporated herein, the mutual covenants andconditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenantagree as follows: I. Suite 108 Expansion. 1.1.Effect of Suite 108 Expansion. Effective as of the Suite 108 Expansion Effective Date (defined in Section 1.2 below), the Premisesshall be the Substitution Space (as defined in Recital C of the Second Amendment) and the Suite 108 Expansion Space, and, fromand after the Suite 108 Expansion Effective Date, the Substitution Space and the Suite 108 Expansion Space shall collectively bedeemed the "Premises" (provided, however, that if the Substitution Effective Date (as defined in the Second Amendment) has notoccurred on or before the Suite 108 Expansion Effective Date, then during the period commencing on the Suite 108 ExpansionEffective Date and ending on the day preceding the Substitution Effective Date, the Existing Premises and the Suite 108 ExpansionSpace shall collectively be deemed the "Premises", and on and after the Substitution Effective Date the Substitution Space and theSuite 108 Expansion Space shall collectively be deemed the "Premises"). The term of the Lease for the Suite 108 Expansion Space(the "Suite 108 Expansion Term") shall commence on the Suite 108 Expansion Effective Date and, unless sooner terminated inaccordance with the Lease, end on the last day of the 108th full calendar month beginning on or after the Suite 108 ExpansionEffective Date (the "Suite 108 Expansion Space Expiration Date"). During the Suite 108 Expansion Term, the Suite 108 ExpansionSpace shall be subject to all the terms and conditions of the Lease except as provided herein. Except as may be expressly providedherein, (a) Tenant shall not be entitled to receive, with respect to the Suite 108 Expansion Space, any allowance, free rent or otherfinancial concession granted with respect to the Existing Premises or the Substitution Space, and (b) no representation or warrantymade by Landlord with respect to the Existing Premises or the Substitution Space shall apply to the Suite 108 Expansion Space. 1.2.Suite 108 Expansion Effective Date. As used herein, "Suite 108 Expansion Effective Date" means the earlier of (i) the first date onwhich Tenant conducts business in the Suite 108 Expansion Space pursuant to this Third Amendment, or (ii) the date on which theTenant Improvement Work (defined in Exhibit B attached hereto) is Substantially Complete (defined in Exhibit B attached hereto),which is anticipated to be twelve (12) weeks after the full execution and delivery of this Amendment (the "Target Suite 108  Expansion Effective Date"). The adjustment of the Suite l08 Expansion Effective Date and, accordingly, the postponement ofTenant's obligation to pay rent for the Suite 108 Expansion Space shall be Tenant' s sole remedy if the Tenant ImprovementWork is not Substantially Complete on the Target Suite l08 Expansion Effective Date. 1.3.Confirmation Letter. At any time after the Suite l 08 Expansion Effective Date, Landlord may deliver to Tenant a noticesubstantially in the form of Exhibit C attached hereto, as a confirmation of the information set forth therein. Tenant shallexecute and return (or, by written notice to Landlord, reasonably object to) such notice within five (5) days after receivingit. 1.4.Lease Terms Not-Coterminous. For the avoidance of doubt, it is acknowledged and agreed that (a) the term of the Leasefor the Suite 108 Expansion Space is not coterminous with the term of the Lease for the Substitution Space; and (b) uponthe expiration of either such term before the other such term, Sections 8 and 16 and all other provisions of the OriginalLease that would apply to the entire Premises if the Term were expiring with respect to the entire Premises shall apply tothe space for which the term of the Lease is expiring as if the term of the Lease were expiring with respect to the entirePremises. 2.Base Rent. With respect to the Suite 108 Expansion Space during the Suite 108 Expansion Term, the schedule of Base Rent shall beas follows: Period During Suite 108 ExpansionTermAnnual Rate Per Square Foot(rounded to the nearest 100th of adollar)Monthly Base Rent*Suite 108 Expansion Effective Datethrough last day of 12th full calendarmonth of Suite 108Expansion Term$23.75$12,472.7113th through 24th full calendar months ofSuite 108 Expansion Term$24.34$12,782.5625th through 36th full calendar months ofSuite 108 Expansion Term$24.95$13,102.9137th through 48th full calendar months ofSuite 108 Expansion Term$25.58$13,433.7649th through 60th full calendar months ofSuite 108 Expansion Term$26.22$13,769.8761st through 72nd full calendar months ofSuite 108 Expansion Term$26.87$14, I I 1.2373rd through 84th full calendar months ofSuite 108 Expansion Term$27.54$14,463.0985th through 96th full calendar months ofSuite 108 Expansion Term$28.23$14,825.4697th full calendar month of Suite 108Expansion Term through last day of Suite108 Expansion Term$28.94$15,198.32*plus, applicable State of Florida sales tax. All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease. Notwithstanding the foregoing, Base Rent for the Suite 108 Expansion Space shall be abated, in the amount of $12,472.71 per month ,for the first six (6) full calendar months of the Suite 108 Expansion Term; provided, however, that if a Default (as defined in Section 19of the Original Lease) exists when any such abatement would otherwise apply, such abatement shall be deferred until the date, if any,on which such Default is cured .  3.Additional Security Deposit. Upon Tenant's execution, hereof, Tenant shall pay Landlord the sum of $48,273.00, which shall be added toand become part of the Security Deposit held by Landlord pursuant to Section 21.1 of the Original Lease. Accordingly, simultaneously withthe execution hereof, the Security Deposit is hereby increased from $82,500.00 to $130,773.00. Effective as of the date hereof, the second(italicized) paragraph of Section 4 of the Second Amendment is deleted in its entirety and replaced with the following: "Subject to the remaining terms of this Section 21.1. and provided that, during the 12-month period immediately preceding the effectivedate of any reduction of the Security Deposit, Tenant has timely paid all Rent and no default has occurred under this Lease beyond anyapplicable cure period (the "Security Reduction Conditions"), Tenant shall have the right to reduce the amount of the Security Deposit sothat the new Security Deposit amount will be: (i) $98,079.75effective as of the first day of the 30h’ fall calendar month of the Suite 108 Expansion Term; (ii) $65,386.50 effective as of the first day of the 4n2d fall calendar month of the Suite 108 Expansion Term; and (iii) $32,693.25 effective as ofthe first day of the 54th fall calendar month of the Suite 108 Expansion Term. Notwithstanding anything to the contrary contained herein,if Tenant hasbeen in Default under this Lease at any time prior to the effective date of any reduction of the Security Deposit and Tenant has failed tocure such Default within any applicable cure period, then Tenant shall have no right to reduce the amount of the Security Deposit asdescribed herein.If Tenant is entitled to a reduction in the Security Deposit, Tenant shall provide Landlord with written notice requesting that the Security Deposit be reduced as provided above (the "Security Reduction Notice"). If Tenant providesLandlord with a Security Reduction Notice, and Tenantis entitled to reduce the Security Deposit as provided herein, Landlord shall refund the applicable portion of the Security Deposit to Tenantwithin 45 days after the later to occur of (a) Landlord's receipt of the Security Reduction Notice, or (b) the date upon which Tenant isentitled to a reduction in the Security Deposit as provided above. " 4.Tenant's Share. With respect to the Suite 108 Expansion Space during the Suite 108 Expansion Term, Tenant's Share shall be 7.7436%. 5.Expenses and Taxes for Suite 108 Expansion Space During Suite 108 Expansion Term. With respect to the Suite 108 Expansion Spaceduring the Suite 108 Expansion Term, Tenant shall pay for Tenant's Share of Expenses and Taxes in accordance with the terms of the Lease(including the second sentence of Section 6 of the Second Amendment); provided, however, that, with respect to the Suite 108 ExpansionSpace during the Suite 108 Expansion Term, the Base Year for Expenses and Taxes shall be 2016. 6.Improvements to Suite 108 Expansion Space. 6.1.Configuration and Condition of Suite 108 Expansion Space. Tenant acknowledges that it has inspected the Suite 108 ExpansionSpace and agrees to accept it in its existing configuration and condition (or in such other configuration and condition as anyexisting tenant of the Suite 108 Expansion Space may cause to exist in accordance with its lease), without any representation byLandlord regarding its configuration or condition and without any obligation on the part of Landlord to perform or pay for anyalteration or improvement, except as may be otherwise expressly provided in this Third Amendment. 6.2.Responsibility for Improvements to Suite 108 Expansion Space. Landlord shall perform improvements to the Suite 108 ExpansionSpace in accordance with Exhibit B attached hereto. 7.Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date of this Third Amendment (unless different effectivedate(s) is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects: 7.1.Parking. In addition to the parking rights previously granted to Tenant under the terms of the Lease, with respect to the Suite 108Expansion Space during the Suite 108 Expansion Term, Tenant shall have the right, but not the obligation, to rent from Landlord ona monthly basis throughout the Suite 108 Expansion Term, up to 30 additional unreserved parking passes (the "Suite 108 ParkingSpaces") located on the surface parking lot servicing the Project and subject to the terms and conditions set forth in Section 24 ofthe Original Lease, as amended from time to time. During the Suite 108 Expansion Term the Suite 108 Parking Spaces shall be freeof charge. During any extension of the Suite 108  Expansion Term, Tenant shall pay Landlord the prevailing monthly charges established from time to time for such Suite I 08Parking Spaces, payable in advance, with Tenant's payment of monthly Base Rent. 7.2.Notice Addresses. Any notice required under the Lease to be sent to Landlord shall be sent to the following addresses: BRE/COH FL LLC c/o Equity Office 2311 Cedar Springs, Suite 300Dallas, TX 75201 Attn: Rob Shults with copies to: BRE/COH FL LLCc/o Equity Office222 South Riverside Plaza Suite 2000Chicago, IL 60606 Attn: Managing Counsel Equity Office222 South Riverside Plaza Suite 2000Chicago, IL 60606 Attn: Lease Administration 7.3.Above-Standard Use. The parties acknowledge that, as of the date first written above, Landlord's charge for HVAC service outsideBuilding HVAC Hours is $40.00 per hour per zone, subject to change from time to time. 7.4.Extension Options for the Suite 108 Expansion Space. 7.4.1.Grant of Option: Conditions. Subject to the terms herein, Tenant shall have the right to extend the Suite 108 ExpansionTerm (the "First Extension Option") for one additional period of 5 years commencing on the day following the Suite I 08Expansion Space Expiration Date and ending on the 5th anniversary of the Suite 108 Expansion Space Expiration Date (the"First Extension Term"), and, if Tenant properly exercised the First Extension Option and the Suite I 08 Expansion Termwas extended as a result thereof, Tenant shall also have the right to extend the Suite I 08 Expansion Term (the "SecondExtension Option") for one additional period of 5 years commencing on the date following the last day of the FirstExtension Term and ending on the 5th anniversary of the last day of the First Extension Term (the "Second ExtensionTerm"). Throughout the remainder of this provision, unless specifically provided otherwise, the First Extension Option andSecond Extension Option are each referred to as an "Extension Option", and the First Extension Term and the SecondExtension Term are each referred to as an "Extension Term". It is agreed that Tenant may exercise an Extension Option only if: A.Not less than 9 and not more than 12 full calendar months before the applicable expiration date, Tenant deliverswritten notice to Landlord (the "Extension Notice") electing to exercise the Extension Option and stating Tenant'sestimate of the Prevailing Market (defined in Section 7.4.5 below) rate for the Extension Term; B.Tenant is not in Default under the Lease beyond any applicable cure period when Tenant delivers the ExtensionNotice; C.No part of the Suite 108 Expansion Space is sublet (other than to an  Affiliate of Tenant) when Tenant delivers the Extension Notice; and D.The Lease has not been assigned (other than pursuant to a Permitted Transfer) before Tenant delivers the ExtensionNotice. 7.4.2.Terms Applicable to Extension Term. A.During the Extension Term, (a) the initial Base Rent rate per rentable square foot shall be equal to the PrevailingMarket rate per rentable square foot as of the commencement of the Extension Term and shall be subject to annualincreases in accordance with the determination of Prevailing Market; and (b) Base Rent shall be payable inmonthly installments in accordance with the terms and conditions of the Lease. Except as otherwise expresslyprovided in this Amendment, the terms and conditions set forth in the Lease, as amended from time to time, shallapply during the Extension Term. B.During the Extension Term Tenant shall pay Tenant's Share of Expenses and Taxes for the Suite 108 ExpansionSpace in accordance with the Lease. During the Extension Term the Base Year for Expenses and Taxes shall be thecalendar year in which the Extension Term commences. C.Any free rent, construction allowance or similar concession may be part of the negotiations pertinent todetermining the Prevailing Market with respect to the Extension Term. 7.4.3.Procedure for Determining Prevailing Market. A.Initial Procedure. Within 30 days after receiving the Extension Notice, Landlord shall give Tenant either (i) writtennotice ("Landlord's Binding Notice") accepting Tenant's estimate of the Prevailing Market rate for the ExtensionTerm stated in the Extension Notice, or (ii) written notice ("Landlord's Rejection Notice") rejecting such estimateand stating Landlord's estimate of the Prevailing Market rate for the Extension Term. If Landlord gives Tenant aLandlord's Rejection Notice, Tenant, within 15 days thereafter, shall give Landlord either(i) written notice ("Tenant's Binding Notice") accepting Landlord's estimate of the Prevailing Market rate forthe Extension Term stated in such Landlord's Rejection Notice, or (ii) written notice ("Tenant's Rejection Notice")rejecting such estimate. If Tenant gives Landlord a Tenant's Rejection Notice, Landlord and Tenant shall worktogether in good faith to agree in writing upon the Prevailing Market rate and terms for the Extension Term. If,within 30 days after delivery of a Tenant's Rejection Notice, the parties fail to agree in writing upon the PrevailingMarket rate and terms, the provisions of Section 7.4.3.B below shall apply. B.Dispute Resolution Procedure. 1. If, within 30 days after delivery of a Tenant's Rejection Notice, the parties fail to agree in writing upon thePrevailing Market rate and terms, Landlord and Tenant, within five (5) days thereafter, shall eachsimultaneously submit to the other, in a sealed envelope, its good faith estimate of the Prevailing Marketrate and terms for the Extension Term (collectively, the "Estimates"). If the higher of such Estimates is notmore than 105% of the lower of such Estimates, the Prevailing Market rate shall be deemed to be theaverage of the two Estimates. Otherwise, within seven (7) days after the exchange of Estimates, Landlordand Tenant shall each select an appraiser to determine which of the two Estimates most closely reflects thePrevailing Market rate and terms for the Extension Term. Each appraiser so selected shall be certified as anMAI appraiser or as  acknowledges that any assistance rendered by any agent or employee of any affiliate of Landlord in connection withthis Third Amendment has been made as an accommodation to Tenant solely in furtherance of consummating thetransaction on behalf of Landlord, and not as agent for Tenant. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Third Amendment as of the day and year firstabove written. WITNESSES: LANDLORD: /s/ Michelle Boyle BRE/COH FL LLC, a Delaware limited liability companyPrint Name:Michelle Boyle /s/ Mark W. Smith Name:Mark W. Smith/s/ Briana Kan Title:Managing DirectorPrint Name:Briana Kan WITNESSES: TENANT: /s/ Susan Smoker KEMPHARM, INC, a Delaware corporationPrint Name:Susan Smoker /s/ R. LaDuane Clifton Name:R. LaDuane Clifton/s/ Katy Powell Title:Chief Financial OfficerPrint Name:KatyPowell  EXHIBIT A OUTLINE AND LOCATION OF SUITE 108 EXPANSION SPACE  EXHIBITB WORK LETTER As used in this Exhibit B (this "Work Letter"), the following terms shall have the following meanings: "Agreement" means the Amendmentof which this Work Letter is a part. "Premises" shall mean the Suite 108 Expansion Space. "Tenant Improvements" means all improvements to beconstructed in the Premises (i.e., the Suite 108 Expansion Space) pursuant to this Work Letter. "Tenant Improvement Work" means the constructionof the Tenant Improvements, together with any related work (including demolition) that is necessary to construct the Tenant Improvements. 1 ALLOWANCE. 1.1 Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the "Allowance") in the amount of $189,060.00 (i.e.,$30.00 per rentable square foot of the Premises) to be applied toward the Allowance Items (defined in Section 1.2 below). Notwithstanding theforegoing, Tenant, by notice to Landlord, may apply all or any portion of the Allowance to amounts due and owing to Landlord pursuant to Section3.3 of Exhibit B to the Second Amendment as a result of the cost of the "Tenant Improvement Work" under Exhibit B to the Second Amendmentexceeding the "Maximum Amount" thereunder, in which event the Allowance available to Tenant hereunder shall be reduced by the amount soapplied. Tenant shall be responsible for all costs associated with the Tenant Improvement Work, including the costs of the Allowance Items, to theextent such costs exceed the lesser of (a) the Allowance, or (b) the aggregate amount that Landlord is required to disburse for such purpose pursuant tothis Work Letter. Notwithstanding any contrary provision of this Agreement, if, for any reason other than a breach by Landlord of its obligations underthis Agreement, the entire Allowance is not used within twelve (12) months following the Suite 108 Expansion Effective Date, the unused amountshall revert to Landlord and Tenant shall have no further rights with respect thereto. 1.2 Disbursement. Except as otherwise provided in this Work Letter, the Allowance shall be disbursed by Landlord only for the followingitems (the "Allowance Items"): (a) the fees of the Architect (defined in Section 2.1 below); (b) the cost of preparing the Engineering Drawings (definedin Section 3.2.1 below); (c) plan-check, permit and license fees relating to performance of the Tenant Improvement Work; (d) the cost of performingthe Tenant Improvement Work, including after hours charges, testing and inspection costs, freight elevator usage, hoisting and trash removal costs,and contractors' fees and general conditions; (e) the cost of any change to the base, shell or core of the Premises or Building required by the ApprovedPlans (defined in Section 2.7 below) (including if such change is due to the fact that such work is prepared on an unoccupied basis), including alldirect architectural and/or engineering fees and expenses incurred in connection therewith; (t) the cost of any change to the Approved Plans or theTenant Improvement Work required by law; (g) [intentionally omitted]); (h) sales and use taxes; and (i) all other costs expended by Landlord inconnection with the performance of the Tenant Improvement Work. 2ARCHITECTURAL PLANS; PRICING. 2.1 Selection of Architect. Landlord shall retain the architect/space planner of Landlord's choice (the "Architect") to prepare theArchitectural Drawings (defined in Section 2.5 below). 2.2[Intentionally Omitted.] 2.3 Approved Space Plan. Landlord and Tenant acknowledge that they have approved the scope of work described in the space plan for thePremises prepared by C4 Architecture and attached hereto as Exhibit B-1, excluding any provision thereof that is inconsistent with any provision ofthis Agreement (the "Approved Space Plan"). 2.4 Additional Programming Information. Tenant shall deliver to Landlord, in writing, all information (including all interior and specialfinishes) that, when combined with the Approved Space Plan, will be sufficient to complete the Architectural Drawings, together with all information(including all electrical requirements, telephone requirements, special HVAC requirements, and plumbing requirements) that, when combined with theApproved Space Plan, will be sufficient to complete the Engineering Drawings (collectively, the "Additional Programming Information"). TheAdditional Programming Information shall be (a) consistent with the Approved Space Plan, (b) consistent with Landlord's requirements for avoidingaesthetic, engineering or other conflicts with the design and function of the balance of the Building (collectively, the "Landlord Requirements"),and (c) otherwise subject to Landlord's reasonable approval. Landlord shall provide Tenant with notice approving or reasonably disapproving theAdditional Programming Information within five (5) business days after the  later of Landlord's receipt thereof or the mutual execution and delivery of this Agreement. If Landlord disapproves the Additional ProgrammingInformation, Landlord's notice of disapproval shall describe with reasonable specificity the basis for such disapproval and Tenant shall modify theAdditional Programming Information and resubmit it for Landlord's approval. Such procedure shall be repeated as necessary until Landlord hasapproved the Additional Programming Information. Such approved Additional Programming Information shall be referred to herein as the "ApprovedAdditional Programming Information." If requested by Tenant, Landlord, in its sole and absolute discretion, may assist Tenant, or cause theArchitect and/or other contractors or consultants of Landlord to assist Tenant, in preparing all or a portion of the Additional ProgrammingInformation; provided, however, that, whether or not the Additional Programming Information is prepared with such assistance, Tenant shall be solelyresponsible for the timely preparation and delivery of the Additional Programming Information and for all elements thereof and, subject to Section Iabove, all costs relating thereto. 2.5 Architectural Drawings. After approving the Additional Programming Information, Landlord shall cause the Architect to prepare anddeliver to Tenant the final architectural (and, if applicable, structural) working drawings for the Tenant Improvement Work that are in a form that(a) when combined with any programming information that is contained in the Approved Space Plan or the Approved Additional ProgrammingInformation but not expressly incorporated into such working drawings, will be sufficient to enable the Contractor (defined in Section 3.1 below) andits subcontractors to bid on the Tenant Improvement Work, and (b) when combined with any Engineering Drawings that satisfy the EngineeringRequirements (defined in Section 3.2.1 below), will be sufficient to obtain the Permits (defined in Section 3.3 below) (the "Architectural Drawings").The Architectural Drawings shall conform to the Approved Space Plan and the Approved Additional Programming Information. The Architect'spreparation and delivery of the Architectural Drawings shall occur within 15 business days after the later of Landlord's approval of the AdditionalProgramming Information or the mutual execution and delivery of this Agreement. Tenant shall approve or disapprove the Architectural Drawings bynotice to Landlord. If Tenant disapproves the Architectural Drawings, Tenant's notice of disapproval shall specify any revisions Tenant desires in theArchitectural Drawings. After receiving such notice of disapproval, Landlord shall cause the Architect to revise the Architectural Drawings andresubmit them to Tenant, taking into account the reasons for Tenant's disapproval; provided, however, that Landlord shall not be required to cause theArchitect to make any revision to the Architectural Drawings that conflicts with the Landlord Requirements or is otherwise reasonably disapproved byLandlord. Such revision and resubmission shall occur within five (5) business days after the later of Landlord's receipt of Tenant's notice ofdisapproval or the mutual execution and delivery of this Agreement if such revision is not material, and within such longer period of time as may bereasonably necessary (but not more than 15 business days after the later of such receipt or such mutual execution and delivery) if such revision ismaterial. Such procedure shall be repeated as necessary until Tenant has approved the Architectural Drawings. Such approved Architectural Drawingsshall be referred to herein as the "Approved Architectural Drawings." 2.6Construction Pricing. 2.6.1 Construction Pricing Proposal. Within 10 business days after the Architectural Drawings are approved by Landlord and Tenant,Landlord shall provide Tenant with Landlord's reasonable estimate (the "Construction Pricing Proposal") of the cost of all Allowance Items to beincurred by Tenant in connection with the performance of the Tenant Improvement Work pursuant to the Approved Architectural Drawings and theApproved Additional Programming Information. Tenant shall provide Landlord with notice approving or disapproving the Construction PricingProposal. If Tenant disapproves the Construction Pricing Proposal, Tenant's notice of disapproval shall be accompanied by proposed revisions to theApproved Architectural Drawings and/or the Approved Additional Programming Information that Tenant requests in order to resolve its objections tothe Construction Pricing Proposal, and Landlord shall respond as required under Section 2.7 below. Such procedure shall be repeated as necessaryuntil the Construction Pricing Proposal is approved by Tenant. Upon Tenant's approval of the Construction Pricing Proposal, Landlord may purchasethe items set forth in the Construction Pricing Proposal and begin construction relating to such items. 2.6.2 Over-Allowance Amount. If the Construction Pricing Proposal exceeds the Allowance, then Tenant, concurrently with itsdelivery to Landlord of its approval of the Construction Pricing Proposal, shall deliver to Landlord cash in the amount of such excess (the "Over-Allowance Amount"). Any Over-Allowance Amount shall be disbursed by Landlord before the Allowance and pursuant to the same procedure as theAllowance. If, after the Construction Pricing Proposal is approved by Tenant, (a) any revision is made to the Approved Additional ProgrammingInformation or the Approved Architectural Drawings, or Tenant disapproves any Engineering Drawings that satisfy the Engineering Requirements, orthe Tenant Improvement Work is otherwise changed, in each case in a way that increases the Construction Pricing Proposal, or (b) the ConstructionPricing Proposal is otherwise increased to reflect the actual cost of all Allowance Items to be incurred by Tenant in connection with the  performance of the Tenant Improvement Work pursuant to the terms hereof, then Tenant shall deliver any resulting Over-Allowance Amount (or anyresulting increase in the Over-Allowance Amount) to Landlord immediately upon Landlord's request. 2.7 Revisions. If Tenant requests any revision to the Approved Space Plan, the Approved Additional Programming Information, theApproved Architectural Drawings, or the Approved Engineering Drawings (defined in Section 3.2 below) (collectively, the "Approved Plans"),Landlord shall provide Tenant with notice approving or reasonably disapproving such revision, and, if Landlord approves such revision, Landlordshall deliver to Tenant notice of any resulting change in the most recent Construction Pricing Proposal, if any (together with a copy of the revisionitself, except in the case of the Approved Additional Programming Information), within five (5) (or, in the case of the Approved ArchitecturalDrawings or the Approved Engineering Drawings, 15) business days after the later of Landlord's receipt of such request or the mutual execution anddelivery of this Agreement, whereupon Tenant, within one (1) business day, shall notify Landlord whether it desires to proceed with such revision. IfLandlord has begun performing the Tenant Improvement Work, then, in the absence of such authorization, Landlord shall have the option to continuesuch performance disregarding such revision. Without limitation, it shall be deemed reasonable for Landlord to disapprove any such proposedrevision that conflicts with the Landlord Requirements. Landlord shall not revise the Approved Plans without Tenant's consent, which shall not beunreasonably withheld or conditioned. Tenant shall approve, or reasonably disapprove (and state, with reasonable specificity, its reasons fordisapproving), any revision to the Approved Plans within two (2) business days after receiving Landlord's request for approval thereof. For purposeshereof, any change order affecting the Approved Plans shall be deemed a revision thereto. 2.8 Tenant's Approval Deadline. Tenant shall approve the Construction Pricing Proposal pursuant to Section 2.6.l above on or beforeTenant's Approval Deadline (defined below). As used in this Work Letter, "Tenant's Approval Deadline" means the date occurring one (1) week afterthe mutual execution and delivery of this Agreement; provided, however, that Tenant's Approval Deadline shall be extended by one (1) day for eachday, if any, by which Tenant's approval of the Construction Pricing Proposal pursuant to Section 2.6.1 above is delayed by any failure of Landlord toperform its obligations under this Section 2. 3CONSTRUCTION. 3.1 Contractor. Landlord shall retain a contractor of its choice (the "Contractor") to perform the Tenant Improvement Work. In addition,Landlord may select and/or approve of any subcontractors, mechanics and materialmen used in connection with the performance of the TenantImprovement Work. 3.2Engineering Drawings. 3.2.1 Preparation. Landlord shall cause the engineering working drawings for the mechanical, electrical, plumbing, fire-alarm and firesprinkler work in the Premises (the "Engineering Drawings") to (a) be prepared by one or more of the Architect, the Contractor, and/or engineers orother consultants selected and/or retained by the Architect, the Contractor or Landlord, and (b) conform to the Approved Space Plan, the ApprovedAdditional Programming Information, the first sentence of Section 4 below, and any then-existing Approved Architectural Drawings (collectively, the"Engineering Requirements"). 3.2.2 Design Build. Except as provided in Section 3.2.3 below, the Engineering Drawings shall be delivered to Tenant within 15business days after the later of Tenant's approval of the Architectural Drawings pursuant to Section 2.5 above or the mutual execution and delivery ofthis Agreement. Tenant shall approve, or reasonably disapprove (and state, with reasonable specificity, its reasons for disapproving), the EngineeringDrawings within two (2) business days after the latest of(a) Tenant's receipt of the Engineering Drawings, (b) Tenant's approval of the Architectural Drawings, or (c) the mutual execution and delivery of thisAgreement. After receiving any such notice of reasonable disapproval, Landlord shall cause the Contractor to revise the Engineering Drawings andresubmit them to Tenant, taking into account the reasons for Tenant's disapproval; provided, however, that Landlord shall not be required to make anyrevision to the Engineering Drawings that conflicts with the Engineering Requirements or the Landlord Requirements or is otherwise reasonablydisapproved by Landlord. Such procedure shall be repeated as necessary until Tenant has reasonably approved the Engineering Drawings. Suchapproved Engineering Drawings shall be referred to herein as the "Approved Engineering Drawings". 3.2.3 Design Bid Build. If Landlord, at its option, causes the Engineering Drawings to be delivered to Tenant on or before the date onwhich the Architectural Drawings are first delivered to Tenant pursuant to Section 2.5 above, then (a) Section 3.2.2 above shall not apply; (b) Tenant'sreview  and approval of the Engineering Drawings shall be governed by Section 2.5 above as if the Engineering Drawings were part of the ArchitecturalDrawings; and (c) the Engineering Drawings, as approved by Tenant pursuant to Section 2.5 above, shall be referred to herein as the "ApprovedEngineering Drawings". 3.3 Permits. Landlord shall cause the Contractor to submit the Approved Architectural Drawings and the Approved Engineering Drawings(collectively, the "Approved Construction Drawings") to the appropriate municipal authorities and otherwise apply for and obtain from suchauthorities all permits necessary for the Contractor to complete the Tenant Improvement Work (the "Permits"). 3.4Construction. 3.4.1 Performance of Tenant Improvement Work. Landlord shall cause the Contractor to perform the Tenant Improvement Work inaccordance with the Approved Construction Drawings. 3.4.2 Contractor's Warranties. Tenant waives all claims against Landlord relating to any defects in the Tenant Improvements;provided, however, that if, within 30 days after substantial completion of the Tenant Improvement Work, Tenant provides notice to Landlord of anynon-latent defect in the Tenant Improvements, or if, within I I months after substantial completion of the Tenant Improvement Work, Tenant providesnotice to Landlord of any latent defect in the Tenant Improvements, then Landlord shall promptly cause such defect to be corrected. 4 COMPLIANCE WITH LAW; SUITABILITY FOR TENANT'S USE. Landlord shall cause the Architect and the Contractor to use the RequiredLevel of Care (defined below) to cause the Architectural Drawings and the Engineering Drawings to comply with law; provided, however, thatLandlord shall not be responsible for any violation of law resulting from (a) any particular use of the Premises (as distinguished from general officeuse), or (b) any failure of the Approved Additional Programming Information to comply with law. As used herein, "Required Level of Care" meansthe level of care that reputable architects and engineers customarily use to cause architectural and engineering plans, drawings and specifications tocomply with law where such plans, drawings and specifications are prepared for spaces in buildings comparable in quality to the Building. Except asprovided above in this Section 4, Tenant shall be responsible for ensuring that the Approved Plans are suitable for Tenant's use of the Premises andcomply with law, and neither the preparation of any of the Approved Plans by the Architect or the Contractor nor Landlord's approval of the ApprovedPlans shall relieve Tenant from such responsibility. To the extent that either party (the "Responsible Party") is responsible under this Section 4 forcausing the Approved Plans to comply with law, the Responsible Party may contest any alleged violation of law in good faith, including by seeking awaiver or deferment of compliance, asserting any defense allowed by law, and exercising any right of appeal (provided that the other party incurs noliability as a result of such contest and that, after completing such contest, the Responsible Party makes any modification to the Approved Plans or anyalteration to the Premises that is necessary to comply with any final order or judgment). 5COMPLETION. 5.1 Substantial Completion. For purposes of Section 1 .2 of this Agreement, and subject to Section 5.2 below, the Tenant Improvement Workshall be deemed to be "Substantially Complete" upon the completion of the Tenant Improvement Work pursuant to the Approved ConstructionDrawings (as reasonably determined by Landlord), with the exception of any details of construction, mechanical adjustment or any other similarmatter the non-completion of which does not materially interfere with Tenant's use of the Premises. 5.2 Tenant Cooperation; Tenant Delay. Tenant shall use reasonable efforts to cooperate with Landlord, the Architect, the Contractor, andLandlord's other consultants to complete all phases of the plans and specifications for the Tenant Improvement Work, approve the ConstructionPricing Proposal, obtain the Permits, and complete the Tenant Improvement Work as soon as possible, and Tenant shall meet with Landlord, inaccordance with a schedule determined by Landlord, to discuss the parties' progress. Without limiting the foregoing, if (i) the Tenant Improvementsinclude the installation of electrical connections for furniture stations to be installed by Tenant, and (ii) any electrical or other portions of suchfurniture stations must be installed in order for Landlord to obtain any governmental approval required for occupancy of the Premises, then (x) Tenant,upon five (5) business days' notice from Landlord, shall promptly install such portions of such furniture stations in accordance with Sections 7.2 and7.3 of the Lease, and (y) during the period of Tenant's entry into the Premises for the purpose of performing such installation, all of Tenant'sobligations under this Agreement relating to the Premises shall apply, except for the obligation to pay Monthly Rent. In addition, without limiting theforegoing, if the Substantial Completion of the Tenant Improvement Work is delayed (a "Tenant  Delay") as a result of (a) any failure of Tenant to approve the Construction Pricing Proposal pursuant to Section 2.6.1 above on or before Tenant'sApproval Deadline; (b) any failure of Tenant to timely approve the Engineering Drawings for any reason other than their failure to satisfy theEngineering Requirements; (c) any failure of Tenant to timely approve any other matter requiring Tenant's approval;(d) any breach by Tenant of this Work Letter or this Agreement; (e) any request by Tenant for any revision to, or for Landlord's approval of anyrevision to, any portion of the Approved Plans (except to the extent that such delay results from a breach by Landlord of its obligations under Section2.7 above);(t) any requirement of Tenant for materials, components, finishes or improvements that are not available in a commercially reasonable time given theanticipated date of Substantial Completion of the Tenant Improvement Work as set forth in this Agreement; (g) any change to the base, shell or core ofthe Premises or Building required by the Approved Construction Drawings; or (h) any other act or omission of Tenant or any of its agents, employeesor representatives, then, notwithstanding any contrary provision of this Agreement, and regardless of when the Tenant Improvement Work is actuallySubstantially Completed, the Tenant Improvement Work shall be deemed to be Substantially Completed on the date on which the TenantImprovement Work would have been Substantially Completed if no such Tenant Delay had occurred. Notwithstanding the foregoing, Landlord shallnot be required to tender possession of the Premises to Tenant before the Tenant Improvement Work has been Substantially Completed, as determinedwithout giving effect to the preceding sentence. 6 MISCELLANEOUS. Notwithstanding any contrary provision of this Agreement, if Tenant defaults under this Agreement before the TenantImprovement Work is completed, Landlord's obligations under this Work Letter shall be excused until such default is cured and Tenant shall beresponsible for any resulting delay in the completion of the Tenant Improvement Work. This Work Letter shall not apply to any space other than thePremises.  EXHIBITB-1 APPROVED SPACE PLAN  EXHIBIT C NOTICE OF LEASE TERM DATES _, 20 To: Re: Third Amendment (the "Third Amendment"), dated 2016, to a lease agreement dated November 3, 2014, between BRE/COHFL LLC, a Delaware limited liability company ("Landlord"), and KEMPHARM, INC., a Delaware corporation ("Tenant"), concerningSuite I 08 on the first (151 floor of the building located at 1180 Celebration Boulevard, Celebration, Florida (the "Suite 108 Expansion Space"). Lease lD: ____________________________Business Unit Number:-------- Dear------- In accordance with the Third Amendment, Tenant accepts possession of the Suite 108 Expansion Space and confirms that the Suite I08 Expansion Effective Date is , 20_ . Please acknowledge the foregoing by signing all three (3) counterparts of this letter in the space provided below and returning two(2) fully executed counterparts to my attention. Please note that, under Section 2.3 of the Third Amendment, Tenant is required to executeand return (or reasonably object in writing to) this letter within five (5) days after receiving it. "Landlord": BRE/COH FL LLC, a Delaware limited liability company By: Name: Title: Agreed and Acceptedas of , 20_. "Tenant": KEMPHARM, corporation INC., a Delaware By: Name: Title: Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements: 1.Registration Statement (Form S-3 No. 333-213926) of KemPharm, Inc. 2.Registration Statement (Form S-8 No. 333-210369) pertaining to the 2014 Equity Incentive Plan of KemPharm, Inc., and 3.Registration Statement (Form S-8 No. 333-203703) pertaining to the Incentive Stock Plan, as amended, and the 2014 Equity Incentive Planof KemPharm, Inc. of our report dated March 10, 2017, with respect to the financial statements of KemPharm, Inc. included in this Annual Report (Form 10-K) of KemPharm,Inc. for the year ended December 31, 2016. /s/ Ernst & Young LLP Tampa, FloridaMarch 10, 2017 Exhibit 31.1 CERTIFICATIONS I, Travis C. Mickle, certify that: 1.I have reviewed this Annual Report on Form 10-K of KemPharm, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby 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.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)) for the registrant and have: (a)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 designed underour 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 conclusions aboutthe 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.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably 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. March 10, 2017 /s/ Travis C. Mickle Name:Travis C. Mickle, Ph.D. Title:President and Chief Executive Officer(Principal Executive Officer) Exhibit 31.2 CERTIFICATIONS I, R. LaDuane Clifton, certify that: 1.I have reviewed this Annual Report on Form 10-K of KemPharm, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby 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.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)) for the registrant and have: (a)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 designed underour 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 conclusions aboutthe 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.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably 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. March 10, 2017 /s/ R. LaDuane Clifton Name:R. LaDuane Clifton, CPA Title:Chief Financial Officer, Secretary and Treasurer(Principal Financial Officer) Exhibit 32.1 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICERPURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of KemPharm, Inc., (the “Company”) for the fiscal year ended December 31, 2016, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Travis C. Mickle, Principal Executive Officer of the Company, certify, pursuantto 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. March 10, 2017 /s/ Travis C. Mickle Name:Travis C. Mickle, Ph.D. Title:President and Chief Executive Officer(Principal Executive Officer) The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, is not being "filed" by the Company as part of the Report or as aseparate disclosure document and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, orthe Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation languagecontained in such filing. Exhibit 32.2 CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of KemPharm, Inc., (the “Company”) for the fiscal year ended December 31, 2016, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, R. LaDuane Clifton, Principal Financial Officer of the Company, certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. March 10, 2017 /s/ R. LaDuane Clifton Name:R. LaDuane Clifton, CPA Title:Chief Financial Officer, Secretary and Treasurer(Principal Financial Officer) The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, is not being "filed" by the Company as part of the Report or as aseparate disclosure document and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, orthe Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation languagecontained in such filing. 

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