La Jolla Pharmaceutical Company
Annual Report 2015

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 1-36282 LA JOLLA PHARMACEUTICAL COMPANY(Exact name of registrant as specified in its charter) California 33-0361285(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)10182 Telesis Court, 6th Floor, San Diego, CA 92121(Address of principal executive offices, including Zip Code)Registrant’s telephone number, including area code: (858) 207-4264Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, Par Value $0.0001 per share The NASDAQ Capital MarketSecurities 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 o No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No xIndicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes x No oIndicate 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 the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filero Accelerated filerxNon-accelerated filero(Do not check if a smaller reporting company)Smaller reporting companyoIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No xThe aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2015 totaled approximately $270,367,000. As ofFebruary 22, 2016, there were 18,254,009 shares of the Company’s common stock, $0.0001 par value, outstanding.DOCUMENTS INCORPORATED BY REFERENCENone.TABLE OF CONTENTSPART I Item 1. Business1Item 1A. Risk Factors11Item 1B. Unresolved Staff Comments21Item 2. Properties21Item 3. Legal Proceedings22Item 4. Mine Safety Disclosures22PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities22Item 6. Selected Financial Data23Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations24Item 7A. Quantitative and Qualitative Disclosures About Market Risk30Item 8. Financial Statements and Supplementary Data30Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure30Item 9A. Controls and Procedures30Item 9B. Other Information30PART III Item 10. Directors, Executive Officers and Corporate Governance31Item 11. Executive Compensation31Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters31Item 13. Certain Relationships and Related Transactions, and Director Independence31Item 14. Principal Accountant Fees and Services31PART IV Item 15. Exhibits, Financial Statement Schedules32Signatures34FORWARD-LOOKING STATEMENTSThis report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statementscan be identified by words such as “intends,” “believes,” “anticipates,” “indicates,” “plans,” “expects,” “suggests,” “may,” “should,” “potential,” “designedto,” “will” and similar references. These statements relate to future events or the Company’s anticipated future results of operations. These statements are onlypredictions and involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from theseforward-looking statements. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of thedate they were made. Certain of these risks, uncertainties, and other factors are described in greater detail in the Company’s filings with the U.S. Securitiesand Exchange Commission (SEC), all of which are available free of charge on the SEC’s web site www.sec.gov. These risks include, but are not limited to,risks relating to: the timing for commencement of clinical studies, the anticipated timing for completion of such studies, and the anticipated timing forregulatory actions; the success of future development activities for LJPC-501, LJPC-401, LJPC-30Sa and LJPC-30Sb; potential indications for which LJPC-501, LJPC-401, LJPC-30Sa and LJPC-30Sb may be developed; and the expected duration over which the Company’s cash balances will fund its operations.Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statementsinclude, among others:•the risk that our clinical trials with our product candidates may not be successful in evaluating their safety and tolerability or providing evidence ofefficacy;•the successful and timely completion of clinical trials;•our plans and timing with respect to seeking regulatory approvals and uncertainties regarding the regulatory process;•the availability of funds and resources to pursue our research and development projects, including clinical trials with our product candidates;•uncertainties associated with obtaining and enforcing patents;•the potential commercialization of any of our drug candidates that receive regulatory approval;•our estimates for future performance;•our estimates regarding our capital requirements and our needs for, and ability to obtain, additional financing; and•those risk factors identified in this Annual Report on Form 10-K under the heading “Risk Factors” and in other filings the Company periodicallymakes with the SEC.Forward-looking statements contained in this Annual Report on Form 10-K speak as of the date hereof, and we do not undertake to update any of theseforward-looking statements to reflect a change in our views or events or circumstances that occur after the date of this Annual Report on Form 10-K. Inaddition, please see the "Risk Factors" section of this Annual Report on Form 10-K. These risk factors may be updated from time to time by our future filingsunder the Exchange Act.PART IIn this report, all references to "we," "our," "us," "La Jolla" and "the Company" refer to La Jolla Pharmaceutical Company, a California corporation.Item 1. Business.OverviewLa Jolla Pharmaceutical Company is a biopharmaceutical company focused on the discovery, development and commercialization of innovativetherapies intended to significantly improve outcomes in patients suffering from life-threatening diseases. We have several product candidates indevelopment. LJPC-501 is our proprietary formulation of angiotensin II for the potential treatment of catecholamine-resistant hypotension. LJPC-401 is ournovel formulation of hepcidin for the potential treatment of conditions characterized by iron overload, such as hereditary hemochromatosis, beta thalassemia,sickle cell disease and myelodysplastic syndrome. LJPC-30Sa and LJPC-30Sb are our next-generation gentamicin derivatives for the potential treatment ofserious bacterial infections and rare genetic disorders, such as cystic fibrosis and Duchenne muscular dystrophy.LJPC-501LJPC-501 is our proprietary formulation of angiotensin II. Angiotensin II, the major bioactive component of the renin-angiotensin system, serves asone of the body’s central regulators of blood pressure. We are developing LJPC-501 for the treatment of catecholamine-resistant hypotension (CRH), which isan acute, life-threatening condition in which blood pressure drops to dangerously low levels in patients who respond poorly to current treatments.Angiotensin II has been shown to raise blood pressure in a randomized, placebo-controlled clinical trial in CRH, which was recently published in the journalCritical Care, as well as in animal models of hypotension. Preclinical pharmacology studies that we have conducted have demonstrated that catecholamineresistance may be in part a result of reduced endogenous production of angiotensin II. In October 2014, we presented positive data from a preclinical study ofLJPC-501 for the treatment of CRH.We initiated a Phase 3 clinical trial with LJPC-501 for the treatment of CRH, called the ATHOS (Angiotensin II for the Treatment of High-OutputShock) 3 trial, in March 2015. In February 2015, we reached agreement with the U.S. Food and Drug Administration (FDA) on a Special Protocol Assessment(SPA) for this multicenter, randomized, double-blind, placebo-controlled, Phase 3 clinical trial. In accordance with the SPA, the primary efficacy endpoint forthe ATHOS 3 registration trial is increase in blood pressure at three hours. The ATHOS 3 trial is designed to enroll approximately 315 patients. Patients are tobe randomized in a 1:1 fashion to receive either: (i) LJPC-501 plus standard-of-care vasopressors; or (ii) placebo plus standard-of-care vasopressors.Randomized patients are to receive their assigned treatment via continuous IV infusion for up to seven days. The primary efficacy endpoint in the study is tocompare the change in mean arterial pressure in patients with CRH who receive an IV infusion of LJPC-501 plus standard-of-care vasopressors to those thatreceive placebo plus standard-of-care vasopressors. Secondary endpoints include comparison of changes in cardiovascular Sequential Organ FailureAssessment (SOFA) scores and the safety and tolerability of LJPC-501 in patients with CRH. Results from ATHOS 3 are expected by the end of 2016.LJPC-401LJPC-401 is our novel formulation of hepcidin. Hepcidin, an endogenous peptide hormone, is the body’s naturally occurring regulator of ironabsorption and distribution. Hepcidin prevents excessive iron accumulation in vital organs, such as the liver and heart, where it can cause significant damageand even result in death.We are developing LJPC-401 for the potential treatment of iron overload, which occurs as a result of diseases such as hereditary hemochromatosis(HH), beta thalassemia, sickle cell disease (SCD) and myelodysplastic syndrome (MDS). HH is a disease caused by a genetic deficiency in hepcidin thatresults in excessive iron accumulation. HH is the most common genetic disease in Caucasians and causes liver cirrhosis, liver cancer, heart disease and/orfailure, diabetes, arthritis and joint pain. Beta thalassemia, SCD and MDS are genetic diseases of the blood that can cause life-threatening anemia and usuallyrequire frequent and life-long blood transfusions. These blood transfusions cause excessive iron accumulation in the body, which is toxic to vital organs,such as the liver and heart. In addition, the underlying anemia causes excessive iron accumulation independent of blood transfusions.1LJPC-401 has been shown to be effective in reducing serum iron in preclinical testing. In October 2015, we initiated a Phase 1 clinical trial of LJPC-401 in patients at risk of iron overload due to conditions such as HH, beta thalassemia, SCD and MDS. In January 2016, we reported interim results from thisstudy that suggested a dose-dependent reduction in serum iron following a single dose of LJPC-401. We expect to report complete results from our Phase 1dose-escalation study in the second half of 2016.In September 2015, we received a positive opinion from the European Medicines Agency (EMA) Committee for Orphan Medicinal Products(COMP), which the European Commission subsequently adopted in October 2015, for designation of LJPC-401 as an orphan medicinal product for thetreatment of beta thalassemia intermedia and major.LJPC-30Sa and LJPC-30SbLJPC-30Sa and LJPC-30Sb are our next-generation gentamicin derivatives. Despite kidney toxicity, gentamicin has become one of the mostcommonly prescribed hospital antibiotics due to its broad spectrum of antimicrobial efficacy. Gentamicin consists primarily of a mixture of four distinct butclosely related chemical entities that may contribute differentially to the product’s toxicity profile.LJPC-30Sa and LJPC-30Sb are purified components of the currently marketed gentamicin product that retain the biologic activity of gentamicin, yetappear to lack the traditional kidney toxicity associated with it. We are developing LJPC-30Sa and LJPC-30Sb not only for the potential treatment of seriousbacterial infections but also for the potential treatment of rare genetic disorders, such as cystic fibrosis and Duchenne muscular dystrophy.We believe that gentamicin’s ability to induce a lack of fidelity in gene transcription, intrinsic to its antimicrobial mechanism of action, can also beleveraged in the correction of certain human genetic mutations that lead to rare genetic disorders, such as cystic fibrosis and Duchenne muscular dystrophy.In spite of favorable short-term clinical proof-of-efficacy data in cystic fibrosis, development of gentamicin as a chronic treatment for these genetic diseaseshas been limited by its toxicity profile.Following a pre-investigational new drug application (IND) meeting with the FDA, we have received guidance that we may proceed with a proposedPhase 1 clinical trial following the submission of an IND.GCS-100 and LJPC-1010GCS-100 and LJPC-1010 are our polysaccharide-based galectin-3 inhibitors. As part of our portfolio reprioritization in May 2015, the developmentof these product candidates was discontinued. We are exploring out-licensing opportunities for these product candidates.ManufacturingWe do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of any of our product candidates.We rely on a small number of third-party manufacturers to produce our compounds and expect to continue to do so to meet the preclinical and clinicalrequirements of our potential product candidates and for all of our commercial needs. We do not have long-term agreements with any of these third parties.We require in our manufacturing and processing agreements that all third-party contract manufacturers and processors produce active pharmaceuticalingredients (API) and finished products in accordance with the FDA's current Good Manufacturing Practices (cGMP) and all other applicable laws andregulations. We maintain confidentiality agreements with potential and existing manufacturers in order to protect our proprietary rights related to our drugcandidates.With regard to our lead product candidate, LJPC-501, we use third parties to supply API and to formulate, fill and finish our final product. Aftersourcing the API for LJPC-501 from independent suppliers, we use different third parties to formulate the bulk drug product and complete the process byfilling bulk drug product into vials. To date, LJPC-501 has been manufactured in small quantities for preclinical studies and clinical trials. If LJPC-501 isapproved for commercial sale, we will need to manufacture the product in larger quantities. Significant scale-up of manufacturing requires additional processdevelopment and validation studies, which the FDA must review and approve. We are currently starting the process of completing this scale-up andvalidation work. If approved, the commercial success of LJPC-501, in the near-term, will be dependent upon the ability of our contract manufacturers toproduce product in commercial quantities at competitive costs of2manufacture. If LJPC-501 receives regulatory approval, we plan to scale-up manufacturing through our third-party manufacturers with the objective ofrealizing important economies of scale. These scale-up activities will take time to implement, require additional capital investment, process development,validation studies and FDA approval. We cannot guarantee that we will be successful in achieving competitive manufacturing costs through such scale-upactivities.Patents and Proprietary TechnologiesPatents and other proprietary rights are important to our business. As part of our strategy to protect our current product candidates and to provide afoundation for future products, we have filed a number of patent applications and have licensed rights from third parties for other patent applications relatedto our product candidates.As of December 31, 2015, we owned or had the rights to 25 issued patents (14 U.S. and 11 foreign), and 45 pending applications (14 U.S. and 31foreign). These patents and patent applications owned or licensed by us cover our LJPC-501, LJPC-401, LJPC-30Sa and LJPC-30Sb programs, as well asother programs (discontinued GCS-100 and LJPC-1010 and new development programs). United States ForeignDescription Issued Pending Expiration Issued Pending ExpirationLJPC-501 1 4 2029 - 2035 — 10 2034 - 2035LJPC-401 1 1 2022 10 3 2022LJPC-30Sa and 30Sb 1 2 2027 - 2036 — — N/AOther 11 7 2025 - 2036 1 18 2025 - 2035In addition to those above, we plan to file additional patent applications that, if issued, would provide further protection for LJPC-501, LJPC-401,LJPC-30Sa and LJPC-30Sb. Although we believe the bases for these patents and patent applications are sound, they are untested; and there is no assurancethat they will not be successfully challenged. There can be no assurance that any patent previously issued will be of commercial value, that any patentapplications will result in issued patents of commercial value, or that our technology will not be held to infringe patents held by others.CompetitionThe biotechnology and pharmaceutical industries are subject to rapid technological change. Competition from domestic and foreign biotechnologycompanies, large pharmaceutical companies and other institutions is intense and expected to increase. A number of companies are pursuing the developmentof pharmaceuticals in our targeted areas.Government RegulationPharmaceutical RegulationIf and when we market any pharmaceutical products in the U.S., they will be subject to extensive government regulation. Likewise, if we seek tomarket and distribute any such products abroad, they would also be subject to extensive foreign government regulation.In the U.S., the FDA regulates pharmaceutical products. FDA regulations govern the testing, research and development activities, manufacturing,quality, storage, advertising, promotion, labeling, sale and distribution of pharmaceutical products. Accordingly, there is a rigorous process for the approvalof new drugs and ongoing oversight of marketed products. We are also subject to foreign regulatory requirements governing clinical trials and drug productsif products are tested or marketed abroad. The approval process outside the U.S. varies from jurisdiction to jurisdiction and the time required may be longer orshorter than that required for FDA approval.See Item 1A. Risk Factors of this Annual Report on Form 10-K for a discussion of the factors that could adversely impact our development ofcommercial products and industry regulation.3Regulation in the U.S. The FDA testing and approval process requires substantial time, effort and money. We cannot assure you that any of our product candidates will everobtain approval. The FDA approval process for new drugs includes, without limitation:• preclinical studies;•submission in the U.S. of an IND for clinical trials conducted in the U.S.;•adequate and well-controlled human clinical trials to establish safety and efficacy of the product;•review of a New Drug Application (NDA) in the U.S.; and•inspection of the facilities used in the manufacturing of the drug to assess compliance with the FDA’s current cGMP regulations.The FDA monitors the progress of trials conducted in the U.S. under an IND and may, at its discretion, re-evaluate, alter, suspend or terminate testingbased on the data accumulated to that point and the FDA’s benefit-risk assessment with regard to the patients enrolled in the trial. The FDA may alsowithdraw approval for an IND for that drug if deemed warranted. Furthermore, even after regulatory approval is obtained, under certain circumstances, such aslater discovery of previously unknown problems, the FDA can withdraw approval or subject the drug to additional restrictions.Preclinical TestingThe testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our productcandidates will be granted on a timely basis, if at all. Preclinical studies include laboratory evaluation of the product, as well as animal studies to assess thepotential safety and effectiveness of the product. Most of these studies must be performed according to Good Laboratory Practices, a system of managementcontrols for laboratories and research organizations to ensure the consistency and reliability of results.An IND is the request for authorization from the FDA to administer an investigational new drug product to humans. The IND includes informationregarding the preclinical studies, the investigational product’s chemistry and manufacturing, supporting data and literature, and the investigational plan andprotocol(s). Clinical trials may begin 30 days after an IND is received, unless the FDA raises concerns or questions about the conduct of the clinical trials. Ifconcerns or questions are raised, an IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. An IND must becomeeffective before human clinical trials begin.Clinical TrialsClinical trials involve the administration of the product candidate that is the subject of the trial to volunteers or patients under the supervision of aqualified principal investigator and in accordance with a clinical trial protocol, which sets forth details, such as the study objectives and the safety andeffectiveness criteria to be evaluated. Each clinical trial must be reviewed and approved by an independent institutional review board (IRB) in the U.S. orethics committee in the European Union (EU) at each institution at which the study will be conducted. The IRB or ethics committee will consider, amongother things, ethical factors, safety of human subjects and the possible liability of the institution arising from the conduct of the proposed clinical trial. Inaddition, clinical trials in the U.S. must be performed according to good clinical practices, which are enumerated in FDA regulations and guidancedocuments. Some studies include oversight by an independent group of experts, known as a data safety monitoring board, which provides authorization forwhether a study may move forward based on certain data from the study and may stop the clinical trial if it determines that there is an unacceptable safety riskfor subjects or on other grounds.The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that theclinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. An IRB may alsorequire the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB's requirements, or may impose otherconditions.Clinical trials in the U.S. typically are conducted in sequential phases: Phases 1, 2, 3 and 4. The phases may overlap. The FDA may require that wesuspend clinical trials at any time on various grounds, including if the FDA makes a finding that the subjects participating in the trial are being exposed to anunacceptable health risk. 4In Phase 1 clinical trials, the investigational product is usually tested on a small number of healthy volunteers to determine safety, any adverseeffects, proper dosage, absorption, metabolism, distribution, excretion and other drug effects. Follow-on Phase 1b clinical trials may also evaluate efficacywith respect to trial participants.In Phase 2 clinical trials, the investigational product is usually tested on a limited number of patients (generally up to several hundred) topreliminarily evaluate the efficacy of the drug for specific, targeted indications, determine dosage tolerance and optimal dosage, and identify possibleadverse effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning Phase 3 clinical trials.In Phase 3 clinical trials, the investigational product is administered to an expanded patient population to support proof of concept and efficacyclaims, provide evidence of clinical efficacy and to further test for safety, generally at multiple clinical sites.In Phase 4 clinical trials or other post-approval commitments, additional studies and patient follow-up are conducted to gain experience from thetreatment of patients in the intended therapeutic indication. FDA may require a commitment to conduct post-approval Phase 4 studies as a condition ofapproval. Additional studies and follow-up may be conducted to document a clinical benefit where drugs are approved under accelerated approvalregulations and based on surrogate endpoints. In clinical trials, surrogate endpoints are alternative measurements of the symptoms of a disease or conditionthat are substituted for measurements of observable clinical symptoms. Failure to timely conduct Phase 4 clinical trials and follow-up could result inwithdrawal of approval for products approved under accelerated approval regulations.We cannot assure you that any of our current or future clinical trials will result in approval to market our products. Clinical Data Review and Approval in the U.S.The data from the clinical trials, together with preclinical data and other supporting information that establishes a drug candidate’s safety, aresubmitted to the FDA in the form of an NDA, or NDA supplement (for approval of a new indication if the product candidate is already approved for anotherindication). Under applicable laws and FDA regulations, FDA reviews the NDA within 60 days of receipt of the NDA to determine whether the applicationwill be accepted for filing based on FDA’s threshold determination that the NDA is sufficiently complete to permit substantive review. If deemed complete,the FDA will “file” the NDA, thereby triggering substantive review of the application. The FDA can refuse to file any NDA that it deems incomplete or notproperly reviewable. The FDA has established internal substantive review goals of ten months for most NDAs. The FDA has various programs, including Fast Track,priority review, and accelerated approval, which are intended to expedite or simplify the process for reviewing drugs, and/or provide for approval based onsurrogate endpoints. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the conditions forqualification or that the period for FDA review or approval will not be shortened. Generally, drugs that may be eligible for these programs are those forserious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existingtreatments. For example, Fast Track is a process designed to facilitate the development, and expedite the review, of drugs to treat serious diseases and fill anunmet medical need. The request may be made at the time of IND submission and generally no later than the pre-NDA meeting. The FDA will respond within60 calendar days of receipt of the request. Priority review, which is requested at the time of an NDA submission, is designed to give drugs that offer majoradvances in treatment or provide a treatment where no adequate therapy exists, an initial review within six months as compared to a standard review time often months. Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetingswith a sponsor of a Fast Track designated drug and expedite review of the application for a drug designated for priority review. Accelerated approval providesan earlier approval of drugs to treat serious diseases, and that fill an unmet medical need based on a surrogate endpoint. The FDA, however, is not legallyrequired to complete its review within these periods, and these performance goals may change over time.If the FDA approves the NDA, it will issue an approval letter authorizing the commercial marketing of the drug with prescribing information forspecific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy (REMS) to help ensure that the benefitsof the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safeuse. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. Moreover, product approval may require substantialpost-approval testing and surveillance to monitor the drug's safety or efficacy. Once granted, product approvals may be withdrawn if compliance withregulatory standards is not maintained or problems are identified following initial marketing. In many cases, the outcome of the review, even if generallyfavorable, is not an actual approval, but a “complete response” that5generally outlines the deficiencies in the submission, which may require substantial additional testing, or information, in order for the FDA to reconsider theapplication. If, or when, those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. Satisfaction of FDA requirements or similar requirements of state, local, and foreign regulatory agencies typically takes several years and requires theexpenditure of substantial financial resources. Information generated in this process is susceptible to varying interpretations that could delay, limit or preventregulatory approval at any stage of the process. Accordingly, the actual time and expense required to bring a product to market may vary substantially. Wecannot assure you that we will submit applications for required authorizations to manufacture and/or market potential products or that any such applicationwill be reviewed and approved by the appropriate regulatory authorities in a timely manner, if at all. Data obtained from clinical activities is not alwaysconclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. Success in early stage clinical trialsdoes not ensure success in later stage clinical trials. Even if a product candidate receives regulatory approval, the approval may be significantly limited tospecific disease states, patient populations and dosages, or have conditions placed on it that restrict the commercial applications, advertising, promotion ordistribution of these products.Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after the productreaches the market. In addition, the FDA may require testing and surveillance programs to monitor the safety or effectiveness of approved products whichhave been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketingprograms. The FDA may also request or require additional Phase 4 clinical trials after a product is approved. The results of Phase 4 clinical studies canconfirm the effectiveness of a product candidate and can provide important safety information to augment the FDA’s voluntary adverse drug reactionreporting system. Any products manufactured or distributed by us pursuant to FDA approvals would be subject to continuing regulation by the FDA,including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required toregister their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain stateagencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Wecannot be certain that we, or our present or future suppliers, will be able to comply with the cGMP regulations and other FDA regulatory requirements. In addition, both before and after approval is sought, we are required to comply with a number of FDA requirements. For example, we are required toreport certain adverse reactions and production problems, if any, to the FDA, and to comply with certain limitations and other requirements concerningadvertising and promotion for our products. In addition, quality control and manufacturing procedures must continue to conform to cGMP after approval, andthe FDA periodically inspects manufacturing facilities to assess compliance with continuing cGMP. In addition, discovery of problems, such as safetyproblems, may result in changes in labeling or restrictions on a product manufacturer or NDA holder, including removal of the product from the market.The FDA closely regulates the marketing and promotion of drugs. Approval may be subject to post-marketing surveillance and other record-keepingand reporting obligations, and involve ongoing requirements. Product approvals may be withdrawn if compliance with regulatory standards is notmaintained or if problems occur following initial marketing. A company can make only those claims relating to safety and efficacy that are approved by theFDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminalpenalties.Clinical Trial Conduct and Product Approval Regulation in Non-U.S. JurisdictionsIn addition to regulations in the U.S., we may be subject to a variety of foreign regulations governing clinical trials and commercial sales anddistribution of our products. Our clinical trials conducted in the EU must be done under an Investigational Medicinal Product Dossier (IMPD) and theoversight of an ethics committee. If we market our products in foreign countries, we also will be subject to foreign regulatory requirements governingmarketing approval for pharmaceutical products. The requirements governing the conduct of clinical trials, product approval, pricing and reimbursementvary widely from country to country. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities offoreign countries must be obtained before manufacturing or marketing the product in those countries. The approval process varies from country to countryand the time required for such approvals may differ substantially from that required for FDA approval. There is no assurance that any future FDA approval ofany of our product candidates will result in similar foreign approvals or vice versa. The process for clinical trials in the EU is similar, and trials are heavilyscrutinized by the designated ethics committee.6Section 505(b)(2) ApplicationsSome of our product candidates may be eligible for submission of applications for approval under the FDA’s Section 505(b)(2) approval process,which provides an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) wasenacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, and allows approval of NDAsthat rely, at least in part, on studies that were not conducted by or for the applicant and to which the applicant has not obtained a right of reference. Suchstudies can be provided by published literature, or the FDA can rely on previous findings of safety and efficacy for a previously approved drug. If the 505(b)(2) applicant can establish that reliance on the FDA's previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinicalor clinical studies of the new product. Section 505(b)(2) applications may be submitted for drug products that represent a modification (e.g., a new indicationor new dosage form) of an eligible approved drug. In such cases, the additional information in 505(b)(2) applications necessary to support the change fromthe previously approved drug is frequently provided by new studies submitted by the applicant. Because a Section 505(b)(2) application relies in part onprevious studies or previous FDA findings of safety and effectiveness, preparing 505(b)(2) applications is generally less costly and time-consuming thanpreparing an NDA based entirely on new data and information from a full set of clinical trials. The FDA may approve the new product candidate for all, orsome, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2)applicant. The law governing Section 505(b)(2) or FDA’s current policies may change in such a way as to adversely affect our applications for approval thatseek to utilize the Section 505(b)(2) approach. Such changes could result in additional costs associated with additional studies or clinical trials and delays.The FDA provides that reviews and/or approvals of applications submitted under Section 505(b)(2) will be delayed in various circumstances. Forexample, the holder of the NDA for the listed drug may be entitled to a period of market exclusivity during which the FDA will not approve, and may noteven review, a Section 505(b)(2) application from other sponsors. If the listed drug is claimed by one or more patents that the NDA holder has listed with theFDA, the Section 505(b)(2) applicant must submit a certification with respect to each such patent. If the 505(b)(2) applicant certifies that a listed patent isinvalid, unenforceable or not infringed by the product that is the subject of the Section 505(b)(2) application, it must notify the patent holder and the NDAholder. If, within 45 days of providing this notice, the NDA holder sues the 505(b)(2) applicant for patent infringement, the FDA will not approve theSection 505(b)(2) application until the earlier of a court decision favorable to the Section 505(b)(2) applicant or the expiration of 30 months. The regulationsgoverning marketing exclusivity and patent protection are complex, and it is often unclear how they will be applied in particular circumstances.Drug Enforcement Agency RegulationOur research and development processes involve the controlled use of hazardous materials, including chemicals. Some of these hazardous materialsare considered to be controlled substances and subject to regulation by the U.S. Drug Enforcement Agency (DEA). Controlled substances are those drugs thatappear on one of five schedules promulgated and administered by the DEA under the Controlled Substances Act (CSA). The CSA governs, among otherthings, the distribution, recordkeeping, handling, security and disposal of controlled substances. We must be registered by the DEA in order to engage inthese activities, and are subject to periodic and ongoing inspections by the DEA and similar state drug enforcement authorities to assess ongoing compliancewith the DEA’s regulations. Any failure to comply with these regulations could lead to a variety of sanctions, including the revocation, or a denial of renewal,of the DEA registration, injunctions or civil or criminal penalties.Third-Party Payor Coverage and ReimbursementAlthough none of our current product candidates have been approved or commercialized for any indication as of the date of this report, if they areapproved for marketing, commercial success of our product candidates will depend, in part, upon the availability of coverage and reimbursement from third-party payors at the federal, state and private levels. Government payor programs, including Medicare and Medicaid, private healthcare insurance companiesand managed care plans have attempted to control costs by limiting coverage and the amount of reimbursement for particular procedures or drug treatments.The U.S. Congress and state legislatures, from time to time, propose and adopt initiatives aimed at cost containment. Ongoing federal and state governmentinitiatives directed at lowering the total cost of healthcare will likely continue to focus on healthcare reform, the cost of prescription pharmaceuticals and onthe reform of the Medicare and Medicaid payment systems.7Examples of how limits on drug coverage and reimbursement in the U.S. may cause reduced payments for drugs in the future include:•changing Medicare reimbursement methodologies;•fluctuating decisions on which drugs to include in formularies;•revising drug rebate calculations under the Medicaid program or requiring that new or additional rebates be provided to Medicare, Medicaid, otherfederal or state healthcare programs; and•reforming drug importation laws.Some third-party payors also require pre-approval of coverage for new drug therapies before they will reimburse healthcare providers that use suchtherapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, theannouncement or adoption of these proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and tooperate profitably.Reimbursement systems in international markets vary significantly by country and, within some countries, by region. Reimbursement approvalsmust be obtained on a country-by-country basis. In many foreign markets, including markets in which we hope to sell our products, the pricing ofprescription pharmaceuticals is subject to government pricing control. In these markets, once marketing approval is received, pricing negotiations could takesignificant additional time. As in the U.S., the lack of satisfactory reimbursement or inadequate government pricing of any of our products would limitwidespread use and lower potential product revenues.Anti-Kickback, Fraud and Abuse and False Claims Regulation Upon commercial launch of a product in the U.S., we will be subject to healthcare fraud and abuse regulation and enforcement by both the federalgovernment and the states in which we conduct our business. Healthcare providers, physicians and third-party payors play a primary role in therecommendation and prescription of any product candidates for which we obtain marketing approval. Arrangements with third-party payors and customersmay expose us to applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements andrelationships through which we market, sell and distribute our products for which we obtain marketing approval.Regulations under applicable federal and state healthcare laws and regulations include the federal healthcare programs’ Anti-Kickback Law, whichprohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, inexchange for or to induce either the referral or purchase of any good or service for which payment may be made under federal healthcare programs such as theMedicare and Medicaid programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free orreduced price items and services. Many states have similar laws that apply to their state healthcare programs as well as private payors. In addition, the FalseClaims Act (FCA) imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federalhealthcare program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services notprovided as claimed, or for services that are not medically necessary. Actions under the FCA may be brought by the Attorney General or as a qui tam actionby a private individual in the name of the government. Violations of the FCA can result in significant monetary penalties and treble damages. The federalgovernment is using the FCA, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnologycompanies throughout the country, for example, in connection with the promotion of products for unapproved uses and other sales and marketing practices.The risk of being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatoryauthorities or the courts, and their provisions are open to a variety of interpretations. Moreover, recent healthcare reform legislation has strengthened many ofthese laws. For example, the Patient Protection and Affordable Care Act (PPACA), among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes to clarify that a person or entity does not need to have actual knowledge of this statute or specific intent toviolate it. In addition, PPACA provides that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes afalse or fraudulent claim for purposes of the false claims statutes.The continuing interpretation and application of these laws could have a material adverse impact on our business and our ability to compete shouldwe commence marketing a product.8Federal and State Sunshine LawsIn the event we receive approval of a product candidate for marketing, we will need to comply with federal “sunshine” laws that require transparencyregarding financial arrangements with healthcare providers. This would include the reporting and disclosure requirements imposed by the PPACA on drugmanufacturers regarding any “payment or transfer of value” made or distributed to physicians and teaching hospitals. Failure to submit required informationcan result in civil monetary penalties. A number of states have laws that require the implementation of commercial compliance programs, impose restrictionson drug manufacturer marketing practices, and/or require pharmaceutical companies to track and report payments, gifts and other benefits provided tophysicians and other healthcare professionals and entities.Foreign Corrupt Practices ActIn addition, we may in the future be subject to the Foreign Corrupt Practices Act of 1997 (FCPA). The FCPA and other similar anti-bribery laws inother jurisdictions, such as the U.K. Bribery Act, generally prohibit companies and their intermediaries from providing money or anything of value toofficials of foreign governments, foreign political parties, or international organizations with the intent to obtain or retain business or seek a businessadvantage. Recently, there has been a substantial increase in anti-bribery law enforcement activity by U.S. regulators, with more frequent and aggressiveinvestigations and enforcement proceedings by both the Department of Justice and the U.S. Securities and Exchange Commission (SEC). A determinationthat our operations or activities are not, or were not, in compliance with U.S. or foreign laws or regulations could result in the imposition of substantial fines,interruptions of business, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, and other legal or equitablesanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought by private litigants, may also follow asa consequence.Patient Privacy and Data SecurityWe are required to comply, as applicable, with numerous federal and state laws, including state security breach notification laws, state healthinformation privacy laws and federal and state consumer protection laws, and to govern the collection, use and disclosure of personal information. Othercountries also have, or are developing, laws governing the collection, use and transmission of personal information. In addition, most healthcare providerswho may prescribe products we may sell in the future and from whom we may obtain patient health information are subject to privacy and securityrequirements under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology andClinical Health Act (HITECH), and its implementing regulations. We are not a HIPAA covered entity, do not currently intend to become one, and we do notoperate as a business associate to any covered entities. Therefore, these privacy and security requirements do not apply to us. However, we could be subject tocivil and criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in a manner that is not authorized orpermitted by HIPAA or for aiding and abetting the violation of HIPAA. The legislative and regulatory landscape for privacy and data protection continues toevolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business, including recentlyenacted laws in a majority of states requiring security breach notification. These laws could create liability for us or increase our cost of doing business, andany failure to comply could result in harm to our reputation, and potentially fines and penalties.In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other insignificant ways and may not have the same effect, thus complicating compliance efforts.Environmental, Health and Safety LawsOur operations are subject to complex and increasingly stringent environmental, health and safety laws and regulations. Further, in the future, wemay open manufacturing facilities that would likely be subject to environmental and health and safety authorities in the relevant jurisdictions. Theseauthorities typically administer laws which regulate, among other matters, the emission of pollutants into the air (including the workplace), the discharge ofpollutants into bodies of water, the storage, use, handling and disposal of hazardous substances, the exposure of persons to hazardous substances, and thegeneral health, safety and welfare of employees and members of the public. Violations of these laws could subject us to strict liability, fines, or liability tothird parties.9Other LawsWe are subject to a variety of financial disclosure and securities trading regulations as a public company in the U.S., including laws relating to theoversight activities of the SEC and the regulations of the NASDAQ, on which our shares are traded. We are also subject to various laws, regulations andrecommendations relating to safe working conditions, laboratory practices and the experimental use of animals. EmployeesAs of February 22, 2016, we employed 58 regular full-time employees, 47 of whom are engaged in research and clinical development activities, and11 of whom are in finance, information technology, human resources and administration.None of our employees are covered by a collective bargaining agreement.Company InformationLa Jolla was incorporated in Delaware in 1989 and reincorporated in California in 2012.On January 29, 2014, our common stock was approved for listing and began trading on The NASDAQ Capital Market under the symbol LJPC.Our principal offices are located at 10182 Telesis Court, 6th Floor, San Diego, CA 92121. Our telephone number is (858) 207-4264. Our websiteaddress is www.ljpc.com.Available InformationYou are advised to read this Annual Report on Form 10-K in conjunction with other reports and documents that we file from time to time with theSEC. In particular, please read our definitive proxy statements, our Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K that we may filefrom time to time. You may obtain copies of these reports after the date of this Annual Report directly from us or from the SEC at the SEC’s Public ReferenceRoom at 100 F Street, N.E. Washington, D.C. 20549. In addition, the SEC maintains information for electronic filers (including us) at its website atwww.sec.gov. The public may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We makeour periodic and current reports available on our internet website at www.ljpc.com, free of charge, as soon as reasonably practicable after such material iselectronically filed with, or furnished to, the SEC.10Item 1A. Risk Factors.An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the otherinformation before deciding to invest in our common stock. The risks described below are not the only ones facing our Company. Additional risks notpresently known to us or that we currently consider immaterial may also adversely affect our business. We have attempted to identify below the major factorsthat could cause differences between actual and planned or expected results, but we cannot assure you that we have identified all of those factors.If any of the following risks actually happen, our business, financial condition and operating results could be materially adversely affected. In thiscase, the trading price of our common stock could decline, and you could lose all or part of your investment.I. RISK FACTORS RELATING TO THE COMPANY AND THE INDUSTRY IN WHICH WE OPERATEWe have only limited assets and will need to raise additional capital before we can expect to become profitable.As of December 31, 2015, we had minimal revenue sources, an accumulated deficit of $528.5 million and available cash and cash equivalents ofapproximately $126.5 million. To fund future operations to the point where we are able to generate positive cash flow from the sales or out-licensing of ourdrug candidates, we will need to raise significant additional capital. The amount and timing of future funding requirements will depend on many factors,including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential newdevelopment programs and related general and administrative support. We anticipate that we will seek to fund our operations through public and privateequity and debt financings or other sources, such as potential collaboration agreements. We cannot assure you that anticipated additional financing will beavailable to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through equity securities offerings, therecan be no assurance that we will be able to do so in the future. If we are unable to raise additional capital to fund our clinical development and other businessactivities, we could be forced to abandon one or more programs and curtail or cease our operations.We have never generated any revenue from product sales and may never be profitable.We have no products approved for commercialization and have never generated any revenue from product sales. Our ability to generate revenue andachieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain theregulatory and marketing approvals necessary to commercialize one or more of our product candidates. We do not anticipate generating revenue fromproduct sales for the foreseeable future. Our ability to generate future revenue from product sales depends heavily on our success in many areas, including butnot limited to:•completing research and nonclinical and clinical development of our product candidates;•obtaining regulatory and marketing approvals for product candidates for which we complete clinical trials;•launching and commercializing product candidates for which we obtain regulatory and marketing approval, either directly or with a collaborator ordistributor;•obtaining market acceptance of our product candidates as viable treatment options;•addressing any competing technological and market developments;•identifying, assessing, acquiring or developing new product candidates;•negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;•maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and•attracting, hiring and retaining qualified personnel.Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associatedwith commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the EMA or otherregulatory agencies, domestic or foreign, to change our manufacturing processes or assays, or to perform clinical, nonclinical or other types of studies inaddition to those that we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market one or more of our product11candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price forthe product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressablepatients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably acceptedpopulation for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of suchproducts, even if approved. Additionally, if we are not able to generate revenue from the sale of any approved products, we may never become profitable.The technology underlying our compounds is uncertain and unproven.The development efforts for LJPC-501, LJPC-401, LJPC-30Sa and LJPC 30Sb are based on unproven technologies and therapeutic approaches thathave not been widely tested or used. To date, no products that use the technology underlying these drug candidates have been approved or commercialized.Application of our technology to treat life-threatening diseases is in early stages. Preclinical studies and future clinical trials of these product candidates maybe viewed as a test of our entire approach to developing therapies for patients suffering from life-threatening diseases. If our product candidates do not workas intended, or if the data from our future clinical trials indicate that our product candidates are not safe and effective, the applicability of our technology forsuccessfully treating life-threatening diseases will be highly uncertain. As a result, there is a significant risk that our therapeutic approaches will not prove tobe successful, and there can be no guarantee that our drug technologies will result in any commercially successful products.Results from any future clinical trials we may undertake may not be sufficient to obtain regulatory approvals to market our drug candidates in the U.S.or other countries on a timely basis, if at all.Drug candidates are subject to extensive government regulations related to development, clinical trials, manufacturing and commercialization. Inorder to sell any product that is under development, we must first receive regulatory approval. To obtain regulatory approval, we must conduct clinical trialsand toxicology studies that demonstrate that our drug candidates are safe and effective. The process of obtaining FDA and foreign regulatory approvals iscostly, time-consuming, uncertain and subject to unanticipated delays.The FDA and foreign regulatory authorities have substantial discretion in the approval process and may not agree that we have demonstrated thatour drug candidates are safe and effective. If our drug candidates are ultimately not found to be safe and effective, we would be unable to obtain regulatoryapproval to manufacture, market and sell them. We can provide no assurances that the FDA or foreign regulatory authorities will approve our drug candidatesor, if approved, what the scope of the approved indication might be.Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive offuture study results.Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during theclinical trial process. The results of nonclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stageclinical trials. Product candidates that have shown promising results in early-stage clinical trials may still suffer significant setbacks in subsequent clinicaltrials. For example, the safety or efficacy results generated to date in our clinical trials do not ensure that later clinical trials will demonstrate similar results.There is a high failure rate for drugs proceeding through clinical trials, and product candidates in later stages of clinical trials may fail to show the desiredsafety and efficacy, despite having progressed through nonclinical studies and initial clinical trials. A number of companies in the biopharmaceuticalindustry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results inearlier studies. Moreover, nonclinical and clinical data are often susceptible to varying interpretations and analyses. We do not know whether any clinicaltrials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approval to market our drug candidates.Future clinical trials that we may undertake may be delayed or halted.Any clinical trials of our drug candidates that we may conduct in the future may be delayed or halted for various reasons, including:•we do not have sufficient financial resources;•supplies of drug product are not sufficient to treat the patients in the studies;12•patients do not enroll in the studies at the rate we expect;•the product candidates are not effective;•patients experience negative side effects or other safety concerns are raised during treatment;•the trials are not conducted in accordance with applicable clinical practices;•there is political unrest at foreign clinical sites; or•there are natural disasters at any of our clinical sites.If any future trials are delayed or halted, we may incur significant additional expenses, and our potential approval of our drug candidates may bedelayed, which could have a severe negative effect on our business.We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meetexpected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could besubstantially harmed.We have agreements with third-party contract research organizations (CROs) to monitor and manage data for our preclinical and clinical programs.We rely heavily on these parties for execution of our preclinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we areresponsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and ourreliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with current good clinical practices(cGCPs), which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in clinical development.Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these CROsfails to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparableforeign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that,upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the cGCP regulations. In addition, our clinical trialsmust be conducted with product produced under cGMP regulations, and will require a large number of test subjects. Our or our CROs’ failure to comply withthese regulations may require us to repeat clinical trials, which would delay the regulatory approval process.If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so oncommercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs,we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs do not successfullycarry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data theyobtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended,delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, we mayincur significant additional expenses, and our potential approval of our drug candidates may be delayed, which could have a severe negative effect on ourbusiness.If the third-party manufacturers upon which we rely fail to produce our drug candidates that we require on a timely basis, or to comply with stringentregulations applicable to pharmaceutical drug manufacturers, we may face delays in the trials, regulatory submissions, required approvals orcommercialization of our drug candidates.We do not manufacture our drug candidates nor do we plan to develop any capacity to do so. We contract with third-party manufacturers tomanufacture all of our drug candidates. The manufacture of pharmaceutical products requires significant expertise and capital investment, including thedevelopment of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties inproduction, which include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel, as well ascompliance with strictly enforced federal, state and foreign regulations. The third-party manufacturers we contract with may not perform as agreed or mayterminate their agreements with us.In addition to product approval, any facilities in which our drug candidates are manufactured or tested for their ability to meet requiredspecifications must be inspected by and approved by the FDA and/or the EMA before a commercial product can be manufactured. Failure of such a facility tobe approved could delay the approval of one or more of our drug candidates.13Any of these factors could cause us to delay or suspend any future clinical trials, regulatory submissions, required approvals or commercialization ofone or more of our drug candidates, entail higher costs and result in our being unable to effectively commercialize products.Our success in developing and marketing our drug candidates depends significantly on our ability to obtain patent protection and operate withoutinfringing on the rights of others.We depend on patents and other intellectual property to prevent others from improperly benefiting from products or technologies that we developedor acquired. Our patents and patent applications cover various technologies and drug candidates. The patent position of biotechnology firms like ours ishighly uncertain and involves complex legal and factual questions, and no consistent policy has emerged regarding the breadth of claims covered inbiotechnology patents or the protection afforded by these patents. Additionally, recent U.S. Supreme Court and Federal Circuit opinions further limit thescope of patentable inventions in the life sciences space and have added increased uncertainty around the validity of certain issued patents and the successfulprosecution of certain pending patent applications. We intend to continue to file patent applications as we believe is appropriate to obtain patents coveringboth our products and processes. There can be no assurance, however, that any additional patents will be issued, that the scope of any patent that has issuedor may issue will be sufficient to protect our technology, or that any current or future issued patent will be held not invalid if subsequently challenged. Thereis a substantial backlog of biotechnology patent applications at the United States Patent and Trademark Office (USPTO), which may delay the review andissuance of any patents.Others, including our competitors, could have patents or patent applications pending that relate to compounds or processes that overlap or competewith our intellectual property or which may affect our freedom to operate.There can be no assurance that third-party patents will not ultimately be found to impact the advancement of our drug candidates. For example, weare aware that the USPTO has issued a patent to a third party with claims that may cover one of our product candidates. While we intend to challenge theissuance and validity of this patent, we may not be successful. If the USPTO or any foreign counterpart issues or has issued any other patents containingcompetitive or conflicting claims, and if these claims are valid, the protection provided by our existing patents or any future patents that may be issued couldbe significantly reduced, and our ability to prevent competitors from developing products or technologies identical or similar to ours could be negativelyaffected. In addition, there can be no guarantee that we would be able to obtain licenses to these patents on commercially reasonable terms, if at all, or that wewould be able to develop or obtain alternative technology. Our failure to obtain a license to a technology or process that may be required to develop orcommercialize one or more of our drug candidates may have a material adverse effect on our business.We do not have complete patent protection for our product candidates, as the active pharmaceutical ingredients in our product candidates are knowncompounds that are not themselves covered by composition of matter patents, and thus may only be protected by formulation or method-of-use patents (tothe extent that such patents are granted and are enforceable) and/or regulatory exclusivity (to the extent available). Therefore, it is possible that a competitorcould develop the same or similar technology if we fail to obtain protection of this type. We may have to incur significant expense and management time indefending or enforcing our patents. If we cannot obtain and maintain effective patent rights and/or regulatory exclusivity for our product candidates, we maynot be able to compete effectively and our business and results of operations would be harmed.Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement ordefense of our issued patents.Changes in either the patent laws or interpretation of the patent laws in the U.S. and other countries may diminish the value of our patents or narrowthe scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. Publications ofdiscoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically notpublished until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we or our licensors were the first to make the inventionsclaimed in our owned and licensed patents or pending applications, or that we or our licensor were the first to file for patent protection of such inventions.Assuming the other requirements for patentability are met, in the U.S. prior to March 15, 2013, the first to make the claimed invention is entitled tothe patent, while outside the U.S., the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America InventsAct (Leahy-Smith Act), enacted on September 16, 2011, the U.S. has moved to a first-to-file system. The Leahy-Smith Act also includes a number ofsignificant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. The effects of these changes are currentlyunclear as the USPTO must still implement various regulations, the courts have yet to address any of these provisions and the14applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. In general, theLeahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and theenforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.If our product candidates infringe the rights of others, we could be subject to expensive litigation or be required to obtain licenses from others todevelop or market them.Our competitors or others may have patent rights that they choose to assert against us or our licensees, suppliers, customers or potentialcollaborators. Moreover, we may not know about patents or patent applications that our products would infringe. For example, because patent applicationsdo not publish for at least 18 months, if at all, and can take many years to issue, there may be currently pending applications unknown to us that may laterresult in issued patents that our product candidates would infringe. In addition, if third parties file patent applications or obtain patents claiming technologyalso claimed by us or our licensors in issued patents or pending applications, we may have to participate in interference proceedings in the USPTO todetermine priority of invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreigntribunals to defend the patentability of our foreign patent applications.If a third party claims that we infringe its proprietary rights, any of the following may occur:•we may become involved in time-consuming and expensive litigation, even if the claim is without merit;•we may become liable for substantial damages for past infringement if a court decides that our technology infringes a competitor’s patent;•a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available oncommercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross licenses to our patents; and•we may have to redesign our product candidates or technology so that they do not infringe patent rights of others, which may not bepossible or commercially feasible.If any of these events occur, our business and prospects will suffer and the market price of our common stock will likely decline substantially.The patent protection and patent prosecution for some of our product candidates is dependent on third parties.While we normally seek and gain the right to fully prosecute the patents relating to our product candidates, there may be times when patents relatingto our product candidates are controlled by our licensors. If any of our future licensing partners fail to appropriately prosecute and maintain patent protectionfor patents covering any of our product candidates, our ability to develop and commercialize those product candidates may be materially adversely affectedand we may not be able to prevent competitors from making, using, selling and importing competing products. In addition, even where we now have the rightto control patent prosecution of patents and patent applications we have licensed from third parties, we may still be adversely affected or prejudiced byactions or inactions of our licensors and their counsel that took place prior to us assuming control over patent prosecution.In addition to patent protection, we will need to successfully preserve our trade secrets. If we are unable to maintain effective proprietary rights for ourproduct candidates or any future product candidates, we may not be able to compete effectively in our markets.In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-howthat is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidatediscovery and development processes that involve information or technology that is not covered by patents. However, trade secrets can be difficult to protect.We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientificadvisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of ourpremises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations andsystems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets mayotherwise become known or be independently discovered by competitors.15Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and anythird parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide anyassurances that all such agreements have been duly executed, that our trade secrets and other confidential proprietary information will not be disclosed orthat competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on ourbusiness. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties formisappropriating our trade secrets.If we fail to obtain orphan or other regulatory exclusivity for our product candidates, we may face greater commercial competition and our revenuewill be reduced.Regulatory authorities in some jurisdictions, including the U.S. and EU may designate drugs for relatively small patient populations as orphandrugs. Our business strategy for certain of our drug candidates includes seeking orphan drug designation. Under the Orphan Drug Act, the FDA may designatea product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the U.S., or a patientpopulation greater than 200,000 in the U.S. where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in theU.S. In the EU, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that areintended for the diagnosis, prevention, or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 personsin the EU. If orphan drug status is granted, we may be eligible for a period of commercial exclusivity, which would afford us additional protection fromgeneric competition, beyond that protection that may be afforded by patents. Even if a particular disease has a small patient population that we believe maybe eligible for orphan status, it is possible that the FDA and/or EMA may not grant orphan status. If we do not obtain orphan drug exclusivity for our drugproducts and biologic products, particularly for any products that do not have broad patent protection, our competitors may then sell the same drug to treatthe same condition sooner than if we had obtained orphan drug exclusivity and our revenue could be reduced.Because a number of companies compete with us, many of which have greater resources than we do, and because we face rapid changes in technology inour industry, we cannot be certain that our products will be accepted in the marketplace or capture market share.Competition from domestic and foreign biotechnology companies, large pharmaceutical companies and other institutions is intense and is expectedto increase. A number of companies and institutions are pursuing the development of pharmaceuticals in our targeted areas. Many of these companies arevery large, and have financial, technical, sales and distribution and other resources substantially greater than ours. The greater resources of these competitorscould enable them to develop or market competing products more quickly or effectively, making it extremely difficult for us to develop a share of the marketfor our products. These competitors also include companies that are conducting clinical trials and preclinical studies in the field of cancer therapeutics. Ourcompetitors may develop or obtain regulatory approval for products more rapidly than we do. Also, the biotechnology and pharmaceutical industries aresubject to rapid changes in technology. Our competitors may develop and market technologies and products that are more effective or less costly than thosewe are developing or that would render our technology and proposed products obsolete or noncompetitive.Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit thecommercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay, or halt clinical trials and couldresult in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our studies couldreveal a high and unacceptable severity and prevalence of undesirable side effects. In such an event, our studies could be suspended or terminated, and theFDA or comparable foreign regulatory authorities could order us to cease further development of or deny or withdraw approval of our product candidates forany or all targeted indications.The drug-related side effects could affect patient recruitment, the ability of enrolled patients to complete the study, or result in potential productliability claims. We carry product liability insurance in the amount of $10.0 million in the aggregate. We believe our product liability insurance coverage issufficient in light of our clinical programs; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts toprotect us against losses due to liability. A successful product liability claim or series of claims brought against us could cause our stock price to decline and,if judgments exceed our insurance coverage, could adversely affect our results of operations and business. In addition, regardless of merit or16eventual outcome, product liability claims may result in impairment of our business reputation, withdrawal of clinical trial participants, costs due to relatedlitigation, distraction of management’s attention from our primary business, initiation of investigations by regulators, substantial monetary awards to patientsor other claimants, the inability to commercialize our product candidates and decreased demand for our product candidates, if approved for commercial sale.Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused bysuch products, a number of potentially significant negative consequences could result, including but not limited to:•regulatory authorities may withdraw approvals of such product;•regulatory authorities may require additional warnings on the label;•we may be required to create a Risk Evaluation and Mitigation Strategy (REMS) plan, which could include a medication guide outlining the risks ofsuch side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;•we could be sued and held liable for harm caused to patients; and•our reputation may suffer.Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate and could significantlyharm our business, results of operations, and prospects.Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.If our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage,advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information,including both federal and state requirements in the U.S. and requirements of comparable foreign regulatory authorities.Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements,including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, we and our contract manufacturers will besubject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA, biologic license application(BLA), or market authorization application (MAA). Accordingly, we and others with whom we work must continue to expend time, money, and effort in allareas of regulatory compliance, including manufacturing, production and quality control.Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which theproduct may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinicaltrials, and surveillance to monitor the safety and efficacy of the product candidate. We will be required to report certain adverse reactions and productionproblems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays inproduct development or commercialization, or increased costs to assure compliance. We will have to comply with requirements concerning advertising andpromotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions andmust be consistent with the information in the product’s approved label. As such, we may not promote our products for indications or uses for which they donot have approval. The holder of an approved NDA, BLA, or MAA must submit new or supplemental applications and obtain approval for certain changes tothe approved product, product labeling or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety andefficacy of our products in general or in specific patient subsets. If original marketing approval were obtained via the accelerated approval pathway, we couldbe required to conduct a successful post-marketing clinical trial to confirm clinical benefit for our products. An unsuccessful post-marketing study or failureto complete such a study could result in the withdrawal of marketing approval.If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, orproblems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agencymay impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatoryrequirements, a regulatory agency or enforcement authority may, among other things:•issue warning letters;17•impose civil or criminal penalties;•suspend or withdraw regulatory approval;•suspend any of our ongoing clinical trials;•refuse to approve pending applications or supplements to approved applications submitted by us;•impose restrictions on our operations, including closing our contract manufacturers’ facilities; or•seize or detain products, or require a product recall.Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generatenegative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize andgenerate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our Company and our operatingresults will be adversely affected.We may not be successful in our efforts to identify, license, discover, develop, or commercialize additional product candidates.Although a substantial amount of our effort will focus on the continued clinical testing, potential approval, and commercialization of our existingproduct candidates, the success of our business also depends upon our ability to identify, license, discover, develop or commercialize additional productcandidates. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts andresources on potential programs or product candidates that ultimately prove to be unsuccessful. Our research programs or licensing efforts may fail to yieldadditional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:•our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;•we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;•our product candidates may not succeed in preclinical or clinical testing;•our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the productsunmarketable or unlikely to receive marketing approval;•competitors may develop alternatives that render our product candidates obsolete or less attractive;•product candidates we develop may be covered by third parties’ patents or other exclusive rights;•the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;•a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and•a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify,license, discover, develop or commercialize additional product candidates, which would have a material adverse effect on our business and could potentiallycause us to cease operations.If the market opportunities for our product candidates are smaller than we believe, our revenue may be adversely affected, and our business may suffer.Our estimates of the potential market opportunity for each of our product candidates include several key assumptions based on our industryknowledge, industry publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, noindependent source has verified such assumptions. If any of these assumptions proves to be inaccurate, then the actual market for our product candidatescould be smaller than our estimates of our potential market opportunity. If the actual market for our product candidates is smaller than we expect, our productrevenue may be limited and it may be more difficult for us to achieve or maintain profitability.18The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.Even with the requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our product candidateswill depend in part on the medical community, patients and third-party payors accepting our product candidates as medically useful, cost-effective and safe.Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community.The degree of market acceptance of any of our product candidates, if approved for commercial sale, will depend on a number of factors, including:•the efficacy of the product as demonstrated in clinical trials and potential advantages over competing treatments;•the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;•the clinical indications for which approval is granted;•relative convenience and ease of administration;•the cost of treatment, particularly in relation to competing treatments;•the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;•the strength of marketing and distribution support and timing of market introduction of competitive products;•publicity concerning our products or competing products and treatments; and•sufficient third-party insurance coverage and reimbursement.Even if a potential product displays a favorable efficacy and safety profile in nonclinical and clinical trials, market acceptance of the product willnot be fully known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidatesmay require significant resources and may never be successful. If our product candidates are approved but fail to achieve an adequate level of acceptance byphysicians, patients, third-party payors and others in the medical community, we will not be able to generate sufficient revenue to become or remainprofitable.We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy andsecurity laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.If we obtain FDA approval for any of our product candidates and begin commercializing those products in the U.S., our operations may be directly,or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-KickbackStatute, the federal FCA and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing andeducation programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct ourbusiness. The laws that may affect our ability to operate include:•the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering orpaying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under afederal healthcare program, such as the Medicare and Medicaid programs;•federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities fromknowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false orfraudulent;•HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making falsestatements relating to healthcare matters;•HIPAA, as amended by the federal Health Information Technology for Economic and Clinical Health Act and its implementing regulations, whichimposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;•the federal physician sunshine requirements under the Patient Protection and Affordable Care Act and the Health Care and Education ReconciliationAct of 2010 (Health Care Reform Laws) require manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S.Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, andteaching hospitals, and19ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable grouppurchasing organizations; and•state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed byany third-party payor, including commercial insurers; state laws to comply with the pharmaceutical industry’s voluntary compliance guidelines andthe relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providersand other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of valueto physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information incertain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating complianceefforts.Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of ourbusiness activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reform legislation has strengthened these laws.For example, the Health Care Reform Laws, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraudstatutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Lawsprovides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes afalse or fraudulent claim for purposes of the False Claims Act.If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may besubject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government healthcare programs, such asMedicare and Medicaid, imprisonment and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate ourbusiness and our results of operations.We rely on certain key employees, and the loss of their service could negatively impact our future success.We have only a small number of employees, and we rely in particular on the services of certain key employees, including George F. Tidmarsh, M.D.Ph.D., who serves as our President and Chief Executive Officer. The loss of the services of Dr. Tidmarsh or other key employees could negatively affect ourability to execute on our business plan and development activities and could cause a decline in our stock price.II. RISK FACTORS RELATED SPECIFICALLY TO OUR STOCKAs of December 31, 2015, we currently have approximately 18.2 million shares of common stock outstanding and currently may be required to issue upto a total of approximately 10.0 million additional shares of common stock upon conversion of existing convertible preferred stock and upon exerciseof outstanding stock option grants and warrants. Such an issuance would be significantly dilutive to our existing common shareholder. You willexperience further dilution if we issue additional equity securities in future fundraising transactions.As of December 31, 2015, there were approximately 3,906 shares of Series C-12 Convertible Preferred Stock and approximately 2,737 shares ofSeries F Convertible Preferred Stock issued and outstanding. In light of the conversion rate of our preferred stock (approximately 1,724 shares of commonstock are issuable upon the conversion of one share of Series C-12 Convertible Preferred Stock, and approximately 286 shares of common stock are issuableupon the conversion of one share of Series F Convertible Preferred Stock), the presence of such a large number of convertible preferred shares may dilute theownership of our existing shareholders and provide the preferred investors with a sizeable interest in the Company.Assuming the conversion of all preferred stock into common stock at the current conversion rates, and the exercise of all outstanding options andwarrants, we would have approximately 28.2 million shares of common stock issued and outstanding following any such conversion and exercise, althoughthe issuance of the common stock upon the conversion of our preferred stock is limited by a 9.999% beneficial ownership cap for each preferred shareholder,which such cap may be amended or waived by each such holder with no less than 61 days’ notice to the Company. With approximately 18.2 million shares ofcommon stock issued and outstanding as of December 31, 2015, the issuance of this number of shares of common stock underlying the convertible preferredstock and outstanding stock options and warrants would represent approximately 35% dilution to our existing shareholders.20In addition, we may choose to raise additional capital due to market conditions or strategic considerations, even if we believe we have sufficientfunds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, theissuance of these securities could result in further dilution to our shareholders or result in downward pressure on the price of our common stock.The price of our common stock has been, and will be, volatile and may decline.Our stock has historically experienced significant price and volume volatility and could continue to be volatile. Market prices for securities ofbiotechnology and pharmaceutical companies, including ours, have historically been highly volatile, and the market has from time to time experiencedsignificant price and volume fluctuations that are unrelated to the operating performance of particular companies. The following factors, among others, canhave a significant effect on the market price of our securities:•significant conversions of preferred stock into common stock and sales of those shares of common stock;•results from our preclinical studies and clinical trials;•limited financial resources;•announcements regarding financings, mergers or other strategic transactions;•future sales of significant amounts of our capital stock by us or our shareholders;•developments in patent or other proprietary rights;•developments concerning potential agreements with collaborators; and•general market conditions and comments by securities analysts.The realization of any of the risks described in these “Risk Factors” could have a negative effect on the market price of our common stock. Inaddition, class action litigation is sometimes instituted against companies whose securities have experienced periods of volatility in market price. Any suchlitigation brought against us could result in substantial costs and a diversion of management’s attention and resources, which could hurt our business,operating results and financial condition.Because we do not expect to pay dividends on our common stock in the foreseeable future, you must rely on stock appreciation for any return on yourinvestment.We have paid no cash dividends on our common stock to date, and we currently intend to retain our future earnings, if any, to fund the developmentand growth of our business. As a result, we do not expect to pay any cash dividends on our common stock in the foreseeable future, and payment of cashdividends, if any, will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of ourboard of directors. Furthermore, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends.Accordingly, the success of your investment in our common stock will likely depend entirely upon any future appreciation. There is no guarantee that ourcommon stock will appreciate in value or even maintain the price at which you purchased your shares, and you may not realize a return on your investment inour common stock.Item 1B. Unresolved Staff Comments.None.Item 2. Properties.In January 2015, we entered into a 25-month lease agreement for 4,047 square feet of lab space. The lease term is from March 2015 through March2017, and the total lease payments through the end of the lease will be approximately $57,000.In February 2015, we entered into a 32-month sublease agreement, as sublessee, for 18,599 square feet of office space to be used as our corporateheadquarters. The lease term is through October 2017, and the total lease payments through the end of the lease will be approximately $1,017,000. We alsolease a total of 3,713 square feet of office space with a lease term through March 2018, and total lease payments through the end of the lease areapproximately $317,000.21In January 2016, we entered into a 20-month lease agreement, as a sublessee, for 24,105 square feet of lab space. The lease term is from January 2016through August 2017, and the total lease payments through the end of the lease will be approximately $726,000.Item 3. Legal Proceedings.In the ordinary course of business, we may face various claims brought by third parties. Any of these claims could subject us to costly litigation.However, as of the date of this report, management believes the outcome of currently identified potential claims and lawsuits will not have a material adverseeffect on our financial condition or results of operations.Item 4. Mine Safety Disclosures.None.PART IIItem 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.Information about Our Common StockOur common stock began trading on The NASDAQ Capital Market, under the symbol “LJPC,” in January 2014. Prior to January 29, 2014, ourcommon stock traded on the OTC Markets Group, Inc.’s OTCQB tier, under the symbol “LJPC.” Set forth below are the high and low sales prices for ourcommon stock for each full quarterly period within the two most recent fiscal years. Prices High LowYear Ended December 31, 2015 First Quarter$24.89 $16.27Second Quarter$24.85 $14.12Third Quarter$44.99 $22.95Fourth Quarter$35.95 $21.00Year Ended December 31, 2014 First Quarter$19.50 $6.82Second Quarter$12.08 $6.17Third Quarter$13.51 $8.05Fourth Quarter$20.68 $7.2022Stock Performance GraphThe graph below compares the cumulative total shareholder returns on our common stock for the period starting on February 17, 2012 (the earliestdate for which stock performance data is available) through December 31, 2015 with the cumulative total shareholder returns on the NASDAQ CompositeIndex and the NASDAQ Biotechnology Index for the same period. The graph assumes that $100 was invested on February 17, 2012 in our common stock andin each index and that all dividends were reinvested. No cash dividends have been declared on our common stock. Shareholder returns over the indicatedperiod should not be considered indicative of future shareholder returns.HoldersThe number of shares of common stock outstanding as of February 22, 2016 was 18,254,009, and there were approximately 7 holders of record. Wehave approximately 4,000 beneficial holders of our common stock. DividendsWe have never paid dividends on our common stock, and we do not anticipate paying dividends in the foreseeable future.Item 6. Selected Financial Data.The following table sets forth selected historical consolidated financial data for each of our last five fiscal years during the year ended December 31,2015.Statement of Operations Data Year Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except per share amounts)Total revenue$1,057 $— $— $— $—Loss from operations$(41,969) $(21,340) $(17,941) $(10,739) $(2,274)Net loss$(41,912) $(21,313) $(17,935) $(7,737) $(11,548)Net loss attributable to common shareholders$(41,912) $(21,313) $(18,736) $(8,517) $(11,667)Basic and diluted net loss per share$(2.68) $(2.00) $(12.16) $(41.77) $(1,579.67)Shares used in computing basic and diluted net loss pershare15,651 10,667 1,540 204 723Balance Sheet Data December 31, 2015 2014 2013 2012 2011 (In thousands)Cash and cash equivalents$126,467 $48,555 $8,629 $3,405 $5,040Working capital$122,725 $48,177 $7,615 $3,214 $(10,425)Total assets$129,347 $50,536 $8,747 $3,430 $5,100Total current liabilities$4,820 $2,080 $1,094 $216 $15,525Accumulated deficit$(528,526) $(486,614) $(465,301) $(447,366) $(439,629)Total shareholders' equity (deficit)$124,527 $48,456 $7,653 $3,214 $(15,558)Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.IntroductionManagement’s discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanyingconsolidated financial statements and notes, included in Item 15 of this Annual Report on Form 10-K, to help provide an understanding of our financialcondition, the changes in our financial condition and our results of operations. Our discussion is organized as follows:•Business Overview. This section provides a general description of our business and significant events and transactions that we believe are importantin understanding our financial condition and results of operations.•Program Overview. This section provides a current status overview for each of our product candidates in development.•Critical Accounting Policies and Estimates. This section provides a description of our significant accounting policies, including the criticalaccounting policies and estimates, which are summarized in Note 2 to the accompanying consolidated financial statements included in Item 15 ofthis Annual Report on Form 10-K.•Results of Operations. This section provides an analysis of our results of operations presented in the accompanying consolidated statements ofoperations by comparing the results for the year ended December 31, 2015 to the results for the year ended December 31, 2014 and for the yearended December 31, 2014 to the results for the year ended December 31, 2013.•Liquidity and Capital Resources. This section provides an analysis of our historical cash flows, as well as our future capital requirements.Business OverviewLa Jolla Pharmaceutical Company is a biopharmaceutical company focused on the discovery, development and commercialization of innovativetherapies intended to significantly improve outcomes in patients suffering from life-threatening diseases. We have several product candidates indevelopment. LJPC-501 is our proprietary formulation of angiotensin II for the potential treatment of catecholamine-resistant hypotension. LJPC-401 is ournovel formulation of hepcidin for the potential treatment of conditions characterized by iron overload, such as hereditary hemochromatosis, beta thalassemia,sickle cell disease and myelodysplastic syndrome. LJPC-30Sa and LJPC-30Sb are our next-generation gentamicin derivatives for the potential treatment ofserious bacterial infections and rare genetic disorders, such as cystic fibrosis and Duchenne muscular dystrophy.In September 2015, we completed a public offering of common stock whereby we received approximately $104.6 million, net of issuance costs.Program OverviewLJPC-501LJPC-501 is our proprietary formulation of angiotensin II. Angiotensin II, the major bioactive component of the renin-angiotensin system, serves asone of the body’s central regulators of blood pressure. We are developing LJPC-501 for the24treatment of catecholamine-resistant hypotension (CRH), which is an acute, life-threatening condition in which blood pressure drops to dangerously lowlevels in patients who respond poorly to current treatments. Angiotensin II has been shown to raise blood pressure in a randomized, placebo-controlledclinical trial in CRH, which was recently published in the journal Critical Care, as well as in animal models of hypotension. Preclinical pharmacologystudies that we have conducted have demonstrated that catecholamine resistance may be in part a result of reduced endogenous production of angiotensin II.In October 2014, we presented positive data from a preclinical study of LJPC-501 for the treatment of CRH.We initiated a Phase 3 clinical trial with LJPC-501 for the treatment of CRH, called the ATHOS (Angiotensin II for the Treatment of High-OutputShock) 3 trial, in March 2015. In February 2015, we reached agreement with the U.S. Food and Drug Administration (FDA) on a Special Protocol Assessment(SPA) for this multicenter, randomized, double-blind, placebo-controlled, Phase 3 clinical trial. In accordance with the SPA, the primary efficacy endpoint forthe ATHOS 3 registration trial is increase in blood pressure at three hours. The ATHOS 3 trial is designed to enroll approximately 315 patients. Patients are tobe randomized in a 1:1 fashion to receive either: (i) LJPC-501 plus standard-of-care vasopressors; or (ii) placebo plus standard-of-care vasopressors.Randomized patients are to receive their assigned treatment via continuous IV infusion for up to seven days. The primary efficacy endpoint in the study is tocompare the change in mean arterial pressure in patients with CRH who receive an IV infusion of LJPC-501 plus standard-of-care vasopressors to those thatreceive placebo plus standard-of-care vasopressors. Secondary endpoints include comparison of changes in cardiovascular Sequential Organ FailureAssessment (SOFA) scores and the safety and tolerability of LJPC-501 in patients with CRH. Results from ATHOS 3 are expected by the end of 2016.LJPC-401LJPC-401 is our novel formulation of hepcidin. Hepcidin, an endogenous peptide hormone, is the body’s naturally occurring regulator of ironabsorption and distribution. Hepcidin prevents excessive iron accumulation in vital organs, such as the liver and heart, where it can cause significant damageand even result in death.We are developing LJPC-401 for the potential treatment of iron overload, which occurs as a result of diseases such as hereditary hemochromatosis(HH), beta thalassemia, sickle cell disease (SCD) and myelodysplastic syndrome (MDS). HH is a disease caused by a genetic deficiency in hepcidin thatresults in excessive iron accumulation. HH is the most common genetic disease in Caucasians and causes liver cirrhosis, liver cancer, heart disease and/orfailure, diabetes, arthritis and joint pain. Beta thalassemia, SCD and MDS are genetic diseases of the blood that can cause life-threatening anemia and usuallyrequire frequent and life-long blood transfusions. These blood transfusions cause excessive iron accumulation in the body, which is toxic to vital organs,such as the liver and heart. In addition, the underlying anemia causes excessive iron accumulation independent of blood transfusions.LJPC-401 has been shown to be effective in reducing serum iron in preclinical testing. In October 2015, we initiated a Phase 1 clinical trial of LJPC-401 in patients at risk of iron overload due to conditions such as HH, beta thalassemia, SCD and MDS. In January 2016, we reported interim results from thisstudy that suggested a dose-dependent reduction in serum iron following a single dose of LJPC-401. We expect to report complete results from our Phase 1dose-escalation study in the second half of 2016.In September 2015, we received a positive opinion from the European Medicines Agency (EMA) Committee for Orphan Medicinal Products(COMP), which the European Commission subsequently adopted in October 2015, for designation of LJPC-401 as an orphan medicinal product for thetreatment of beta thalassemia intermedia and major.LJPC-30Sa and LJPC-30SbLJPC-30Sa and LJPC-30Sb are our next-generation gentamicin derivatives. Despite kidney toxicity, gentamicin has become one of the mostcommonly prescribed hospital antibiotics due to its broad spectrum of antimicrobial efficacy. Gentamicin consists primarily of a mixture of four distinct butclosely related chemical entities that may contribute differentially to the product’s toxicity profile.LJPC-30Sa and LJPC-30Sb are purified components of the currently marketed gentamicin product that retain the biologic activity of gentamicin, yetappear to lack the traditional kidney toxicity associated with it. We are developing LJPC-30Sa and LJPC-30Sb not only for the potential treatment of seriousbacterial infections but also for the potential treatment of rare genetic disorders, such as cystic fibrosis and Duchenne muscular dystrophy.We believe that gentamicin’s ability to induce a lack of fidelity in gene transcription, intrinsic to its antimicrobial mechanism of action, can also beleveraged in the correction of certain human genetic mutations that lead to rare genetic25disorders, such as cystic fibrosis and Duchenne muscular dystrophy. In spite of favorable short-term clinical proof-of-efficacy data in cystic fibrosis,development of gentamicin as a chronic treatment for these genetic diseases has been limited by its toxicity profile.Following a pre-investigational new drug (IND) meeting with the FDA, we have received guidance that we may proceed with a proposed Phase 1clinical trial following the submission of an IND application.Critical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have beenprepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these consolidated financial statements requires us tomake estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets andliabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to bereasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.We believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financialstatements (see also Note 2 to our financial statements included in Item 15 of this Annual Report on Form 10-K).Revenue RecognitionIn accordance with GAAP, we recognize revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists;(2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonablyassured. We currently recognize revenue from payments received under a services agreement with a related party. Under the terms of this services agreement,we receive payments from this related party for research and development services that the Company provides at what the Company believes is a negotiated,arms-length rate.Clinical Trial ExpensesPayments in connection with our clinical trials are often made under contracts with multiple contract research organizations that conduct andmanage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result inuneven payment flows. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis.Payments under these contracts depend on factors such as the successful enrollment or treatment of patients or the completion of other clinical trialmilestones. We amortize prepayments to expense based on estimates regarding work performed, including actual level of patient enrollment, completion ofpatient studies and progress of the clinical trials.Expenses related to clinical trials are accrued based on estimates regarding work performed, including actual level of patient enrollment, completionof patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. Ifthe contracted amounts are modified, the accruals are modified accordingly on a prospective basis. Revisions in the scope of a contract are charged toexpense in the period in which the facts that give rise to the revision occur.Share-based compensation We generally grant equity-based awards under our shareholder-approved, share-based compensation plans. We have granted, and may in the futuregrant, options and restricted stock awards to employees, directors, consultants and advisors under our 2013 Equity Incentive Plan. We estimate the fair value of stock options granted using the Black-Scholes option pricing model. This fair value is then amortized over therequisite service periods of the awards. The Black-Scholes option pricing model requires the input of subjective assumptions, including each option’sexpected life and the price volatility of the underlying stock. Expected volatility is based on our historical stock price volatility. The expected life ofemployee stock options represents the average of the contractual term of the options and the weighted-average vesting period, as permitted under thesimplified method.26As share-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures areestimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated basedon historical experience. Changes in assumptions used under the Black-Scholes option pricing model could materially affect our net loss and net loss pershare.Recent Accounting PronouncementsRecent accounting pronouncements are disclosed in Note 2 to the accompanying financial statements included in Item 15 of this Annual Report onform 10-K.Results of OperationsThe following summarizes the results of our operations for the years ended December 31, 2015, 2014 and 2013 (in thousands): Year Ended December 31, 2015 2014 2013Contract revenue - related party$1,057 $— $—Research and development expense(29,092) (9,944) (4,362)General and administrative expense(13,934) (11,396) (13,579)Other income, net57 27 6Preferred stock dividends— — (801)Net loss attributable to common shareholders$(41,912) $(21,313) $(18,736)Contract Revenue - Related PartyDuring the year ended December 31, 2015, we entered into a services agreement with a private company that is a related party. Pursuant to theservices agreement, we provide certain services to this related party, including, but not limited to, research and development and clinical trial design andmanagement. In exchange for providing such services, we receive payments at a negotiated, arms-length rate. As a result, the consideration received by us forour services is considered to be no less favorable to us than comparable terms that we could obtain from an unaffiliated third party in an arms-lengthtransaction. The services agreement may be canceled by either party upon 60-days’ written notice to the other party. Additionally, we have a non-votingprofit interest in the related party, which provides us with the potential to receive a portion of the future distributions of profits, if any.Research and Development ExpenseThe following summarizes our research and development expense for the years ended December 31, 2015, 2014 and 2013 (in thousands): Year Ended December 31, 2015 2014 2013Clinical development costs$13,074 $5,531 $2,660Personnel and related costs6,630 1,532 445Share-based compensation expense4,084 1,269 992Technology in-licensing costs754 493 —Other research and development costs4,550 1,119 265Total research and development expense$29,092 $9,944 $4,362Years Ended December 31, 2015 and 2014During the year ended December 31, 2015, we incurred $29.1 million in research and development expense compared to $9.9 million for the yearended December 31, 2014. The increase was primarily due to increased clinical development costs associated with the initiation of the Phase 3 clinical trialof LJPC-501 for the treatment of CRH, preclinical and clinical development costs associated with the initiation of the Phase 1 clinical trial of LJPC-401 inpatients at risk of iron overload,27preclinical costs associated with LJPC-30Sa and LJPC-30Sb and clinical development costs for the wind-down activities associated with GCS-100. Increasesin personnel and related costs and share-based compensation expense, which were mainly due to the hiring of additional personnel to support the increaseddevelopment activities noted above, also contributed to the increase in research and development expense. Additionally, the increase in other research anddevelopment costs was partially due to increased spending for exploratory, early-stage research of $1.6 million in 2015. We anticipate research anddevelopment expense to increase throughout 2016, due to planned increases in personnel to support the continuation of our ongoing clinical trials of LJPC-501 and LJPC-401, the initiation of additional clinical trials and ongoing development of our product candidates and additional programs that we haveacquired.Years Ended December 31, 2014 and 2013 During the year ended December 31, 2014, we incurred $9.9 million in research and development expense compared to $4.4 million for the yearended December 31, 2013. The increase was primarily due to increased clinical development costs associated with the extension of the Phase 2 clinical trialof GCS-100 in chronic kidney disease, the preparation of the Phase 1/2 clinical trial of LJPC-501 in hepatorenal syndrome and preclinical costs associatedwith LJPC-1010 and LJPC-401. Additionally, an increase in personnel and related costs and share-based compensation expense, which were mainly due tothe hiring of additional personnel to support the increased development activities, also contributed to the increase in research and development expense. In2014, we also incurred $0.5 million of intellectual property in-licensing costs related to LJPC-501 and LJPC-401. General and Administrative Expense The following summarizes our general and administrative expense for the years ended December 31, 2015, 2014 and 2013 (in thousands): Year Ended December 31, 2015 2014 2013Personnel and related costs$2,458 $1,247 $769Share-based compensation8,988 7,811 11,381Other general and administrative2,488 2,338 1,429Total general and administrative expense$13,934 $11,396 $13,579Years Ended December 31, 2015 and 2014 During the year ended December 31, 2015, we incurred $13.9 million in general and administrative expense compared to $11.4 million for the yearended December 31, 2014. The increase was primarily due to increases in share-based compensation expense, personnel and related costs and facilities costs,which were mainly due to the hiring of additional personnel to support the development activities discussed above. In addition, there were increasedexpenses for professional and outside services. We anticipate general and administrative expense to increase throughout 2016, due to planned increases inpersonnel and additional facility costs to accommodate our operations in light of the additional programs that we have acquired or are developing.Years Ended December 31, 2014 and 2013During the year ended December 31, 2014, we incurred $11.4 million in general and administrative expense compared to $13.6 million for the yearended December 31, 2014. The decrease was primarily due to a reduction in share-based compensation expense of $3.6 million for the year ended December31, 2014. This decrease was partially offset by increased costs of $1.4 million primarily due to the hiring of additional personnel to support the developmentactivities discussed above and increased facility costs.Preferred Stock DividendWe paid dividends in-kind of $0.8 million in 2013 on the outstanding Series C-12 Convertible Preferred Stock and Series C-22 Convertible PreferredStock issued in May 2010. As of September 24, 2013, the Series C-12 Stock no longer earned a dividend, and there were no shares of Series C-22 Stock issuedor outstanding.28Liquidity and Capital ResourcesSince January 2012, when La Jolla was effectively restarted with new assets and a new management team, through December 31, 2015, our cash usedin operating activities was $44.9 million. From inception through December 31, 2015, we have incurred a cumulative net loss of approximately $528.5million and have financed our operations through public and private offerings of securities, revenues from collaborative agreements, equipment financingsand interest income on invested cash balances. From inception through December 31, 2015, we have raised approximately $586.0 million in net proceedsfrom sales of equity securities. In July 2014, we completed a public offering of common stock whereby we received approximately $53.1 million, net of issuance costs. InSeptember 2015, we completed a public offering of common stock whereby we received approximately $104.6 million, net of issuance costs.As of December 31, 2015, we had $126.5 million in cash and cash equivalents, compared to $48.6 million in cash and cash equivalents atDecember 31, 2014. Cash used in operating activities for the year ended December 31, 2015 was $25.2 million, compared to $12.9 million for the sameperiod in 2014, and the increase was primarily due to the increased research and development activities. For the year ended December 31, 2015, we usedapproximately $1.8 million of cash for investing activities related to purchases of property and equipment, compared to $0.3 million for the year endedDecember 31, 2014. In addition, cash provided by financing activities was $104.9 million for the year ended December 31, 2015, primarily from the commonstock offering completed in September 2015. As of December 31, 2015, we had positive working capital of approximately $122.7 million, compared topositive working capital of approximately $48.2 million as of December 31, 2014. The increase in our cash and cash equivalents and working capital wasprimarily due to cash provided by financing activities, partially offset by cash used for operating activities for the year ended December 31, 2015.Based on our cash and working capital as of December 31, 2015 and our current operating plans and projections, we believe that the available cashand cash equivalents will be sufficient to fund operations into 2018. To fund future operations to the point where we are able to generate positive cash flowfrom the sales or out-licensing of our drug candidates, we will need to raise additional capital. The amount and timing of future funding requirements willdepend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs,potential new development programs and related general and administrative support. We anticipate that we will seek to fund our operations through publicand private equity and debt financings or other sources, such as potential collaboration agreements. We cannot assure you that anticipated additionalfinancing will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through equity securitiesofferings, there can be no assurance that we will be able to do so in the future.Off-Balance Sheet ArrangementsWe have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changesin our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.Contractual ObligationsContractual obligations represent future cash commitments and liabilities under agreements with third parties. The following table represents ourcontractual obligations as of December 31, 2015, aggregated by type (amounts in thousands): Payments Due by PeriodContractual Obligations Total Less Than1 Year 1 - 3 Years 3 - 5 Years More Than5 YearsLicense agreements $366 $75 $160 $46 $85Leases 1,391 729 662 — —Total $1,757$804$822$46$8529Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Our exposure to market risk for changes in interest rates relates primarily to interest earned on our cash equivalents and investments. The primaryobjective of our investment activities is to preserve our capital to fund operations. A secondary objective is to maximize income from our investmentswithout assuming significant risk. Our investment policy provides for investments in low-risk, investment-grade debt instruments. As of December 31, 2015,we had cash and cash equivalents of $126.5 million which includes money market funds. A hypothetical 10% change in interest rates during any of theperiods presented would not have had a material impact on our financial statements. To date, we have not experienced a loss of principal on any of ourinvestments.We face foreign exchange risk as a result of entering into transactions denominated in currencies other than U.S. dollars. Due to the uncertain timingof expected payments in foreign currencies, we do not utilize any forward exchange contracts. All foreign transactions settle on the applicable spot exchangebasis at the time such payments are made. An adverse movement in foreign exchange rates could have a material effect on payments made to foreign suppliersand for license agreements. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impacton our financial statements.Item 8. Financial Statements and Supplementary Data.The financial statements required by this item are set forth at the end of this Annual Report on Form 10-K beginning on page F-3 and areincorporated herein by reference.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.(a) Disclosure Controls and Procedures; Changes in Internal Control Over Financial ReportingOur management, with the participation of our principal executive and principal financial officer, has evaluated the effectiveness of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2015. Based on this evaluation, ourprincipal executive and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2015.There was no change in our internal control over financial reporting during the quarter ended December 31, 2015 that has materially affected, or isreasonably likely to materially affect, our internal control over financial reporting.(b) Management Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of theExchange Act. Our management used the Committee of Sponsoring Organizations of the Treadway Commission Internal Control - Integrated Framework(2013) (COSO framework) to evaluate the effectiveness of internal control over financial reporting. Management believes that the COSO framework is asuitable framework for its evaluation of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitativemeasurements of our internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about theeffectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over financial reporting. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 and has concluded that suchinternal control over financial reporting was effective.Our independent registered public accounting firm, Squar Milner LLP, has audited the financial statements included in this Annual Report on Form10-K and has issued a report on the effectiveness of our internal control over financial reporting. The report of Squar Milner LLP is incorporated by referencefrom Item 8 of this Annual Report on Form 10-K.Item 9B. Other Information.None.30PART IIIItem 10. Directors, Executive Officer and Corporate Governance.The information required by this Item is expected to be in our definitive Proxy Statement for the 2016 Annual Meeting of Shareholders, which weexpect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2015 and is incorporated herein by reference.Item 11. Executive Compensation.The information required by this Item is expected to be in our definitive Proxy Statement for the 2016 Annual Meeting of Shareholders, which weexpect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2015 and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. The information required by this Item is expected to be in our definitive Proxy Statement for the 2016 Annual Meeting of Shareholders, which weexpect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2015 and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions, and Director Independence.The information required by this Item is expected to be in our definitive Proxy Statement for the 2016 Annual Meeting of Shareholders, which weexpect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2015 and is incorporated herein by reference.Item 14. Principal Accountant Fees and Services.The information required by this Item is expected to be in our definitive Proxy Statement for the 2016 Annual Meeting of Shareholders, which weexpect to be filed with the SEC within 120 days of the end of our fiscal year ended December 31, 2015 and is incorporated herein by reference.31PART IVItem 15. Exhibits, Financial Statement Schedules.(a) Documents filed as part of this report.1.The following financial statements of La Jolla Pharmaceutical Company are filed as part of this report under Item 8 — Financial Statements andSupplementary Data:Report of Independent Registered Public Accounting Firm - Financial StatementsF - 1 Report of Independent Registered Public Accounting Firm - Internal Control over Financial ReportingF - 2 Consolidated Balance Sheets at December 31, 2015 and 2014F - 3 Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013F - 4 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015, 2014 and 2013F - 5 Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013F - 6 Notes to Consolidated Financial StatementsF - 72.Financial Statement Schedules.The following financial statement schedules of La Jolla Pharmaceutical Company are filed as part of this report under Item 8 — Financial Statementsand Supplementary Data.3.Exhibits.List of Exhibit required by Item 601 of Regulation S-K. See part (b) below.(b) Exhibits:Exhibit Number Description 3.1 Amended and Restated Articles of Incorporation (2) 3.2 Certificate of Amendment of Articles of Incorporation (3) 3.3 Bylaws (4) 4.1 Certificate of Determination of Series F Convertible Preferred Stock (9) 10.1 Form of Indemnification Agreement (5)* 10.4 Form of Option Grant under the La Jolla Pharmaceutical Company 2010 Equity Incentive Plan* (6) 10.5 La Jolla Pharmaceutical Company 2010 Equity Incentive Plan, as amended* (6) 10.7 Form of Series C-2 Preferred Stock Purchase Warrant (7) 10.8 Form of Series D-1 Preferred Stock Purchase Warrant (7) 10.9 La Jolla Pharmaceutical Company Retirement Savings Plan (8)* 10.14 Employment Offer Letter by and between La Jolla Pharmaceutical Company and George F. Tidmarsh, M.D., Ph.D., dated as ofJanuary 19, 2012 (1)* 10.17 Securities Purchase Agreement, dated as of September 24, 2013, by and among La Jolla Pharmaceutical Company and the Purchasersnamed therein (9) 10.18 Consent and Waiver Agreement, dated as of September 24, 2013, by and among La Jolla Pharmaceutical Company and theundersigned parties thereto (9) 10.19 Exchange Agreement, dated as of September 25, 2013, by and among La Jolla Pharmaceutical Company and the undersigned partiesthereto (9) 3210.20 Form of La Jolla Pharmaceutical Company Restricted Stock Agreement* (10) 10.21 La Jolla Pharmaceutical Company 2013 Equity Incentive Plan* (9) 10.22 Employment Offer Letter by and between La Jolla Pharmaceutical Company and Lakhmir Chawla, M.D., dated as of February 3,2015* ** 10.23 Employment Offer Letter by and between La Jolla Pharmaceutical Company and Dennis Mulroy dated as of March 12, 2015 (11)* 10.24 Updated Employment Offer Letter by and between La Jolla Pharmaceutical Company and Jennifer Anne Carver dated January 1,2016* ** 21.1 Subsidiaries of La Jolla Pharmaceutical Company ** 23.1 Consent of Independent Registered Public Accounting Firm Squar Milner LLP ** 24.1 Power of Attorney (included on the signature page of this Form 10-K) 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ** 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** 101.INS XBRL Instance Document** 101.SCH XBRL Taxonomy Extension Schema Document** 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document** 101.DEF XBRL Taxonomy Extension Definition Linkbase Document** 101.LAB XBRL Taxonomy Extension Label Linkbase Document** 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document***This exhibit is a management contract or compensatory plan or arrangement.**Filed herewith.(1)Previously filed with the Company’s Current Report on Form 8-K, filed January 20, 2012 and incorporated by reference herein.(2)Previously filed with the Company’s Registration Statement on Form S-8, filed December 20, 2013 and incorporated herein by reference.(3)Previously filed with the Company’s Current Report on Form 8-K, filed January 15, 2014 and incorporated herein by reference.(4)Previously filed with the Company’s Form 8-A12B, filed October 17, 2014 and incorporated herein by reference.(5)Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 and incorporated by reference herein.(6)Previously filed as Appendix A to the Company’s Definitive Revised Proxy Statement filed April 23, 2012, and incorporated by reference herein.(7)Previously filed with the Company’s Current Report on Form 8-K filed May 28, 2010 and incorporated by reference herein.(8)Previously filed with the Company’s Current Report on Form 10-Q for the quarter ended September 30, 2010 and incorporated by reference herein.(9)Previously filed with the Company’s Current Report on Form 8-K, filed September 25, 2013 and incorporated by reference herein.(10)Previously filed with the Company’s Annual Report on Form 10-K, filed April 1, 2013 and incorporated by reference herein.(11)Previously filed with the Company’s Current Report on Form 8-K filed April 10, 2015 and incorporated by reference herein.33SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by theundersigned hereunto duly authorized. La Jolla Pharmaceutical Company Date:February 25, 2016/s/ George F. Tidmarsh George F. Tidmarsh, M.D., Ph.D. President, Chief Executive Officer and SecretaryPOWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below constitutes and appoints each of George F. Tidmarsh,M.D., Ph.D. and Dennis M. Mulroy as his or her true and lawful attorney-in-fact and agent, with full power of substitution for him or her, and in his or hername in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and otherdocuments in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority todo and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do inperson, hereby ratifying and confirming all that said attorney-in-fact and agent, his substitute or substitutes, may lawfully do or cause to be done by virtuehereof.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/ George F. Tidmarsh Director, President, Chief Executive Officer and Secretary (PrincipalExecutive Officer) February 25, 2016George F. Tidmarsh, M.D., Ph.D. /s/ Dennis M. Mulroy Chief Financial Officer(Principal Financial and Accounting Officer) February 25, 2016Dennis M. Mulroy /s/ Kevin C. Tang Chairman of the Board and Director February 25, 2016Kevin C. Tang /s/ Laura L. Douglass Director February 25, 2016Laura L. Douglass /s/ Craig A. Johnson Director February 25, 2016Craig A. Johnson /s/ Robert H. Rosen Director February 25, 2016Robert H. Rosen 34REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders ofLa Jolla Pharmaceutical CompanyWe have audited the accompanying consolidated balance sheets of La Jolla Pharmaceutical Company (and subsidiaries) as of December 31, 2015 and 2014,and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015.These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statementsbased on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of La Jolla PharmaceuticalCompany as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December31, 2015, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), La Jolla PharmaceuticalCompany’s (and subsidiaries) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 25, 2016 expressed anunqualified opinion on the effectiveness of La Jolla Pharmaceutical Company’s internal control over financial reporting./s/ SQUAR MILNER LLP(formerly Squar, Milner, Peterson, Miranda & Williamson, LLP)San Diego, CaliforniaFebruary 25, 2016F - 1REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders ofLa Jolla Pharmaceutical CompanyWe have audited La Jolla Pharmaceutical Company’s internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. La Jolla PharmaceuticalCompany’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting at Item 9A. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, La Jolla Pharmaceutical Company maintained, in all material respects, effective internal control over financial reporting as of December 31,2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission in 2013.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2015 consolidated financialstatements of La Jolla Pharmaceutical Company and our report dated February 25, 2016 expressed an unqualified opinion./s/ SQUAR MILNER LLP(formerly Squar, Milner, Peterson, Miranda & Williamson, LLP)San Diego, CaliforniaFebruary 25, 2016F - 2LA JOLLA PHARMACEUTICAL COMPANYConsolidated Balance Sheets(in thousands, except share and par value amounts) December 31, 2015 December 31, 2014ASSETS Current assets: Cash and cash equivalents$126,467 $48,555Restricted cash237 37Prepaid clinical expenses223 1,528Prepaid expenses and other current assets618 137Total current assets127,545 50,257Property and equipment, net1,732 279Other assets70 —Total assets$129,347 $50,536 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable$2,506 $730Accrued expenses1,224 926Accrued payroll and related expenses1,090 424Total current liabilities4,820 2,080Shareholders’ equity: Common Stock, $0.0001 par value; 100,000,000 shares authorized, 18,244,009 and 15,225,980 shares issued andoutstanding at December 31, 2015 and December 31, 2014, respectively2 2Series C-12 Convertible Preferred Stock, $0.0001 par value; 11,000 shares authorized, 3,906 and 3,917 sharesissued and outstanding at December 31, 2015 and December 31, 2014, respectively, and a liquidation preferenceof $3,906 and $3,917 at December 31, 2015 and 2014, respectively3,906 3,917Series F Convertible Preferred Stock, $0.0001 par value; 10,000 shares authorized, 2,737 and 2,798 shares issuedand outstanding at December 31, 2015 and December 31, 2014, respectively, and liquidation preference of$2,737 and $2,798 at December 31, 2015 and 2014, respectively2,737 2,798Additional paid-in capital646,408 528,353Accumulated deficit(528,526) (486,614)Total shareholders’ equity124,527 48,456Total liabilities and shareholders' equity$129,347 $50,536See accompanying notes to the consolidated financial statements.F - 3LA JOLLA PHARMACEUTICAL COMPANYConsolidated Statements of Operations(in thousands, except per share amounts) Year Ended December 31, 2015 2014 2013Revenue Contract revenue - related party$1,057 $— $—Total revenue1,057 — —Expenses Research and development29,092 9,944 4,362General and administrative13,934 11,396 13,579Total expenses43,026 21,340 17,941Loss from operations(41,969) (21,340) (17,941)Other income, net57 27 6Net loss(41,912) (21,313) (17,935)Convertible preferred stock dividends earned— — (801)Net loss attributable to common shareholders$(41,912) $(21,313) $(18,736)Basic and diluted net loss per share$(2.68) $(2.00) $(12.16)Shares used in computing basic and diluted net loss per share15,651 10,667 1,540See accompanying notes to the consolidated financial statements.F - 4La Jolla Pharmaceutical CompanyConsolidated Statements of Shareholders’ EquityFor the Years Ended December 31, 2015, 2014 and 2013(in thousands) Series C-12ConvertiblePreferred Stock Series C-22ConvertiblePreferred Stock Series D-12ConvertiblePreferred Stock Series F ConvertiblePreferred Stock Common Stock AdditionalPaid-inCapital AccumulatedDeficit TotalShareholders’Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2012 6 $5,792 1 $500 5 $4,615 — $— 285 $1 $439,672 $(447,366) $3,214Issuance of Series C-12 & C-22 Convertible Preferred Stockdividends 1 744 — 57 — — — — — — (801) — —Conversion of Series C-12 & D-12 Convertible Preferred Stock intocommon stock (1) (77) — — — (47) — — 367 — 124 — —Redemption of Series D-12 Convertible Preferred Stock — — — — (5) (4,568) — — — — 4,568 — —Exchange of Series C-22 ConvertiblePreferred Stock for Series C-12 Convertible Preferred Stock 1 557 (1) (557) — — — — — — — — —Issuance of Series F ConvertiblePreferred Stock — — — — — — 3 3,250 — — — — 3,250Issuance of common stock forSeptember 2013 financing — — — — — — — — 1,929 2 6,748 — 6,750Share-based compensation expense — — — — — — — — — — 12,373 — 12,373Issuance of restricted stock awards — — — — — — — — 1,823 1 — — 1Net loss — — — — — — — — — — — (17,935) (17,935)Balance at December 31, 2013 7 7,016 — — — — 3 3,250 4,404 4 462,684 (465,301) 7,653Adjustment for reverse stock split — — — — — — — — — (4) 4 — —Issuance of common stock for July2014 financing — — — — — — — — 5,395 1 53,062 — 53,063Conversion of Series F ConvertiblePreferred Stock into common stock — — — — — — — (452) 129 — 452 — —Conversion of Series C-12 Convertible Preferred Stock intocommon stock (3) (3,099) — — — — — — 5,342 1 3,098 — —Share-based compensation expense — — — — — — — — — — 8,992 — 8,992Third party share-basedcompensation expense — — — — — — — — — — 63 — 63Common stock issued for services — — — — — — — — 3 — 25 — 25Restricted stock awards canceled — — — — — — — — (47) — (27) — (27)Net loss — — — — — — — — — — — (21,313) (21,313)Balance at December 31, 2014 4 3,917 — — — — 3 2,798 15,226 2 528,353 (486,614) 48,456Issuance of common stock forSeptember 2015 financing — — — — — — — — 2,933 — 104,596 — 104,596Conversion of Series F ConvertiblePreferred Stock into common stock — — — — — — — (61) 17 — 61 — —Conversion of Series C-12 Convertible Preferred Stock intocommon stock — (11) — — — — — — 19 — 11 — —Share-based compensation expense — — — — — — — — — — 11,551 — 11,551Third party share-basedcompensation expense — — — — — — — — — — 1,521 — 1,521Exercise of stock options forcommon stock — — — — — — — — 45 — 315 — 315Issuance of restricted stock awards — — — — — — — — 4 — — — —Net loss — — — — — — — — — — — (41,912) (41,912)Balance at December 31, 2015 4 $3,906 — $— — $— 3 $2,737 18,244 $2 $646,408 $(528,526) $124,527See accompanying notes to the consolidated financial statements.F - 5LA JOLLA PHARMACEUTICAL COMPANYConsolidated Statements of Cash Flows(in thousands) Year Ended December 31, 2015 2014 2013Operating activities Net loss$(41,912) $(21,313) $(17,935)Adjustments to reconcile net loss to net cash used for operating activities: Share-based compensation expense11,551 8,992 12,373Third party share-based compensation expense1,521 63 —Issuance of common stock for services— 25 —Depreciation expense347 17 5Loss on disposal16 — —Changes in operating assets and liabilities: Restricted cash(200) — (37)Prepaid clinical expenses1,305 (1,528) —Prepaid expenses and other current assets(481) (94) (18)Other assets(70) — —Accounts payable1,776 (104) 742Accrued expenses298 739 80Accrued payroll and related expenses666 324 56Net cash used for operating activities(25,183) (12,879) (4,734) Investing activities Purchase of property and equipment(1,816) (258) (43)Net cash used for investing activities(1,816) (258) (43) Financing activities Net proceeds from the issuance of common stock104,596 53,063 6,751Net proceeds from the exercise of stock options for common stock315 — —Proceeds from the issuance of Series F Convertible Preferred Stock— — 3,250Net cash provided by financing activities104,911 53,063 10,001 Net increase in cash and cash equivalents77,912 39,926 5,224Cash and cash equivalents at beginning of period48,555 8,629 3,405Cash and cash equivalents at end of period$126,467 $48,555 $8,629 Supplemental disclosure of cash flow information Non-cash investing and financing activity: Conversion of Series C-12 Convertible Preferred Stock into common stock$11 $— $—Conversion of Series F Convertible Preferred Stock into common stock$61 $452 $—Conversion of Series C-12 and D-12 Convertible Preferred Stock into common stock$— $3,099 $124Redemption of Series D-12 Convertible Preferred Stock and Series C-22 Convertible Preferred StockWarrants$— $— $4,568Dividends paid in Series C-12 and C-22 Convertible Preferred Stock$— $— $801Exchange of Series C-22 Convertible Preferred Stock for Series C-12 Convertible Preferred Stock$— $— $557See accompanying notes to the consolidated financial statements.F - 6La Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements1. BusinessLa Jolla Pharmaceutical Company (collectively with its subsidiaries, the Company) is a biopharmaceutical company focused on the discovery,development and commercialization of innovative therapies intended to significantly improve outcomes in patients suffering from life-threatening diseases.The Company has several product candidates in development. LJPC-501 is the Company's proprietary formulation of angiotensin II for the potentialtreatment of catecholamine-resistant hypotension. LJPC-401 is the Company's novel formulation of hepcidin for the potential treatment of conditionscharacterized by iron overload, such as hereditary hemochromatosis, beta thalassemia, sickle cell disease and myelodysplastic syndrome. LJPC-30Sa andLJPC-30Sb are the Company's next-generation gentamicin derivatives for the potential treatment of serious bacterial infections and rare genetic disorders,such as cystic fibrosis and Duchenne muscular dystrophy. The Company was incorporated in 1989 as a Delaware corporation and reincorporated in Californiain 2012.In September 2015, the Company completed a common stock offering and received approximately $104.6 million, net of issuance costs (see Note 6).The Company has a history of incurring significant operating losses and negative cash flows from operations. Since January 2012, when theCompany was effectively restarted with new assets and a new management team, through December 31, 2015, the Company's cash used in operating activitieswas $44.9 million. The Company had available cash and cash equivalents of $126.5 million at December 31, 2015. Based on current operating plans andprojections, management believes that the available cash and cash equivalents will be sufficient to fund operations into 2018.2. Summary of Significant Accounting PoliciesBasis of Presentation and Use of EstimatesThe consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles(GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated inconsolidation. The preparation of financial statements requires that management make estimates and assumptions that affect the reported amounts of assets,liabilities, revenues, expenses and related disclosures. Actual results could differ materially from those estimates.Certain amounts previously reported in the financial statements have been reclassified to conform to the current year presentation. Suchreclassifications did not affect net loss, shareholders' equity or cash flows.Cash and Cash EquivalentsThe Company considers all highly liquid investments with a maturity from the date of purchase of less than three months to be cash equivalents. Thecarrying value of the Company's money market funds is included in cash equivalents and approximates the fair value.Restricted CashUnder the terms of the Company's credit card arrangements, there is a requirement to maintain a collateral cash account pledged as security for suchcredit cards. Under the terms of the leases of certain of the Company's facilities, there is a requirement to maintain a certificate of deposit as security duringthe terms of such leases.Concentrations of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents. The Companyinvests excess cash in money market accounts. This diversification of risk is consistent with the Company's policy to ensure safety of principal and maintainliquidity.Property and EquipmentProperty and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimateduseful lives of the assets, which range from two to seven years. Amortization of leaseholdF - 7La Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statementsimprovements is recorded over the shorter of the lease term or the estimated useful life of the related assets. Maintenance and repairs are charged to operationsas incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or lossis included in other income or expense.Revenue RecognitionIn accordance with GAAP, the Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangementexists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonablyassured. The Company currently recognizes revenue from payments received under a services agreement with a related party. Under the terms of this servicesagreement, the Company receives payments from this related party for research and development services that the Company provides at a negotiated, arms-length rate.Clinical Trial ExpensesPayments in connection with the Company's clinical trials are often made under contracts with multiple contract research organizations that conductand manage clinical trials on the Company's behalf. The financial terms of these contracts are subject to negotiation, vary from contract to contract and mayresult in uneven payment flows. Generally, these contracts set forth the scope of work to be performed at a fixed fee, unit price or on a time and materialsbasis. Payments under these contracts depend on factors such as the successful enrollment or treatment of patients or the completion of other clinical trialmilestones. The Company amortizes prepaid clinical trial costs to expense based on estimates regarding work performed, including actual level of patientenrollment, completion of patient studies and progress of the clinical trials.Expenses related to clinical trials are accrued based on estimates regarding work performed, including actual level of patient enrollment, completionof patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. Ifthe contracted amounts are modified, the accruals are modified accordingly on a prospective basis. Revisions in the scope of a contract are charged toexpense in the period in which the facts that give rise to the revision occur.Research and Development ExpensesResearch and development expenses include salaries and benefits, facilities and other overhead expenses, research-related manufacturing expenses,contract services and clinical and preclinical-related services performed by clinical research organizations, research institutions and other outside serviceproviders. Research and development expenses are charged to operations as incurred when these expenditures relate to the Company's research anddevelopment efforts and have no alternative future uses.In accordance with certain research and development agreements, the Company is obligated to make certain upfront payments upon execution of theagreement. Advance payments, including nonrefundable amounts, for materials or services that will be used or rendered for future research and developmentactivities are deferred and capitalized. Such amounts are recognized as an expense as the related goods are delivered or the related services are performed.Acquisition or milestone payments that the Company makes in connection with in-licensed technology are expensed as incurred when there isuncertainty in receiving future economic benefits from the licensed technology. The Company considers the future economic benefits from the licensedtechnology to be uncertain until such licensed technology is incorporated into products that are approved for marketing by the U.S. Food and DrugAdministration (FDA) or when other significant risk factors are abated. For accounting purposes, management has viewed future economic benefits for all ofthe Company's licensed technology to be uncertain.Patent CostsLegal costs in connection with approved patents and patent applications are expensed as incurred, as recoverability of such expenditures isuncertain. These costs are recorded in research and development in the consolidated statement of operations and comprehensive loss.F - 8La Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsShare-Based CompensationThe Company accounts for share-based payment arrangements in accordance with Accounting Standards Codification (ASC) 718, Compensation -Stock Compensation and ASC 505-50, Equity - Equity Based Payments to Non-Employees, which requires the recognition of compensation expense, using afair-value based method, for all costs related to share-based payments, including stock options and restricted stock awards. These standards require companiesto estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model. See Note 6 for further discussion of theCompany's share-based compensation plans.Income TaxesThe Company accounts for income taxes and the related accounts under the liability method. Deferred tax assets and liabilities are determined basedon the differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is appliedagainst any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.Net Loss Per ShareBasic net loss per share is calculated based on the weighted-average number of common shares outstanding. Diluted net loss per share is calculatedusing the weighted-average number of common shares outstanding plus common stock equivalents outstanding. Outstanding convertible preferred stock,stock options and unvested restricted stock awards are considered common stock equivalents and are included in the calculation of diluted net loss per shareusing the treasury stock method when their effect is dilutive. Common stock equivalents are not included in the computation of diluted net loss per share ifthe inclusion of these securities is anti-dilutive. As of December 31, 2015, 2014, and 2013, there were common stock equivalents of 10.0 million shares, 8.2million shares, 13.1 million shares, respectively, which were excluded from the calculation of diluted net loss per share because they were anti-dilutive.Comprehensive LossComprehensive loss for the periods reported was comprised solely of the Company's net loss. The comprehensive loss for the years endedDecember 31, 2015, 2014 and 2013, was $41.9 million, $21.3 million and $17.9 million, respectively. There were no other changes in equity that wereexcluded from net loss for all periods presented.Segment ReportingManagement has determined that the Company operates in one business segment, which includes all activities related to the research, developmentand commercialization of its proprietary technologies and drug candidates for pharmaceutical products.Fair Value MeasurementsThe Company follows the provisions of ASC 820-10, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles and requires certain disclosures about fair value measurements. Broadly, the ASC 820-10framework clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that marketparticipants would use in pricing an asset or liability.As a basis for considering such assumptions, ASC 820-10 establishes a three tier value hierarchy which prioritizes the inputs used in measuring fairvalue as follows: Level 1) observable inputs such as quoted prices in active markets; Level 2) inputs other than the quoted prices in active markets that areobservable either directly or indirectly; and Level 3) unobservable inputs in which there is little or no market data, which require us to develop our ownassumptions. The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs whendetermining fair value.Cash equivalents consist of money market accounts with maturities of ninety days or less. Due to the high ratings and short-term nature of thesefunds, the Company considers the values of all cash equivalents as Level 1 inputs.F - 9La Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsThe Company's financial instruments include cash equivalents, prepaid expenses, accounts payable and accrued expenses. The carrying amountsreported in the balance sheets for cash equivalents, prepaid expenses, accounts payable and accrued expenses approximate fair values because of the short-term nature of these instruments.Recent Accounting PronouncementsIn August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, Presentation of FinancialStatements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standardrequires management to assess an entity's ability to continue as a going concern within one year after the date that the financial statements are issued and toprovide related footnote disclosures. ASU 2014-15 will be effective for the Company beginning in the first quarter of 2017. The adoption of this standard willnot have a material impact on the Company's financial position or results of operations.In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 781): Accounting for Share-Based Payments When theTerms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period. The new standard requires that a performancetarget that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance targetshould not be reflected in estimating the grant date fair value of the award. Compensation cost should be recognized in the period in which it becomesprobable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite servicehas already been rendered. ASU 2014-12 will be effective for the Company beginning the first quarter 2016. The adoption of this standard will not have amaterial impact on the Company's financial position or results of operations.In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard is based on the principle thatrevenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which theentity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for the Company in the first quarter of 2018 and allowsfor full retrospective or a modified retrospective adoption approach. The adoption of this standard will not have a material impact on its financial position orresults of operations.3. Balance Sheet Account DetailsProperty and EquipmentProperty and equipment, net consists of the following (in thousands): December 31, 2015 2014Computer Hardware$389 $91Software34 1Lab equipment978 162Furniture and fixtures314 57Leasehold improvements393 —Total property and equipment, gross2,108 311Accumulated depreciation(376) (32)Total property and equipment, net$1,732 $279F - 10La Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsAccrued ExpensesAccrued expenses consist of the following (in thousands): December 31, 2015 2014Accrued clinical trials$629 $487Accrued other595 439Total accrued expenses$1,224 $9264. Licensed TechnologyThe George Washington UniversityIn December 2014, the Company entered into a patent license agreement with the George Washington University (GW). Pursuant to this licenseagreement, GW exclusively licensed to the Company certain intellectual property rights relating to LJPC-501 (501 IP Rights). Under this license agreement,the Company paid a one-time license initiation fee of $250,000, which is included in research and development expense for the year ended December 31,2014. Additional payments are due upon the achievement of certain development and regulatory milestones and for royalties on products covered by the 501IP Rights.Inserm Transfert SAIn February 2014, the Company entered into a license agreement with Inserm Transfert SA (Inserm). Pursuant to this license agreement, Insermexclusively licensed to the Company certain intellectual property rights relating to LJPC-401 (401 IP Rights). Under this license agreement, the Companypaid a one-time license initiation fee of approximately $140,000, which is included in research and development expense for the year ended December 31,2014. Additional payments are due upon the achievement of certain development and regulatory milestones and for royalties on products covered by the 401IP Rights.Other In-Licensed TechnologyThe Company continues to seek additional technology for potential new development programs and, as a result, has entered into various licensingagreements for intellectual property rights. In 2015, the Company formed foreign subsidiaries to acquire and in-license various early-stage technology fromIndiana University Research and Technology Corporation, Vanderbilt University and the Board of Trustees of the Leland Stanford Junior University.The Company has incurred licensing and milestone fees of $754,000 and $493,000 in connection with its licensing agreements for the years endedDecember 31, 2015 and 2014, respectively.5. Contract Revenue - Related PartyDuring the year ended December 31, 2015, the Company entered into a services agreement with a related party. Pursuant to the services agreement,the Company provides certain services to this related party, including, but not limited to, research and development and clinical trial design and managementfor the project undertaken. In exchange for providing such services, the Company receives payments at a negotiated, arms-length rate. As a result, theconsideration received by the Company for its services is considered to be no less favorable to the Company than comparable terms that the Company couldobtain from an unaffiliated third party in an arms-length transaction. The services agreement may be canceled by either party upon 60-days’ written notice tothe other party.During the year ended December 31, 2015, the Company recognized approximately $1.1 million of contract revenue for services and costs providedunder the services agreement.In addition, the Company has a non-voting profit interest in the related party, which provides the Company with the potential to receive a portion ofthe future distributions of profits, if any. Investment funds affiliated with the Chairman of the Company’s board of directors have a controlling interest in, andthe Company’s CEO has a non-voting profit interest in, the related party.F - 11La Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statements6. Shareholders’ EquityCommon Stock2014 Common Stock OfferingIn July 2014, the Company offered and sold an aggregate of 5,395,000 shares of common stock in an underwritten offering at a public offering priceof $10.50 per share, with gross proceeds of approximately $56.6 million. The Company received net proceeds of approximately $53.1 million, lessapproximately $3.5 million in underwriting commissions, discounts and other issuance costs.2015 Common Stock OfferingIn September 2015, the Company offered and sold an aggregate of 2,932,500 shares of common stock in an underwritten offering at a public offeringprice of $38.00 per share, with gross proceeds of approximately $111.4 million. The Company received net proceeds of approximately $104.6 million, lessapproximately $6.8 million in underwriting commissions, discounts and other issuance costs.2014 Reverse Stock SplitEffective January 14, 2014, the Company effected a 1-for-50 reverse split (2014 Reverse Stock Split) of its outstanding common stock. All commonstock share and per share information in the accompanying audited consolidated financial statements have been restated to reflect retrospective applicationof the 2014 Reverse Stock Split for all periods presented, except for par value per share and the number of authorized share amounts, which were not affected.All stock options and the shares of common stock underlying outstanding convertible preferred stock were ratably adjusted to give effect to the 2014 ReverseStock Split.Amendment to Articles of IncorporationIn August 2014, at the Company's annual meeting of shareholders, the Company's shareholders approved an amendment to the Company's articles ofincorporation to reduce the number of authorized common shares available for issuance to 100,000,000 shares from 12,000,000,000 shares.Preferred StockAs of December 31, 2015, the Company is authorized to issue 8,000,000 shares of preferred stock, with a par value of $0.0001 per share, in one ormore series, of which 11,000 are designated as Series C-12 Convertible Preferred Stock (Series C-12 Preferred) and 10,000 are designated as Series FConvertible Preferred Stock (Series F Preferred). During the year ended December 31, 2015, the Company issued 19,134 and 17,360 shares of common stockupon the conversion of Series C-12 Preferred and Series F Preferred, respectively. During the year ended December 31, 2014, the Company issued 5,341,670shares of common stock upon the conversion of Series C-12 Preferred and 129,105 shares of common stock upon the conversion of Series F Preferred. TheSeries C-12 Preferred is convertible into common stock at a rate of approximately 1,724 shares of common stock for each share of Series C-12 Preferred, andthe Series F Preferred is convertible into common stock at a rate of approximately 286 shares of common stock for each share of Series F Preferred.As of December 31, 2015, there were 3,906 shares of Series C-12 Preferred and 2,737 shares of Series F Preferred issued and outstanding. As such, asof December 31, 2015, the issued and outstanding Series C-12 Preferred and Series F Preferred were convertible into 6,735,378 and 782,032 shares of commonstock, respectively. As of December 31, 2014, there were 3,917 shares of Series C-12 Preferred and 2,798 shares of Series F Preferred issued and outstanding.As of December 31, 2014, the issued and outstanding shares of Series C-12 Preferred and Series F Preferred were convertibleinto 6,752,908 and 800,228 shares of common stock, respectively.The holders of preferred stock do not have voting rights, other than for general protective rights required by the California General Corporation Law.The Series C-12 Preferred and the Series F Preferred do not have dividends. The Series C-12 Preferred and the Series F Preferred have a liquidation preferencein an amount equal to $1,000 per share. As of December 31, 2015, the aggregate liquidation preference was approximately $3,906,000 and $2,737,000 on theSeries C-12F - 12La Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsPreferred and Series F Preferred, respectively. As of December 31, 2014, the aggregate liquidation preference was $3,917,000 and $2,798,000 on the Series C-12 Preferred and Series F Preferred, respectively.2013 Securities Purchase AgreementOn September 24, 2013, the Company entered into a securities purchase agreement, upon which the Company agreed to sell for an aggregate priceof $10.0 million, approximately 1,928,620 shares of the Company’s common stock at a price of $3.50 per share and 3,250 shares of Series F Preferred at aprice of $1,000 per share (Private Placement). The Private Placement closed on September 27, 2013, with proceeds to the Company of approximately $10.0million, before transaction issuance costs of $300,000. Pursuant to the securities purchase agreement, the Company designated the Series F Preferred as a newseries of preferred stock prior to the closing. The Shares were exempt from registration under the Securities Act of 1933, as amended.As a condition to closing, the holders of a majority of the issued and outstanding common stock and the holders of the Series C-12 Preferredapproved the amendment and restatement of the Company’s Amended and Restated Articles, which eliminated the following series of preferred stock: theSeries C-22 Convertible Preferred Stock (Series C-22 Preferred); the Series D-12 Convertible Preferred Stock (Series D-12 Preferred); and the Series D-22 Convertible Preferred Stock. As a result of the elimination of these series of preferred stock and the creation of the Series F Preferred, only the Series C-12 Preferred and Series F Preferred remain designated as preferred stock of the Company.2013 Consent and Waiver AgreementOn September 24, 2013, the Company entered into a Consent and Waiver Agreement (Consent Agreement) with the holders of the existing preferredstock. Pursuant to the Consent Agreement, the holders agreed to tender to the Company, for nominal consideration, shares of Series D-12 Preferred, as well asall warrants to purchase shares of preferred stock. As a result of this repurchase, and after giving effect to the transactions contemplated in the ExchangeAgreement (described below), the Series C-12 Preferred was the only series of preferred stock that remained outstanding prior to the closing of the PrivatePlacement; and, as of the closing, no purchase rights existed for the existing preferred stock. Also in the Consent Agreement, the holders of the Series C-12 Preferred consented to the transactions contemplated under the Private Placement and agreed to waive the dividend rights of the Series C-12 Preferred.2013 Exchange AgreementOn September 24, 2013, the Company also entered into an Exchange Agreement with the holders of its Series C-22 Preferred. Pursuant to theExchange Agreement, the holders exchanged a total of approximately 557 shares of Series C-22 Preferred for approximately 557 shares of Series C-12 Preferred. The terms of the Series C-12 Preferred were substantially similar in all respects to the Series C-22 Preferred, and the exchange of the Series C-22 Preferred eliminated all outstanding shares and allowed for the removal of this series of preferred stock. The transaction was exempt from registrationrequirements of the Securities Act of 1933, as amended; and no commission or other remuneration was paid for such exchange.Share-Based CompensationStock Options2013 Equity Incentive PlanIn September 2013, the Company adopted an equity compensation plan entitled the 2013 Equity Incentive Plan (2013 Equity Plan). The 2013Equity Plan is an omnibus equity compensation plan that permits the issuance of various types of equity-based compensation awards, including stockoptions, restricted stock awards, stock appreciation rights and restricted stock units, as well as cash awards, to employees, directors and eligible consultants ofthe Company. The 2013 Equity Plan has a ten-year term and permits the issuance of incentive stock options under Section 422 of the Internal Revenue Codeof 1986, as amended. The administrator under the plan has broad discretion to establish the terms of awards, including the size, term, exercise price andvesting conditions. Generally, grants to employees vest over four years, with 25% vesting on the one-year anniversary, and the remainder vesting eitherquarterly or monthly thereafter; grants to non-employee directors generally vest over one year on the one-year anniversary.The 2013 Equity Plan previously allowed for automatic annual increases to the number of shares of common stock authorized for issuance under the2013 Equity Plan on the first day of each year, with such increases based on 10% of theF - 13La Jolla Pharmaceutical CompanyNotes to Consolidated Financial Statementsoutstanding shares of the Company’s common stock as of the last day of the previous year. On January 1, 2014, the total shares available for grant under the2013 Equity Plan increased to 440,441. At the 2014 annual meeting of shareholders, the Company's shareholders approved and adopted an amendment to the2013 Equity Plan to increase the number of shares of common stock authorized for issuance up to a total of 1,100,000 shares and eliminated the automaticannual increase on the first day of each year. At the 2015 annual meeting of shareholders, the Company's shareholders approved and adopted an amendmentto the 2013 Equity Plan to increase the number of shares of common stock authorized for issuance up to a total of 3,100,000 shares.As of December 31, 2015, there were 786,525 shares available for future grants under the 2013 Equity Plan.Share-Based Award ActivityThe Company’s 2013 Equity Plan stock option and restricted stock award activity for the years ended December 31, 2015, 2014 and 2013 wascomprised of the following: Outstanding Stock Options and 2013 Equity PlanRestricted Stock Awards SharesUnderlyingStock Options andRestricted StockAwards Weighted-AverageExercise Price perShare Weighted-AverageRemainingContractualTerm AggregateIntrinsicValueOutstanding at December 31, 201211,844,627 $3.00 Granted54,000 $6.00 Canceled(11,844,609) $3.00 Forfeited/expired(18) — Outstanding at December 31, 201354,000 $6.00 Granted567,876 $9.88 Restricted stock awards vested(2,976) — Outstanding at December 31, 2014618,900 $9.54 Granted1,769,785 $25.89 Exercised(51,814) $10.81 Forfeited(18,186) $7.80 Outstanding at December 31, 20152,318,685 $22.01 9.32 years $14,773,947Vested and expected to vest at December 31, 20152,318,685 $22.01 9.32 years $14,773,947Exercisable at December 31, 2015269,172 $11.25 8.48 years $4,283,471In April 2015, the Company made a stock option grant to the Company's recently appointed Chief Financial Officer to purchase 60,000 shares ofcommon stock at an exercise price equal to the fair market value of the Company's common stock on the grant date. This grant was awarded as an InducementGrant outside of the 2013 Equity Plan. The stock option will vest and become exercisable with respect to 25% of the underlying shares on the firstanniversary of the grant date, and then with respect to the remaining shares, on a quarterly basis over the next three years, subject to continued service duringthat time.As of December 31, 2015, the Company has reserved 3,045,210 shares of common stock for future issuance upon exercise of all outstanding stockoptions granted or to be granted under the 2013 Equity Plan, which excludes the 60,000 shares underlying the stock option discussed above that was issuedin April 2015.The weighted-average grant date fair values of the stock options granted was $22.56, $9.67, and $6.00 per underlying share for the years endedDecember 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, approximately $38,304,000 of total unrecognized share-based compensationexpense related to non-vested stock options remains and is expected to be recognized over a weighted-average period of approximately 3.4 years. During theyear ended December 31, 2015, stock options to purchase 51,814 shares of common stock, were exercised with an intrinsic value of $928,000. No stockoption exercises occurred during the years ended December 31, 2014 and 2013.F - 14La Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsThird Party Share-Based Compensation ExpenseThe Company initially estimates the fair value of stock options and warrants issued to non-employees, other than non-employee directors, on thegrant date using the Black-Scholes model. Thereafter, the Company re-measures the fair value using the Black-Scholes model as of each balance sheet date asthe stock options and warrants vest.In December 2014, the Company granted warrants to purchase 51,000 shares of common stock to two outside third parties at an exercise price equalto the fair market value of the stock on the date of each grant. One grant will vest 25% on each anniversary date over four years. The other grant vests 100%on the one-year anniversary of the grant. The Company recognized compensation expense for these warrant grants of approximately $1,086,000 and $63,000for the years ended December 31, 2015 and 2014, respectively.In February 2015, the Company granted a stock option to purchase 60,000 shares of common stock to a consultant at an exercise price equal to thefair market value of the Company's common stock on the grant date. This grant was made from the 2013 Equity Plan. The stock option vested with respect to25% of the underlying shares on the grant date with the remainder to vest quarterly over three years. The Company recognized third-party compensationexpense for this stock option grant of approximately $362,000 for the year ended December 31, 2015. In July 2015, this consultant became an employee ofthe Company.In August and November 2015, the Company granted stock options to purchase 50,000 shares of common stock to two consultants at exercise pricesequal to the fair market value of the Company's common stock on the grant dates. These grants were made from the 2013 Equity Plan. The vesting of thesestock options are contingent on the achievement of a performance milestone by the end of 2016, at which time any unvested shares underlying the optionswill be canceled. The Company recognized compensation expense for these stock option grants of approximately $72,000 for the year ended December 31,2015.Restricted Stock AwardsRestricted stock awards (RSAs) are grants that entitle the holder to acquire shares of common stock for no cash consideration or at a fixed price,which is typically nominal. The Company accounts for RSAs as issued and outstanding common stock, even though: (a) shares covered by an RSA cannot besold, pledged, or otherwise disposed of until the award vests; and (b) any unvested shares may be reacquired by the Company for the original purchase pricefollowing the awardee's termination of service. The valuation of RSAs is based on the fair market value of the underlying shares on the grant date.In September 2013, the Company issued RSAs consisting of approximately 1,327,048 shares to the Company's Chief Executive Officer (CEO),79,622 shares to a director and an aggregate of 336,185 shares to three non-officer employees. The grants to the CEO, director and one of the employees werefor the replacement of canceled stock options and restricted stock units granted in April 2012, which was done in order to complete the capital restructuringthat took place in September 2013. These RSAs were granted outside of the 2013 Equity Plan, but are governed in all respects by the 2013 Equity Plan.These RSAs were granted with a combination of performance-based and time-based vesting components. As of December 31, 2015, all performance-basedvesting conditions had been satisfied, but the time-based service requirements, which provided for vesting in 2016, subject to continuous service through thevesting and delivery date, had not yet been satisfied. In July 2015, the vesting conditions for 1,042,680 shares of unvested and outstanding RSA’s awarded tothe CEO were amended to provide that vesting and delivery of the shares shall be deferred until March 15, 2017, subject to the CEO's continued service withthe Company through such date.On January 25, 2014, the Company granted RSAs representing 2,976 shares of common stock with a grant date fair market value of $25,000 to aconsultant for services. The RSAs vested immediately and were issued from the 2013 Equity Plan.On March 31, 2014, RSAs representing 39,811 shares of common stock were canceled upon forfeiture. The remaining unrecognized share-basedcompensation expense for the canceled RSAs was expensed during the three months ended March 31, 2014. In addition, RSAs representing 7,318 shares ofcommon stock were canceled in exchange for the payment of employee income taxes during the three months ended September 30, 2014.In August 2015, the Company issued a fully vested RSA representing the right to acquire 4,000 shares of common stock with a grant date fair valueof approximately $92,000.F - 15La Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsThe Company’s RSA activity for the years ended December 31, 2015, 2014 and 2013 was comprised of the following: Number of Shares Weighted-AverageGrant Date FairMarket ValueUnvested at December 31, 2012— —Granted1,782,853 $11.65Vested(36,000) $4.00Unvested at December 31, 20131,746,853 $11.80Granted2,976 $8.40Vested(423,693) $9.18Forfeited(47,129) $4.41Unvested at December 31, 20141,279,007 $12.86Granted4,000 $23.12Vested(210,108) $12.41Unvested at December 31, 20151,072,899 $13.00As of December 31, 2015, approximately $30,000 of total unrecognized share-based compensation expense for research and development activitiesrelated to RSAs remains and is expected to be recognized over a weighted-average period of approximately 0.1 years. As of December 31, 2015,approximately $2,570,000 of total unrecognized share-based compensation expense for general and administrative activities related to RSAs remains and isexpected to be recognized over a weighted-average period of approximately 1.2 years.Stock Option ValuationThe fair value of each stock option award is estimated on the grant date using a Black-Scholes option pricing model (Black-Scholes model), whichuses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s common stock. In determining theexpected life of employee stock options, the Company uses the “simplified” method. The expected life assumptions for non-employees were based upon thecontractual term of the stock options. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the stockoptions in effect at the time of the grants. The dividend yield assumption is based on the expectation of no future dividend payments by the Company.The Company estimated the fair value of each stock option grant on the grant date using the Black-Scholes model with the following weighted-average assumptions: Year ended December 31, 2015 2014 2013Volatility149% 186% 213%Expected life (years)5.28 years 6.74 years 10.00 yearsRisk-free interest rate1.5% 2.1% 2.8%Dividend yield— — —Share-Based Compensation ExpenseShare-based compensation expense recognized in the consolidated statements of operations and comprehensive loss for the years endedDecember 31, 2015, 2014 and 2013, is based on awards ultimately expected to vest.F - 16La Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsTotal share-based compensation expense related to all share-based awards the years ended December 31, 2015, 2014 and 2013 was comprised of thefollowing (in thousands): Year Ended December 31, 2015 2014 2013Research and development: Stock options$2,428 $258 $898 Restricted stock1,600 1,009 94 Warrants56 2 —Research and development share-based compensation expense4,0841,269992General and administrative: Stock options3,693 894 6,865 Restricted stock4,265 6,856 4,516 Warrants1,030 61 —General and administrative share-based compensation expense8,9887,81111,381Total share-based compensation expense included in expenses$13,072$9,080$12,3737. Defined Contribution PlanThe Company has a defined contribution plan (401k Plan) covering substantially all of the Company's employees. Company contributions to theplan are discretionary. The 401k Plan was established to provide retirement benefits for employees, and it is employee funded up to the elective annualdeferral limits.Effective January 1, 2015, the 401K Plan was amended. As a result, all employees are eligible to participate with no minimum service requirement,the 401K Plan is no longer subject to the "safe harbor" provisions of IRS Notice 98-52 and the Company made matching contributions of $176,000 for theyear December 31, 2015.Prior to January 1, 2015, the 401(k) Plan was available for all employees who had completed one year of service with the Company. Followingguidance in IRS Notice 98-52 related to the “safe harbor” 401k Plan method, non-highly compensated employees received a non-elective contribution fromthe Company equal to 3% of their annual salaries, as defined in the Code. Such contributions vested immediately and were paid annually following each yearend. These “safe harbor” contributions by the Company were $28,000 and $6,000 for the years ended December 31, 2014 and 2013, respectively.8. Income TaxesThe FASB Topic on Income Taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition andmeasurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not tobe sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of beingsustained. There were no unrecognized tax benefits as of the date of adoption or as of December 31, 2015.The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrualfor interest or penalties on the Company’s balance sheets at December 31, 2015 or December 31, 2014, and has not recognized interest and/or penalties in thestatements of operations for the years ended December 31, 2015 and 2014.The Company is subject to taxation in the U.S. and various state jurisdictions. The Company’s tax years since inception and forward are subject toexamination by the U.S. and California tax authorities due to the carry forward of unutilized net operating losses and research and development credits.The Company has established a valuation allowance against its federal and state deferred tax assets due to the uncertainty surrounding therealization of such assets as evidenced by the cumulative losses from operations through December 31, 2015. Management periodically evaluates therecoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred assets are realizable, the valuationallowance will be reduced accordingly and recorded as a tax benefit.F - 17La Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsThe Company has not completed a formal Section 382/383 analysis regarding the composition and limitation of net operating loss and research anddevelopment credit carryforwards. The Company does not presently plan to complete a formal Section 382/383 analysis; and until this analysis has beencompleted, the Company has removed the deferred tax assets for net operating losses and research and development credits generated through 2015 from itsdeferred tax asset schedule and has recorded a corresponding increase to its valuation allowance.As of December 31, 2015, the Company has estimated federal and California income tax net operating loss carryforwards of approximately$391,216,000 and $298,078,000, respectively. The difference between the federal and California tax loss carryforwards is primarily attributable to thecapitalization of research and development expenses for California income tax purposes. In addition, the Company has estimated federal and Californiaresearch and development tax credit carryforwards of approximately $17,571,000 and $10,765,000, respectively. The federal net operating loss, research taxcredit carryforwards and California net operating loss carryforwards will begin to expire in 2016, if not utilized. California research and development creditcarryforwards will carry forward indefinitely until utilized. The Company believes that, in May 2010 and February 2009, it experienced ownership changes attimes when its enterprise value was minimal. As a result of these ownership changes and the low enterprise values at such times, the Company’s federal andCalifornia net operating loss carryforwards and federal research and development credit carryforwards as of December 31, 2015 will likely be subject toannual limitations under IRC Section 382/383 and, more likely than not, will expire unused.Significant components of the Company’s deferred tax assets as of December 31, 2015, 2014 and 2013 are listed below (in thousands): December 31, 2015 2014 2013Deferred tax assets: Capitalized research and development and other$33,894 $31,045 $28,283Valuation allowance for deferred tax assets(33,894) (31,045) (28,283)Net deferred taxes$— $— $—Income taxes computed by applying the U.S. federal statutory rates to income from continuing operations before income taxes are reconciled to theprovision for income taxes set forth in the statement of operations as follows (in thousands): December 31, 2015 2014 2013Income tax benefit at statutory federal rate$(14,250) $(7,256) $(6,098)Research and development credits1,128 991 126Expired tax attributes31 (60) —Change in valuation allowance12,042 6,322 5,972Other1,049 3 —Provision for income taxes$— $— $—9. Commitments and ContingenciesLeasesIn January 2015, the Company entered into a 25-month lease agreement for 4,047 square feet of lab space. The lease term is from March 2015through March 2017, and the Company's total remaining lease payments through the end of the lease will be approximately $57,000.In February 2015, the Company entered into a 32-month sublease agreement, as a sublessee, for 18,599 square feet of office space to be used as theCompany's corporate headquarters. The lease term is through October 2017, and the Company's total remaining lease payments through the end of the leasewill be approximately $1,017,000. The Company also leases a total of 3,713 square feet of office space with a lease term through March 2018, and totalremaining lease payments through the end of the lease are approximately $317,000.F - 18La Jolla Pharmaceutical CompanyNotes to Consolidated Financial StatementsAnnual future minimum payments under operating leases as of December 31, 2015 were as follows (in thousands): OperatingLeases SubleaseIncome Net OperatingLeases2016$729 $(68) $6612017626 (74) 552201836 (19) 17Total minimum lease payments$1,391 $(161) $1,230Rent expense was $699,000, $176,000 and $84,000 for the years ended December 31, 2015, 2014 and 2013, respectively.Licensing AgreementsIn the normal course of business, the Company enters into licensing agreements under which the Company commits to certain annual maintenancepayments. Annual future minimum licensing payments under the Company's agreements as of December 31, 2015 are as follows (in thousands): MinimumPayments2016$75201775201885201923202023Thereafter85Total minimum annual maintenance fee payments$36610. Quarterly Financial Information (unaudited)The following is a summary of the quarterly results of operations for the years ended December 31, 2015 and 2014 (in thousands, except per shareamounts): FirstQuarter SecondQuarter ThirdQuarter FourthQuarter2015 Total revenue$— $— $647 $410Loss from operations$(8,966) $(10,658) $(10,487) $(11,858)Net loss$(8,955) $(10,650) $(10,474) $(11,833)Basic and diluted net loss per share$(0.59) $(0.70) $(0.70) $(0.69)Shares used in computing basic and diluted net loss per share15,242 15,251 14,899 17,2002014 Total revenue$— $— $— $—Loss from operations$(5,130) $(4,286) $(5,061) $(6,863)Net loss$(5,128) $(4,284) $(5,052) $(6,849)Basic and diluted net loss per share$(0.93) $(0.53) $(0.37) $(0.45)Shares used in computing basic and diluted net loss per share5,535 8,122 13,646 15,22611. Subsequent EventsIn January 2016, the Company entered into a 20-month lease agreement, as a sublessee, for 24,105 square feet of lab space. The lease term is fromJanuary 2016 through August 2017, and the total lease payments through the end of the lease will be approximately $726,000.F - 19February 3, 2015Lakhmir Chawla, MDRE: Offer of EmploymentLa Jolla Pharmaceutical Company (the “Company”) is pleased to offer you the full-time position of Chief Medical Officer. Youranticipated starting date of full-time employment (“Employment Start Date”) will be tentatively July 1, 2015; during the interim period,it is expected that you will continue to serve as a consultant to the Company on separate terms previously established. This offer andyour employment relationship will be subject to the terms and conditions of this letter.You will be expected to devote your full business time and your best professional efforts, judgment, knowledge and skill exclusively tothe performance of your duties and responsibilities for the Company and its affiliates, and to abide by all Company policies and codesof conduct, as in effect from time to time. You will report to the Chief Executive Offer and be expected to perform the duties of yourposition and such other duties as may be assigned to you from time to time.If you decide to join us, your initial annual base salary will be $380,000, less applicable withholdings and deductions, paid inaccordance with the Company’s normal payroll practices (“Base Salary”). Thereafter, the Company’s Board of Directors will consideryou for annual increases in base salary in accordance with Company policy and subject to review and approval. Additionally, you willbe eligible for an annual bonus, in a target amount equal to 35% of your annual base salary, subject to achievement of individual andCompany goals established annually (the “Target Bonus”). Annual bonus payouts will be pro-rated for your first year of service andpayment will be conditioned upon your continued employment with the Company through the date of payment; you will not beeligible to bonus payments for completed fiscal years if your service terminates prior to the date of payment.The Company recognizes the importance of you maintaining your clinical skills as a physician. Accordingly, the Company willsupport you in conducting clinical work, and you will be permitted to practice medicine in the fields of internal medicine, critical careand/or nephrology for up to 8 weeks annually, provided that such activities shall not substantively interfere with your ability to performyour duties as an officer and employee of the Company. The 8-week time period will be separate and independent from your personalor any other leave you may receive as part of your benefits package.Upon your commencement of full-time employment, the Company agrees to reimburse you up to $22,500 for the cost of movingexpenses related to your relocation to California. In addition, the Company will provide up to six months of rental reimbursement toassist with your relocation at a total amount not to exceed $[5,000] monthly.Please understand that your offer of employment is contingent upon the satisfactory outcome of a personal background check, which,depending upon your position and department, may include professional references, verification of previous employment andeducation, criminal background check, drug screening, a department motor vehicle (DMV) check and/or a consumer credit check.As an employee of the Company, you will eligible to continue vesting that certain stock award previously granted by the Companyrepresenting the right to purchase up to 60,000 shares of Company common stock (the “Option”). Accordingly, the Option willcontinue to vest during your employment, subject to your continued service during this time.During your employment, you will be eligible to participate in any and all employee benefit plans made available by the Companyfrom time to time to its employees generally, subject to plan terms and generally applicable Company policies. In addition to holidaysobserved by the Company, you will be eligible for vacation in accordance with the policies of the Company, as in effect from time totime. The Company reserves the right to change or eliminate its benefits on a prospective basis at any timeIf you accept our offer, your employment with the Company will be “at-will.” This means your employment is not for any specificperiod of time and can be terminated by you at any time for any reason. Likewise, the Company may terminate the employmentrelationship at any time, with or without cause or advance notice. In addition, the Company reserves the right to modify your position,duties or reporting relationship to meet business needs, and to use its managerial discretion in deciding on appropriate discipline whenit deems circumstances so warrant.If, within two years from the Employment Start Date, your employment is terminated by the Company without “Cause,” or by you for“Good Reason,” then you shall be entitled to receive the “Severance Payments” (defined below), subject to your execution anddelivery of a fully effective and irrevocable Release and Waiver in the form attached hereto as Exhibit A (which shall be deliveredwithin 45 days following termination of your employment). For purposes of this agreement, the Severance Payments shall mean thesum of: (i) a series of payments over a six-month period (payable on the Company’s normal payroll dates) equal in the aggregate to thesum of: (A) six months of the Base Salary then in effect, and (B) one-half of the then-applicable Target Bonus, in each case lessrequired deductions and withholdings; (ii) accelerated time-based vesting of shares subject to all stock awards issued by the Company,for the number of shares which would have vested accordingly had you continued employment with the Company for a period of sixmonths after termination; and (iii) to the extent permissible under applicable law, reimbursement for or continuation of payment by theCompany of its portion of the health insurance benefits provided to you immediately prior to termination pursuant to the terms of theConsolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law for a period of up to 6months from the date of termination.If, within two years from the Employment Start Date, your employment is terminated by the Company without Cause, or by you forGood Reason, and such termination occurs within 12 months following a Change in Control, then you shall instead be entitled toreceive the “Changeof Control Severance Payments” (defined below), subject to your execution and delivery of a fully effective and irrevocable Releaseand Waiver in the form attached hereto as Exhibit A (which shall be delivered within 45 days following termination of youremployment). For purposes of this agreement, the Change of Control Severance Payments shall mean the sum of: (i) a lump sumpayment equal to 100% of the Base Salary then in effect, less required deductions and withholdings; (ii) the greater of your TargetBonus then in effect, less required deductions and withholdings, or the amount of the actual bonus payout paid in the year precedingthe year in which termination occurs, less required deductions and withholdings; (iii) full accelerated time-based vesting of sharessubject to all stock awards issued to you by the Company; and (iv) to the extent permissible under applicable law and provided thatyou timely elect continued coverage under COBRA, the COBRA benefit for a period of up to 12 months. For the avoidance of doubt,in the event of a Change of Control, you shall be eligible to receive either the Severance Payments or the Change of Control SeverancePayments, but not both, and in each case, subject to the conditions set forth herein.For purposes of this agreement, “Cause” means that, in the reasonable determination of the Company, you have:(i)been indicted for or convicted of or pleaded guilty or no contest to any felony or crime involving dishonesty that is likely toinflict or has inflicted demonstrable and material injury on the business of the Company;(ii)participated in any fraud against the Company;(iii)willfully and materially breached a Company policy;(iv)intentionally damaged any property of the Company thereby causing demonstrable and material injury to the business of theCompany; or(v)engaged in conduct that, in the reasonable determination of the Company, demonstrates gross unfitness to serve.For purposes of this Agreement, “Change in Control” means the occurrence of any of the following: the consummation of anOwnership Change Event or a series of related Ownership Change Events (collectively, a “Transaction”) in which the stockholders ofthe Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportionsas their ownership of shares of the Company’s voting stock immediately before the Transaction, direct or indirect beneficial ownershipof more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or suchsurviving entity immediately outstanding after the Transaction, or, in the case of an applicable Ownership Change Event the entity towhich the assets of the Company were transferred (the “Transferee”), as the case may be. For purposes of the preceding sentence,indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one ormore corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or throughone or more subsidiary corporations or other business entities. The Board shall have the right to determinewhether multiple sales or exchanges of the voting securities in the Company or multiple Ownership Change Events are related, and itsdetermination shall be final, binding and conclusive. “Ownership Change Event” means the consummation of any of the followingwith respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders ofthe Company of more than 50% of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; or(iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company.For purposes of this agreement, “Good Reason” shall mean the occurrence of any of the following events without your consent:(i)a material reduction (which shall mean 20% or more) by the Company of the Base Salary as initially set forth herein or asthe same may be increased from time to time;(ii)a material reduction by the Company of your management responsibilities;(iii)a material breach of this Agreement by the Company;provided however, that your resignation due to any of the foregoing conditions shall only be deemed for Good Reason if: (i) you givethe Company written notice of the intent to terminate for Good Reason within 90 days following the first occurrence of the condition(s)that you believe constitutes Good Reason, which notice shall describe such condition(s); (ii) the Company fails to remedy, ifremediable, such condition(s) within 30 days following receipt of the written notice (the “Cure Period”) of such condition(s) from you;and (iii) you actually resign your employment within the first 30 days after expiration of the Cure Period.Notwithstanding anything to the contrary set forth herein, any payments and benefits provided under this Agreement that constitute thepayment of “deferred compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the“Code”) and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”) that arepayable upon termination of employment shall not commence in connection with your termination of employment unless and until youhave also incurred a “separation from service” (as such term is defined in Treasury Regulation Section 1.409A-1(h) (“Separation FromService”)).It is intended that each installment payment provided for in this Agreement is a separate “payment” for purposes of TreasuryRegulation Section 1.409A-2(b)(2)(i). For the avoidance of doubt, it is intended that payments of the severance benefits set forth herein(consisting of either the Severance Payments or the Change of Control Severance Payments, and collectively referred to as the“Severance Benefits”) satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided underTreasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9). However, if the Company (or, if applicable, thesuccessor entity thereto) determines that the Severance Benefits constitute “deferred compensation” under Section 409A that is notexempt from Section 409A and you are, at the time of your Separation From Service, a “specified employee” of the Company or anysuccessor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary toavoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Severance Benefit payments shallbe delayed until the earlier to occur of: (i) the date that is six months and one day after your Separation From Service or (ii) the date ofyour death (such applicable date, the “Specified Employee Initial Payment Date”), and the Company (or the successor entity thereto, asapplicable) shall (A) pay to you a lump sum amount equal to the sum of the Severance Benefit payments that you would otherwisehave received through the Specified Employee Initial Payment Date if the commencement of the payment of the Severance Benefitshad not been so delayed pursuant to this Section and (B) commence paying the balance of the Severance Benefits in accordance withthe applicable payment schedules set forth in this Agreement. Except to the extent that payments may be delayed until the Specified Employee Initial Payment Date pursuant to the precedingparagraph, on the first regular payroll pay day following the effective date of the Release and Waiver, the Company will pay you theSeverance Benefits you would otherwise have received under the Agreement on or prior to such date but for the delay in paymentrelated to the effectiveness of the Release and Waiver, with the balance of the Severance Benefits being paid as originally scheduled.All amounts payable under the Agreement will be subject to standard payroll taxes and deductions.This offer is contingent upon the following:•You signing and abiding by the Company’s Proprietary Information, Nondisclosure, and Assignment Agreement (seeenclosed);•You signing the Company’s Mutual Agreement to Arbitrate (see enclosed);•Your compliance with federal I-9 requirements (although you have three days to complete this process, please provide suitabledocumentation on your first day of work verifying your identity and legal authorization to work in the United States).This letter, including the enclosed Proprietary Information, Nondisclosure, and Assignment Agreement and Mutual Agreement toArbitrate, constitutes the entire agreement between you and the Company relating to this subject matter, and supersedes all prior orcontemporaneous agreements, understandings, negotiations and representations, whether oral or written, express or implied, on thissubject. This letter may not be modified or amended, and no breach is to be regarded as waived, unless agreed to in a specific, writtenagreement signed by you and the Company. This letter shall be governed and construed in accordance with the laws of the State ofCalifornia, without regard to the conflict of laws principles thereof.To indicate your acceptance of the Company’s offer, subject to the terms and conditions set forth in this letter, please sign and date thisletter in the space provided below and return it to our offices at 4660 La Jolla Village Drive, Suite 1070, San Diego, CA 92122 or byemail to srowe@ljpc.com. If you do accept as provided, this letter will take effect as a binding agreement between you and theCompany on the later of: (a) the date it is received, provided that you also sign, date and return the Company’s Proprietary Information,Nondisclosure, and Assignment Agreement and Mutual Agreement to Arbitrate; or (b) the Employment Start Date. Acceptance of thisletter prior to the Employment Start Date shall not create any binding rights or obligations(with respect to either party) prior to the Employment Start Date, and such rights and obligations shall be created at that time only ifneither party has delivered written notice of the rejection of this letter agreement prior to that time (which notice may be delivered atany time prior to the Employment Start Date and for any reason).We hope your employment with the Company will prove mutually rewarding, and we look forward to having you join us. If you haveany questions, please feel free to call me at (858) 256-7910.Sincerely,/s/ George F. Tidmarsh, MD, PhDGeorge F. Tidmarsh, MD, PhD Chief Executive OfficerACCEPTED AND AGREED:Dated: February 21, 2015 /s/ Lakhmir Chawla, M.D.Lakhmir Chawla, M.D.EXHIBIT ARELEASE AND WAIVER OF CLAIMSTO BE SIGNED AT TIME OF TERMINATION WITHOUT CAUSE ORRESIGNATION FOR GOOD REASONIn consideration of the severance payments and other post-employment benefits set forth in that certain employment offer letter,dated _____, to which this form is attached (the “Employment Agreement”), I, Mink Chawla, M.D. hereby furnish La JollaPharmaceutical Company (the “Company”), with the following release and waiver (the “Release and Waiver”).In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, Ihereby generally and completely release the Company and its directors, officers, employees, stockholders, partners, agents, attorneys,predecessors, successors, parent and subsidiary entities, insurers, Affiliates, and assigns from any and all claims, liabilities andobligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring priorto my signing this Release and Waiver. This general release includes, but is not limited to: (1) all claims arising out of or in any wayrelated to my employment with the Company or the termination of that employment; (2) all claims related to my compensation orbenefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements,severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach ofcontract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but notlimited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, andlocal statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys’ fees, or other claimsarising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal AgeDiscrimination in Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment and Housing Act (asamended).I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows:“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW ORSUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWNBY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similareffect with respect to any claims I may have against the Company.I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release andWaiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value towhich I was already entitled as an executive of the Company. If I am 40 years of age or older upon execution of this Release andWaiver, I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the releaseand waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) Ishould consult with an attorney prior to executing this Release and Waiver; (c) I have twenty-one (21) days in which to consider thisRelease and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) daysfollowing the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waivershall not be effective until the eighth day after I execute this Release and Waiver and the revocation period has expired (the “EffectiveDate”).I understand that among other things, I must not use or disclose any confidential or proprietary information of the Company andI must immediately return all Company property and documents (including all embodiments of proprietary information) and all copiesthereof in my possession or control.This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between theCompany and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that isnot expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorizedofficer of the Company. Date: By: Mink Chawla, M.D. January 1, 2016Jennifer Anne Carverc/o La Jolla Pharmaceutical Company10182 Telesis Court, 6th floorSan Diego, CA 92122Re: Revised Offer of EmploymentDear Jennifer,La Jolla Pharmaceutical Company (the “Company”) is pleased to offer you the full-time position of Senior Vice President ofOperations, effective January 1, 2016.Your initial annual base salary will be $300,000, less applicable withholdings and deductions, paid in accordance with the Company’snormal payroll practices. Your annual base salary will be considered for annual increases in accordance with Company policy andsubject to review and approval by the Chief Executive Officer. Additionally, you will be eligible for an annual bonus, in a targetamount equal to 30% of your annual base salary, subject to achievement of individual and Company goals established annually.During your employment, you will be eligible to participate in any and all employee benefit plans made available by the Companyfrom time to time to its executives generally, subject to plan terms and generally applicable Company policies. In addition to holidaysobserved by the Company, you will be eligible to earn and use vacation in accordance with the policies of the Company, as in effectfrom time to time. The Company reserves the right to change or eliminate its benefits on a prospective basis at any time.You will be expected to devote your full business time and your best professional efforts, judgment, knowledge and skill exclusively tothe performance of your duties and responsibilities for the Company and its affiliates, and to abide by all Company policies and codesof conduct, as in effect from time to time. As Senior Vice President of Operations, you will be expected to perform the duties of yourposition and such other duties as may be assigned to you from time to time. You will be expected to be at the company offices at least8 working days per month with the remainder of your time spent working for the Company off-site. The Company will pay airfare andlodging expenses for your travel and time while in San Diego.If you accept our offer, your employment with Company will be “at-will.” This means your employment is not for any specific periodof time and can be terminated by you at any time for any reason. Likewise, the Company may terminate the employment relationship atany time, with or without cause or advance notice. In addition, the Company reserves the right to modify your position, duties orreporting relationship to meet business needs, and to use its managerial discretion in deciding on appropriate discipline when it deemscircumstances so warrant. Any change to the at-will employment relationship must be by a specific, written agreement signed by youand the Company’s Chief Executive Officer.This letter, including the previously executed Proprietary Information, Nondisclosure, and Assignment Agreement and MutualAgreement to Arbitrate, constitutes the entire agreement between you and the Company relating to this subject matter, and supersedesall prior or contemporaneous agreements, understandings, negotiations and representations, whether oral or written, express or implied,on this subject (including your prior offer letter, dated January 17, 2014). This letter may not be modified or amended, and no breach isto be regarded as waived, unless agreed to in a specific, written agreement signed by you and the Company’s Chief Executive Officer.This letter shall be governed and construed in accordance with the laws of the State of California, without regard to the conflict of lawsprinciples thereof.Sincerely,/s/ George F. Tidmarsh George F. Tidmarsh M.D., Ph.D.President and Chief Executive Officer* * *Accepted and agreed:Dated January 1, 2016 /s/ Jennifer Carver Jennifer CarverExhibit 21.1Subsidiaries of La Jolla Pharmaceutical CompanyName of Subsidiary JurisdictionLa Jolla Pharmaceutical I B.V. NetherlandsLa Jolla Pharmaceutical II B.V. NetherlandsLa Jolla Pharmaceutical III B.V. NetherlandsExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statements (No. 333-206855) on Form S-3 and (No. 333-207212) on Form S-8 of La JollaPharmaceutical Company of our report dated February 25, 2016, relating to our audits of the consolidated financial statements and internal control overfinancial reporting, which appear in this Annual Report onForm 10-K of La Jolla Pharmaceutical Company for the year ended December 31, 2015./s/ SQUAR MILNER LLP(formerly Squar, Milner, Peterson, Miranda & Williamson, LLP)San Diego CaliforniaFebruary 25, 2016EXHIBIT 31.1SECTION 302 CERTIFICATIONI, George F. Tidmarsh, certify that:1.I have reviewed this Annual Report on Form 10-K of La Jolla Pharmaceutical Company;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 make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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 our supervision,to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by 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 under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe 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; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date:February 25, 2016/s/ George F. Tidmarsh George F. Tidmarsh, M.D., Ph.D. President, Chief Executive Officer and SecretaryEXHIBIT 31.2SECTION 302 CERTIFICATIONI, Dennis M. Mulroy, certify that:1.I have reviewed this Annual Report on Form 10-K of La Jolla Pharmaceutical Company;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 make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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 our supervision,to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by 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 under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe 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; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date:February 25, 2016/s/ Dennis M. Mulroy Dennis M. Mulroy Chief Financial Officer (Principal Financial and Accounting Officer)EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Each of the undersigned, in his capacity as an officer of La Jolla Pharmaceutical Company (the "Registrant"), hereby certifies, for purposes of 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:•the Annual Report of the Registrant on Form 10-K for the year ended December 31, 2015 (the “Report), which accompanies this certification, fullycomplies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and•the information contained in the Report fairly presents, in all material respects, the financial condition of the Registrant at the end of such quarterand the results of operations of the Registrant for such quarter. Date:February 25, 2016/s/ George F. Tidmarsh George F. Tidmarsh, M.D., Ph.D. President, Chief Executive Officer and Secretary /s/ Dennis M. Mulroy Dennis M. Mulroy Chief Financial Officer (Principal Financial and Accounting Officer)Note: A signed original of this written statement required by Section 906 has been provided to La Jolla Pharmaceutical Company and will be retained by LaJolla Pharmaceutical Company and furnished to the Securities and Exchange Commission or its staff upon request.

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