Leap Therapeutics, Inc.
Annual Report 2018

Plain-text annual report

Use these links to rapidly review the document TABLE OF CONTENTS PART IV INDEX TO CONSOLIDATED FINANCIAL STATEMENTSTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KCommission file number 001-37990LEAP THERAPEUTICS, INC.(Exact name of registrant as specified in its charter)DelawareState or other jurisdiction ofincorporation or organization 27-4412575(I.R.S. EmployerIdentification No.)47 Thorndike Street, Suite B1-1Cambridge, MA(Address of principal executive offices) 02141(Zip Code)Registrant's telephone number, including area code (617) 714-0360 Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on whichregisteredCommon Stock, par value $0.001 per share Nasdaq Global Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes ý No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes ý No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during thepreceding 12 months (or for such shorter period that the registrant was required to submit and files). ý Yes o No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitiveproxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "largeaccelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.: If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, computed based on the closing price for such stock as reported on the Nasdaq GlobalMarket on June 29, 2018, the last business day of the registrant's most recently completed second quarter, was approximately: $73.4 million.(Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018Oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Large accelerated filer oNon-accelerated filer ý Accelerated filer o Smaller reporting company ýEmerging growth company ý As of March 26, 2019 there were 22,260,301 outstanding shares of the registrant's common stock, par value $0.001 per share which is the only outstanding capital stock of the registrant.DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement for its 2019 Annual Meeting of Stockholders, which is expected to be filed with the Securities and Exchange Commission not later than 120 daysafter the end of the registrant's fiscal year ended December 31, 2018, are incorporated by reference into Part III, Item 10-14 of this Annual Report on Form 10-K. With the exception of the portions of theregistrant's definitive proxy statement for its 2019 Annual Meeting of Stockholders that are expressly incorporated by reference into this Annual Report on Form 10-K, such proxy statement shall not be deemedfiled as part of this Annual Report on Form 10-K. Table of Contents TABLE OF CONTENTS 1 PageSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA INTRODUCTORY COMMENTPart I Item 1. Business 4Item 1A. Risk Factors 33Item 1B. Unresolved Staff Comments 67Item 2. Properties 67Item 3. Legal Proceedings 67Item 4. Mine Safety Disclosures 68Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 69Item 6. Selected Financial Data 71Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 71Item 7A. Quantitative and Qualitative Disclosures About Market Risks 84Item 8. Financial Statements and Supplementary Data 84Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 84Item 9A. Controls and Procedures 84Item 9B. Other Information 85Part III Item 10. Directors, Executive Officers and Corporate Governance 86Item 11. Executive Compensation 86Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 86Item 13. Certain Relationships and Related Transactions and Director Independence 86Item 14. Principal Accounting Fees and Services 86Part IV Item 15. Exhibits, Financial Statement Schedules 87Signatures Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, our operations and financial performance. Insome cases, you can identify forward-looking statements by terminology such as "anticipate," "believe," "estimate," "expect," "intend," "may," "plan,""predict," "project," "will" or the negative of such terms or other comparable terminology. Forward-looking statements appear in a number of placesthroughout this Annual Report and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning,among other things, our ability and plan to develop and commercialize DKN-01 and TRX518; status, timing and results of pre-clinical studies and clinicaltrials; the potential benefits of DKN-01 and TRX518; the timing of our development programs and seeking regulatory approval of DKN-01 and TRX518; ourability to obtain and maintain regulatory approval; our estimates of expenses and future revenues and profitability; our estimates regarding our capitalrequirements and our needs for additional financing; our estimates of the size of the potential markets for DKN-01 and TRX518; our ability to attractcollaborators with acceptable development, regulatory and commercial expertise; the benefits to be derived from any collaborations, license agreements, andother acquisition efforts, including those relating to the development and commercialization of DKN-01 and TRX518; sources of revenues and anticipatedrevenues, including contributions from any collaborations or license agreements for the development and commercialization of products; our ability to createan effective sales and marketing infrastructure if we elect to market and sell DKN-01 and TRX518 directly; the rate and degree of market acceptance of DKN-01 and TRX518; the timing and amount of reimbursement for DKN-01 and TRX518; the success of other competing therapies that may become available; themanufacturing capacity for DKN-01 and TRX518; our intellectual property position; our ability to maintain and protect our intellectual property rights; ourresults of operations, financial condition, liquidity, prospects, and growth and strategies; the industry in which we operate; and the trends that may affect theindustry or us. By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change,and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although webelieve that we have a reasonable basis for each forward-looking statement contained in this Annual Report, we caution you that forward-looking statementsare not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry inwhich we operate may differ materially from the forward-looking statements contained in this Annual Report. In addition, even if our results of operations,financial condition and liquidity, and events in the industry in which we operate are consistent with the forward-looking statements contained in this AnnualReport, they may not be predictive of results or developments in future periods. You should carefully read this Annual Report and the documents that wehave filed as exhibits to this Annual Report completely. You should refer to Item 1A. Risk Factors in this Annual Report for a discussion of important factors that may cause our actual results to differ materiallyfrom those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements inthis Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In lightof the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any otherperson that we will achieve our objectives and plans in any specified timeframe, or at all. Any forward-looking statements that we make in this Annual Reportspeaks only as of the date of such statement, and, except to the extent required by applicable law, we undertake no obligation to update such statements toreflect events or circumstances after the date of2Table of Contentsthis Annual Report or to reflect the occurrence of unanticipated events. You should, therefore, not rely on these forward-looking statements as representingour views as of any date subsequent to the date of this Annual Report. Comparisons of results for current and any prior periods are not intended to express anyfuture trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. DKN-01 and TRX518 are investigational drugs undergoing clinical development and have not been approved by the U.S. Food and Drug Administration(the "FDA"), nor been submitted to the FDA for approval. DKN-01 and TRX518 have not been, and may never be, approved by any regulatory agency ormarketed anywhere in the world. Statements contained in this Annual Report should not be deemed to be promotional. We obtained the industry, market and competitive position data in this Annual Report from our own internal estimates and research as well as fromindustry and general publications and research surveys and studies conducted by third parties. Industry publications and surveys generally state that theinformation contained therein has been obtained from sources believed to be reliable. We believe this data is accurate in all material respects as of the date ofthis Annual Report. INTRODUCTORY COMMENT References to Leap Throughout this Annual Report on Form 10-K, the "Company," "Leap," "Leap Therapeutics," "we," "us," and "our," except where the context requiresotherwise, refer to Leap Therapeutics, Inc. and its consolidated subsidiaries, and "our board of directors" refers to the board of directors of LeapTherapeutics, Inc.3Table of Contents PART I Item 1. BUSINESS Corporate Information We were incorporated in the state of Delaware as Dekkun Corporation on January 3, 2011 and changed our name to HealthCare Pharmaceuticals, Inc.effective May 29, 2014, and then to Leap Therapeutics, Inc. effective November 16, 2015. During 2015, HealthCare Pharmaceuticals Pty Ltd ("HCPAustralia") was formed and is our wholly owned subsidiary. On December 10, 2015, we entered into a merger agreement with GITR Inc. ("GITR"), an entity under common control, whereby a wholly ownedsubsidiary was merged with GITR and the surviving name of the wholly owned subsidiary was GITR Inc. On August 29, 2016, we entered into a definitive merger agreement with Macrocure Ltd. ("Macrocure"), a publicly held, clinical-stage biotechnologycompany based in Petach Tikva, Israel, and M-Co Merger Sub Ltd. ("Merger Sub"), a wholly owned subsidiary of the Company which provided for the mergerof Macrocure with and into Merger Sub, with Macrocure continuing after the merger as a wholly owned subsidiary of the Company. In connection with themerger, we applied to be listed on the Nasdaq Global Market. Nasdaq approved the listing, and trading in our common stock commencing on January 24,2017, under the trading symbol "LPTX." On February 1, 2017, Macrocure's name was changed to Leap Therapeutics Ltd. The mailing address of Leap's principal executive office is 47 Thorndike Street, Suite B1-1, Cambridge, MA 02141. Leap's telephone number is 617-714-0360. Leap's website address is www.leaptx.com (the information contained therein or linked thereto shall not be considered incorporated by reference in thisForm 10-K).Overview We are a biopharmaceutical company developing novel therapies designed to treat patients with cancer by inhibiting fundamental tumor-promotingpathways and by harnessing the immune system to attack cancer cells. Our strategy is to identify, acquire, and develop molecules that will rapidly translateinto high impact therapeutics that generate durable clinical benefit and enhanced patient outcomes. Our two clinical stage programs are:•DKN-01: A monoclonal antibody that inhibits Dickkopf-related protein 1, or DKK1. DKK1 is a protein that regulates the Wnt signalingpathways and enables tumor cells to proliferate and spread, as well as suppresses the immune system from attacking the tumor. When DKN-01binds to DKK1, an anti-tumor effect can be generated. DKN-01-based therapies have generated responses and clinical benefit in several patientpopulations. We are currently studying DKN-01 in multiple ongoing clinical trials in patients with esophagogastric cancer, hepatobiliarycancer, gynecologic cancers, or prostate cancer. •TRX518: A monoclonal antibody targeting the glucocorticoid-induced tumor necrosis factor-related receptor, or GITR. GITR is a receptorfound on the surface of a wide range of immune cells. GITR stimulation activates tumor fighting white blood cells and decreases the activity ofpotentially tumor-protective immunosuppressive cells. TRX518 has been specifically engineered to enhance the immune system's anti-tumorresponse by activating GITR signaling without causing the immune cells to be destroyed. We are conducting clinical trials of TRX518 inpatients with advanced solid tumors as a monotherapy and in combination with gemcitabine chemotherapy or with cancer immunotherapiesknown as PD-1 antagonists.4Table of Contents We intend to apply our extensive experience identifying and developing transformational products to aggressively develop these antibodies and build apipeline of programs that has the potential to change the practice of cancer medicine.Market Cancer is the general name for a group of more than 100 diseases in which cells grow and divide out of control. Over 14 million people in the UnitedStates have cancer. The National Cancer Institute, or NCI, estimated that approximately 1.7 million people developed cancer and that nearly 610,000 peopledied of cancer in 2018. While progress has been made from the War on Cancer to the Human Genome Project, and despite advances in early detection andnew cancer cell targeted treatments, cancer generally remains an incurable disease.Esophagogastric Cancer (EGC) Esophageal cancer, or EC, and gastric cancer, or GC, are malignancies of the digestive tract. The American Cancer Society, or ACS, estimates that thereare about 18,000 new patients diagnosed in the United States with EC and 28,000 new patients with GC each year. The World Cancer Research Fundestimates that there are over 450,000 EC patients and 950,000 GC patients diagnosed each year worldwide. EC patients have difficulty swallowing and oftenhave pain while swallowing. Substantial weight loss can result from reduced appetite, poor nutrition and having an active cancer. Pain may be severe, occuralmost daily, and be worsened by swallowing any form of food. The disruption of normal swallowing can lead to aspiration of food content, nausea, vomitingand an increased risk of pneumonia. The tumor itself may be irritable and bleed, which can either cause spitting up with blood or blood in the bowels.Compression of local structures in the esophagus occurs in advanced disease, leading to problems such as upper airway obstruction. Many people diagnosedwith EGC have late-stage disease, because people usually do not have significant symptoms until the tumor is fairly large. In advanced stages, the cancerfrequently spreads into the liver or lungs. EC and GC patients have few treatment options, and patients have a 5-year survival rate of 18.8% and 30.6%,respectively. The frequently-used therapies in patients who have not had many previous courses of treatment have low objective response rates, defined aspatients with a greater than 30% reduction in tumor volume as determined by the Response Evaluation Criteria in Solid Tumors v1.1, known as RECIST.Published data has demonstrated that paclitaxel monotherapy generated a response rate of 6.7% in second-line EC patients and 16% in second-line GCpatients. Studies have also demonstrated that PD-1 antibody monotherapy generated a response rate of 9% in GC patients who have tumors that are notmicrosatellite instability high.Gynecologic Cancers There are numerous forms of gynecologic cancers, but two of the most prevalent types are cancers of the uterus or ovaries. According to the NCI, there aremore than 61,000 patients diagnosed with uterine cancer and 22,000 patients diagnosed with ovarian cancer each year in the United States. There arecurrently very few treatment options for these patients, typically consisting of chemotherapy, local radiation therapy, and hormonal agents, and poortreatment outcomes. Patients with endometrioid cancers have a high frequency of mutations in a protein known as b-catenin, with alterations estimated atapproximiately 30% of cases according to The Cancer Genome Atlas. These b-catenin mutations are often driver mutations leading to rapid diseaseprogression and poor outcomes.Prostate Cancer Prostate cancer is one of the most common types of cancer in men. There are several types of prostate cancer, but the vast majority are adenocarcinomasthat arise from the gland cells that produce prostate fluid as part of the male reproductive system. According to the American Cancer Society,5Table of Contentsabout 175,000 cases are diagnosed each year in the United States. Treatment options include the surgical removal of the prostate, radiation, as well ashormonal agents; many of which can result in poor side effects, such as urinary incontinence and erectile dysfunction. Most prostate cancer tumorseventually become resistant to hormonal treatments. As this stage, which is referred to as metastatic castration-resistant prostate cancer, or mCRPC,chemotherapies, usually taxanes, offer the next line of treatment offering objective response rates of 30% or less. After progressing through taxanes, the nextline of agents are cabazitaxel or Radium-223, both of which are associated with significant toxicity. Androgen-receptor negative, non-neuroendocrine, ordouble negative, mCRPC is a particularly difficult-to-treat subtype that comes with a worsened prognosis. Research has shown that, in this double negativesubtype, DKK1 is specifically upregulated and patients with higher DKK1 levels have a loss of certain immune system cells that could target the cancer.Biliary Tract Cancer Biliary tract cancer is a cancer that starts in the bile duct, a thin tube about 4 to 5 inches long that reaches from the liver to the small intestine. The majorfunction of the bile duct is to move a fluid called bile from the liver and gallbladder to the small intestine, where it helps digest the fats in food. TheCholangiocarcinoma Foundation estimates that approximately 6,000 patients will be diagnosed with biliary tract cancer in the United States each year, withpublications estimating that nearly 200,000 patients are diagnosed worldwide each year. The majority of biliary tract cancer cases are diagnosed withadvanced stage disease with a 5-year survival rate of less than 10%. The standard treatment option for advanced patients is systemic chemotherapy andsupportive care. Published data demonstrated that gemcitabine and cisplatin combination chemotherapy in patients with advanced biliary tract cancergenerated a clinical benefit rate, representing patients with either an objective response or stable disease as determined by RECIST of 68.3% to 81.4%,median progression-free survival of 6 to 8 months, and median overall survival of 11.2 to 11.7 months.Hepatocellular Carcinoma Hepatocellullar carcinoma, or HCC, is the major form of liver cancer. The NCI estimates there will be approximately 40,000 cases of liver cancer in theU.S. this year with nearly 30,000 deaths. According to the American Cancer Society, more than 700,000 people are diagnosed with liver cancer each yearthroughout the world, accounting for more than 600,000 deaths each year. Few effective treatment options for HCC patients exist and multityrosine-kinaseinhibitors have a survival benefit of only 3 months. HCC has a high frequency of activated Wnt/b-catenin signaling alterations estimated at 11-37% per TheCancer Genome Atlas and are associated with poor outcomes.Cancer Therapies and New Targets Older, established cancer therapies, or chemotherapies, target rapidly dividing cells. While chemotherapies can attack and kill cancer cells, these drugsalso attack and destroy rapidly dividing non-cancer normal cells and, unfortunately, are associated with unwanted side effects. Even though outcomes canoften be improved by giving a cancer patient two or more chemotherapies in combination, physicians and patients desire new drugs with greater efficacy andfewer side effects. Recently, a revolution in the understanding of cancer biology has generated compelling new anti-cancer targets that are based onfundamental mechanisms used by cancer cells to grow, spread, and survive, which are:•cell signaling pathways that promote tumor growth, and •evading detection and avoiding destruction by the immune system.6Table of ContentsCancer Cell Signaling Cancer cells often hijack proteins that are involved in cell signaling pathways, the complex communication system that governs basic cellular functionsand activities, such as cell division, cell movement, cell responses to specific stimuli, and even cell death. By blocking signals that tell cancer cells to growand divide uncontrollably, to generate new blood vessels, a process referred to as angiogenesis, or to spread to other parts of the body, a process referred to asmetastasis, a new generation of cancer therapies is seeking to help stop cancer progression, which could lead to cancer cell death. By focusing on cellularsignaling pathways and molecules that are used by cancer cells, these targeted cancer therapies may be more effective than other types of treatment, includingchemotherapy, and less harmful to normal cells. Several small molecule and monoclonal antibodies that target cell signaling pathways have been approvedby the FDA as cancer therapies for specific patient populations.Cancer Immunotherapy The immune system has evolved a dynamic ability to identify and attack cells which pose a danger to the body. Often these dangerous cells are foreign,or non-self, cells, but a person's own cells can become a danger, such as in cancer. Ideally, the immune system identifies cancer cells as dangerous andremoves them before they can grow into tumors. However, cancer cells can evade or suppress the body's natural immune response by secreting anti-inflammatory molecules and by using receptors on the cell membrane of either immune system cells or cancer cells known as immune checkpoints. Recentlyapproved cancer therapies known as checkpoint inhibitors, such as nivolumab, pembrolizumab, atezolizumab, and avelumab, are designed to blockcheckpoint receptors, such as Programmed Cell Death protein-1, or PD-1, or its ligand, PD-L1, and prevent the cancer cell from evading the natural immuneresponse, thus enabling the immune system to mount an attack on the tumor. While there are several FDA-approved checkpoint inhibitors, there is aconsensus in the scientific and medical communities that there remains room for improvement in response rate and efficacy. In many cases, the lack ofefficacy has been attributed to an insufficient immune response.Our Approach Our approach to treating cancer patients seeks to enhance the effectiveness of approved chemotherapies and immune checkpoint inhibitors by:•altering cell signaling pathways that promote tumor growth and spreading; •stimulating the immune cells that could attack the tumor; and •inhibiting immune suppression that would prevent an attack on the tumor. Altering cell signaling. An important set of signaling pathways in cancer cells are known as the canonical and non-canonical Wnt pathways. DKK1serves as one of the inhibitors of the canonical Wnt signaling pathway and modulates the non-canonical Wnt signaling pathways. Changes in these Wntpathways can lead to the expression of several cancer-causing genes and factors associated with cell growth, angiogenesis, and metastasis. We believe that amonoclonal antibody that reduces free DKK1 could shift canonical and non-canonical signaling to healthy levels, thereby resulting in a direct anti-tumoreffect as well as a local anti-angiogenic effect in the diseased tissue. These mechanisms could enhance or complement the anti-tumor mechanisms used bychemotherapies or other therapies targeted at different cell signaling pathways.7 Table of Contents Stimulating anti-tumor immune cells. A potential way to enhance an immune response against a tumor is by activating tumor-attacking immune cellsdirectly through specific receptors, such as GITR, known as costimulatory receptors. Monoclonal antibodies that stimulate immune cells through thesecostimulatory receptors are referred to as agonist antibodies and are designed to induce or augment an immune response that may have been insufficient,suppressed, or non-existent. This strategy is expected to overcome mechanisms that would prevent these immune cells from attacking a tumor. Agonistantibodies that costimulate the immune system have the potential to be combined with chemotherapy or checkpoint inhibitors to generate a more robust anti-tumor immune response. Inhibiting immune suppression. The human immune system has the ability to recognize and protect its own cells and tissues. Certain kinds of whiteblood cells, such as T regulatory cells and myeloid-derived suppressor cells, serve to prevent other cells from attacking the body. In the case of cancer, thesecells may fail to recognize the danger posed by the tumor and suppress the activity of potentially tumor-fighting white blood cells. We believe that using amonoclonal antibody to signal through GITR could inhibit the immunosuppressive activities of T regulatory cells. In addition, cancer cells promote thesesuppressor cells by producing anti-inflammatory molecules, such as DKK1. We believe that monoclonal antibodies that reduce the levels of anti-inflammatory molecules, such as DKK1, in the tumor microenvironment could result in the inhibition of immune suppressor cells and create a pro-inflammatory environment to enhance the immune system activity against the tumor. By targeting novel pathways and immune cell types, our therapies are designed to combine with existing drugs and have the potential to significantlyincrease the survival and quality of life of cancer patients. The figure below illustrates the biology underlying our approach:8Table of ContentsOur Products, Clinical Programs and Pipeline The following table summarizes our current product pipeline and clinical studies.DKN-01 Dickkopf-related protein 1, or DKK1, is a cell secreted protein that research has found plays a crucial role in embryonic development. DKK1 binds tospecific cell surface receptors and affects the signaling of key cellular pathways, known as the canonical and non-canonical Wnt signaling pathways. DKK1serves as one of the inhibitors of the canonical Wnt signaling pathway and modulates the non-canonical Wnt signaling pathways. Changes in these pathwayscan lead to the expression of several cancer-causing genes and factors associated with cell growth, angiogenesis, and metastasis. DKK1 also has a role insuppressing the immune system from effectively targeting and clearing the cancer. Published data indicates that DKK1 expression levels are significantly higher in many cancers, including esophageal cancer, or EC, biliary tract cancer,and non-small cell lung cancer, or NSCLC. In addition, elevated DKK1 expression is associated with worse overall survival for patients with EC, biliary tractcancer and NSCLC. Researchers have shown that when the DKK1 protein is added in certain animal models, the cancer grows larger. Recent publications have also demonstrated a role for DKK1 in maintaining an environment around a tumor that suppresses the immune system's abilityto clear the tumor and to prevent metastasis. DKK1 has been shown to activate the suppressive effects of myeloid-derived suppressor cells, or MDSC, a typeof white blood cell that can potently block other immune system cells. Other published data has shown that metastatic tumor cells with stem cell-like featuresavoid the immune system by overexpressing DKK1 and secreting it out of the cell. Secreted DKK1 can then down-regulate certain molecules on tumor cellsknown as natural killer cell activating ligands, or9Table of ContentsNK cell ligands, that would activate the immune system, causing these cancer cells to remain invisible to NK cells and evade the immune system. Throughthese multiple activities, research has shown that DKK1 helps protect the cancer cells from being targeted by the immune system. Preclinical studies that we and others have conducted demonstrated that using an anti-DKK1 antibody led to clinical benefits in xenograft cancermodels. The anti-DKK1 antibody is believed to shift canonical and non-canonical Wnt signaling to healthy levels, thereby resulting in a direct anti-tumoreffect as well as a local anti-angiogenic effect in the diseased tissue. In these models, researchers demonstrated that an anti-DKK1 antibody allowed theimmune system to recognize and attack the cancer cells. We believe that the more selective and local the activity is to the tumor, the more likely a drug willbe safe and well tolerated and a potential combination partner to other anti-cancer drugs. DKN-01 is a high affinity, neutralizing monoclonal antibody targeting DKK1. We have shown that DKN-01 reduces free DKK1 levels and hasdemonstrated an anti-tumor effect in preclinical models. The clinical development history and ongoing studies for DKN-01 are presented on the followinggraphic.First-in-human study Our first-in-human study of DKN-01 was a single ascending dose Phase 1 trial in patients with low bone density. DKN-01 was administered byintravenous infusion at doses from 7 mg to 300 mg and as a subcutaneous injection at a dose of 44 mg. Eight subjects were treated per cohort, five of whomreceived DKN-01 and three of whom received placebo, for a total of 48 subjects in six cohorts. There were no clinically significant safety signals observedwith increasing doses of DKN-01, and all reported adverse events were mild in severity.P100—Advanced Solid Tumors or Multiple Myeloma Study We conducted study P100, a two-part dose-finding Phase 1 study, to establish the safety, maximum tolerated dose, and antitumor activity of DKN-01 as amonotherapy for patients with advanced malignancies. Other endpoints were progression free survival, or PFS, overall response rate, or ORR,10Table of Contentsand overall survival, or OS. Part A of the study was a dose escalation designed to evaluate increasing doses of DKN-01 between 75 mg and 600 mgadministered weekly or biweekly in a 28 day cycle. Part B of the study was an expansion cohort designed to evaluate the activity of DKN-01 as a single agentin patients with advanced NSCLC. For Part B, DKN-01 was administered to refractory NSCLC patients at 300 mg on days 1 and 15 of each 28 day cycle. We enrolled thirty-two patients in Parts A and B, twenty-four of whom were patients with NSCLC. DKN-01 was well tolerated with no dose limitingtoxicities, or DLTs, or serious adverse events, or SAEs, that were deemed by the physician to be related to DKN-01 treatment or treatment-emergent adverseevents or TEAEs, which lead to study discontinuation. All of the treatment-related adverse events were Grade 1 or Grade 2, the two lowest severity levels.TEAEs were generally those typically observed in cancer patients; and the most frequently reported treatment-related TEAEs were fatigue (25%) and nausea(9.4%). DKN-01 as a single agent demonstrated clinical activity in patients with refractory NSCLC, with a clinical benefit rate of 45.9%, including one NSCLCpatient (4.2%) with more than a 30% reduction in the size of their tumor, referred to as a partial response or PR. In the Part B group of NSCLC patients whowere dosed at a level of 300 mg every two weeks, the clinical benefit rate was 47.4%, including the patient with the PR (5.3%). Median PFS in the evaluablePart B NSCLC patients was 2.2 months and median OS was 6.6 months.P102—Esophagogastric Cancer (EGC) We are conducting study P102, a multi-part Phase 1/2 study of DKN-01 as a monotherapy and in combination with paclitaxel or KEYTRUDA®(pembrolizumab) in advanced EGC patients, all of whom have had previous treatment with standard therapies. Many of these subjects have had multiplelines of prior therapy and/or rapidly growing tumors, representing a difficult to treat population. The study is intended to establish the safety and activity ofDKN-01 as a monotherapy and in combination with paclitaxel or pembrolizumab and has the secondary endpoints of ORR, PFS, and OS.Monotherapy Two DKN-01 monotherapy patients in the sub-study experienced PRs by central imaging analysis. A patient who had previously been treated with priorimmunotherapies, including an anti-PD-L1 antibody and an inhibitor of IDO, achieved a PR and was on therapy for over one year, and an additionalesophageal cancer patient experienced a single agent PR. Five additional patients of the sixteen evaluable for central imaging assessment were determined tohave had a best response of stable disease, or SD.Paclitaxel Combination In total fifty-eight patients were treated, with fifty-two evaluable for response. Across all lines of prior therapy and tumor types, DKN-01 plus paclitaxelgenerated a 25.0% ORR, 13.4 weeks PFS, and 27.9 weeks OS. The combination of DKN-01 plus paclitaxel generated a 46.7% ORR, 19.6 weeks PFS,11Table of Contentsand 61.1 weeks OS in fifteen evaluable patients as a second-line therapy. The data presented in November 2018 is reflected in the table below: One of our goals is to identify biomarkers or genetic alterations that could define a patient population more likely to respond to treatment with DKN-01.In this study, four patients evaluated with genetic testing on pre-treatment biopsies were found to have activating/stabilizing mutations of beta-catenin,which is a molecule in the Wnt signaling pathway implicated in oncogenesis, metastasis, and immune suppression. Of these four patients, two achieved PRsand one had prolonged SD. One patient had a response exceeding 2.5 years, of which over 1.5 years was on DKN-01 monotherapy with continued tumorreduction.Pembrolizumab combination In February 2019, Leap completed enrollment of fifty-two patients with advanced esophagogastric cancer who were naïve to PD-1 therapy. Thirty-fourpatients with gastric or gastroesophageal junction cancer (GC) were enrolled, and twenty-five were evaluable for tumor response as of March 15, 2019. Fivepatients (20%) have had a PR by RECIST criteria and eight patients (32%) have experienced a best response of SD, representing a disease control rate, orDCR, of 52%. One patient on therapy for six months has 36.4% tumor reduction, a PR by immune related RECIST, or iRECIST, but was not considered a PRby RECIST criteria due to tumor growth of greater than 20% at the first assessment, likely representing pseudoprogression. Eighteen EC patients have been enrolled, and fourteen were evaluable for response as of March 15, 2019. Four evaluable patients have experienced SD,and ten have had PD. The ORR and DCR has been higher in patients with higher DKK1 expression as measured by in situ hybridization RNAscope, or H-scores. DKK-1 H-scores have been determined for thirty-two evaluable PD-1 therapy naïve patients, including nineteen GC patients. Nine patients had DKK1 H-Scores ofgreater than 31, which we consider to be DKK1 High, including the six PRs (66.7%) by RECIST and iRECIST, two (22.9%) experiencing SD, and one(11.1%) with PD. In the ten GC patients with DKK1 H-Scores of 31 or lower, or DKK1 Low, two (20%) had a best response of SD and eight (80%) hadprogressive disease. Two of four DKK1 High esophageal adenocarcinoma patients had12Table of Contentsdurable SD with tumor reductions. None of the three evaluable esophageal squamous cell cancer patients were DKK1 High, and all had PD. DKN-01-based therapies in EGC appear to be well tolerated. There have been no new emerging safety concerns observed. The majority of adverse eventshave been Grade 1 and 2 in severity.P204—Gynecologic Malignancies We have initiated study P204, a Phase 2 basket study of DKN-01 as a monotherapy and in combination with paclitaxel in patients with advancedepithelial endometrioid, or EEC, and epithelial ovarian, or EOC, cancers. The study consists of four dosing groups and will enroll up to 94 patients. Theprimary objective in each independent study group is to determine the ORR. Secondary objectives are to determine additional measurements of efficacy,such as OS and PFS, and to evaluate the safety of the study treatment regimen. These malignancies have a high percentage, approximately 30%, of patientswith alterations in the Wnt pathway. The study is designed to enroll at least 50% of patients whose tumors have predefined mutations in the Wnt pathway. The waterfall and data descriptions below reflects the change in tumor volume from baseline, duration on study, and Wnt mutational status of thepatients who were evaluable as of March 4, 2019.Monotherapy As of March 4, 2019, twenty-one patients (who had previously received one to ten lines of therapy) had been enrolled in two DKN-01 monotherapy armsof the study. Twelve patients were evaluable. As of March 4, 2019, one EEC patient has experienced a PR, and six patients have had SD for greater than sixweeks. Since March 4, 2019, a second EEC patient with Wnt pathway alterations has experienced a PR.Paclitaxel Combination As of March 4, 2019, forty-one patients (who had previously received one to nine lines of prior therapy) had been enrolled in two combination arms ofthe study. Twenty-one patients were evaluable. One EEC patient has experienced a PR, and fifteen patients have had SD for greater than six weeks.Wnt pathway alterations In eight evaluable monotherapy patients with confirmed Wnt pathway alterations, two patients have had a PR and three have had SD. In the fourteenevaluable combination therapy patients with13Table of Contentsconfirmed Wnt pathway alterations, one patient has a PR and seven have had SD. The patient with a partial response on DKN-01 combination therapy has atumor with CTNNB1 mutation. Tumor CTNNB1 mutations stabilize the transcription factor beta-catenin and are correlated with increased levels of DKK1and poor clinical outcomes. In this study, eight CTNNB1 patients are evaluable, and six experienced clinical benefit. Seventy-eight patients have been enrolled in the study, and many are pending first efficacy evaluation.P103—Biliary Tract Cancer We have conducted study P103, a two-part Phase 1/2 study of DKN-01 in combination with gemcitabine and cisplatin in patients with advanced biliarytract cancer. The study enrolled fifty-one patients. Seven patients received one of two dose levels (150 mg or 300 mg) of DKN-01 in combination withgemcitabine and cisplatin during Part A, with forty-four additional patients treated at the 300 mg dose level of DKN-01 in the Part B expansion cohort. Forty-two patients were chemotherapy treatment-naïve, and nine patients had received 1-2 prior therapies. The primary objective of this study was to evaluate thesafety, pharmacokinetics, and efficacy of DKN-01 in combination with gemcitabine and cisplatin. DKN-01 in combination with gemcitabine and cisplatin was well tolerated with no new emerging safety trends. Forty-seven patients overall were treatedat the 300 mg DKN-01 dose level, and their median OS was 53.7 weeks (12.4 months). Median PFS was 37.7 weeks (8.7 months). Ten patients (21.3%) had aPR and thirty-one patients (66.0%) experienced a best response of SD, representing a DCR of 87.2%. Two patients (4.3%) had progressive disease, and fourpatients (8.5%) were non-evaluable for response. The one-year probability of overall survival was 0.51, and the six-month probability of progression freesurvival was 0.58. The median number of cycles of DKN-01 was seven (range of 1 to 23), and the median duration on study was 331 days.Investigator-Initiated and Collaborative Group Studies As part of our strategy to advance the development of DKN-01 in a cost-effective manner and on a global basis, we work with key opinion leaders andgroups to initiate and conduct clinical trials in targeted patient populations and in combination with other therapies. We currently have establishedrelationships for three investigator-initiated or collaborative group studies:NYU—Prostate Cancer An investigator-initiated study led by David R. Wise, M.D., Ph.D. of the Perlmutter Cancer Center at NYU Langone Health is evaluating DKN-01 as amonotherapy and in combination with docetaxel in patients with advanced prostate cancer. This clinical trial is specifically targeting a biomarker-selectedpatient population in metastatic castration-resistant prostate cancer, or mCRPC, with elevated DKK1 levels. mCRPC patients who have progressed on one ormore androgen receptor therapies will be screened for DKK1 elevation in their plasma or in a tumor sample. Up to 97 patients will be enrolled in a dose-escalation and then dose expansion cohorts. DKK1–positive, or DKK1+, mCRPC patients who have not received prior taxane chemotherapies will be treatedwith DKN-01 and docetaxel. DKN-01 will be given as a monotherapy to DKK1+ mCRPC patients who have progressed on or refused docetaxel treatment.14 Table of ContentsDIAL-1—Hepatocellular Carcinoma An investigator-initiated study of DKN-01 as a monotherapy and in combination with sorafenib is being conducted in patients with hepatocellularcarcinoma, a type of liver cancer that has a high percentage of patients with Wnt pathway alterations. The study is led by principal investigators MarkusMoehler, M.D., Ph.D, Professor of Gastrointestinal Oncology, and Jens Marquardt, M.D., Lichtenberg Professor for Molecular Hepatocarcinogenesis,Johannes-Gutenberg University in Mainz, Germany. In order to be eligible for this study, patients will be required to have documented activation of the Wntpathway in tumor tissue through a predefined biomarker assay. The study includes dose escalation and dose expansion cohorts, evaluating a range of doselevels of DKN-01.DYNAMIC—Esophagogastic and Biliary Tract Cancer The European Organisation for Research and Treatment of Cancer, or EORTC, is planning to conduct a study that will evaluate DKN-01 in combinationwith Tecentriq® (atezolizumab). The study will enroll three cohorts:•DKN-01 in combination with atezolizumab and paclitaxel in advanced esophagogastric cancer, •DKN-01 in combination with atezolizumab in advanced esophagogastric cancer, and •DKN-01 in combination with atezolizimab in advanced biliary tract cancer.TRX518 The human immune system has the ability to adapt to and attack foreign cells, or non-self cells, and in doing so it recognizes danger with the goal ofprotecting the body from harm. It has been well established that cancer cells develop mechanisms to suppress the body's natural immune response and evadedestruction by immune cells. Activating signals to augment an immune response in cancer, or costimulation, is a strategy that is being explored by usingagonist antibodies targeting activating receptors on immune cells. This strategy is expected to overcome suppressive mechanisms that would prevent theseimmune system cells from attacking a tumor. Agonist antibodies that costimulate the immune system have the potential to be combined with establishedtherapies such as chemotherapy or checkpoint inhibitors to enable the immune system to yield a robust anti-tumor immune response. We believe glucocorticoid-induced tumor necrosis factor-related receptor, or GITR, is an ideal target for costimulation as it is an activating receptorpresent on a wide range of naive and activated immune system cells, including CD4+ and CD8+ T effector cells, T regulatory cells, natural killer cells,granulocytes, mast cells and monocytes/macrophages. The expression and activation of GITR has been shown to enhance an antigen-specific inflammatoryresponse. Preclinical studies demonstrated that GITR activation led to robust clinical benefits in multiple animal models. GITR agonist antibodies have beenfound to be effective in combination with chemotherapies, checkpoint inhibitors, and vaccines in various preclinical cancer and vaccine models. TRX518 is a high affinity GITR agonist monoclonal antibody that binds to GITR and generates a signal in the target cell. We expect TRX518 binding toGITR to generate a sufficient signal to enhance the activity of anti-tumor immune system cells and impede the activity of immune system cells that protectthe tumor. TRX518 was specifically engineered with a modification in its amino acid backbone sequence, or Fc region, to prevent binding to certaincomplementary receptors on other immune system cells, or Fc receptors, that would lead to the killing of GITR-expressing cells. We believe that depletingGITR-expressing cells would be harmful in that it would limit efficacy and create a theoretical risk of breakthrough autoimmune disease. Our goal indesigning TRX518 was to optimize the efficacy and safety profile of the antibody, as our preclinical studies confirmed activity without Fc receptor bindingand demonstrated comparable efficacy to Fc receptor binding intact antibodies.15Table of Contents In a recent publication, an Fc inactive GITR agonist antibody was evaluated against an Fc intact GITR agonist antibody, alone and in combination withradiation, in a model of murine glioblastoma. The results demonstrated that the Fc inactive GITR agonist antibody was effective in the model in combinationwith radiation, whereas the Fc active GITR agonist was not effective, either alone or in combination with radiation. We believe that the removal of Fcfunction represents an advantage to our GITR agonist antibody and a differentiator from other competing GITR agonist antibodies. The clinical development history and ongoing studies for TRX518 are presented on the following graphic.001—Single Ascending Dose Monotherapy We conducted study 001, a Phase 1 study of TRX518 as a monotherapy in adults with refractory solid tumors, initially to evaluate the safety ofincreasing single doses between 0.0001 mg/kg and 8.0 mg/kg and subsequently in later study parts to explore multi-dose therapy at 2 week intervals at dosesbetween 0.25 mg/kg to 1 mg/kg. Exploratory objectives include evaluating for immune system responses to tumor antigens and demonstrating evidence ofbiological activity. In the single-dose study, no maximum tolerated dose was reached for the single administration of TRX518, with few related treatment-emergent adverseevents, all Grade 1 and 2, and no reported autoimmune events. We have observed doses where all the GITR receptors have been bound by TRX518, and thisbinding lasts for at least several days. We believe that binding at this level is essential to generating sufficient signaling and agonist activity. There havebeen signs of immune system activation and biological activity in some patients, including evidence of T regulatory cell modulation in the blood and intumors.003—Multiple Dose Study We are conducting study 003, a multi-part, multiple dose Phase 1 study of TRX518 as a monotherapy or in combination with gemcitabinechemotherapy, Keytruda (pembrolizumab), or Opdivo (nivolumab) in adults with advanced solid tumors.16Table of ContentsMonotherapy Part A of the study was designed to evaluate the safety of escalating doses of TRX518 between 1.0 mg/kg and 4.0 mg/kg. The initial three cohorts wereadministered as weekly doses to the patient over a three week cycle. Additional cohorts evaluated the strategy of using a larger initial dose and lowersubsequent doses once every three weeks to patients. Part B was an expansion cohort of up to twenty patients using the preferred dosing strategy identifiedduring Part A. Additional objectives include evaluating for objective responses, survival, and demonstrating evidence of immune system activity. A non-virally mediated hepatocellular cancer patient, who has remained on single agent TRX518 for nearly two years, has achieved a PR with 47%tumor reduction and continues on study. Multiple patients had reductions in tumor burden, and signs of pharmacodynamic activity have been observed.Gemcitabine combination Part C of the study treated patients with the combination of TRX518 plus gemcitabine in dose escalation and dose confirmation cohorts and wasdesigned to evaluate the safety, pharmacokinetics/pharmacodynamics, and efficacy of the combination. Thirty patients who had received one to nine priortherapies were enrolled, including fourteen patients with pancreatic cancer, five with biliary tract cancer, and eleven with other cancers including ovarian,appendiceal, and mesothelioma. A pancreatic cancer patient, who had previously progressed on gemcitabine therapy and two other prior lines of therapy, hasexperienced a PR with 58% tumor reduction and has been on study for nine months. Additional reductions in tumor burden and durable clinical benefit havebeen noted in appendiceal cancer, mesothelioma, and two in ovarian cancer. The following table reflects the current results of the study:Pembrolizumab and Nivolumab combination Parts D and E of the study are evaluating TRX518 in combination with the anti-PD-1 antibody therapies Keytruda (pembrolizumab) or Opdivo(nivolumab). The combination arms include both dose escalation and dose confirmation cohorts and are designed to evaluate the safety,pharmacokinetics/pharmacodynamics, and efficacy of the combinations. The study enrolls patients who have received treatment with pembrolizumab ornivolumab for 4 months with a best response of stable disease or patients who are not currently taking pembrolizumab or nivolumab, but for whomtreatment is clinically appropriate.17Table of Contents An esophageal squamous cell carcinoma patient has a confirmed complete response while on TRX518 in combination with pembrolizumab, whichremains ongoing for nine months, and an uveal melanoma patient had 23% tumor reduction and six months of stable disease on the combination. A patientwith urothelial carcinoma who had failed prior pembrolizumab therapy had a confirmed partial response while on the combination of TRX518 andnivolumab and remained on therapy for six months. Twelve patients have recently enrolled in the expansion cohort for the TRX518 plus pembrolizumabcombination and have not reached their first tumor assessment. The following table reflects the current results of the study as of February 20, 2019 and newly enrolled patients.004—Avelumab combination We are preparing to initiate study 004, a trial of TRX518, in combination with Bavencio (avelumab), an anti-PD-L1 monoclonal antibody, andcyclophosphamide chemotherapy. The study will begin with a dose escalation cohort involving TRX518 and cyclophosphamide as a doublet, and then addavelumab to form a triple chemoimmunotherapy combination. Following dose escalation, we expect to open expansion populations in patients withrelapsed/refractory ovarian, breast, and prostate cancers. We expect to begin enrolling patients in this study in the second quarter of 2019.Intellectual Property We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to our business, includingseeking, maintaining and defending patent rights. We also rely on confidential know-how that may be important to the development of our business. Weprotect our confidential know-how as trade secrets and through confidentiality agreements and invention assignment agreements with our employees,consultants, scientific advisors and others. We additionally expect to rely on regulatory protection afforded through data exclusivity as well as patent termextensions, where available. Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially importanttechnology, inventions and know-how related to our business; to defend and enforce our patents; to preserve the confidentiality of our know-how and tradesecrets; and to operate without infringing the valid and enforceable patents and proprietary rights of third parties. Our ability to prevent third parties from making, using, selling, offering to sell or importing competing products to ours, including a competitor to eitherof DKN-01 or TRX518, depends on the18Table of Contentsvalidity, enforceability and/or scope of our patents. We have several patents and patent applications relating to each of DKN-01 and TRX518 and theirtherapeutic uses, and possess substantial know-how relating to the development and commercialization of DKN-01 and TRX518. We cannot be sure that anyof our pending patent applications or future patent filings will lead to the issuance of new patents, nor can we be sure that any of our existing patents or anypatents that may be granted to us in the future will be adequate to protect our market. We plan on pursuing in-licensing opportunities to develop, strengthen and maintain our proprietary position in our field. We expect to use trademarkprotection for our products as they are marketed.Patents We exclusively license from Eli Lilly and Company, or Lilly, rights under 22 issued patents and 5 pending patent applications, all of which belong tothe same patent family. The patents and applications in this patent family are directed to the composition of matter and use of DKN-01, and include (i) oneissued U.S. Patent, (ii) issued patents in the following jurisdictions: Australia, Canada, China, Eurasia, Europe, Gulf Cooperation Council, India, Israel, Japan,Lebanon, Macao, Mexico, New Zealand, Pakistan, Singapore, South Africa, Taiwan, Ukraine, Hong Kong and South Korea and (iii) pending applications inthe following jurisdictions: Argentina, Brazil, Europe, Venezuela and Thailand. The base 20-year term for patents in this family would expire in 2030. TheU.S. patent will expire 87 days after the base term due to patent term adjustment. Patent term extensions for delays in marketing approval may also extend theterms of patents in this family. We own one pending international application filed under the Patent Cooperation Treaty (PCT) directed to the use of a biomarker in patients receivingDKN-01 therapy. The PCT is an international patent law treaty that provides a unified procedure for filing a single initial patent application to seek patentprotection for an invention simultaneously in each of the member states. Although a PCT application is not itself examined and cannot issue as a patent, itallows the applicant to seek protection in any of the member states through national-phase applications. Any patents that may issue in the United Statesbased on the pending PCT Application will expire in 2037, absent any terminal disclaimer, patent term adjustment due to administrative delays by theUSPTO or patent term extension under the Hatch-Waxman Act, and provided that all required maintenance fee payments are timely paid. Any patents issuedin foreign jurisdictions will likewise expire in 2037 provided that all required annuities are timely paid. We own 61 patents and 7 pending patent applications relating to TRX518 and uses thereof. The patents and applications primarily fall into two families.The base 20-year term for U.S. patents in the first family would expire in 2026 and in the second family would expire in 2028 provided that all requiredmaintenance fee payments are timely paid and no terminal disclaimers are filed. Patent term extensions for delays in marketing approval may also extend theterms of patents in these two families. The various patent applications and patents covering TRX-518 include claims directed to compositions of matter(antibodies and antigen-binding fragments), pharmaceutical compositions, methods for inducing or enhancing an immune response, methods of treating asubject having a cancerous tumor, combination therapies, and uses of antibodies and antigen-binding fragments. Patent applications and patents claimingthese subject matters have been filed and/or granted in the following jurisdictions: United States, Australia, Canada, Europe (Austria, Belgium, Denmark,Finland, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, Switzerland, United Kingdom), Hong Kong, India and Japan.Patent Term The base term of a U.S. patent is 20 years from the filing date of the earliest-filed non-provisional patent application to which the patent is entitled topriority. The term of a U.S. patent can be19Table of Contentslengthened by patent term adjustment, which compensates the owner of the patent for administrative delays at the United States Patent and Trademark Office(USPTO). In some cases, the term of a U.S. patent is shortened by a terminal disclaimer that reduces its term to that of an earlier-expiring U.S. patent. The term of a U.S. patent may be eligible for patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referredto as the Hatch-Waxman Act or Hatch-Waxman Amendment, to account for at least some of the time a product is under development and regulatory reviewafter the patent is granted. With regard to a product for which FDA approval is the first permitted marketing of the active ingredient, the Hatch-Waxman Actallows for extension of protection of one U.S. patent that includes at least one claim covering the composition of matter of an FDA-approved product, anFDA-approved method of treatment using the product, and/or a method of manufacturing the FDA-approved product. The extended protection cannot exceedthe shorter of five years beyond the non-extended expiration of the patent or 14 years from the date of the FDA approval of the product. Some foreignjurisdictions, including Europe, have patent extension provisions (e.g., supplementary protection certificates), which allow for extension of the protection ofa patent that covers a drug approved by the applicable foreign regulatory agency. In the future, if and when each of DKN-01 or TRX518 receives FDAapproval, we expect to apply for patent term extension to extend the protection of one of our U.S. patents covering DKN-01, its use, or a method ofmanufacturing this product, and one of our U.S. patents covering TRX518, its use, or a method of manufacturing this product. We also may pursue extensionsin foreign jurisdictions where applicable.Lilly License Agreement On January 3, 2011, we entered into a license agreement with Lilly, pursuant to which Lilly granted us an exclusive license for certain intellectualproperty rights relating to pharmaceutically active compounds that may be useful in the treatment of bone healing, cancer and, potentially, other medicalconditions. Such license includes a right to sublicense, under certain Lilly intellectual property rights to further develop and commercialize, on a worldwidebasis, pharmaceutical products containing such licensed compounds. Pursuant to the Lilly Agreement, we granted to Lilly 657,614 shares of common stock and agreed to pay Lilly a royalty in the low single digits of netsales of a particular product in the territory during the applicable royalty term, with certain adjustments to be made to the royalty rate in connection withthird person intellectual property, sales of competing products, and sales of biosimilar or generic products. We have not yet paid any royalties to Lillypursuant to this agreement. The royalty term, with respect to each country in which a product is sold, on a country-by-country and product-by-product basis, begins on firstcommercial sale of the product in the country and the later of (i) the tenth anniversary of the first date of commercial sale of the product in the country,(ii) expiration of the last-to-expire issued patent included within the patents licensed under the Lilly Agreement having a valid claim covering the sale of theproduct, and (iii) the expiration of any data exclusivity period for the product in the country. The term of the Lilly Agreement began on January 3, 2011 and, unless earlier terminated pursuant to the termination provisions described below, willcontinue on a country-by-country basis until we have no remaining royalty or other payment obligations in a specific country. Upon expiration in a givencountry, the licenses granted with respect to such country shall become fully paid up, perpetual and irrevocable. Either party may terminate the Lilly Agreement with immediate effect if the other party enters into bankruptcy or takes similar action. We may terminatethe Lilly Agreement (i) at any time without cause upon ninety (90) days written notice to Lilly or (ii) upon material breach of the Lilly Agreement by Lillyupon ninety (90) days written notice to Lilly, unless Lilly cures such breach or violation during20Table of Contentssuch ninety (90) day period. Lilly may terminate the agreement (i) upon our material breach of the Lilly Agreement upon ninety (90) days written notice tous, unless we cure such breach or violation during such ninety (90) day period or (ii) if we challenge, or materially assist any third person to challenge, thevalidity or enforceability of the licensed intellectual property that is the subject of the Lilly Agreement upon thirty (30) days written notice to us, unless wecure such breach or violation during such thirty (30) day period. If Lilly terminates the Lilly Agreement or if we terminate the Lilly Agreement without cause, (i) all rights under the licensed intellectual property rightswill terminate and immediately and automatically revert to Lilly, (ii) any sublicense will be assigned by us to Lilly so that such sublicense becomes a directlicense between Lilly and such sublicensee, (iii) subject to certain limitations, we will be required to grant to Lilly an irrevocable, non-exclusive, perpetual,fully paid up license under all patent rights developed or acquired by us during the term of the Lilly Agreement that relate to the Lilly licensed intellectualproperty, (iv) subject to certain limitations, we will be required to grant to Lilly an irrevocable, non-exclusive, perpetual, fully paid up license to the results ofdata from all preclinical and clinical studies of any compound or product covered by the Lilly Agreement, (v) subject to certain limitations, we will berequired to take all steps necessary to permit Lilly to commence marketing product covered by the Lilly Agreement, and (vi) we will be required to assign orre-assign to Lilly all Lilly patents covered by the Lilly Agreement and that were assigned by Lilly to us. If we terminate the Lilly Agreement for materialbreach by Lilly or Lilly's bankruptcy, the licenses will remain in full force and effect and we will remain liable for the payment of all royalty obligationsunder the Lilly Agreement. However, in this case, we may offset against such royalties any damages that we are entitled to for breach of the Lilly Agreementby Lilly. The Lilly Agreement also contains certain standard representations and warranties and certain standard confidentiality and indemnification provisions.Lonza License Agreement On May 28, 2015, we entered into a license agreement with Lonza Sales AG, pursuant to which Lonza granted us a world-wide, non-exclusive license forcertain intellectual property rights relating to a gene expression system, solutions of nutrients used in mammalian cell culture and related know-how andpatent rights to use, test, develop, manufacture, market, sell offer for sale, distribute, import and export DKN-01. Such license includes a right to sublicense to(i) a competing contract manufacturer solely for the purpose of such manufacturer producing DKN-01 and (ii) our affiliates and strategic partners solely forundertaking commercial activities. In exchange for the license and sublicense described above, we agreed to pay to Lonza a low single-digit royalty calculated as a percentage of net saleson DKN-01. In addition, in connection with DKN-01 manufactured by Lonza, or a strategic partner of Lonza, we agreed to pay (i) an annual payment toLonza beginning on the date of initiation of phase 1 clinical trials for DKN-01 and (ii) an increased annual payment to Lonza beginning on the date ofinitiation of phase 2 clinical trials for DKN-01, for so long as Lonza, or a strategic partner of Lonza, manufactures DKN-01. In connection with DKN-01manufactured by any other party, we agreed to pay (i) an annual amount to Lonza per sublicense beginning on the commencement date of such sublicenseand continuing for so long as the sublicense exists and (ii) a low single-digit royalty calculated as a percentage of net sales of DKN-01. All royalty amountsare subject to certain adjustments if, on a country-by-country basis, the manufacture and/or sale of DKN-01 are not protected by a valid claim. All royaltyobligations will expire on a country-by-country basis upon the later of (i) the expiration, revocation or complete rejection of all valid claims coveringproduct in such country or (ii) ten (10) years from first commercial sale of DKN-01 in such country.21Table of Contents The Lonza Agreement will remain in force in each country of the world until either the expiration of the last valid patent claim or for so long as theknow-how is identified and remains secret and substantial, whichever is later. Upon expiration of the Lonza Agreement with respect to DKN-01 in a particularcountry, the licenses granted under the Lonza Agreement with respect to DKN-01 in that country will become fully paid and royalty free. Either party may terminate the Lonza Agreement (i) if the other party commits a breach of the Lonza Agreement and such breach is not cured withinforty-five (45) days of receiving notice of the breach (or thirty (30) days in the case of payment defaults) or (ii) if the other party is unable to pay its debts andenters into compulsory or voluntary liquidation or enters into a bankruptcy or takes other similar action. We may terminate the Lonza Agreement by givingsixty (60) days written notice to Lonza. Lonza may, at its option, immediately terminate any or all of the licenses granted under the Lonza Agreement if weknowingly oppose any patent application within the patent rights granted or dispute the validity of any patent within under the Lonza Agreement or assistany third party to do so. Termination of the Lonza Agreement will terminate all licenses granted under the Lonza Agreement. The Lonza Agreement also contains certain standard confidentiality and indemnification provisions.Competition The biotechnology and pharmaceutical industries are characterized by continuing technological advancement and significant competition. While webelieve that our product candidates, technology, knowledge, experience and scientific resources provide us with competitive advantages, we facecompetition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private researchinstitutions, among others. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapiesthat may become available in the future. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy,safety and convenience of our products and the ease of use and effectiveness of any companion diagnostics. The level of generic competition and theavailability of reimbursement from government and other third-party payors will also significantly affect the pricing and competitiveness of our products.Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could resultin our competitors establishing a strong market position before we are able to enter the market. Many of the companies against which we may compete have significantly greater financial resources and expertise in research and development,manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Forexample, Novartis, Merck, and Pfizer are all currently developing or have previously been developing anti-DKK1 monoclonal antibodies. Additionally,Merck, Novartis, Bristol-Myers Squibb, AstraZeneca, and Incyte are all developing or have previously been developing a GITR agonist monoclonalantibody. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trialsites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.22 Table of ContentsManufacturing and Distribution We do not have, and we do not currently plan to acquire or develop, the facilities or capabilities to manufacture clinical trial material for use in humanclinical trials or finished drug product for commercialization. We depend on third-party contract manufacturers, or CMOs, for the production of clinical trialmaterial for our studies. Our bulk drug substance, or DS, is produced at our CMOs, Patheon Biologics and Lonza, which are required to comply with theFDA's Current Good Manufacturing Practice, or cGMP, regulations. Our finished drug product is produced at a contract fill/ finisher provider, which is alsorequired to comply with cGMP regulations. We have personnel with significant technical, manufacturing, analytical, quality and project managementexperience to oversee our third-party CMOs and to manage manufacturing and quality data and information for regulatory compliance purposes. We must manufacture drug product for clinical trial use in compliance with cGMP. The cGMP regulations include requirements relating to organizationof personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls,packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. Our third-party CMOsare also subject to periodic inspections of facilities by the FDA and other authorities, including procedures and operations used in the testing andmanufacture of our products to assess our compliance with applicable regulations. Failure to comply with statutory and regulatory requirements subjects amanufacturer to possible legal or regulatory action, including warning letters, the seizure or recall of products, injunctions, consent decrees placingsignificant restrictions on or suspending manufacturing operations and civil and criminal penalties. These actions could have a material impact on theavailability of our products. CMOs often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages ofqualified personnel. We have not yet established a sales, marketing or product distribution infrastructure because our lead candidates are still in early clinical development.We eventually may, however, choose to build (or obtain through strategic acquisition) our own sales and marketing team to commercialize some or all of ourproducts if they receive FDA approval and if it is in our long-term interests. We may also choose to enter into distribution agreements with larger strategicpartners with their own robust distribution channels.Government Regulation and Product Approval Government authorities in the United States, at the federal, state, and local level, and in other countries, extensively regulate, among other things, theresearch, development, testing, approval, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, post-approvalmonitoring and reporting, marketing, import, and export of biopharmaceutical products such as those we are developing. In addition, manufacturers ofbiopharmaceutical products participating in Medicaid and Medicare are required to comply with mandatory price reporting, discount, and rebaterequirements. The processes for obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance withapplicable statutes and regulations, require the expenditure of substantial time and financial resources. The following is a summary of the primarygovernment regulations applicable to our business.FDA Regulation In the United States, the Food and Drug Administration, or FDA, regulates biologics under the Federal Food, Drug, and Cosmetic Act, or FDCA, thePublic Health Services Act, or PHSA, and their implementing regulations. Any product we may develop must be cleared by the FDA before it is23Table of Contentsmarketed in the United States. The process required by the FDA before product candidates may be marketed in the United States generally involves thefollowing:•completion of preclinical laboratory tests, animal studies, and formulation studies in compliance with the FDA's Good Laboratory Practice, orGLP, regulations; •submission to the FDA of an Investigational New Drug application, or IND, which must become effective before human clinical trials maybegin; •approval by an Institutional Review Board, or IRB, for each clinical site, or centrally, before each trial may be initiated; •adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed product candidates for its intended use,performed in accordance with GCPs; •development of manufacturing processes to ensure the product candidate's identity, strength, quality, and purity; •submission to the FDA of a Biologics License Application, or BLA; •satisfactory completion of a FDA advisory committee review, if applicable; •satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the products are produced to assesscompliance with cGMPs, and to assure that the facilities, methods, and controls are adequate to preserve the therapeutics' identity, strength,quality, and purity, as well as satisfactory completion of an FDA inspection of selected clinical sites and selected clinical investigators todetermine GCP compliance; and •FDA review and approval of the BLA to permit commercial marketing for particular indications for use.Preclinical Studies and IND Submission The testing and approval process of product candidates requires substantial time, effort, and financial resources. Satisfaction of FDA pre-market approvalrequirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product ordisease. Preclinical studies include laboratory evaluation of chemistry, pharmacology, toxicity, and product formulation, as well as animal studies to assesspotential safety and efficacy. Such studies must generally be conducted in accordance with the FDA's GLPs. Prior to commencing the first clinical trial with aproduct candidate, an IND sponsor must submit the results of the preclinical tests and preclinical literature, together with manufacturing information,analytical data, any available clinical data or literature, and proposed clinical study protocols among other things, to the FDA as part of an IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, notifies the applicant of safetyconcerns or questions related to one or more proposed clinical trials and places the trial on a clinical hold. In such a case, the IND sponsor and the FDA mustresolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during trials due tosafety concerns or non-compliance. As a result, submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submissionto an existing IND must also be made for each successive clinical trial conducted during product development.Clinical Trials Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordancewith federal regulations and GCP requirements,24Table of Contentswhich include the requirements that all research subjects provide their informed consent in writing for their participation in any clinical trial, as well asreview and approval of the study by an IRB. Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors to makecertain financial disclosures to the FDA. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the trialprocedures, the parameters to be used in monitoring safety, the effectiveness criteria to be evaluated, and a statistical analysis plan. A protocol for eachclinical trial, and any subsequent protocol amendments, must be submitted to the FDA as part of the IND. In addition, an IRB at each study site participatingin the clinical trial or a central IRB must review and approve the plan for any clinical trial, informed consent forms, and communications to study subjectsbefore a study commences at that site. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and arereasonable in relation to anticipated benefits and whether the planned human subject protections are adequate. The IRB must continue to oversee the clinicaltrial while it is being conducted. Once an IND is in effect, each new clinical protocol and any amendments to the protocol must be submitted to the IND forFDA review, and to the IRB for approval. Progress reports detailing the results of the clinical trials must also be submitted at least annually to the FDA andthe IRB and more frequently if serious adverse events or other significant safety information is found. The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinicaltrial either 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 if the trial poses anunexpected serious harm to subjects, or may impose other conditions. We may also discontinue clinical trials as a result of risks to subjects, a lack offavorable results, or changing business priorities. Information about certain clinical trials, including a description of the study and study results, must be submitted within specific timeframes to theNational Institutes of Health, or NIH, for public dissemination on their clinicaltrials.gov website. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a datasafety monitoring board or committee. This group regularly reviews accumulated data and advises the study sponsor regarding the continuing safety of trialsubjects, potential trial subjects, and the continuing validity and scientific merit of the clinical trial. The data safety monitoring board receives special accessto unblinded data during the clinical trial and may advise the sponsor to halt the clinical trial if it determined there is an unacceptable safety risk for subjectsor on other grounds, such as no demonstration of efficacy. The manufacture of investigational biologics for the conduct of human clinical trials is subject to cGMP requirements. Investigational biologics andactive ingredients imported into the United States are also subject to regulation by the FDA relating to their labeling and distribution. Further, the export ofinvestigational products outside of the United States is subject to regulatory requirements of the receiving country as well as U.S. export requirements underthe FDCA. In general, for purposes of BLA approval, human clinical trials are typically conducted in three sequential phases, which may overlap or be combined.•Phase 1—Studies are initially conducted in healthy human volunteers or subjects with the target disease or condition and test the productcandidate for safety, dosage tolerance, target engagement, mechanism of action, absorption, metabolism, distribution, and excretion. Ifpossible, Phase 1 trials may also be used to gain an initial indication of product effectiveness.25Table of Contents•Phase 2—Controlled studies are conducted in limited subject populations with a specified disease or condition to evaluate preliminaryefficacy, identify optimal dosages, dosage tolerance and schedule, possible adverse effects and safety risks, and expanded evidence of safety. •Phase 3—These adequate and well-controlled clinical trials are undertaken in expanded subject populations, generally at geographicallydispersed clinical trial sites, to generate enough data to provide statistically significant evidence of clinical efficacy and safety of the productfor approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.Typically, two Phase 3 trials are required by the FDA for product approval. The FDA may also require, or companies may conduct, additional clinical trials for the same indication after a product is approved. These so-calledPhase 4 studies may be made a condition to be satisfied after approval. The results of Phase 4 studies can confirm the effectiveness of a product candidate andcan provide important safety information. Phase 1, Phase 2, and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Regulatory authorities, an IRB, orthe sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to anunacceptable health risk, the clinical trial is not being conducted in accordance with the FDA's or the IRB's requirements, the product has been associatedwith unexpected serious harm to the subjects, or based on evolving business objectives or competitive climate. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistryand physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordance withcGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things,must develop methods for testing the identity, strength, quality, potency, and purity of the final product. Additionally, appropriate packaging must beselected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over itsshelf life. During the development of a new therapeutic, a sponsor may be able to request a Special Protocol Assessment, or SPA, the purpose of which is to reachagreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of product approval and an efficacy claimas well as preclinical carcinogenicity trials and stability studies. An SPA may only be modified with the agreement of the FDA and the trial sponsor or if thedirector of the FDA reviewing division determines that a substantial scientific issue essential to determining the safety or efficacy of the product wasidentified after the testing began. An SPA is intended to provide assurance that, in the case of clinical trials, if the agreed upon clinical trial protocol isfollowed, the clinical trial endpoints are achieved, and there is a favorable risk-benefit profile, the data may serve as the primary basis for an efficacy claim insupport of a BLA. However, SPA agreements are not a guarantee of an approval of a product candidate or any permissible claims about the product candidate.In particular, SPAs are not binding on the FDA if, among other reasons, previously unrecognized public health concerns arise during the performance of theclinical trial, other new scientific concerns regarding the product candidate's safety or efficacy arise, or if the sponsoring company fails to comply with theagreed upon clinical trial protocol.BLA Submission, Review by the FDA, and Marketing Approval Assuming successful completion of the required clinical and preclinical testing, the results of product development, including chemistry, manufacture,and controls, non-clinical studies, and clinical trial results, including negative or ambiguous results as well as positive findings, are all submitted to the FDA,along with the proposed labeling, as part of a BLA requesting approval to market the product26Table of Contentsfor one or more indications. In most cases, the submission of a BLA is subject to a substantial application user fee. These user fees must be paid at the time ofthe first submission of the application, even if the application is being submitted on a rolling basis. Fee waivers or reductions are available in certaincircumstances. One basis for a waiver of the application user fee is if the applicant employs fewer than 500 employees, including employees of affiliates, theapplicant does not have an approved marketing application for a product that has been introduced or delivered for introduction into interstate commerce, andthe applicant, including its affiliates, is submitting its first marketing application. Product candidates that are designated as orphan drugs, which are furtherdescribed below, are also not subject to application user fees unless the application includes an indication other than the orphan indication. In addition, under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA for a new active ingredient, indication, dosage form,dosage regimen, or route of administration, must contain data that are adequate to assess the safety and effectiveness of the product for the claimedindications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safeand effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until afterapproval of the product for use in adults, or full or partial waivers from the pediatric data requirements. The FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, to ensure that the benefits of the biologic outweigh therisks. The REMS plan could include medication guides, physician communication plans, and elements to assure safe use, such as restricted distributionmethods, patient registries, or other risk minimization tools. An assessment of the REMS must also be conducted at set intervals. Following product approval,a REMS may also be required by the FDA if new safety information is discovered and the FDA determines that a REMS is necessary to ensure that thebenefits of the biologic outweigh the risks. Once the FDA receives an application, it has 60 days to review the BLA to determine if it is substantially complete to permit a substantive review, beforeit accepts the application for filing. The FDA may request additional information rather than accept a BLA for filing. In this event, the application must beresubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission isaccepted for filing, the FDA begins an in-depth substantive review. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has set the review goal of completingits review of 90% of all applications within ten months from the 60-day filing date for its initial review of an initial BLA. Such deadlines are referred to as thePDUFA date. The PDUFA date is only a goal, thus, the FDA does not always meet its PDUFA dates. The review process and the PDUFA date may also beextended if the FDA requests or the sponsor otherwise provides substantial additional information or clarification regarding the submission. The FDA may also refer certain applications to an advisory committee. An advisory committee is typically a panel that includes clinicians and otherexperts, which review, evaluate, and make a recommendation as to whether the application should be approved and under what conditions. The FDA is notbound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA reviews applications to determine, among other things, whether a product is safe, pure and potent and whether the manufacturing methods andcontrols are adequate to assure and preserve the product's identity, strength, quality, safety, potency, and purity. Before approving a BLA, the FDA typicallywill inspect the facility or facilities where the product is manufactured, referred to as a Pre-Approval Inspection. The FDA will not approve an applicationunless it determines that the27Table of Contentsmanufacturing processes and facilities, including contract manufacturers and subcontractors, are in compliance with cGMP requirements and adequate toassure consistent production of the product within required specifications. Additionally, before approving a BLA the FDA will inspect one or more clinicaltrial sites to assure compliance with GCPs. The approval process is lengthy and difficult and the FDA may refuse to approve a BLA if the applicable regulatory criteria are not satisfied or mayrequire additional clinical data or other data and information. Even if such data and information are submitted, the FDA may ultimately decide that the BLAdoes not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than anapplicant interprets the same data. After evaluating the BLA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding themanufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a Complete Response Letter, or CRL. If a CRL isissued, the applicant may either: resubmit the BLA, addressing all of the deficiencies identified in the letter; withdraw the application; or request anopportunity for a hearing. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval and describes allof the specific deficiencies that the FDA identified in the BLA. A CRL generally contains a statement of specific conditions that must be met in order tosecure final approval of the BLA, and may require additional clinical or preclinical testing in order for the FDA to reconsider the application. Thedeficiencies identified may be minor, for example, requiring labeling changes; or major, for example, requiring additional clinical trials. Even withsubmission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If andwhen those conditions have been met to the FDA's satisfaction, the FDA may issue an approval letter. An approval letter authorizes commercial marketing ofthe product with specific prescribing information for specific indications. Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings, or precautionsbe included in the product labeling, including a boxed warning, require that post-approval studies, including Phase 4 clinical trials, be conducted to furtherassess a product's safety and efficacy after approval, require testing and surveillance programs to monitor the product after commercialization, or impose otherconditions, including distribution restrictions or other risk management mechanisms under a REMS which can materially affect the potential market andprofitability of the product. The FDA may also not approve label statements that are necessary for successful commercialization and marketing. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims,are subject to further testing requirements and FDA review and approval. The FDA may also withdraw the product approval if compliance with the pre- andpost-marketing regulatory standards are not maintained or if problems occur after the product reaches the marketplace. Further, should new safety informationarise, additional testing, product labeling, or FDA notification may be required.Biosimilars, Orphan Drugs, and Exclusivity The Biologics Price Competition and Innovation Act of 2009, or BPCIA, creates an abbreviated approval pathway for biological products shown to behighly similar to or interchangeable with an FDA-licensed reference biological product. Biosimilarity sufficient to reference a prior FDA-approved productrequires a high similarity to the reference product notwithstanding minor differences in clinically inactive components, and no clinically meaningfuldifferences between the biological product and the reference product in terms of safety, purity, and potency. Biosimilarity must be shown through analyticalstudies, animal studies, and at least one clinical trial, absent a waiver by FDA. There must be no difference between the reference product and a biosimilar inconditions of use, route of28Table of Contentsadministration, dosage form, and strength. A biosimilar product may be deemed interchangeable with a prior approved product if it meets the higher hurdle ofdemonstrating that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologicand the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relativeto exclusive use of the reference biologic. Complexities associated with the larger, and often more complex, structures of biological products, as well as theprocess by which such products are manufactured, pose significant hurdles to implementation which are still being evaluated by the FDA. A reference biologic is granted 12 years of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar can besubmitted for four years from the date of licensure of the reference product. However, certain changes and supplements to an approved BLA, and subsequentapplications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the twelve year exclusivityperiod. The Orphan Drug Act provides incentives for the development of products intended to treat rare diseases or conditions, which generally are diseases orconditions affecting less than 200,000 individuals annually in the United States, or affecting more than 200,000 in the United States and for which there is noreasonable expectation that the cost of developing and making the product available in the United States will be recovered from United States sales.Additionally, sponsors must present a plausible hypothesis for clinical superiority to obtain orphan designation if there is a product already approved by theFDA that is intended for the same indication and that is considered by the FDA to be the same as the already approved product. This hypothesis must bedemonstrated to obtain orphan exclusivity. If granted, prior to product approval, Orphan Designation entitles a party to financial incentives such asopportunities for grant funding towards clinical study costs, tax advantages, and user-fee waivers. In addition, if a product receives FDA approval for theindication for which it has orphan designation, the product is generally entitled to orphan exclusivity, which means the FDA may not approve any otherapplication to market the same product for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinicalsuperiority over the product with orphan exclusivity.Special FDA Expedited Review and Approval Programs The FDA has various programs, including Fast Track designation, priority review, and breakthrough designation, that are intended to expedite orsimplify the process for the development and FDA review of certain products that are intended for the treatment of serious or life threatening diseases orconditions, and demonstrate the potential to address unmet medical needs or present a significant improvement over existing therapy. The purpose of theseprograms is to provide important new therapeutics to patients earlier than under standard FDA review procedures. To be eligible for a Fast Track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or lifethreatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmetmedical need if the product will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based onefficacy, safety, or public health factors. If Fast Track designation is obtained, sponsors may be eligible for more frequent development meetings andcorrespondence with the FDA. In addition, the FDA may initiate review of sections of an application before the application is complete. This "rolling review"is available if the applicant provides and the FDA approves a schedule for the remaining information. In some cases, a Fast Track product may be eligible foraccelerated approval or priority review. The FDA may give a priority review designation to products that are intended to treat serious conditions and, if approved, would provide significantimprovements in the safety or effectiveness of the29Table of Contentstreatment, diagnosis, or prevention of serious conditions. A priority review means that the goal for the FDA is to review an application within six months,rather than the standard review of ten months under current PDUFA guidelines, of the 60-day filing date. Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningfultherapeutic benefit over existing treatments may receive accelerated approval, which means the FDA may approve the product based upon a surrogateendpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality,that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, orprevalence of the condition and the availability or lack of alternative treatments. A drug or biologic candidate approved on this basis is subject to rigorouspost-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint.Failure to conduct required post-approval studies, or confirm a clinical benefit duringpost-marketing studies, will allow the FDA to withdraw the drug orbiologic from the market on an expedited basis. All promotional materials for drug or biologic candidates approved under accelerated regulations are subjectto prior review by the FDA. Moreover, under the provisions of the Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted in 2012, a sponsor can requestdesignation of a product candidate as a "breakthrough therapy." A breakthrough therapy is defined as a product that is intended, alone or in combination withone or more other products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product maydemonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observedearly in clinical development. Products designated as breakthrough therapies are eligible for the Fast Track designation features as described above, intensiveguidance on an efficient development program beginning as early as Phase 1 trials, and a commitment from the FDA to involve senior managers andexperienced review staff in a proactive collaborative, cross-disciplinary review. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualificationor decide that the time period for FDA review or approval will not be shortened.Post-approval Requirements Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, amongother things, requirements related to manufacturing, recordkeeping, and reporting, including adverse experience reporting, shortage reporting, and periodicreporting, product sampling and distribution, advertising, marketing, promotion, certain electronic records and signatures, and post-approval obligationsimposed as a condition of approval, such as Phase 4 clinical trials, REMS, and surveillance to assess safety and effectiveness after commercialization. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review andapproval. There also are continuing annual user fee requirements for any marketed products and the establishments at which such products are manufactured,as well as new application fees for supplemental applications with clinical data. In addition, manufacturers and other entities involved in the manufacture anddistribution of approved therapeutics are required to register their establishments with the FDA and certain state agencies, list their products, and are subjectto periodic announced and unannounced inspections by the FDA and these state agencies for compliance with cGMP and other requirements, which imposecertain procedural and documentation requirements upon a company and its third-party manufacturers.30Table of ContentsManufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs.Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encountersproblems following initial marketing, or if previously unrecognized problems are subsequently discovered. Changes to the manufacturing process are strictly regulated and often require prior FDA approval or notification before being implemented. FDAregulations also require investigation and correction of any deviations from cGMP and specifications, and impose reporting and documentation requirementsupon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money,and effort in the area of production and quality control to maintain cGMP compliance. Moreover, the enacted Drug Quality and Security Act, or DQSA, imposes obligations on manufacturers of biopharmaceutical products related to producttracking and tracing. Among the requirements of this legislation, manufacturers are required to provide certain information regarding the products toindividuals and entities to which product ownership is transferred, will be required to label products with a product identifier, and are required to keep certainrecords regarding the product. The transfer of information to subsequent product owners by manufacturers will eventually be required to be doneelectronically. Manufacturers must also verify that purchasers of the manufacturers' products are appropriately licensed. Further, under this legislation,manufactures will have product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, andintentionally adulterated products that would result in serious adverse health consequences of death to humans, as well as products that are the subject offraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences ordeath. Similar requirements additionally are and will be imposed through this legislation on other companies within the biopharmaceutical product supplychain, such as distributors and dispensers. Adverse event reporting and submission of periodic reports, including annual reports and deviation reports, are required following FDA approval of aBLA. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or withmanufacturing processes, or failure to comply with regulatory requirements, may result in significant regulatory actions. Such actions may include refusal toapprove pending applications, license suspension or revocation, withdrawal of an approval, imposition of a clinical hold or termination of clinical trials,warning letters, untitled letters, cyber letters, modification of promotional materials or labeling, provision of corrective information, imposition of post-market requirements including the need for additional testing, imposition of distribution or other restrictions under a REMS, product recalls, product seizuresor detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees,corporate integrity agreements, debarment from receiving government contracts, and new orders under existing contracts, exclusion from participation infederal and state healthcare programs, restitution, disgorgement, or civil or criminal penalties, including fines and imprisonment, and result in adversepublicity, among other adverse consequences.Other Regulation In addition to any FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws restrict our business practiceincluding, without limitation, anti-kickback and false claims laws, data privacy and security laws, as well as transparency laws regarding payment or otheritems of value provided to healthcare providers. Future legislative proposals to reform healthcare may also impact us.31Table of Contents We are also governed by other federal, state and local laws of general applicability, such as laws regulating working conditions, employment practices,as well as environmental protection.Research and Development Expenses Our total research and development expenses were $21.8 million and $22.5 million, during the years ended December 31, 2018 and 2017, respectively.See Part II—Item 7—"Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K foradditional detail regarding our research and development activities.Employees As of March 26, 2019, we had 25 employees, including 23 full-time employees and 2 part-time employees. We also use the services of consultants on aregular basis. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our employee relations tobe good.Web Availability We make available free of charge through our website, www.leaptx.com, our Annual Report on Form 10-K, other reports that we file with the Securitiesand Exchange Commission and any amendments to the reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of1934, as amended (the "Exchange Act"), as well as certain of our corporate governance policies, including the charters for the audit, compensation andnominating and governance committees of our board of directors and our code of ethics and corporate governance guidelines. We make these reportsavailable as soon as reasonably practicable after they are filed with or furnished to the SEC. The information contained on, or that can be accessed throughour website is not a part of or incorporated by reference into this Annual Report on Form 10-K. We will also provide to any person without charge, uponrequest, a copy of any of the foregoing materials. Any such request must be made in writing to us at: Leap Therapeutics, Inc. c/o Investor Relations, 47Thorndike Street, Suite B1-1, Cambridge, MA 02141.32Table of Contents Item 1A. Risk Factors. The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks anduncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem lesssignificant may also impair our business operations. Please see the "Special Note Regarding Forward-Looking Statements and Industry Data" at thebeginning of this Annual Report on Form 10-K for a discussion of some of the forward-looking statements that are qualified by these risk factors. If any ofthe following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. Risks Related to Leap's Financial Position and Capital Needs We have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future. We are a clinical-stage biopharmaceutical company with a limited operating history on which to base your investment decision. Investment inbiopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that our twoproduct candidates, DKN-01 and TRX518, or any other products will fail to gain regulatory approval or become commercially viable. We have only twoclinical-stage product candidates, which are at the early stages of clinical development. We do not have any products approved by regulatory authorities formarketing and have not generated any revenue from product sales. We incur significant research, development and other expenses related to our ongoingoperations. As a result, we are not profitable and have incurred losses in every reporting period since our inception in 2011. For the year ended December 31, 2018,we reported a net loss of $23.1 million, and had an accumulated deficit of $153.5 million at December 31, 2018. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate these losses to increase as we continuethe research and development of, and seek regulatory approvals for DKN-01 and TRX518, and we potentially begin to commercialize DKN-01 and TRX518,if they receive regulatory approval. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adverselyaffect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Ifeither or both of DKN-01 or TRX518 fails in clinical trials or does not gain regulatory approval, or if approved, fails to achieve market acceptance, we maynever become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.We currently have no source of product revenue and may never become profitable. We have not generated any revenues, and we have no commercial products. Our ability to generate revenue from product sales and achieve profitabilitywill depend upon our ability to successfully gain regulatory approval and commercialize DKN-01 or TRX518 or other product candidates that we may in-license or acquire in the future. Even if we are able to successfully achieve regulatory approval, we do not know when we will generate revenue from productsales, if at all. Our ability to generate revenue from product sales from any product candidates also depends on a number of additional factors, including butnot limited to, our ability to:•initiate and successfully complete development activities, including enrollment of study participants and completion of the necessary clinicaltrials; •complete and submit new drug applications, or NDAs, or biologics license applications, or BLAs, to the FDA and obtain regulatory approvalfor indications for which there is a commercial market;33Table of Contents•complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities; •make or have made commercial quantities of our products at acceptable cost levels; •develop a commercial organization capable of manufacturing, sales, marketing and distribution for any products we intend to sell ourselves inthe markets in which we choose to commercialize on our own; •find suitable partners to help us market, sell and distribute our approved products in other markets; and •obtain adequate pricing, coverage and reimbursement from third parties, including government and private payors. In addition, because of the numerous risks and uncertainties associated with product development, including that DKN-01 or TRX518 may not advancethrough development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or ifwe will be able to achieve or maintain profitability. Even if we are able to complete the development and regulatory process for DKN-01 and/or TRX518, weanticipate incurring significant costs associated with commercializing these products, including in building the requisite sales and marketing capabilities tosell such products (which itself may pose financial and operational risks). Even if we are able to generate revenues from the sale of our products, we may not become profitable and will need to obtain additional funding tocontinue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, and we are not successful in obtainingadditional funding, then we may be unable to continue our operations at planned levels.We will require additional capital to fund our operations and if we fail to obtain necessary financing, we may be unable to complete the development andpotential commercialization of DKN-01 or TRX518 or acquire other products. Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to advance the clinicaldevelopment of DKN-01 and TRX518 and launch and commercialize these product candidates, if we receive regulatory approval. We will require additionalcapital for the further development and potential commercialization. If we are unable to raise capital when needed or on attractive terms, we could be forcedto delay, reduce or eliminate our research and development programs or any future commercialization efforts. We believe that our cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next12 months from the date of this filing. We have based this estimate on assumptions that may prove to be wrong, and we could deploy our available capitalresources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limitedto the:•initiation, progress, timing, costs and results of pre-clinical studies and clinical trials for our product candidates; •costs and timing of additional clinical trial and commercial manufacturing activities; •clinical development plans we establish for DKN-01, TRX518, and any other future product candidates; •number and characteristics of any new product candidates that we in-license and develop;34Table of Contents•outcome, timing and cost of regulatory review by the FDA and comparable foreign regulatory authorities, including the potential for the FDAor comparable foreign regulatory authorities to require that we perform more studies than those that we currently expect; •costs of filing, prosecuting, defending and enforcing any patent claims and maintaining and enforcing other intellectual property rights; •effect of competing product candidates and market developments; and •costs and timing of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatoryapproval. If we are unable to fund our operations or otherwise capitalize on our business opportunities due to a lack of capital, our ability to become profitable willbe compromised.Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our productcandidates. Until we can generate substantial revenue from product sales, if ever, we expect to seek additional capital through a combination of private and publicequity offerings, debt financings, strategic collaborations and alliances and licensing arrangements. To the extent that we raise additional capital through thesale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms may include liquidation or otherpreferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include liens or otherrestrictive covenants limiting our ability to take important actions, such as incurring additional debt, making capital expenditures or declaring dividends. Ifwe are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our productdevelopment or commercialization efforts or grant rights to develop and market our product candidates that we would otherwise prefer to develop and marketourselves. If we raise additional funds through strategic collaborations and alliances or licensing arrangements with third parties, we may have to relinquishvaluable rights to our product candidates in particular countries, or grant licenses on terms that are not favorable to us.Future utilization of net operating loss carryfowards may be limited. As of December 31, 2018, we had federal, state and foreign net operating loss carryforwards of $106.9 million, $87.9 million and $69.9 million,respectively, which begin to expire in 2030. We may be able to utilize our net operating loss carryforwards to reduce future federal and state income taxliabilities. However, these net operating losses are subject to various limitations under Section 382 of the U.S. Internal Revenue Code of 1986, as amended("IRC"). In accordance with Section 382 of the IRC, a change in equity ownership of greater than 50% of the Company within a three-year period can result inan annual limitation on the Company's ability to utilize its net operating loss carryforwards that were created during tax periods prior to the change inownership. A change in ownership may result from the issuance of common or preferred shares of the Company, among other events.We rely on a Research & Development Incentive program to finance our operations in Australia, which could be amended or changed. We have also financed our business operations through R&D Incentive income. The research and development tax incentive is one of the key elementsof Australian Government's support for Australia's innovation system and if eligible, provides the recipient with a refundable tax offset for research anddevelopment activities. For the year ended December 31, 2018 we recorded research and development incentive income receivable of $0.8 million,representing the applicable percentage of our expected eligible expenses net of our current Australia tax liability. For the 2018 financial year, the35Table of Contentsrefundable research and development rate was 43.5% of eligible expenses. There are proposals to cap the total refundable payments to Australian $2 millionon an annual basis. There can be no assurance that we will continue to qualify and be eligible for such incentives or that the Australian Government willcontinue to provide incentives, offset, grants and rebates on similar terms or at all.A large percentage of the Company's shares are held by a few stockholders, some of whom are affiliated with members of the Company's management andour board of directors. As these principal stockholders substantially control the Company's corporate actions, our other stockholders may face difficulty inexerting any influence over matters not supported by these principal stockholders. The Company's principal stockholders include HealthCare Ventures VIII, L.P., HealthCare Ventures IX, L.P. and HealthCare Ventures Strategic Fund, L.P.(the "Funds") and Eli Lilly and Company. Each of Christopher Mirabelli, our Chief Executive Officer, Douglas Onsi, our Chief Financial Officer, AugustineLawlor, our Chief Operating Officer, John Littlechild, a director, and James Cavanaugh, a director, are affiliated with the Funds and may be deemed to havean indirect beneficial ownership interest in the stock owned by the Funds. As of March 26, 2019, these principal stockholders collectively ownedapproximately 39% of the Company's then outstanding shares of common stock. These stockholders, acting individually or as a group, may be able to exertcontrol over matters such as electing directors, amending the Company's certificate of incorporation or bylaws, or approving mergers or other businesscombinations or transactions. In addition, because of the percentage of ownership and voting concentration in these principal stockholders, elections of theCompany's board of directors may be within the control of these stockholders. While all of the Company's stockholders are entitled to vote on matterssubmitted to the Company's stockholders for approval, the concentration of shares and voting control presently lies with these principal stockholders. Assuch, it would be difficult for stockholders to propose and have approved proposals not supported by these principal stockholders. There can be no assurancethat matters voted upon by the Company's officers and directors in their capacity as stockholders will be viewed favorably by all stockholders of theCompany. The stock ownership of the Company's principal stockholders may discourage a potential acquirer from seeking to acquire shares of theCompany's common stock which, in turn, could reduce the Company's stock price or prevent the Company's stockholders from realizing a premium over theCompany's stock price. Risks Related to Our Business and Industry 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 preclinical studies, preliminary study results, and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials or the ultimately completed trial. For instance, while we have preliminary study results for our clinical studies of DKN-01 inesophagogastric cancer, gynecologic cancer, and biliary tract cancer, as well as our two clinical studies of TRX518, these studies are still ongoing and theultimate study results may be different than the preliminary ones we have seen to date. Moreover, while we have seen preliminary favorable results inindividual study subjects, these results may not be representative of the ultimate study population. Finally, the clinical trials conducted to date for DKN-01and TRX518 are relatively small, open-label, uncontrolled studies. Preliminary and final results from such studies may not be representative of study resultsthat are found in larger, controlled, blinded, and more long term studies. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinicalstudies and initial clinical trials. Preclinical studies may also reveal unfavorable product candidate characteristics, including safety concerns. In someinstances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerousfactors, including changes in trial procedures set forth36Table of Contentsin protocols, the impact of an active comparator arm, differences in the size and type of the patient populations, changes in and adherence to the clinical trialprotocols, changes in medical prescribing practices, and the rate of dropout among clinical trial participants. Our future clinical trial results may not be successful. A number of companies in the biopharmaceutical industry have suffered significant setbacks inadvanced clinical trials, notwithstanding promising results in earlier trials. Moreover, should there be a flaw in a clinical trial, it may not become apparentuntil the clinical trial is well advanced. Further, because we currently plan to develop our product candidates for use with established oncology products, thedesign, implementation, and interpretation of the clinical trials necessary for marketing approval may be more complex than if we were developing ourproduct candidates alone. We may also experience numerous unforeseen events during, or as a result of, clinical trials that could delay or adversely affect our existing or futuredevelopment programs, including:•we may have delays in identifying and adding new investigators or clinical trial sites, we may experience delays in reaching, or fail to reach,agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and our CROs or we may experience awithdrawal of clinical trial sites; •the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trialsmay be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; •clinical trials of our product candidates may produce negative or inconclusive results, or our studies may fail to reach the necessary level ofstatistical significance, and we may decide to conduct additional clinical trials or abandon product development programs; •we may not be able to demonstrate that a product candidate provides an advantage over current standards of care or current or futurecompetitive therapies in development. •the cost of clinical trials of our product candidates may be greater than we anticipate or we may have insufficient funds for a clinical trial; •the supply or quality of the clinical trial material of our product candidates may be insufficient or inadequate to conduct clinical trials; and •there may be changes to the therapeutics or their regulatory status which we are administering in combination with our product candidates orchanges to standard of care, which require that we change our study design, or otherwise halt, discontinue or delay our clinical studies. Thisoccurred for a multiple myeloma study that we were conducting. In that case, the standard of care changed such that we were no longer able torecruit study subjects under the study protocol.The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, especiallyfor an early-stage company such as ours. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be ableto commercialize our product candidates as expected, and our ability to generate revenue will be materially impaired. Because we are at the early stages of the clinical and regulatory development of our product candidates, the time required to obtain approval for themfrom the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and dependsupon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a productcandidate's clinical development and may37Table of Contentsvary among jurisdictions. These may require us to amend our clinical trial protocols, conduct additional studies that require regulatory or institutional reviewboard, or IRB, approval, or otherwise cause delays in the approval or rejection of an application. We have not obtained regulatory approval for any productcandidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtainregulatory approval. Moreover, we have only completed early studies and enrolled limited numbers of patients for both DKN-01 and TRX518. Both DKN-01and TRX518 will require additional preclinical and clinical development, as well as additional manufacturing development before we will be able to submitmarketing applications to the FDA. Moreover, should the FDA determine that a companion diagnostic device is required for use of our product candidates orshould we decide to pursue the development of a companion diagnostic device for the use of our product candidates, further development work would berequired for such a device, including, possibly the approval of an Investigational Device Exemption for the study of such a device from the FDA, compliancewith the FDA's device regulations, and either FDA clearance or approval of the device for commercial use. Such development would potentially takeadditional time and be subject to the risk of FDA non-approval or clearance of the diagnostic. Any delay in obtaining or failure to obtain required approvalscould materially adversely affect our ability or that of any of our future collaborators to generate revenue from the particular product candidate, which likelywould result in significant harm to our financial position and adversely impact our stock price. Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety,efficacy, recordkeeping, labeling, storage, approval, advertising, marketing, promotion, sale, and distribution, are subject to comprehensive regulation by theFDA and other regulatory agencies in the United States and by the EMA, and similar regulatory authorities outside the United States and Europe. Failure toobtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have no experience in filing andsupporting the applications necessary to gain marketing approvals and expect to rely on third-party clinical research organizations, or CROs, and consultantsto assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information toregulatory authorities for each therapeutic indication to establish the product candidate's safety, purity, and potency for that indication. Securing marketingapproval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and clinical trialsites by, the regulatory authorities. We may also experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketingapproval or commercialize our product candidates, including:•regulators or IRBs may not authorize us or our investigators to commence a clinical trial or to conduct a clinical trial at a prospective trial site,we may fail to reach an agreement with regulators or IRBs regarding the scope, design, or implementation of our clinical trials or regulators orIRBs may require that we modify or amend our clinical trial protocols; •our third-party contractors may fail to comply with regulatory requirements, standard operating procedures or the clinical trial protocol, ormeet their contractual obligations to us in a timely manner, or at all, or we may be required to engage in additional clinical trial sitemonitoring or manufacturing activities; •we, the regulators, or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, includingnoncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable sideeffects, or other unexpected characteristics of the product candidate, or due to findings of38Table of Contentsundesirable effects caused by a chemically or mechanistically similar therapeutic or therapeutic candidate;•changes in or the enactment of additional statutes or regulations; •there may be changes in marketing approval or regulatory review policies during the development period rendering our data insufficient toobtain marketing approval; •we may decide, or regulators may require us, to conduct additional clinical trials, analyses, reports, data, or preclinical trials, or we mayabandon product development programs; •there may be regulatory questions or disagreements regarding interpretations of data and results, or new information may emerge regarding ourproduct candidates, the FDA or comparable foreign regulatory authorities may disagree with our study design or our interpretation of data frompreclinical studies and clinical trials or find that a product candidate's benefits do not outweigh its safety risks; •the FDA or comparable regulatory authorities may disagree with our intended indications; •the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or ourmanufacturing facilities for clinical and future commercial supplies; •the data collected from clinical trials of our product candidates or any additional product candidate may not be sufficient to the satisfaction ofthe FDA or comparable foreign regulatory authorities to support the submission of a BLA, or other comparable submission in foreignjurisdictions or to obtain regulatory approval in the United States or elsewhere; and •the FDA or comparable regulatory authorities may take longer than we anticipate to make a decision on our product candidates. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data areinsufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinicaland clinical testing could delay, limit or prevent marketing approval of a product candidate. The number and types of preclinical studies and clinical trialsthat will be required for regulatory approval also varies depending on the product candidate, the disease or condition that the product candidate is designedto address, and the regulations applicable to any particular product candidate. Approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate'sclinical development and may vary among jurisdictions, and there may be varying interpretations of data obtained from preclinical studies or clinical trials,either of which may cause delays or limitations in the approval or the decision not to approve an application. It is possible that neither of our productcandidates nor any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or anyfuture collaborators to commence product sales. Finally, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications oruses than we request, may contain significant safety warnings, including black box warnings, contraindications, and precautions, may grant approvalcontingent on the performance of costly post-marketing clinical trials, surveillance, or other requirements, including risk evaluation and mitigationstrategies, or REMS, to monitor the safety or efficacy of the product, or may approve a product candidate with a label that does not include the labelingclaims necessary or desirable for the successful commercialization of that product candidate. Any of these scenarios could compromise the commercialprospects for our product candidates.39Table of Contents If we experience delays in obtaining approval, if we fail to obtain approval of a product candidate or if the label for a product candidate does not includethe labeling claims necessary or desirable for the successful commercialization of that product candidate, the commercial prospects for such productcandidate may be harmed and our ability to generate revenues from that product candidate will be materially impaired.If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed orprevented. We may not be able to initiate or continue conducting clinical trials for our product candidates if we are unable to locate and enroll a sufficient numberof eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Some of our competitorshave ongoing clinical trials for product candidates that treat the same indications or use the same mechanism of action as our product candidates, andpatients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors' product candidates. Patient enrollmentis affected by other factors including:•the size and nature of the patient population; •the severity of the disease under investigation; •the eligibility criteria for, and design of, the clinical trial in question, including factors such as frequency of required assessments, length of thestudy and ongoing monitoring requirements; •the perceived risks and benefits of the product candidate under study, including the potential advantages or disadvantages of the productcandidate being studied in relation to other available therapies; •competition in recruiting and enrolling patients in clinical trials; •the efforts to facilitate timely enrollment in clinical trials; •the patient referral practices of physicians; •effectiveness of publicity created by clinical trial sites regarding the trial; •patients' ability to comply with the specific instructions related to the trial protocol, proper documentation, and use of the biologic product; •our inability to obtain or maintain patient informed consents; •the risk that enrolled patients will drop out before completion or not return for post-treatment follow-up; •the ability to monitor patients adequately during and after treatment; and •the proximity and availability of clinical trial sites for prospective patients. Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or moreclinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, or the inability to complete development ofour product candidates, which would materially impair our ability to generate revenues, limit our ability to obtain additional financing and cause the valueof our company to decline.40Table of ContentsThe FDA may determine that any of our current or future product candidates have undesirable side effects that could delay or prevent their regulatoryapproval or commercialization. Undesirable side effects caused by our product candidates could cause us, IRBs, and other reviewing entities or regulatory authorities to interrupt, delay,or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreignauthorities. For example, if concerns are raised regarding the safety of a new therapeutic as a result of undesirable side effects identified during clinical orpreclinical testing, the FDA may order us to cease further development, decline to approve a product candidate or issue a letter requesting additional data orinformation prior to making a final decision regarding whether or not to approve the biologic. FDA requests for additional data or information can result insubstantial delays in the approval of a new biologic. Undesirable side effects caused by any of our current or future product candidates could also result in denial of regulatory approval by the FDA or othercomparable foreign authorities for any or all targeted indications or the inclusion of unfavorable information in our product labeling, such as limitations onthe indicated uses for which the products may be marketed or distributed, a label with significant safety warnings, including boxed warnings,contraindications, and precautions, a label without statements necessary or desirable for successful commercialization, or may result in requirements forcostly post-marketing testing and surveillance, or other requirements, including REMS, to monitor the safety or efficacy of the products, and in turn preventus from commercializing and generating revenues from the sale of our current or future product candidates. If any of our product candidates is associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may needto abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or othercharacteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. The therapeutic-related side effects could affect patientrecruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may significantlyharm our business, financial condition, results of operations, and prospects.Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad. In order to market and sell our products in the European Union and other jurisdictions, we or our third-party collaborators must obtain separate marketingapprovals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additionaltesting, in some cases involving clinical trials involving subjects from the country. The time required to obtain approval may differ substantially from thatrequired to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDAapproval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can beapproved for sale in that country. We or these third parties may not obtain approvals from regulatory authorities outside the United States on a timely basis, ifat all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authorityoutside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. However, the failure to obtainapproval in one jurisdiction may compromise our ability to obtain approval elsewhere. We may not be able to file for marketing approvals and may notreceive necessary approvals to commercialize our products in any market.41Table of ContentsEven if our product candidates receive regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may resultin significant additional expense. Additionally, any of our product candidates, if approved, could be subject to labeling and other restrictions and marketwithdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products. Any product candidate for which we obtain marketing approval will be subject to extensive and ongoing requirements of and review by the FDA andother regulatory authorities, including requirements related to the manufacturing processes, post-approval clinical data, labeling, packaging, distribution,adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such product. These requirementsfurther include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listingrequirements, the payment of annual fees for our product candidates, if approved, and the establishments at which they are manufactured, continuedcompliance with cGMP requirements relating to manufacturing, quality control, quality assurance, and corresponding maintenance of records anddocuments, requirements regarding the distribution of samples to physicians and recordkeeping, and good clinical practices, or GCPs, for any clinical trialsthat we conduct post-approval. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses and populations for whichthe product may be marketed or to the conditions of approval, including significant safety warnings, including boxed warnings, contraindications, andprecautions that are not desirable for successful commercialization and any requirement to implement a REMS that render the approved product notcommercially viable or other post-market requirements or restrictions. Moreover, the FDA and comparable foreign regulatory authorities will continue toclosely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safetyinformation after approval of any of our product candidates, they may withdraw approval, require labeling changes or establishment of a REMS or similarstrategy, impose significant restrictions on a product's indicated uses or marketing, or impose ongoing requirements for potentially costly post-approvalstudies or post-market surveillance. Any such restrictions could limit sales of the product. We and any of our collaborators, including our contract manufacturers, could be subject to periodic unannounced inspections by the FDA to monitor andensure compliance with cGMPs. Application holders must further notify the FDA, and depending on the nature of the change, obtain FDA pre-approval forproduct and manufacturing changes. Application fees may apply to certain changes. In addition, later discovery of previously unknown adverse events or that the product is less effective than previously thought or other problems with ourproducts, manufacturers or manufacturing processes, or failure to comply with regulatory requirements both before and after approval, may yield variousresults, including:•restrictions on manufacturing or distribution, or marketing of such products; •restrictions on the labeling, including required additional warnings, such as black box warnings, contraindications, precautions, andrestrictions on the approved indication or use; •modifications to promotional pieces; •requirements to conduct post-marketing studies or clinical trials; •clinical holds or termination of clinical trials; •requirements to establish or modify a REMS or a comparable foreign authority may require that we establish or modify a similar strategy, thatmay, for instance, require us to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution42Table of Contentsto patients, or restrict distribution of the product, if and when approved, and impose burdensome implementation requirements on us;•changes to the way the biologic is administered; •liability for harm caused to patients or subjects; •reputational harm; •the product becoming less competitive; •warning, untitled, or cyber letters; •suspension of marketing or withdrawal of the products from the market; •regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing warnings orother safety information about the biologic; •refusal to approve pending applications or supplements to approved applications that we submit; •recalls of products; •fines, restitution or disgorgement of profits or revenues; •suspension or withdrawal of marketing approvals; •refusal to permit the import or export of our products; •product seizure or detention; •FDA debarment, debarment from government contracts, and refusal of future orders under existing contracts, exclusion from federal healthcareprograms, consent decrees, or corporate integrity agreements; or •injunctions or the imposition of civil or criminal penalties, including imprisonment. Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, or couldsubstantially increase the costs and expenses of commercializing such product, which in turn could delay or prevent us from generating significant revenuesfrom its sale. Any of these events could further have other material and adverse effects on our operations and business and could adversely impact our stockprice and could significantly harm our business, financial condition, results of operations, and prospects.Laws, regulatory policies, and medical practices could change in ways that are not favorable to us. The FDA's policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of ourproduct candidates, that could limit the marketability of our product candidates, or that could impose additional regulatory obligations on us if our productcandidates are approved. Changes in medical practice and standard of care may also impact the marketability of our product candidates. For instance, becausewe are currently planning to develop our product candidates for use with other cancer therapies, should there be a change to the regulatory status of the othertherapy or should the standard of care change, the marketability of our product candidates would be impacted. If we are slow or unable to adapt to changes in existing requirements, standards of care, or the adoption of new requirements or policies, or if we are notable to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and be subject to regulatory enforcement action.Should any of the above actions take place, they could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance withpost-approval regulations may have a negative effect on our operating results and financial condition.43Table of Contents Risks Related to the Development and Commercialization of Our Product Candidates The therapeutic safety and efficacy of DKN-01 and TRX518 is unproven, and we may not be able to successfully develop and commercialize DKN-01 orTRX518. DKN-01 and TRX518 are novel monoclonal antibodies and their potential benefit as a therapeutic cancer drug is unproven. Our ability to generaterevenues from the sales of our products, which we do not expect will occur in the short term, if ever, will depend on successful development andcommercialization after approval, if achieved, which is subject to many potential risks. DKN-01 or TRX518 may interact with human biological systems inunforeseen, ineffective or harmful ways. If either DKN-01 or TRX518 is associated with undesirable side effects or has characteristics that are unexpected, wemay need to abandon its development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics areless prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early stage testing fortreating cancer have later been found to be ineffective in later stage studies or cause side effects that prevented further development of the compound. As aresult of these and other risks described herein that are inherent in the development of novel therapeutic agents, we may never successfully develop, enterinto or maintain third party licensing or collaboration transactions with respect to, or successfully commercialize DKN-01 or TRX518, in which case we willnot achieve profitability and the value of our stock may decline.The results of preclinical studies or early clinical trials are not necessarily predictive of future results, and DKN-01 or TRX518 may not have favorableresults in later clinical trials or receive regulatory approval. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy andsafety of DKN-01 or TRX518. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources andexperience than we have, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier clinical trials. Despite the resultsreported in earlier preclinical and clinical trials for DKN-01 and TRX518, we do not know whether the clinical trials we may conduct will demonstrateadequate efficacy and safety to result in regulatory approval to market DKN-01 or TRX518 in any particular jurisdiction. If our clinical trials do not producefavorable results, our ability to achieve regulatory approval for DKN-01 or TRX518 will be adversely impacted and the value of our stock may decline.Our future success is dependent primarily on the regulatory approval and commercialization of DKN-01 and TRX518, which are currently undergoingearly stage clinical trials. We do not have any products that have gained regulatory approval. Currently, our only clinical-stage product candidates are DKN-01 and TRX518. As aresult, our business is substantially dependent on our ability to obtain regulatory approval for, and, if approved, to successfully commercialize DKN-01 orTRX518 or other products in a timely manner. We cannot commercialize these products in the U.S. without first obtaining regulatory approval from the FDA;similarly, we cannot commercialize these products outside of the U.S. without obtaining regulatory approval from comparable foreign regulatory authorities.Before obtaining regulatory approvals for the commercial sale of these products for a target indication, we must demonstrate with substantial evidencegathered in preclinical studies and well-controlled clinical trials, that these products are safe and effective for use for that target indication and that themanufacturing facilities, processes and controls are adequate. Even if these products were to successfully obtain approval from the FDA and comparableforeign regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions orcontraindications, or may be subject to burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval inone or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient44Table of Contentsfunding or generate sufficient revenue to continue the development of any other product candidate that we may discover, in-license, develop or acquire inthe future. Furthermore, even if we obtain regulatory approval for our products, we will still need to develop a commercial organization or strategy, establishcommercially viable pricing and obtain approval for adequate reimbursement from third-party and government payors. If we are unable to successfullycommercialize our products, we may not be able to earn sufficient revenues to continue our business.Our commercial success depends upon attaining significant market acceptance of DKN-01 or TRX518, if approved, among physicians, patients, healthcarepayors and the major operators of cancer clinics. Even if we obtain regulatory approval for DKN-01 or TRX518, DKN-01 or TRX518 may not gain market acceptance among physicians, healthcarepayors, patients or the medical community. Market acceptance of DKN-01 or TXR518, if we receive approval, depends on a number of factors, including the:•efficacy and safety of DKN-01 or TRX518 each as demonstrated in clinical trials and post-marketing experience; •clinical indications for which DKN-01 or TRX518 is approved; •acceptance by physicians, major operators of cancer clinics and patients of DKN-01 or TRX518 as a safe and effective treatment; •potential and perceived advantages of DKN-01 or TRX518 over alternative treatments; •product labeling or product insert requirements of the FDA or other regulatory authorities; •timing of market introduction of DKN-01 or TRX518 as well as competitive products; •cost of treatment in relation to alternative treatments; •availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities; •relative convenience and ease of administration; and •effectiveness of our sales and marketing efforts. Moreover, if DKN-01 or TRX518 is approved but fails to achieve market acceptance among physicians, patients, or healthcare payors, we may not beable to generate significant revenues, which would compromise our ability to become profitable.If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our productcandidates, if they are approved, we may be unable to generate product revenues. We currently do not have a commercial infrastructure for the marketing, sale, and distribution of pharmaceutical products. If approved, in order tocommercialize our products, we must build our marketing, sales, and distribution capabilities or make arrangements with third parties to perform theseservices. We may not be successful in doing so. Should we decide to develop our own marketing capabilities, we will incur substantial expenses prior toproduct launch or even approval in order to recruit a sales force and develop a marketing and sales infrastructure. If a commercial launch is delayed as a resultof FDA requirements or other reasons, we would incur these expenses prior to being able to realize any revenue from sales of our product candidates. Even ifwe are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful incommercializing our current or future product candidates.45Table of Contents We have no prior experience in the marketing, sale, and distribution of pharmaceutical products, and there are significant risks involved in the buildingand managing of a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market anyproducts we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop thiscapability. We, or our future collaborators, will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train, manage, andretain marketing and sales personnel. We may also or alternatively decide to collaborate with a third-party marketing and sales organization to commercialize any approved productcandidates, in which event, our ability to generate product revenue may be reduced. To the extent we rely on third parties to commercialize any products forwhich we obtain regulatory approval, we may receive less revenue than if we commercialized these products ourselves. In addition, we would have lesscontrol over the sales efforts of any other third parties involved in our commercialization efforts, and could be held liable if they failed to comply withapplicable legal or regulatory requirements.Even if we are able to commercialize DKN-01 or TRX518, DKN-01 or TRX518 may not receive coverage and adequate reimbursement from third-partypayors, which could harm our business. Our ability to commercialize DKN-01 or TRX518 successfully will depend, in part, on the extent to which coverage and adequate reimbursement forDKN-01 or TRX518 and related treatments will be available from government health administration authorities, private health insurers and otherorganizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, determine whichmedications they will cover and establish reimbursement levels. We cannot be sure that coverage and adequate reimbursement will be available for DKN-01or TRX518 and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the priceof, DKN-01 or TRX518, if we obtain marketing approval. If reimbursement is not available or is available only at limited levels, we may not be able tosuccessfully commercialize DKN-01 or TRX518, if we obtain marketing approval. There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than thepurposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement doesnot imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution.Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to obtaincoverage and profitable reimbursement rates from both government-funded and private payors for any approved products that we develop could have amaterial adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully than, we do. The development and commercialization of new drug products is highly competitive, especially in the oncology space in which we operate. We facecompetition with respect to DKN-01 and TRX518, and will face competition with respect to any other product candidates that we may seek to develop orcommercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There area number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for thetreatment of cancer. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach forDKN-01 or TRX518, and others are based on entirely different approaches. For example, there are several companies developing46Table of Contentsproduct candidates that target the same cancer pathways that we are targeting or that are testing product candidates in the same cancer indications that we aretesting. For example, Novartis AG, or Novartis, Merck & Co., or Merck, and Pfizer, Inc. are all currently developing or have previously been developing anti-DKK1 monoclonal antibodies. Additionally, Merck, Novartis, Bristol-Myers Squibb Company, AstraZeneca PLC, and Incyte Corporation, are all developingor have previously been developing a GITR agonist monoclonal antibody. More established companies may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared tous, many of our competitors may have significantly greater financial, technical and human resources. As a result of these factors, our competitors may obtainregulatory approval of their products before we are able to, which may limit our ability to develop or commercialize DKN-01 or TRX518. Our competitorsmay also develop drugs that are safer, more effective, more widely used and cheaper than ours, and may also be more successful than us in manufacturing andmarketing their products. These appreciable advantages could render DKN-01 or TRX518 non-competitive before we can recover the expenses ofdevelopment and commercialization.Our product candidates may face biosimilar competition sooner than anticipated. The enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the Affordable Care Act, or ACA, created anabbreviated pathway for the approval of biosimilar and interchangeable biological products. The abbreviated regulatory pathway establishes legal authorityfor the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as "interchangeable" based on its similarity to anexisting brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original brandedproduct was approved under a BLA. We believe our product candidates approved as a biological product under a BLA should qualify for the BPCIA's 12-year period of exclusivity. However,this period of regulatory exclusivity does not apply to companies pursuing regulatory approval via their own traditional BLA, rather than via the abbreviatedpathway. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar totraditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are stilldeveloping. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subjectto uncertainty. While it is uncertain when such processes intended to implement the BPCIA may be fully adopted by the FDA, any such processes could havea material adverse effect on the future commercial prospects for our biological products. Future proposed budgets, international trade agreements and otherarrangements or proposals may also affect periods of exclusivity in the future.We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for our current or futureproduct candidates and may have to limit their commercialization. The use of our current or future product candidates in clinical trials, and the sale of any of our product candidates for which we obtain regulatoryapproval, exposes us to the risk of product liability claims. We face inherent risk of product liability related to the testing of our product candidates in humanclinical trials and will face an even greater risk if we commercially sell any product candidates that we may develop. Product liability claims might bebrought against us by consumers, healthcare providers or others using, administering or selling our products. If we cannot successfully defend ourselvesagainst these claims, we will incur substantial liabilities or be required to limit47Table of Contentscommercialization of our product candidates. Even successful defense would require significant financial and management resources. While we currently carry insurance that we believe is appropriate for a company at our stage of development, our insurance coverage may not reimburseus or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and,in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. Onoccasion, large judgments have been awarded in class action lawsuits based on therapeutics that had unanticipated side effects. A successful product liabilityclaim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash andadversely affect our business and our prospects.Laws and regulations governing international operations may preclude us from developing, manufacturing and selling product candidates outside of theU.S. and require us to develop and implement costly compliance programs. As we seek to expand our operations outside of the U.S., we must comply with numerous laws and regulations in each jurisdiction in which we plan tooperate. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce,particularly where reliance on third parties is required. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anythingof value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity inorder to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the U.S. tocomply with certain accounting provisions requiring such companies to maintain books and records that accurately and fairly reflect all transactions of thecorporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice, or DOJ. The Securities and Exchange Commission, or theCommission, is involved with enforcement of the books and records provisions of the FCPA. Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPApresents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and otherhospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to beimproper payments to government officials and have led to FCPA enforcement actions. Various laws, regulations and executive orders also restrict the use and dissemination outside of the U.S., or the sharing with certain non-U.S. nationals,of information classified for national security purposes, as well as certain products and technical data relating to those products. Our presence outside of theU.S. will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or sellingDKN-01 or TRX518 outside of the U.S., which could increase our development costs and limit our growth potential. The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment fromgovernment contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspensionof the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-termdisqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy48Table of Contentsany of our obligations under laws governing international business practices, which would have a negative impact on our business and harm our reputationand ability to procure government contracts. The Commission also may suspend or bar issuers from trading securities on U.S. exchanges for violations of theFCPA's accounting provisions.Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws andregulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and futureearnings. Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates forwhich we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuseand other healthcare laws and regulations that may affect the business or financial arrangements and relationships through which we would market, sell anddistribute our products. Federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to ourbusiness. Restrictions under applicable federal and state healthcare laws and regulations that may affect our operations (including our marketing, promotion,educational programs, pricing, and relationships with healthcare providers or other entities, among other things) and expose us to areas of risk include thefollowing: (i) the federal healthcare Anti-Kickback Statute; (ii) federal civil and criminal false claims laws and civil monetary penalty laws; (iii) the federalHealth Insurance Portability and Accountability Act of 1996, or HIPAA; (iv) HIPAA, as amended by the Health Information Technology for Economic andClinical Health Act, or HITECH; (v) the federal physician sunshine requirements under the Affordable Care Act; and (vi) analogous state and foreign laws andregulations, such as state anti-kickback and false claims laws and state and foreign laws governing the privacy and security of health information in specifiedcircumstances. Efforts to ensure that our business arrangements with third parties are compliant with applicable healthcare laws and regulations will involve theexpenditure of appropriate, and possibly significant, resources. Nonetheless, it is possible that governmental authorities will conclude that our businesspractices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws andregulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subjectto significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such asMedicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom weexpect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, includingexclusions from government funded healthcare programs.We will need to grow the size of our organization, and we may experience difficulties in managing this growth. As of March 26, 2019, we had 23 full-time employees and 2 part-time employees, of whom six hold Ph.D. degrees and two hold an M.D. degree. We willneed additional managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities onmembers of management, including:•identifying, recruiting, maintaining, motivating and integrating additional employees; •improving our managerial, development, operational and finance systems; and •expanding our facilities. Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific,technical and managerial personnel. The competition for49Table of Contentsqualified personnel in the pharmaceutical field is intense and as a result, we may be unable to continue to attract and retain qualified personnel necessary forthe development of our business. As our operations expand, we will also need to manage additional relationships with various strategic partners, suppliersand other third parties. Our future financial performance and our ability to develop and commercialize DKN-01 or TRX518, if approved, and to competeeffectively will depend, in part, on our ability to manage future growth effectively. Our failure to accomplish any of these tasks could prevent us fromsuccessfully growing our company.We may acquire other assets, form collaborations or make investments in other companies or technologies, that could harm our operating results, diluteour stockholders' ownership, increase our debt or cause us to incur significant expense. As part of our business strategy, we may pursue acquisitions of assets, including preclinical or clinical stage product candidates, or enter into strategicalliances and collaborations to expand our existing programs and operations. We may not identify or complete these transactions in a timely manner, on acost-effective basis, or at all, and we may not realize the anticipated benefits of any such transaction, any of which could have a detrimental effect on ourfinancial condition, results of operations and cash flows. We may not be able to find suitable acquisition candidates, and if we make any acquisitions, we maynot be able to integrate these acquisitions successfully into our existing business and we may incur additional debt or assume unknown or contingentliabilities in connection therewith. Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additionalpersonnel and the implementation of additional internal systems and infrastructure, and require management resources that would otherwise focus ondeveloping our existing business. We may not be able to find suitable strategic alliance or collaboration partners or identify other investment opportunities,and we may experience losses related to any such investments. To finance any acquisitions or collaborations, we may choose to issue debt or shares of our common stock as consideration. Any such issuance of shareswould dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other assets or companiesor fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public orprivate financings. Additional funds may not be available on terms that are favorable to us, or at all. Risks Related to Our Dependence on Third Parties We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials. If these third partiesdo not carry out their contractual duties or do not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing tocomply with regulatory requirements, our business could be substantially harmed. We rely on third-party contract research organizations, or CROs, to conduct, supervise, and monitor our preclinical and clinical trials for our productcandidates. We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinicalinvestigators, to conduct our preclinical studies and clinical trials. While we have agreements governing their activities, we have limited influence over theiractual performance and control only certain aspects of their activities. The failure of these third parties to successfully carry out their contractual duties ormeet expected deadlines could substantially harm our business, because we may be delayed in completing or unable to complete the clinical trials requiredto support future approval of our product candidates, or we may not obtain marketing approval for or commercialize our product candidates in timely manneror at all. Moreover, these agreements might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter intoalternative arrangements, then that could delay our product development activities and adversely affect our business.50Table of Contents Our reliance on these third parties for development activities reduces our control over these activities. Nevertheless, we are responsible for ensuring thateach of our studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards, and our reliance on the CROs does notrelieve us of our regulatory responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordancewith the general investigational plan and protocols for the trial and for ensuring that our preclinical trials are conducted in accordance with GLPs, asappropriate. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with standards, commonly referred to as GCPs, forconducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity,and confidentiality of trial participants are protected. Regulatory authorities enforce these requirements through periodic inspections of trial sponsors,clinical investigators, and trial sites. If we or any of our CROs fail to comply with applicable GCPs or other regulatory requirements, we or our CROs may besubject to enforcement or other legal actions, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreignregulatory authorities may require us to perform additional clinical trials. In addition, we will be required to report certain financial interests of our third-party investigators if these relationships exceed certain financialthresholds or meet other criteria. The FDA or comparable foreign regulatory authorities may question the integrity of the data from those clinical trialsconducted by investigators who may have conflicts of interest. We cannot assure you that, upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trialscomplies with GCP regulations. In addition, our clinical trials must be conducted with product candidates that were produced under cGMP regulations. Ourfailure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. We also are required toregister certain clinical trials and post the results of certain completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specifiedtimeframes. Failure to do so can result in enforcement actions and adverse publicity. Our CROs may also have relationships with other entities, some of which may be our competitors, for whom they may also be conducting clinical trialsor other therapeutic development activities that could harm our competitive position. In addition, our CROs are not our employees, and except for remediesavailable to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical,non-clinical, and preclinical programs. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct ourpreclinical studies or clinical trials in accordance with regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracyof the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our trials may be repeated,extended, delayed, or terminated and we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and willnot be able to, or may be delayed in our efforts to, successfully commercialize our product candidates, or we or they may be subject to regulatory enforcementactions. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase, and ourability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the performance of third-party serviceproviders in the future, our business may be materially and adversely affected. 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. Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there isa natural transition period when a new CRO commences work. As a result, delays could occur, which could compromise our ability to meet our desireddevelopment timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar51Table of Contentschallenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition andprospects, and results of operations.If the contract manufacturers upon whom we rely fail to produce our product candidates or components in the volumes that we require on a timely basis, orto comply with stringent regulations applicable to biopharmaceutical manufacturers, we may face delays in the development and commercialization of, orbe unable to meet demand for, our product candidates and may lose potential revenues. We do not manufacture any of our product candidates, and we do not currently plan to develop any capacity to do so. We utilize third-party contractmanufacturing organizations, or CMOs, to manufacture the clinical trial material of DKN-01 and TRX518 and expect to do so for commercial products, ifapproved. We do not have any long-term commitments from our CMOs for clinical trial material or guaranteed prices for our product candidates. Any delaysin obtaining adequate supplies with respect to our product candidates will delay the development or commercialization of our product candidates. Our product candidates compete with other products and product candidates for access to contract manufacturing facilities. There are a limited number ofCMOs that operate under cGMP regulations and that are both capable of manufacturing for us and willing to do so. If our existing CMOs, or any new thirdparty CMOs that we engage in the future to manufacture our product candidates for our clinical trials, should cease to continue to do so for any reason, welikely would experience delays in obtaining sufficient quantities of our product candidates for us to advance our clinical trials while we identify and qualifyreplacement suppliers. Further, even if we do establish such collaborations or arrangements, our CMOs may breach, terminate, or not renew these agreements.We may not succeed in our efforts to establish sufficient manufacturing relationships or other alternative arrangements to meet our needs for any of ourexisting or future product candidates. If for any reason we are unable to obtain adequate supplies of our product candidates, it will be more difficult for us toconduct clinical trials, develop our product candidates and operate our business. Any problems or delays we experience in preparing for commercial-scale manufacturing of a product candidate or component may result in a delay inFDA approval of the product candidate or may impair our ability to manufacture commercial quantities or such quantities at an acceptable cost, which couldresult in the delay, prevention, or impairment of clinical development and commercialization of our product candidates and could adversely affect ourbusiness. Furthermore, if our commercial CMOs fail to deliver the required commercial quantities of our product candidates on a timely basis and atcommercially reasonable prices, we would likely be unable to meet demand for our products and we would lose potential revenues. The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advancedmanufacturing techniques and process controls. Manufacturers of therapeutics often encounter difficulties in production, particularly in scaling up initialproduction. These problems include difficulties with production costs and yields, quality control, including stability of the product candidate and qualityassurance testing, shortages of qualified personnel, and compliance with strictly enforced federal, state, and foreign regulations. Our CMOs may not performas agreed or may have a failure of a manufacturing campaign. Any changes or deviations in a manufacturing process may result in the failure of the product tomeet the specifications. If our CMOs were to encounter any of these difficulties, our ability to provide product candidates to patients in our clinical trials andfor commercial use, if approved, would be jeopardized. Reliance on third-party CMOs entails exposure to risks to which we would not be subject if wemanufactured the product candidate ourselves, including:•inability to negotiate manufacturing agreements with CMOs under commercially reasonable terms;52Table of Contents•reduced day-to-day control over the manufacturing process for our product candidates as a result of using third-party CMOs for all aspects ofmanufacturing activities; •reduced control over the protection of our trade secrets and know-how from misappropriation or inadvertent disclosure; •termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that may be costly or damaging to us orresult in delays in the development or commercialization of our product candidates; and •disruptions to the operations of our third-party CMOs caused by conditions unrelated to our business or operations, including the bankruptcyof the CMO. In addition, all CMOs of our product candidates and therapeutic substances must comply with cGMP requirements enforced by the FDA that areapplicable to both finished product and their active components used both for clinical and commercial supply, through its facilities inspection program. OurCMOs must be approved by the FDA pursuant to inspections that will be conducted after we submit our marketing applications to the agency. Our CMOs willalso be subject to continuing FDA and other regulatory authority inspections should we receive marketing approval. Further, we, in cooperation with ourCMOs, must supply all necessary chemistry, manufacturing, and control documentation in support of a BLA on a timely basis. The cGMP requirementsinclude quality control, quality assurance, and the maintenance of records and documentation. Manufacturers of our product candidates and therapeuticsubstances may be unable to comply with our specifications, these cGMP requirements and with other FDA, state, and foreign regulatory requirements. Poorcontrol of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties orstability of product candidates that may not be detectable in final product testing. If our CMOs cannot successfully manufacture material that conforms to ourspecifications and the strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure or maintain regulatory approvalfor their manufacturing facilities. Any such deviations may also require remedial measures that may be costly and/or time-consuming for us or a third party toimplement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of afacility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business. While we are ultimately responsible for the manufacture of our product candidates and therapeutic substances, other than through our contractualarrangements, we have little control over our CMOs' compliance with these regulations and standards. If the FDA or a comparable foreign regulatoryauthority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need tofind alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our productcandidates, if approved. A failure to comply with these requirements may result in regulatory enforcement actions against our CMOs or us, including finesand civil and criminal penalties, including imprisonment, suspension or restrictions of production, suspension, injunctions, delay or denial of productapproval or supplements to approved products, clinical holds or termination of clinical studies, warning or untitled letters, regulatory authoritycommunications warning the public about safety issues with the biologic, refusal to permit the import or export of the products, product seizure, detention, orrecall, operating restrictions, suits under the civil False Claims Act, corporate integrity agreements, consent decrees, or withdrawal of product approval. If thesafety of any quantities supplied is compromised due to our CMOs' failure to adhere to applicable laws or for other reasons, we may not be able to obtainregulatory approval for or successfully commercialize our product candidates. Any failure or refusal to supply sufficient quantities of our product candidates would delay, prevent or impair our clinical development orcommercialization efforts. Any change in our CMO could be costly because the commercial terms of any new arrangement could be less favorable and53Table of Contentsbecause the expenses relating to the transfer of necessary technology and processes could be significant. There are significant requirements prior to receivingFDA approval for the transfer of manufacturing process for a therapeutic antibody product to a new manufacturing facility. We also rely on third parties to store and distribute our product candidates for the clinical trials that we conduct. Any performance failure on the part ofour distributors could delay clinical development of our product candidates, producing additional losses.Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop andcommercialize our product candidates. For our current or future product candidates, we may in the future determine to collaborate with other pharmaceutical and biotechnology companies fortheir development and potential commercialization. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitiveagreement for collaboration will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions ofthe proposed collaboration and the proposed collaborator's evaluation of a number of factors. Our future collaboration arrangements, if any, may not besuccessful, and the success of them will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretionin determining the efforts and resources that they will apply to these collaboration arrangements. Disagreements between parties to a collaborationarrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicableproduct candidate and, in some cases, termination of the collaboration arrangement. We may not identify or complete any collaboration in a timely manner,on a cost-effective basis, or at all, and we may not realize the anticipated benefits of any such transaction, any of which could have a detrimental effect on ourfinancial condition, results of operations and cash flows. Risks Related to Legal and Compliance Matters If we fail to comply with federal and state healthcare laws, including fraud and abuse and health and other information privacy and security laws, wecould face substantial penalties and our business, financial condition, results of operations, and prospects could be adversely affected. As a biopharmaceutical company, we are subject to many federal and state healthcare laws, including those described in the Government Regulation andProduct Approval section. If we or our operations are found to be in violation of any federal or state healthcare law, or any other governmental regulationsthat apply to us, we may be subject to penalties, including civil, criminal, and administrative penalties, damages, fines, disgorgement, debarment fromgovernment contracts, and refusal of orders under existing contracts, exclusion from participation in U.S. federal or state health care programs, corporateintegrity agreements, and the curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our businessand our financial results. If any of the physicians or other healthcare providers or entities with whom we expect to do business, including our collaborators, isfound not to be in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including but not limited to, exclusionsfrom participation in government healthcare programs, which could also materially affect our business. Although an effective compliance program can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirelyeliminated. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security, and fraud laws may prove costly. Any actionagainst us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert ourmanagement's attention from the operation of our business.54Table of ContentsOur employees, independent contractors, consultants, commercial partners, principal investigators, CMOs or CROs may engage in misconduct or otherimproper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business. We are exposed to the risk of fraud or other misconduct. Misconduct by employees, independent contractors, consultants, commercial partners, principalinvestigators, or CROs could include intentional, reckless, negligent, or unintentional failures to comply with FDA regulations, comply with applicable fraudand abuse laws, provide accurate information to the FDA, report financial information or data accurately or disclose unauthorized activities to us. Thismisconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatorysanctions and serious harm to our reputation. It is not always possible to identify and deter this type of misconduct, and the precautions we take to detect andprevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or otheractions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are notsuccessful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, and results ofoperations, including the imposition of significant fines or other sanctions.Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, andadversely impact our operating results. We are subject to U.S. data protection laws and regulations, for example, laws and regulations that address privacy and data security, at both the federaland state levels. The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus onprivacy and data security issues. Numerous federal and state laws, including state data breach notification laws, state health information privacy laws, andfederal and state consumer protection laws, including, for example, Section 5 of the FTC Act, govern the collection, use, and disclosure and protection ofhealth-related and other personal information. Failure to comply with data protection laws and regulations could result in government enforcement actionsand create liability for us, which could include civil and/or criminal penalties, private litigation and/or adverse publicity that could negatively affect ouroperating results and business. In addition, we may obtain health information from third parties, such as research institutions with which we collaborate, thatare subject to privacy and security requirements under HIPAA. Although we are not directly subject to HIPAA, other than potentially with respect toproviding certain employee benefits, we could be subject to criminal penalties if we knowingly obtain or disclose individually identifiable healthinformation maintained by a HIPAA covered entity in a manner that is not authorized or permitted by HIPAA. EU member states, Switzerland and other countries have also adopted data protection laws and regulations, which impose significant complianceobligations. In the EU, the collection and use of personal health data is governed by the provisions of the General Data Protection Regulation, or GDPR. TheGDPR became effective on May 25, 2018, repealing the Data Protection Directive and increasing our responsibility and liability in relation to the processingof personal data of EU subjects. The GDPR, together with the national legislation of the EU member states governing the processing of personal data, impose strict obligations andrestrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting. In particular,these obligations and restrictions concern the consent of the individuals to whom the personal data relates, the information provided to the individuals, thetransfer of personal data out of the EU, security breach notifications, security and confidentiality of the personal data, and imposition of substantial potentialfines for breaches of the data protection obligations. Data protection authorities from the different EU member states may interpret the GDPR and nationallaws differently and55Table of Contentsimpose additional requirements, which add to the complexity of processing personal data in the EU. Guidance on implementation and compliance practicesare often updated or otherwise revised. With respect to the transfer of personal data out of the EU, the GDPR provides that the transfer of personal data to countries that are not considered by theEuropean Commission to provide an adequate level of data protection, including the United States, is permitted only on the basis of complying with specificlegal steps. The judgment by the Court of Justice of the European Union in Case C-362/14 Maximillian Schrems v. Data Protection Commissioner, or the Schremscase, held that the Safe Harbor Framework, which was relied upon by many United States entities as a basis for transfer of personal data from the EU to theUnited States, was invalid. United States entities therefore, had only the possibility to rely on the alternate procedures for such data transfer provided in theEU Data Protection Directive. On February 29, 2016, however, the European Commission announced an agreement with the United States Department of Commerce, or the DOC, toreplace the invalidated Safe Harbor framework with a new "Privacy Shield." On July 12, 2016, the European Commission adopted a decision on the adequacyof the protection provided by the Privacy Shield. The Privacy Shield is intended to address the requirements set out by the Court of Justice of the EuropeanUnion in the Schrems case. The Privacy Shield imposes more stringent obligations on companies, provides stronger monitoring and enforcement by the DOCand the Federal Trade Commission, and makes commitments on the part of public authorities regarding access to information. United States entities havebeen able to certify to the DOC their compliance with the privacy principles of the Privacy Shield since August 1, 2016 and rely on the Privacy Shieldcertification to transfer of personal data from the EU to the United States. However, in October 2016, three French digital rights advocacy group, La Quadrature du Net, French Data Network and the Fédération FDN, brought anaction for annulment of the European Commission decision on the adequacy of the Privacy Shield before the Court of Justice of the EU (Case T-738/16). Thecase is currently pending before the European Court of Justice. If the Court of Justice of the European Union invalidates the Privacy Shield, it will no longerbe possible to rely on the Privacy Shield certification to transfer personal data from the EU to entities in the United States. Adherence to the Privacy Shield isnot, however, mandatory. Entities based in the United States are permitted to rely either on their adherence to the Privacy Shield or on the other authorizedmeans and procedures to transfer personal data provided by the GDPR. Our failure to comply with these laws, or changes in the way in which these laws are implemented, could lead to government enforcement actions andsignificant penalties against us, and adversely impact our operating results. In particular, our failure to comply with our obligations under the GDPR,including any failure to adopt measures to ensure that we can continue to conduct the data processing activities that we have initiated in the EU before theGDPR entered into application could adversely impact the validity of data generated in our studies. Risks Related to Our Intellectual Property If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate to protect our technology and productcandidates, our competitive position could be harmed. Our commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection in the U.S. andother countries with respect to our proprietary technology and products. We rely on patent, trade secret, copyright and trademark laws, and confidentiality,licensing and other agreements with employees and third parties, all of which offer only limited protection. We have sought and continue to seek to protectour proprietary position by filing56Table of Contentsand prosecuting patent applications in the U.S. and abroad related to our novel technologies and products that are important to our business. The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions andhave in recent years been the subject of much litigation. As a result, the scope, validity, enforceability and commercial value of our patents, including thosepatent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights may not beadequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the U.S.Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications and those of our licensors, whichmay limit the scope of patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patentsor those licensed to us and those that may be granted under future issued patents may not provide us with the proprietary protection or competitiveadvantages we are seeking. If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of thepatent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and ourability to successfully commercialize our technology and products may be adversely affected. It is also possible that we or our licensors will fail to identifypatentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection forthem. With respect to patent rights, we do not know whether any of our pending patent applications will result in the issuance of patents that protect ourtechnology or products, or if any of our or our licensors' issued patents will effectively prevent others from commercializing competitive technologies andproducts. Patents in the field of therapeutic monoclonal antibodies are frequently limited in scope based on the sequence of amino acids that form particularparts of the antibody. A portion of our intellectual property portfolio is limited by amino acid sequences found in our product candidates. Other competingcompanies may have therapeutic antibodies to the same target as our product candidates, but have a different amino acid sequence and, as a result, may notbe determined to infringe our patents which are limited by amino acid sequence(s). Even for those patents which are defined by the target of a therapeuticantibody and not limited by an amino acid sequence, we cannot be certain that we will be able to successfully enforce those patents against our competitorswith antibodies to these targets. Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issuesfrom such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we ownor have licensed from third parties may be challenged in the courts, administrative agencies or patent offices in the U.S. and abroad. Such challenges mayresult in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit ourability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for ourtechnology and products. Protecting against the unauthorized use of our or our licensors' patented technology, trademarks and other intellectual propertyrights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement ormisappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.57Table of ContentsOur granted European patents for (i) TRX518 and its uses and (ii) anti-GITR agonist antibodies, including TRX518, in combination with achemotherapeutic agent for treating cancer, each of which is of significant value to us, have been challenged in European Patent Office Oppositionproceedings, and successful challenges could limit our future business and revenues. A patent covering TRX518 and its uses was granted to us by the European Patent Office. Three oppositions to this patent were filed by two majorpharmaceutical companies and an individual, possibly on behalf of a major pharmaceutical company. Opposition proceedings took place in 2016, and theOpposition Division of the European Patent Office that decided the case issued an interlocutory decision indicating that our patent should be maintainedwith modified claims that are narrower than the claims as originally granted. Nonetheless, we believe that the claims deemed allowable by the OppositionDivision still sufficiently cover TRX518 and its uses. Regardless, we have filed an appeal of the decision of the Opposition Division seeking to obtainbroader claims that more closely reflect the claims as granted in the patent. We cannot assure you that our appeal will have any success. Should the decisionof the Opposition Division stand in whole or in part, our ability to prevent competition in Europe or to license our intellectual property may be more limitedor of lower value than under the broader claims we were originally granted, which could have an adverse effect on our business, financial condition andresults of operations. In addition, the cost of the opposition appeal and any further proceedings could be material. In 2016, a patent covering the use of anti-GITR agonist antibodies, including TRX518, in combination with a chemotherapeutic agent for treating cancerwas granted to us by the European Patent Office. In March 2017, notices of opposition to this patent were filed by ten different entities, including severalmajor pharmaceutical companies. Oral proceedings at the EPO took place on December 4 and 5, 2018. At the conclusion of the oral proceedings, theOpposition Division decided that the patent should be revoked in its entirety on the ground that the claims as granted contained added matter. Subsequently,the Opposition Division issued an interlocutory decision restating its conclusion that the claims as granted contain added matter and revoking the patent. Wehave filed an appeal of the decision of the Opposition Division seeking to obtain a reversal of the Opposition Division's decision on added matter. We cannotassure you that our appeal will be successful and, if not, our ability to prevent competition in Europe or to license our intellectual property may be morelimited, which could have an adverse effect on our business, financial condition and results of operations. In addition, the cost of the appeal and any furtherproceedings could be material.Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould harm our business. Our commercial success depends upon our ability to develop, manufacture, market and sell DKN-01 or TRX518. We may become party to, or threatenedwith, future adversarial proceedings or litigation regarding intellectual property rights with respect to DKN-01 and/or TRX518, including interference,derivation, inter partes review or post-grant review proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claimsagainst us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party's intellectual property rights, wecould be required to obtain a license from such third party to continue commercializing DKN-01 and/or TRX518. However, we may not be able to obtain anyrequired license on commercially reasonable terms or at all. Under certain circumstances, we could be forced, including by court order, to ceasecommercializing DKN-01 or TRX518. In addition, in any such proceeding or litigation, we could be found liable for monetary damages. A finding ofinfringement could prevent us from commercializing DKN-01 or TRX518 or force us to cease some of our business operations, which could materially harmour business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could also have a negative impact onour business.58Table of Contents While DKN-01 and TRX518 are in preclinical studies and clinical trials in the United States, we believe that the use of DKN-01 and TRX518 in thesepreclinical studies and clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the U.S., which exempts from patentinfringement liability activities reasonably related to the development and submission of information to the FDA. As DKN-01 or TRX518 progresses towardcommercialization, the possibility of a patent infringement claim against us may increase. We attempt to ensure that DKN-01 and TRX518, the methods weemploy to manufacture them, as well as the methods for their use we intend to promote, do not infringe other parties' patents and other proprietary rights.There can be no assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.We may not be able to protect our intellectual property rights outside the U.S.. Filing, prosecuting and defending patents on DKN-01, TRX518 and/or any future product candidates outside the U.S. could be prohibitively expensive,and our or our licensors' intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws andpractices of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Consequently, we andour licensors may not be able to prevent third parties from practicing our and/or our licensors' inventions in all countries outside the U.S., or from selling orimporting products made using our and/or our licensors' inventions in and into the U.S. or other jurisdictions. Competitors may use our technologies injurisdictions where we have not obtained patent protection to develop their own products, and may export otherwise allegedly infringing products toterritories where we or our licensors have patent protection, but where enforcement is not as strong as that in the U.S. These products may compete with ourproducts in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficientto prevent them from so competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. Thelegal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual propertyprotection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our or our licensors' patents ormarketing of competing products in violation of our proprietary rights generally in those countries. Proceedings to enforce our and/or our licensors' patentrights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our and ourlicensors' patents at risk of being invalidated, held unenforceable or interpreted narrowly and our and our licensors' patent applications at risk of not issuingand could provoke third parties to assert claims against us or our licensors. We or our licensors may not prevail in any lawsuits that we or our licensors initiateand the damages or other remedies awarded, if any, may not be commercially meaningful. The laws of certain foreign countries may not protect our rights to the same extent as the laws of the U.S., and these foreign laws may also be subject tochange. For example, methods of treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentabilitymay differ in certain countries, particularly developing countries. Furthermore, generic drug manufacturers or other competitors may challenge the scope,validity, ownership, inventorship and/or enforceability of our or our licensors' patents, requiring us or our licensors to engage in complex, lengthy and costlylitigation or other proceedings. Generic drug or biosimilar manufacturers may develop, seek approval for, and launch generic or biosimilar versions of ourproducts. Many countries, including some European Union countries, India, Japan and China, have compulsory licensing laws under which a patent ownermay be compelled under certain circumstances to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patentsare infringed or if we or our licensors are compelled to grant a license to a third party, which could59Table of Contentsmaterially diminish the value of those patents. This could limit our potential revenue opportunities in those countries. Accordingly, our and our licensors'efforts to enforce intellectual property rights outside the U.S. may be inadequate to obtain a significant commercial advantage from the intellectual propertythat we own or license.Obtaining and maintaining our patent protection depends on compliance with various procedural requirements, document submissions, fee payments andother requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with theserequirements. Periodic maintenance fees on any issued U.S. utility or foreign patent are due to be paid to the USPTO and foreign patent agencies in several stages overthe lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, feepayment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late feeor by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent orpatent application, resulting in partial or complete loss of the patent right in the relevant jurisdiction. Non-compliance events that could result inabandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applicationscovering our product candidates, our competitive position could be adversely affected.We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful and mayhave a material adverse effect on the success of our business. Competitors may infringe our and/or our licensors' patents or misappropriate or otherwise violate our and/or our licensors' intellectual property rights. Toprevent or stop infringement or unauthorized use, litigation may be necessary in the future to enforce and/or defend our intellectual property rights, to protectour trade secrets or to determine the validity, enforceability, ownership, inventorship, and/or scope of our own intellectual property rights or the proprietaryrights of others. Also, third parties may initiate legal proceedings against us or our licensors to challenge the validity, enforceability, ownership, inventorshipand/or scope of intellectual property rights we own or control. These proceedings can be expensive and time consuming. Many of our current and potentialcompetitors have the ability to dedicate substantially greater resources to defend and/or enforce their intellectual property rights than we can. Accordingly,despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result insubstantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, acourt may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issueon the grounds that our patents do not cover the technology in question, or other grounds. An adverse result in any litigation proceeding could put one ormore of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discoverytypical in intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type oflitigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analystsor investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock.60Table of Contents Risks Related to Our Being a Public Company We are an "emerging growth company" and we intend to take advantage of reduced disclosure and governance requirements applicable to emerginggrowth companies, which could result in our common stock being less attractive to investors. We are an "emerging growth company," as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reportingrequirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required tocomply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executivecompensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executivecompensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our commonstock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less activetrading market for our common stock, our stock price may be more volatile and it may be difficult for us to raise additional capital as and when we need it. Ifwe are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected. We may take advantage of these reporting exemptions until we are no longer an emerging growth company, which in certain circumstances could be forup to five years. We will remain an "emerging growth company" until the earliest of (a) the last day of the first fiscal year in which our annual gross revenuesexceed $1.07 billion, (b) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended,or the Exchange Act, which would occur if the market value of our shares that are held by non-affiliates exceeds $700 million as of the last business day ofour most recently completed second fiscal quarter, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the precedingthree-year period and (d) the last day of our 2022 fiscal year containing the fifth anniversary of the date on which shares of our common stock becamepublicly traded in the U.S.If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financialcondition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls andprocedures. We are required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of ourinternal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in ourinternal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting thatresults in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on atimely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on theeffectiveness of our internal control over financial reporting. However, for as long as we remain a smaller reporting company or an emerging growth companyas defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with the independent registered public accountingfirm attestation requirement. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significantmanagement efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriatepublic company experience and technical accounting knowledge. If we are not able to comply with the61Table of Contentsrequirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal controlover financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions orinvestigations by NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources. Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financialstatements. To manage and grow our business effectively in the future, we expect that we will need to continue to improve existing, and implement newoperational and financial systems, procedures and controls. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems,procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective andto obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have anadverse impact on trading prices for our common stock, and could adversely affect our ability to access the capital markets. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future.Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results ofoperations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered publicaccounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begins itsSection 404 reviews, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stockcould decline, and we could be subject to sanctions or investigations by the NASDAQ stock market, the Commission or other regulatory authorities. Failureto remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required ofpublic companies, could also restrict our future access to the capital markets.Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. We are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure thatinformation required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded,processed, summarized and reported within the time periods specified in the rules and forms of the Commission. We believe that any disclosure controls andprocedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple erroror mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorizedoverride of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraudmay occur and not be detected.We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to complianceinitiatives. As a public company, we incur significant legal, accounting and other expenses, and these expenses may increase even more after we are no longer an"emerging growth company." Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover,we expect these rules and regulations to substantially increase our legal and financial compliance costs62Table of Contentsand to make some activities more time-consuming and costly. We estimate that we have incurred approximately $1.5 million in costs per year associated withbeing a publicly traded company, although it is possible that our actual incremental costs will be higher in future years. The increased costs increase our netloss.Nasdaq may delist our common stock from its exchange which could limit your ability to make transactions in our securities and subject us to additionaltrading restrictions. On January 24, 2019, we received a notification from Nasdaq informing us that we were no longer in compliance with the minimum market value oflisted securities requirement for the Nasdaq Global Market or Nasdaq Select Global Market, as the market value of our shares of common stock closed belowthe minimum $50.0 million threshold for the 30 consecutive trading days prior to the date of the notice. Nasdaq also notified us that we were provided 180calendar days, or until July 23, 2019, to regain compliance with the minimum market value of listed securities requirement. We are currently evaluatingpotential solutions to regain compliance with the minimum market value of listed securities requirement. There can be no assurance that we will meet themarket value of listed securities requirement during any compliance period or in the future, or otherwise meet Nasdaq compliance standards, or that Nasdaqwill grant the Company any relief from delisting as necessary, or that we will be able to ultimately meet applicable Nasdaq requirements for any such relief. If we are unable to regain compliance with the $50.0 minimum market value of listed securities and receive a notice from Nasdaq that our securities aresubject to delisting, we may appeal Nasdaq's delisting determination to a Hearings Panel, or, in the alternative, the we may consider applying for a transfer toThe Nasdaq Capital Market, which has a minimum market value of listed securities of $35.0 million. In order to transfer the Company would need to submitan online transfer application, pay a $5,000 application fee and meet the Capital Market's continued listing requirements. If we were unable to meet Nasdaq's listing requirements, our securities could be delisted from Nasdaq. If our securities were to be delisted from Nasdaq,our securities could begin to trade on the Over-The-Counter Bulletin Board or on one of the markets operated by OTC Markets Group, including OTC Pink(formerly known as the "pink sheets"), as the case may be. In such event, our securities could be subject to the "penny stock" rules which among other thingsrequire brokers or dealers to approve investors' accounts, receive written agreements and determine investor suitability for transactions and disclose risksrelating to investing in the penny stock market. Any such delisting of our securities could have an adverse effect on the market price of, and the efficiency ofthe trading market for our securities, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in thetiming of transactions and less coverage of us by securities analysts, if any. Also, if in the future we were to determine that we need to seek additional equitycapital, it could have an adverse effect on our ability to raise capital in the public or private equity markets. Risks Related to our Common Stock Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole sourceof gain. We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growthand development of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which you purchased them.63Table of ContentsSales of a substantial number of shares of our common stock in the public market, including the resale of the shares of common stock issuable upon theexercise of the warrants that were issued in both the private placement which we closed on November 14, 2017 and in the public offering which we closedFebruary 5, 2019, could cause our stock price to fall. Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the marketthat the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Prior to the private placement financing,holders of an aggregate of 6,007,947 shares of our common stock had rights, subject to certain conditions, to require us to file registration statementscovering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. On November 14, 2017 in aprivate placement financing, we issued 2,958,094 shares of common stock and warrants, or the 2017 Warrants, that are exercisable for an aggregate of2,958,094 shares of common stock, subject to adjustment as provided in such 2017 Warrants. In connection with the closing of the private placementfinancing, we granted to all Purchasers the right, subject to certain conditions, to require us a file a resale registration statement covering the shares ofcommon stock issued in the financing and the shares of common stock issuable upon exercise of the 2017 Warrants issued in the financing. We haveregistered 3,734,914 shares of these shares of common stock on a registration statement on Form S-3, which was declared effective by the SEC onDecember 15, 2017, and as a result these registered shares became generally available for immediate resale. On February 5, 2019 we closed an underwrittenpublic offering, or the 2019 Offering, of 7,557,142 shares of common stock and warrants, or the 2019 Warrants, that are exercisable for an aggregate of7,557,142 shares of common stock. Sales of such shares of common stock in the public market, including shares issuable upon exercise of the 2017 Warrantsand the 2019 Warrants, or the perception that such sales might occur, could adversely affect the market price of our Common Stock, and the market value ofour other securities, and could result in dilution to shareholders who hold our common stock. We also have registered all shares of common stock that we may issue under our equity compensation plans on Form S-8. These shares can be freely soldin the public market upon issuance, subject to volume limitations applicable to affiliates under Rule 144 under the Securities Act. Further, the stockholders have approved the inclusion of a full ratchet anti-dilution feature as a term of the 2017 Warrants. As a result of theconsummation of the 2019 Offering, the exercise price of the 2017 Warrants automatically was adjusted pursuant to, and in accordance with their terms,triggering an automatic reduction in the exercise price under each of the 2017 Warrants to $1.75. Accordingly, if we continue to issue common stock, optionsor common stock equivalents at a price less than the exercise price of the warrants, subject to certain customary exceptions, the exercise price of the warrantswill continue to be reduced to that lower price. Such a decrease in exercise price may cause holders to exercise the warrants which could result in dilution toour existing stockholders at an accelerated rate.Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plan, could result inadditional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell substantialamounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-related securities, together with the exercise of stock options, warrants outstanding or granted in the future and any additional shares issued in connectionwith acquisitions, if any, may result in material dilution to our investors. Such sales may also result in material dilution to our existing stockholders, and newinvestors could gain rights, preferences and privileges senior to those of holders of our common stock.64Table of Contents Pursuant to our equity incentive plans, our compensation committee is authorized to grant equity-based incentive awards to our directors, executiveofficers and other employees and service providers. Shares currently available for future grant under our Amended and Restated 2012 Equity Incentive Planand our 2016 Equity Incentive Plan represent a significant number of shares of Leap common stock and could represent significant dilution to our existingstockholders. Future equity incentive grants and issuances of common stock under our 2016 Equity Incentive Plan may have an adverse effect on the marketprice of our common stock. In addition, we may issue additional shares of Common Stock or other equity or debt securities convertible into Common Stock in connection with afuture financing, acquisition, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our stockholders and could causeour stock price to decline.We may become obligated to pay liquidated damages if we fail to maintain effectiveness of the registration statement on Form S-3 for 3,734,914 shares ofcommon stock that we filed in connection with the private placement. In accordance with the terms of the purchase agreements executed in connection with the private placement, the selling stockholders are entitled toreceive liquidated damages upon the occurrence of a number of events relating to filing the Registration Statement, including maintaining an effectiveregistration statement covering the securities being registered. The liquidated damages will be payable upon the occurrence of the event and each monthlyanniversary thereof until cured. The amount of liquidated damages payable per 30-day period is equal to 1.0% of the purchase price paid by such purchaserand may increase to 2.0% under certain circumstances, provided, however, the maximum aggregate liquidated damages payable to a Selling Stockholder is10% of the aggregate purchase price paid by a purchaser for the shares and warrants pursuant to a purchase agreement. We may also be responsible for theactual damages suffered by a Selling Stockholder in certain circumstances.Our share price may be volatile, which could subject us to securities class action litigation and our stockholders could incur substantial losses. The market price of shares of our Common Stock could be subject to wide fluctuations in response to many risk factors listed in this section, and othersbeyond our control, including:•the results of clinical trials or development activities of our programs, or any future programs we may acquire; •actual or anticipated fluctuations in our financial condition and operating results; •failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; •issuance of new or updated research or reports by securities analysts; •fluctuations in the valuation of companies perceived by investors to be comparable to us; •additions or departures of key management or other personnel; •disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent protectionfor our technologies; •announcement or expectation of additional debt or equity financing efforts; •sales of our Common Stock by us, our insiders or our other stockholders; and •general economic and market conditions.65Table of Contents These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of ouractual operating performance, which may limit or prevent investors from readily selling their shares of Common Stock and may otherwise negatively affectthe liquidity of our common stock. In addition, the stock market in general, and NASDAQ and emerging growth companies in particular, have experiencedextreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In the past, whenthe market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock.If in the future any of our stockholders brought a lawsuit against us, we could incur significant legal expenses, settlement costs or damage awards that are notcovered by, or exceed the limits of, our available directors' and officers' liability insurance, which could adversely impact our financial condition, results ofoperations or cash flows. Such a lawsuit could also divert the time and attention of our management.If securities or industry analysts do not continue to publish research or reports or publish unfavorable research or reports about our business, our stockprice and trading volume could decline. The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us, ourbusiness, our market or our competitors. We do not control these analysts. If we lose securities or industry analysts coverage of our company, the trading pricefor our stock would be negatively impacted. If one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one ormore of these analysts issues unfavorable commentary or ceases to cover us or fails to regularly publish reports on us, interest in our stock could decrease,which could cause our stock price or trading volume to decline.Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations. Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The globalfinancial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the globalfinancial crisis, could result in a variety of risks to our business, including weakened demand for setmelanotide and our ability to raise additional capitalwhen needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. Any of theforegoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions couldadversely impact our business.Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if anacquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management. Provisions in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire usor increase the cost of acquiring us, even if doing so would benefit our stockholders, or remove our current management. These include provisions that:•permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as it maydesignate; •provide that all vacancies on our board of directors, including as a result of newly created directorships, may, except as otherwise required bylaw, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; •establish a classified board of directors such that only one of three classes of directors is elected each year;66Table of Contents•provide that directors can only be removed for cause; •require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not betaken by written consent; •provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at ameeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder'snotice; •require that the amendment of certain provisions of our certificate of incorporation relating to anti-takeover measures may only be approvedby a vote of 66.67% (or, in certain limited circumstances, 75%) of our outstanding capital stock; •not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled to vote in anyelection of directors to elect all of the directors standing for election; and •provide that special meetings of our stockholders may be called only by the board of directors or by such person or persons designated by amajority of the board of directors to call such meetings. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult forstockholders to replace members of our board of directors, who are responsible for appointing the members of our management. Because we are incorporatedin Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may discourage, delay or prevent someonefrom acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under Delaware law, a corporation may not, in general,engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among otherthings, the board of directors has approved the transaction. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect ofdelaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, andcould also affect the price that some investors are willing to pay for our common stock. Item 1B. Unresolved Staff Comments. Not applicable. Item 2. Properties. We have leased our principal offices in Cambridge, Massachusetts covering approximately 7,667 square feet of space. We assumed this lease effectiveJanuary 1, 2017, from HealthCare Ventures LLC pursuant to an Assignment and Assumption Agreement, dated as of January 1, 2017. In November 2018, weextended the lease through April 30, 2022. Item 3. Legal Proceedings. From time to time we may become involved in legal proceedings or be subject to claims that arise in the ordinary course of business. As of the date ofthis report, and other than as described in the following paragraph, we are not currently a party to any material legal proceedings. A patent covering the TRX518 antibody and its uses in methods of inducing or enhancing an immune response in a subject was granted in 2013 to us bythe European Patent Office (EPO). Three notices of opposition to this patent were filed: two by major pharmaceutical companies and a third by an individual,possibly on behalf of a major pharmaceutical company. At the conclusion of the67Table of Contentsopposition proceedings before the Opposition Division of the EPO, the Opposition Division issued a decision indicating that our patent was maintained withnarrowed claims that differ from the claims as originally granted. These narrowed claims cover the TRX518 antibody and uses of the TRX518 antibody inmethods of inducing or enhancing an immune response in a subject. We have filed an appeal of the decision of the Opposition Division seeking to obtainbroader claims that more closely reflect the claims as granted in the patent. The EPO Board of Appeal has not yet scheduled a date for the appeal hearing. In 2016, a patent covering the use of the TRX518 antibody in combination with a chemotherapeutic agent for treating cancer was granted to us by theEPO. In March 2017, notices of opposition to this patent were filed at the EPO by ten different entities, including several major pharmaceutical companies.Oral proceedings at the EPO took place on December 4 and 5, 2018. At the conclusion of the oral proceedings, the Opposition Division decided that thepatent should be revoked in its entirety on the ground that the claims as granted contained added matter. Subsequently, the Opposition Division issued aninterlocutory decision restating its conclusion that the claims as granted contain added matter and revoking the patent. We have filed an appeal of thedecision of the Opposition Division seeking to obtain a reversal of the Opposition Division's decision on added matter. A statement of our grounds of appealis due on May 23, 2019. The EPO Board of Appeal has not yet scheduled a date for the appeal hearing. Item 4. Mine Safety Disclosures. Not applicable.68Table of Contents PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock, par value $0.001 per share, has been publicly traded on the Nasdaq Global Market under the symbol "LPTX" since January 24, 2017.Prior to that time, the period covered by this Annual Report on Form 10-K, there was no public market for our common stock. The table below provides thehigh and low intra-day sales prices of our common stock for the periods indicated, as reported by The Nasdaq Global Market. On March 26, 2019, the last reported sales price for our common stock on the Nasdaq Global Market was $1.90 per share.Holders As of March 26, 2019, there were approximately 19 holders of record of our common stock. The actual number of stockholders is greater than thisnumber of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. Thisnumber of holders of record also does not include stockholders whose shares may be held in trust by other entities.Dividends We have never declared or paid cash dividends on our common stock, and we do not expect to pay any cash dividends on our common stock in theforeseeable future. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. Payment of future dividends,if any, on our common stock will be at the discretion of our board of directors after taking into account various factors, including our financial condition,operating results, anticipated cash needs, and plans for expansion.Securities Authorized for Issuance Under Equity Compensation Plans Information about securities authorized for issuance under our equity compensation plans is set forth in our Proxy Statement for the 2019 AnnualMeeting of Stockholders to be filed with the SEC within 120 days after December 31, 2018, and is incorporated into this Annual Report on Form 10-K byreference.69 High Low Year ended December 31, 2018 Fourth quarter $8.02 $1.91 Third quarter 9.15 6.30 Second quarter 10.25 6.63 First quarter 9.22 5.64 Year ended December 31, 2017 Fourth quarter $7.95 $4.91 Third quarter 7.95 4.90 Second quarter 9.36 5.40 First quarter (beginning on 1/23/2017) 16.62 5.02 Table of ContentsRecent Sales of Unregistered Securities Set forth below is information regarding securities issued and options granted by us during the last three fiscal years that were not registered under theSecurities Act of 1933, as amended, or the Securities Act. Also included is the consideration, if any, received by us for any such shares, options and warrantsand information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.Pre-Merger Transactions During 2014, we issued a convertible promissory note to HealthCare Ventures VIII, L.P., HealthCare Ventures IX, L.P. and HealthCare StrategicFund, L.P. and the note was thereafter amended on November 2, 2015, December 15, 2015, February 12, 2016, April 28, 2016, June 1, 2016, August 30, 2016,October 13, 2016, and January 5, 2017, such that the maximum principal amount available to us under the note was $31.75 million. The interest rate on thenote was eight percent (8%) per annum, commencing to accrue with respect to any principal amount outstanding on the applicable drawdown date of suchprincipal amount per its terms. No underwriters were involved in the foregoing sales of securities. The securities were issued to investors in reliance upon the exemption from theregistration requirements of the Securities Act, as set forth in Section 4(a)(2) under the Securities Act, including in some cases, Regulation D promulgatedthereunder, relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. Allpurchasers of shares of capital stock described above represented to us in connection with their purchase that they were accredited investors and wereacquiring the shares for their own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof. Thepurchasers received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to aregistration statement or an available exemption from such registration. Immediately prior to the consummation of the merger with Macrocure in January 2017, the note converted into 1,950,768 shares of Leap common stock. On January 20, 2017, prior and subject to the consummation of the merger, we entered into a subscription agreement with HealthCare Ventures IX, L.P.("HCV IX"), pursuant to which HCV IX purchased 1,010,225 shares of our common stock for $10.0 million, at a purchase price per share of $9.90.PIPE Transaction On November 14, 2017, Leap entered into purchase agreements with certain existing and new institutional accredited investors and strategic partnerspursuant to which, Leap, in a private placement, agreed to issue and sell to the purchasers an aggregate of 2,958,094 shares of unregistered Common Stock ata price per share of $6.085, and issued with each share a warrant (the "2017 Warrants") to purchase one share of Common Stock at an exercise price of $6.085with an exercise period expiring seven years after closing (the "Term"), for gross proceeds of approximately $18.0 million. As a result of the consummation ofthe 2019 Public Offering, the exercise price of the 2017 Warrants automatically was adjusted pursuant to, and in accordance with, their terms, $1.75 per share. Raymond James & Associates, Inc. and Ladenburg Thalmann & Co. Inc. acted as the placement agents for the private placement. Pursuant to theagreement with the placement agents, Leap agreed to pay the placement agents a fee equal to 2.2% of the aggregate gross proceeds from the privateplacement plus the reimbursement of certain expenses. The Company used the net proceeds from the Private Placement for general corporate purposes. The offering raised gross proceeds to the Company in theamount of approximately $18.0 million and70Table of Contentsnet proceeds in the amount of approximately $17.3 million, which is after deducting commissions to the placement agents and estimated expenses ofapproximately $0.7 million in the aggregate. Leap, on behalf of certain of the purchasers, registered for resale on a registration statement on Form S-3 (File No. 333-221968) 3,734,914 shares ofCommon Stock which included (i) 1,867,457 shares of the Common Stock issued on November 14, 2017 and (ii) an aggregate of 1,867,457 shares of theCommon Stock issuable upon exercise of common stock purchase warrants issued on November 14, 2017.Stock options In connection with the consummation of the merger with Macrocure, we adopted our Amended and Restated 2012 Equity Incentive Plan and our 2016Equity Incentive Plan. The Amended and Restated 2012 Equity Incentive Plan amended and restated the 2012 Equity Incentive Plan in its entirety. Theshares subject to both plans have been registered on a registration statement on Form S-8.Purchases of Equity Securities We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K. Item 6. Selected Financial Data. Not applicable. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements andrelated notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis containsforward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in theseforward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below andelsewhere in this report, including those set forth under Item 1A. "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements" inthis Annual Report.Overview We were incorporated in the state of Delaware as Dekkun Corporation on January 3, 2011 and changed our name to HealthCare Pharmaceuticals, Inc.effective May 29, 2014, and then to Leap Therapeutics, Inc. effective November 16, 2015. On August 29, 2016, we entered into a definitive merger agreement with Macrocure Ltd. ("Macrocure"), a publicly held, clinical-stage biotechnologycompany based in Petach Tikva, Israel, and M-Co Merger Sub Ltd. ("Merger Sub"), a wholly owned subsidiary of the Company which provided for the mergerof Macrocure with and into Merger Sub, with Macrocure continuing after the merger as a wholly owned subsidiary of the Company. In connection with themerger, the Company applied to be listed on the NASDAQ Global Market. NASDAQ approved the listing, and trading in the Company's common stockcommenced on January 24, 2017, under the trading symbol "LPTX." On February 1, 2017, Macrocure's name was changed to Leap Therapeutics Ltd. We are a biopharmaceutical company developing novel therapies designed to treat patients with cancer by inhibiting fundamental tumor-promotingpathways and by harnessing the immune system to71Table of Contentsattack cancer cells. Our strategy is to identify, acquire, and develop molecules that will rapidly translate into high impact therapeutics that generate durableclinical benefit and enhanced patient outcomes. Our two clinical stage programs are:•DKN-01: A monoclonal antibody that inhibits Dickkopf-related protein 1, or DKK1. DKK1 is a protein that regulates the Wnt signalingpathways and enables tumor cells to profilerate and spread, as well as suppresses the immune system from attacking the tumor. When DKN-01binds to DKK1, an anti-tumor effect can be generated. DKN-01-based therapies have generated responses and clinical benefit in several patientpopulations. We are currently studying DKN-01 in multiple ongoing clinical trials in patients with esophagogastric cancer, hepatobiliarycancer, gynecologic cancers, or prostate cancer. •TRX518: A monoclonal antibody targeting the glucocorticoid-induced tumor necrosis factor-related receptor, or GITR. GITR is a receptorfound on the surface of a wide range of immune cells. GITR stimulation activates tumor fighting white blood cells and decrease the activity ofpotentially tumor-protective immunosuppressive cells. TRX518 has been specifically engineered to enhance the immune system's anti-tumorresponse by activating GITR signaling without causing the immune cells to be destroyed. We are conducting clinical trials of TRX518 inpatients with advanced solid tumors in combination with gemcitabine chemotherapy or with cancer immunotherapies known as PD-1antagonists. We intend to apply our extensive experience identifying and developing transformational products to aggressively develop these antibodies and build apipeline of programs that has the potential to change the practice of cancer medicine. We have devoted substantially all of our resources to development efforts relating to our product candidates, including manufacturing and conductingclinical trials of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We donot have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through proceedsfrom our sales of common stock and preferred stock and proceeds from the issuance of notes payable—related party. We have incurred net losses in each year since our inception in 2011. Our net loss was $23.1 million for the year ended December 31, 2018 and$29.7 million for the year ended December 31, 2017. As of December 31, 2018, we had an accumulated deficit of approximately $153.5 million. Our netlosses have resulted primarily from costs incurred in connection with our research and development programs and from general and administrative costsassociated with our operations. We expect to continue to incur significant expenses and have operating losses for at least the next several years as we:•continue the development of our product candidates, DKN-01, including the completion of Phase 1/2 clinical trial activities, and TRX518,including the completion of Phase 1 clinical trial activities; •seek to obtain regulatory approvals for DKN-01 and TRX518; •outsource the manufacturing of DKN-01 and TRX518 for clinical trials and any indications for which we receive regulatory approval; •contract with third parties for the sales, marketing and distribution of DKN-01 and TRX518 for any indications for which we receive regulatoryapproval; •maintain, expand and protect our intellectual property portfolio; •continue our research and development efforts;72Table of Contents•add operational, financial and management information systems and personnel, including personnel to support our product developmentefforts; and •operate as a public company. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for oneor more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raiseadditional capital prior to the commercialization of DKN-01, TRX518 or any other product candidate. Until such time, if ever, as we can generate substantialrevenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or otherthird-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raisecapital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop ourproduct candidates. As of December 31, 2018, we had cash and cash equivalents of $16.3 million. On February 5, 2019, we completed a public offering whereby we issued7,557,142 shares of our common stock and warrants to purchase 7,557,142 shares of our common stock at a price of $1.75 per unit, which included 985,714shares and warrants to purchase 985,714 shares issued pursuant to the underwriters' exercise of their option to purchase additional securities. The aggregatenet proceeds received by us from the offering were approximately $12.1 million, net of underwriting discounts and commissions and estimated offeringexpenses. We believe that our cash and cash equivalents as of December 31, 2018, together with the net proceeds from the February 2019 Public Offering andthe anticipated receipt of $0.8 million of research and development tax incentive payments, representing the applicable percentage of our expected eligibleexpenses net of our current Australia tax liability, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 monthsfrom issuance of the financial statements included in this Annual Report on Form 10-K. See "—Liquidity and Capital Resources."Financial OverviewResearch and Development Expenses Our research and development activities have included conducting nonclinical studies and clinical trials, manufacturing development efforts andactivities related to regulatory filings for DKN-01 and TRX518. We recognize research and development expenses as they are incurred. Our research anddevelopment expenses consist primarily of:•salaries and related overhead expenses for personnel in research and development functions, including costs related to stock-basedcompensation; •fees paid to consultants and CROs for our nonclinical and clinical trials, and other related clinical trial fees, including but not limited tolaboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis; •costs related to acquiring and manufacturing clinical trial materials; and •costs related to compliance with regulatory requirements. We plan to increase our research and development expenses for the foreseeable future as we continue the development of DKN-01, TRX518 and anyother product candidates, subject to the availability of additional funding.73Table of Contents Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of internal and external costs, such asemployee costs, including salaries and stock-based compensation, other internal costs, fees paid to consultants, central laboratories, contractors and CROs inconnection with our clinical and preclinical trial development activities. We use internal resources to manage our clinical and preclinical trial developmentactivities and perform data analysis for such activities. We participate, through our subsidiary in Australia, in the Australian government's R&D Incentive program, such that a percentage of our eligibleresearch and development expenses are reimbursed by the Australian government as a refundable tax offset and such incentives are reflected as other income.The percentage was 43.5% for both the years ended December 31, 2018 and 2017. The table below summarizes our research and development expenses incurred by development program and the R&D Incentive income for the yearsended December 31, 2018 and 2017: The successful development of our clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costsof the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period, if any, in which material netcash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, includingthe uncertainty of:•the scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research and development activities; •future clinical trial results; and •the timing and receipt of any regulatory approvals. A change in the outcome of any of these variables with respect to the development of a product candidate could result in a significant change in the costsand timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conductclinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if weexperience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time onthe completion of clinical development.General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive,finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional feesfor legal, patent, consulting, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued researchactivities and development of our product74 Year EndedDecember 31, 2018 2017 (in thousands) Direct research and development by program: DKN-01 program $15,624 $15,288 TRX518 program 6,206 7,215 Total research and development expenses $21,830 $22,503 Australian research and development incentives $756 $1,715 Table of Contentscandidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well asinvestor and public relations expenses associated with being a public company.Interest income Interest income consists primarily of interest income earned on cash and cash equivalents. During the years ended December 31, 2018 and 2017, interestincome was $0.4 million and $0.2 million, respectively.Interest expense—related party Interest expense—related party consists of interest accrued on notes payable—related party that we issued during 2017 and prior to December 31, 2016,the outstanding amounts of which were due on March 31, 2017. On January 20, 2017, prior and subject to the consummation of our merger with Macrocure,all of our notes payable and accrued interest were converted into 1,950,768 shares of common stock.Research and development incentive income Research and development incentive income includes payments under the R&D Incentive program from the government of Australia. The R&DIncentive is one of the key elements of the Australian Government's support for Australia's innovation system. It was developed to assist businesses to recoversome of the costs of undertaking research and development. The research and development tax incentive provides a tax offset to eligible companies thatengage in research and development activities. Companies engaged in research and development may be eligible for either:•a 43.5% refundable tax offset for entities with an aggregated turnover of less than A$20 million per annum, or •a 38.5% non-refundable tax offset for all other entities. We recognize as other income the amount we expect to be reimbursed for qualified expenses.Foreign currency translation adjustment Foreign currency translation adjustment consists of gains (losses) due to the revaluation of foreign currency transactions attributable to changes inforeign currency exchange rates associated with our Australian subsidiary.Income taxes Since our inception, we have not recorded any U.S. federal, state or foreign income tax benefits for the net losses we have incurred in each year, due toour uncertainty of realizing a benefit from those items. As of December 31, 2018, we had federal, state and foreign net operating loss carryforwards of$106.9 million, $87.9 million and $69.9 million, respectively. The federal and state net operating losses begin to expire in 2030, while the foreign netoperating losses carryforward indefinitely. Our federal net operating losses include $25.6 million which can be also carried forward indefinitely. We may beable to utilize our net operating loss carryforwards to reduce future federal and state income tax liabilities. However, these net operating losses are subject tovarious limitations under Internal Revenue Code ("IRC") Section 382, which limits the use of net operating loss carryforwards to the extent there has been anownership change of more than 50 percentage points. In addition, the net operating loss carryforwards are subject to examination by the taxing authoritiesand could be adjusted75Table of Contentsor disallowed due to such exams. Although we have not undergone an IRC Section 382 analysis, it is possible that the utilization of our net operating losscarryforwards may be limited. As of December 31, 2018, we also had federal and state research and development tax credit carryforwards of $2.8 million and $0.5 million, respectively,which begin to expire in 2030. There is no provision for income taxes in the United States or Israel, because we have historically incurred operating losses and maintain a full valuationallowance against our deferred tax assets in these jurisdictions. The deferred tax asset recorded in the consolidated balance sheets relates to our Australianoperations.Critical Accounting Policies and Significant Judgments and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, whichwe have prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). The preparation of these consolidated financial statementsrequires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilitiesat the date of the consolidated financial statements, as well as the reported expenses during the reporting periods. We evaluate these estimates and judgmentson an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Ouractual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this report,we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results ofoperations.Accrued Research and Development Expenses As part of the process of preparing consolidated financial statements, we are required to estimate accrued research and development expenses. Thisprocess involves communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level ofservice performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority ofour service providers invoice us monthly for services performed. We make estimates of our accrued research and development expenses as of each balancesheet date in our consolidated financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of our estimates withselected service providers and make adjustments, if necessary. To date, we have not adjusted our estimate at any particular balance sheet date by any materialamount. Examples of estimated accrued research and development expenses include:•fees paid to CROs for management of our clinical trial activities; •fees paid to investigative sites in connection with clinical trials; •fees paid to contract manufacturers in connection with the production of clinical trial supplies; and •professional services and fees. We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple researchinstitutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary76Table of Contentsfrom contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successfulenrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will beperformed and the level of effort to be expended in each period. If we do not accurately identify costs that we have begun to incur or if we underestimate oroverestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.Stock-Based Compensation We have issued options to purchase our common stock. We account for stock based compensation in accordance with ASC 718, Compensation—StockCompensation. ASC 718 establishes accounting for stock-based awards exchanged for employee services. Under the fair value recognition provisions of ASC718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite serviceor vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highlysubjective assumptions, including the expected life of the stock-based payment awards and stock price volatility. We estimate the grant date fair value of stock options and the related compensation expense, using the Black-Scholes option valuation model. Thisoption valuation model requires the input of subjective assumptions including: (1) expected life (estimated period of time outstanding) of the optionsgranted, (2) volatility, (3) risk-free rate and (4) dividends. In general, the assumptions used in calculating the fair value of stock-based payment awardsrepresent management's best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factorschange and we use different assumptions, our stock-based compensation expense could be materially different in the future.Valuation of Warrant Liability In connection with the November 2017 private placement, we issued warrants to purchase our common stock. The warrants contain full ratchet anti-dilution protection provisions. We classify the warrants as a liability on our consolidated balance sheet because each warrant represents a freestandingfinancial instrument that, due to the potential variable nature of the exercise price, is not considered to be indexed to our own stock. The warrant liability wasinitially recorded at fair value upon completion of the private placement and is subsequently remeasured to fair value at each reporting date. Changes in thefair value of the warrant liability are recognized as a component of other income (expense), net in the consolidated statement of operations andcomprehensive loss. We will continue to recognize changes in the fair value of the warrant liability until the warrants are exercised, expire or qualify forequity classification. We determine the fair value of the warrant liability, using a Monte Carlo simulation, which is a statistical method used to generate a defined number ofshare price paths to develop a reasonable estimate of the range of future expected share prices. We assess these assumptions and estimates at each reportingdate as additional information impacting the assumptions is obtained. Estimates and assumptions impacting the fair value measurement include the estimatedprobability of adjusting the exercise price of the warrants, the number of shares for which the warrants are exercisable, remaining contractual term of thewarrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying common shares. We have historically been aprivate company and lack company-specific historical and implied volatility information of our shares. Therefore, we estimate expected share volatilitybased on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interestrate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. Weestimated a 0% expected dividend yield based on the fact that we77Table of Contentshave never paid or declared dividends and do not intend to do so in the foreseeable future. In general, the assumptions used in calculating the fair value ofthe warrant liability represent management's best estimates, but the estimates involve inherent uncertainties and the application of management judgment. Asa result, if factors change and we use different assumptions, our warrant liability expense could be materially different in the future.JOBS Act We are an "emerging growth company", or EGC, as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). The JOBS Act, permitsan "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicableto public companies until those standards would otherwise apply to private companies. We may elect to use the extended transition period for complyingwith new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election would allow us to delay the adoption of new or revisedaccounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of thiselection, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these reporting exemptions until we are no longer an emerging growth company, which in certain circumstances could be forup to five years. We will remain an "emerging growth company" until the earliest of (a) the last day of the first fiscal year in which our annual gross revenuesexceed $1.07 billion, (b) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended,or the Exchange Act, which would occur if the market value of our shares that are held by non-affiliates exceeds $700 million as of the last business day ofour most recently completed second fiscal quarter, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the precedingthree-year period and (d) the last day of our 2022 fiscal year containing the fifth anniversary of the date on which shares of our common stock becamepublicly traded in the U.S. As of December 31, 2018, we remain an EGC.78Table of ContentsResults of OperationsComparison of the Years Ended December 31, 2018 and 2017 The following tables summarize our results of operations for the years ended December 31, 2018 and 2017:Research and Development Expenses Research and development expenses were $21.8 million for the year ended December 31, 2018, compared to $22.5 million for the year endedDecember 31, 2017. The decrease of $0.7 million was primarily due to a $2.6 million decrease in manufacturing costs related to clinical trial material due totiming of manufacturing campaigns and a $1.2 million decrease in stock based compensation expense due to a higher number of stock option grants duringthe year ended December 31, 2017 in connection with the merger with Macrocure. These decreases were partially offset by a $2.7 million increase in clinicaltrial costs due to an increase in patient enrollment and an $0.4 million increase in payroll and other related expenses due to an increase in headcount in ourresearch and development full time employees.79 Year EndedDecember 31, 2018 2017 Change (in thousands) Operating expenses: Research and development $21,830 $22,503 $(673)General and administrative 8,921 9,849 (928)Total operating expenses 30,751 32,352 (1,601)Loss from operations (30,751) (32,352) 1,601 Interest income 447 170 277 Interest expense (19) (528) 509 Interest expense—related party — (121) 121 Australian research and development incentives 756 1,715 (959)Foreign currency gains (loss) (835) 759 (1,594)Change in fair value of warrant liability 7,284 473 6,811 Loss before income taxes (23,118) (29,884) 6,766 Income taxes (20) 157 (177)Net loss $(23,138)$(29,727)$6,589 Year EndedDecember 31, Increase(Decrease) 2018 2017 (in thousands) Direct research and development by program: DKN-01 program $15,624 $15,288 $336 TRX518 program 6,206 7,215 (1,009)Total research and development expenses $21,830 $22,503 $(673)Table of ContentsGeneral and Administrative Expenses General and administrative expenses were $8.9 million for the year ended December 31, 2018, compared to $9.8 million for the year ended December 31,2017. The decrease of $0.9 million in general and administrative expenses was due to a decrease of $0.9 million in stock based compensation expense due toa higher number of stock option grants during the year ended December 31, 2017 in connection with the merger with Macrocure.Interest Income We recorded interest income of $0.4 million and $0.2 million, respectively, for the years ended December 31, 2018 and 2017. The increase in interestincome is primarily due to a higher average cash balance during the year ended December 31, 2018 as compared to 2017.Interest Expense—Related Party We recorded interest expense—related party of $0.1 million for the year ended December 31, 2017 related to borrowings under our note payable—related party. On January 20, 2017, in connection with and prior to the completion of the merger with Macrocure, the outstanding note payable and accruedinterest was converted into 1,950,768 shares of common stock. We did not record any interest expense—related party for the year ended December 31, 2018.Australian Research and Development Incentives We recorded R&D incentive income of $0.8 million and $1.7 million for the years ended December 31, 2018 and 2017, respectively, based upon theapplicable percentage of eligible research and development activities under the Australian Incentive Program, net of our Australia tax liability, whichexpenses included the cost of manufacturing of clinical trial material. We perform certain supporting research and development activity outside of Australia when there are no Australian facilities that support the activity("Overseas research and development activities"). In October 2017, the Commonwealth of Australia issued us a favorable ruling on our Overseas research anddevelopment activities, considering such activities to be eligible research and development activities under the Australian Incentive Program. As such, werecorded $0.7 million of R&D incentive income during the year ended December 31, 2017 for our Overseas research and development activities performedduring the year ended December 31, 2016. During the year ended December 31, 2018, we received $0.7 million of research and development tax incentive payments from the Commonwealth ofAustralia as a result of the 2016 Overseas research and development activities of our Australian subsidiary, HCP Australia and $0.8 million of research anddevelopment tax incentive payments as a result of the 2017 research and development activites. During the year ended December 31, 2017, we received$3.2 million of research and development tax incentive payments from the Commonwealth of Australia as a result of the 2016 research and developmentactivities. The remaining R&D incentive receivable has been recorded as "Research and development incentive receivable" in the consolidated balance sheets.Foreign Currency Gains (Loss) We recorded foreign currency gains (losses) of ($0.8) million and $0.8 million, respectively, for the years ended December 31, 2018 and 2017. Theincrease in foreign currency gains is due to the changes in Australian dollar exchange rate related to activities of the Australian entity.80Table of ContentsInterest Expense We recorded interest expense of $0.5 million for the year ended December 31, 2017. We recorded an immaterial amount of interest expense for the yearended December 31, 2018.Liquidity and Capital Resources Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates, which are in variousphases of clinical trials, and we do not expect to generate revenue from sales of any product for several years, if at all. We have funded our operations to datewith proceeds from the sale of common stock and preferred stock and notes payable—related party. As of December 31, 2018, we had cash and cash equivalents of $16.3 million. During the year ended December 31, 2018, we issued common stock inconnection with our March 2018 public offering for net proceeds of $14.8 million. During the year ended December 31, 2017, we issued common stock inconnection with our Subscription Agreement and Private Placement for net proceeds of $9.0 million and $17.3 million, respectively, and received$21.2 million in cash as a result of our merger with Macrocure. During the year ended December 31, 2017, we issued $0.8 million of notes payable—relatedparty. The notes had a stated annual interest rate of 8%, and the outstanding principal balance and accrued interest were payable on March 31, 2017. InJanuary 2017, all of the outstanding notes and related accrued interest were converted into shares of our common stock in connection with the closing of themerger with Macrocure. We expect that our cash and cash equivalents of $16.3 million at December 31, 2018, together with the net proceeds from the February 2019 PublicOffering of $12.1 million and the receipt of $0.8 million of research and development tax incentive payments from the Commonwealth of Australia as a resultof the 2018 research and development activities of our Australian subsidiary, HealthCare Pharmaceuticals Pty Ltd, will be sufficient to fund our operatingexpenses for at least the next 12 months from issuance of the financial statements included in this Annual Report on Form 10-K. In addition, we will seekadditional funding through public or private equity financings or government programs and will seek funding or development program cost-sharing throughcollaboration agreements or licenses with larger pharmaceutical or biotechnology companies. If we do not obtain additional funding or developmentprogram cost-sharing, we would be forced to delay, reduce or eliminate certain clinical trials or research and development programs, reduce or eliminatediscretionary operating expenses, and delay company and pipeline expansion, which would adversely affect our business prospects. The inability to obtainfunding, as and when needed, would have a negative impact on Leap's financial condition and our ability to pursue our business strategies.Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented:81 Year EndedDecember 31, 2018 2017 (in thousands) Cash used in operating activities $(26,033)$(22,137)Cash used in investing activities — (64)Cash provided by financing activities 15,906 47,763 Effect of exchange rate changes on cash and cash equivalents 674 (618)Net increase (decrease) in cash and cash equivalents $(9,453)$24,944 Table of Contents Operating activities. Net cash used in operating activities for the year ended December 31, 2018 was primarily related to our net loss from the operationof our business of $23.1 million and net changes in working capital, including an increase in prepaid expenses and other assets of $0.3 million and a noncashchange in the fair value of the warrant liability of $7.3 million, partially offset by noncash stock compensation expense of $3.5 million, an increase of$0.8 million in research and development incentive receivable and an increase in accounts payable and accrued expenses of $0.4 million. The increase inaccounts payable and accrued expenses were due to timing of vendor invoicing and payments. Net cash used in operating activities for the year ended December 31, 2017 was primarily related to our net loss from the operation of our business of$29.7 million and net changes in working capital, including an increase in deferred tax assets of $0.2 million, an increase in prepaid expenses and otherassets of $0.1 million and a noncash change in the fair value of the warrant liability of $0.5 million, partially offset by noncash stock compensation expenseof $5.6 million, an increase in accounts payable and accrued expenses of $1.1 million, a decrease in research and development incentive receivable of$1.5 million and noncash interest expense of $0.1 million. The increase in accounts payable and accrued expenses were due to timing of vendor invoicingand payments. Investing Activities. Net cash used in investing activities during the year ended December 31, 2017 was related to purchases of equipment. There wereno investing activities during the year ended December 31, 2018. Financing Activities. Net cash provided by financing activities for the year ended December 31, 2018 consisted of $15.0 million in proceeds from theissuance of common stock in connection with the March 2018 public offering, net of underwriter commissions and discounts, and $1.2 million in proceedsfrom the exercise of common stock warrants, partially offset by payments of $0.3 million for deferred offering costs. Net cash provided by financing activities for the year ended December 31, 2017 consisted of $21.2 million in proceeds from the issuance of commonstock in connection with the merger with Macrocure, $10.0 million and $18.0 million in proceeds from the issuance of our common stock in connection withthe Subscription Agreement and Private Placement, respectively, and $0.8 million in proceeds from notes payable—related party, partially offset bypayments of $2.2 million for offering costs.Capital Requirements We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities andclinical trials of our product candidates in development. In addition, we expect to incur additional costs associated with operating as a public company. Our expenses will also increase as we:•pursue the clinical development of our most advanced product candidates, DKN-01 and TRX518; •seek to identify and develop additional product candidates; •maintain, expand and protect our intellectual property portfolio; •expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development,manufacturing and commercialization efforts and our operations as a public company; and82Table of Contents•increase our product liability and clinical trial insurance coverage as we initiate our clinical trials and commercialization efforts. Additional funding may not be available at the time needed on commercially reasonable terms, if at all.Contractual Obligations and Commitments The following table summarizes our contractual obligations as of December 31, 2018 and the effects that such obligations are expected to have on ourliquidity and cash flows in future periods: Pursuant to the Lilly Agreement, we agreed to pay Lilly a royalty in the low single digits of net sales of a particular product in the territory during theapplicable royalty term. As the product candidate has not been approved for sale, we have not yet paid any royalties to Lilly pursuant to this agreement anddo not know whether or when royalties may ultimately become payable. Pursuant to the Lonza Agreement, we agreed to pay Lonza a royalty in the low single digits of net sales of a particular product in the territory during theapplicable royalty term. As the product candidate has not been approved for sale, we have not yet paid any royalties to Lonza pursuant to this agreement anddo not know whether or when royalties may ultimately become payable. On January 23, 2017, in connection with our merger with Macrocure, we entered into a royalty agreement with Leap Shareholder Royalty Vehicle, LLC,a special purpose vehicle formed for the specific purpose of entering into the royalty agreement. Pursuant to the royalty agreement, we agreed to pay to thespecial purpose vehicle (i) 5% of our net sales of products incorporating its TRX518 compound and (ii) 2% of our net sales of products incorporating itsDKN-01 compound. As these product candidates have not been approved for sale, we have not yet paid any royalties to the special purpose vehicle pursuantto this agreement and do not know whether or when royalties may ultimately become payable.Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulationsof the Securities and Exchange Commission.Recently Issued Accounting Pronouncements We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statementsincluded in this Annual Report on Form 10-K, such83 Payments due by period Total Less than1 year 1 - 3years 3 - 5years More than5 Years Research commitments(1) $154 $154 $— $— $— Operating lease commitments(2) 1,915 803 966 146 Total $2,069 $957 $966 $146 $— (1)Represents non-cancellable commitments under manufacturing agreements with vendors to manufacture TRX518 and DKN-01for use in clinical trials. (2)Represents operating lease commitments for our office space at 47 Thorndike Street in Cambridge, Massachusetts throughApril 30, 2022 and for our lab space in Cambridge, Massachusetts, through April 30, 2020.Table of Contentsstandards will not have a material impact on our financial statements or do not otherwise apply to our operations. Item 7A. Quantitative and Qualitative Disclosures about Market Risks Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market riskexposure is primarily the result of fluctuations in interest rates and foreign exchange rates.Interest Rate Risk We are exposed to interest rate risk in the ordinary course of our business. Our cash and cash equivalents are held in highly liquid, readily availablechecking and money market accounts. As a result, these amounts are not materially affected by changes in interest rates and we do not believe that a 10%change in interest rate would materially impact these amounts.Foreign Currency Exchange Risk All of our employees and the majority of our major operations are currently located in the United States. We contract for manufacturing operationsoutside the United States through contract manufacturing organizations. The functional currency of our foreign subsidiary in Australia is the Australiandollar, and the R&D Tax Incentive payment is received from the Australian government in Australian dollars, although the majority of the Australiansubsidiary's contracts are denominated in U.S. dollars. We have engaged in contracts with contractors or other vendors in a currency other than the U.S. dollar,including our services agreement with Lonza Sales AG which is denominated in British pounds. As a result, we are subject to foreign currency risks withrespect to the Australian dollar and the British pound which could have the effect of increasing our expenses or reducing the amounts collected under theR&D Tax Incentive from the amounts recorded at the time of the transaction. Item 8. Financial Statements and Supplementary Data. Our financial statements required by this Item, together with the report of our independent registered public accounting firm, appear on pages F-1through F-26 of this Annual Report on Form 10-K and are incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submitunder the Securities and Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC's rules andforms and (2) accumulated and communicated to our management, including our President and Chief Executive Officer, who is our principal executiveofficer, and Chief Financial Officer, who is also our principal financial and accounting officer, as appropriate, to allow timely decisions regarding requireddisclosure. As of December 31, 2018, our management, with the participation of our principal executive officer and principal financial and accounting officer,evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of1934). Our management recognizes that any controls and procedures, no matter how84Table of Contentswell designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment inevaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial and accounting officerhave concluded based upon the evaluation described above that, as of December 31, 2018, our disclosure controls and procedures were effective at thereasonable assurance level.Management's Report on Internal Control Over Financial Reporting This Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed under the supervision and with the participation ofour management, including the individual serving as our principal executive officer and principal financial officer, to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generallyaccepted in the United States of America. Management conducted an assessment of the effectiveness of the Company's internal control over financialreporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—IntegratedFramework (2013 Framework). Based on this assessment, our management concluded that, as of December 31, 2018, our internal control over financialreporting was effective based on those criteria.Attestation Report on Internal Control Over Financial Reporting This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to the deferral allowedunder the JOBS Act for emerging growth companies.Changes in Internal Control Over Financial Reporting There were no changes to our internal control over financial reporting that occurred during the period covered by this report that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. Not applicable.85Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this Item is set forth in our Proxy Statement for the 2019 Annual Meeting of Stockholders to be filed with the SEC within120 days of December 31, 2018, and is incorporated into this Annual Report on Form 10-K by reference. Item 11. Executive Compensation. The information required by this Item is set forth in our Proxy Statement for the 2019 Annual Meeting of Stockholders to be filed with the SEC within120 days of December 31, 2018, and is incorporated into this Annual Report on Form 10-K by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this Item is set forth in our Proxy Statement for the 2019 Annual Meeting of Stockholders to be filed with the SEC within120 days of December 31, 2018, and is incorporated into this Annual Report on Form 10-K by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item is set forth in our Proxy Statement for the 2019 Annual Meeting of Stockholders to be filed with the SEC within120 days of December 31, 2018, and is incorporated into this Annual Report on Form 10-K by reference. Item 14. Principal Accounting Fees and Services. The information required by this Item is set forth in our Proxy Statement for the 2019 Annual Meeting of Stockholders to be filed with the SEC within120 days of December 31, 2018, and is incorporated into this Annual Report on Form 10-K by reference.86Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1) Financial Statements The financial statements listed below are filed as part of this Annual Report on Form 10-K.(a)(2) Financial Statement Schedules All financial schedules have been omitted because the required information is either presented in the Consolidated Financial Statements or the Notesthereto or is not applicable or required.(a)(3) Exhibits The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in the Exhibit Index immediatelypreceding the exhibits and are incorporated herein by reference. EXHIBIT INDEX 87Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets as of December 31, 2018 and 2017 F-2 Consolidated Statements of Operations for the Years Ended December 31, 2018 and 2017 F-3 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2018 and 2017 F-4 Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended December 31, 2018 and 2017 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 F-6 Notes to Consolidated Financial Statements F-7 Exhibit No. Description 3.1 Third Amended and Restated Certificate of Incorporation of Leap Therapeutics, Inc. (filed as Exhibit 3.1 tothe Registrant's current report on Form 8-K (File No. 001-37990) as filed on January 26, 2017). 3.2 Amended and Restated By-laws of Leap Therapeutics, Inc. (filed as Exhibit 3.4 to the Registrant's registrationstatement on Form S-4 (File No. 333-213794) as filed on September 26, 2016 and attached as Annex D to theprospectus which forms part of such registration statement). 4.1 Form of Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to AmendmentNo. 2 to the Registrant's registration statement on Form S-4 (File No. 333-213794) as filed on November 16,2016). 4.2 Amended and Restated Stockholders' Agreement, between Leap and its stockholders, effective as ofDecember 10, 2015 (incorporated by reference to Exhibit 4.2 to the Registrant's registration statement onForm S-4 (File No. 333-213794) as filed on September 26, 2016). 4.3 Registration Rights Agreement, by and among Leap and certain stockholders, dated as of January 23, 2017(incorporated by reference to Exhibit 3.1 to the Registrant's current report on Form 8-K (File No. 001-37990)as filed on January 26, 2017). Table of Contents88Exhibit No. Description 4.4 Amendment No. 2 to Warrant, by and among Macrocure, Leap and certain warrant holders, dated as ofJanuary 23, 2017 (incorporated by reference to Exhibit 4.4 to the Registrant's annual report on Form 10-K(File No. 001-37990) as filed on March 31, 2017). 4.5 Form of Warrant, dated as of November 14, 2017 by and among Leap Therapeutics, Inc. and the Holdersidentified on the schedule thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (file No. 0001-3799) filed with the Securities and Exchange Commission on November 17, 2017). 10.1†Amended and Restated 2012 Equity Incentive Plan of Leap Therapeutics, Inc. (incorporated by reference toExhibit 10.1 to the Registrant's registration statement on Form S-8 (File No. 333-215787) as filed onJanuary 27, 2017). 10.2 Form of Stock Option Grant Notice and Stock Option Agreement under Leap's Amended and Restated 2012Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 to the Registrant's annualreport on Form 10-K (File No. 001-37990) as filed on March 31, 2017). 10.3†2016 Equity Incentive Plan of Leap Therapeutics, Inc. (incorporated by reference to Exhibit 10.2 to theRegistrant's registration statement on Form S-8 (File No. 333-215787) as filed on January 27, 2017). 10.4 Form of Stock Option Grant Notice and Stock Option Agreement under Leap's 2016 Equity Incentive Plan, asamended (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Registrant's registrationstatement on Form S-4 (File No. 333-213794) as filed on November 2, 2016). 10.5 Summary Translation of Macrocure 2008 Stock Option Plan stockholders (incorporated by reference toExhibit 10.3 to the Registrant's registration statement on Form S-8 (File No. 333-215787) as filed onJanuary 27, 2017). 10.6 Macrocure 2013 Share Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant'sregistration statement on Form S-8 (File No. 333-215787) as filed on January 27, 2017). 10.7 Amendment No. 1 to Macrocure 2013 Share Incentive Plan (incorporated by reference to Exhibit 10.5 to theRegistrant's registration statement on Form S-8 (File No. 333-215787) as filed on January 27, 2017). 10.8‡License Agreement, between Eli Lilly and Company and Dekkun Corporation, effective as of January 3, 2011(incorporated by reference to Exhibit 10.4 to the Registrant's registration statement on Form S-4 (FileNo. 333-213794) as filed on September 26, 2016). 10.9‡License Agreement, by and between Lonza Sales AG and Healthcare Pharmaceuticals, Inc., dated as ofMay 28, 2015 (incorporated by reference to Exhibit 10.5 to the Registrant's registration statement on Form S-4 (File No. 333-213794) as filed on September 26, 2016). 10.10 Royalty Agreement, between Leap Therapeutics, Inc. and Leap Shareholder Royalty Vehicle, Inc.(incorporated by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K (File No. 001-37990)as filed on January 26, 2017). Table of Contents89Exhibit No. Description 10.11 Letter Agreement, between Leap Shareholder Royalty Vehicle, Inc. and certain Leap stockholders(incorporated by reference to Exhibit 10.2 to the Registrant's current report on Form 8-K (File No. 001-37990)as filed on January 26, 2017). 10.12†Executive Employment Agreement and accompanying Employee Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, by and between Leap and Christopher K. Mirabelli, dated asof August 29, 2016 (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form S-4(File No. 333-213794), as filed on September 26, 2016). 10.13†Executive Employment Agreement and accompanying Employee Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, by and between Leap and Douglas E. Onsi, dated as ofAugust 29, 2016 (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form S-4 (FileNo. 333-213794), as filed on September 26, 2016). 10.14†Executive Employment Agreement and accompanying Employee Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreement, by and between Leap and Augustine Lawlor, dated as ofAugust 29, 2016 (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form S-4 (FileNo. 333-213794), as filed on September 26, 2016). 10.15 Form of Indemnification Agreement (filed as Exhibit 10.10 to Amendment No. 1 to the Registrant'sregistration statement on Form S-4 (File No. 333-213794) as filed on November 2, 2016). 10.16 Subscription Agreement, between Leap and HealthCare Ventures IX, L.P., dated as of January 23, 2017(incorporated by reference to Exhibit 10.4 to the Registrant's current report on Form 8-K (File No. 001-37990)as filed on January 26, 2017). 10.17 Lease by and between Bulfinch Square Limited Partnership and Healthcare Ventures LLC, dated as ofMarch 30, 2012 (filed as Exhibit 10.26 to the Registrant's annual report on Form 10-K (File No. 001-37990)as filed on March 31, 2017). 10.18 Amendment to Lease by and between Bulfinch Square Limited Partnership and Healthcare Ventures LLC,dated as of June 30, 2015 (incorporated by reference to Exhibit 10.27 to the Registrant's annual report onForm 10-K (File No. 001-37990) as filed on March 31, 2017). 10.19 First Amendment to Lease by and between Bulfinch Square Limited Partnership and HealthcareVentures LLC, dated as of January 4, 2016 (incorporated by reference to Exhibit 10.28 to the Registrant'sannual report on Form 10-K (File No. 001-37990) as filed on March 31, 2017). 10.20 Consent to Assignment and Assumption of Lease, by and between Bulfinch Square Limited Partnership,Healthcare Ventures LLC, and Leap Therapeutics, Inc., dated as of December 19, 2016 and Assignment(incorporated by reference to Exhibit 10.29 to the Registrant's annual report on Form 10-K (File No. 001-37990) as filed on March 31, 2017). 10.21 Form of Purchase Agreement, dated as of November 14, 2017, by and among Leap Therapeutics, Inc. and thepurchasers identified on the schedule thereto (incorporated by reference to Exhibit 10.1 to the Current Reporton Form 8-K (file No. 0001-3799) filed with the Securities and Exchange Commission on November 17,2017). Table of Contents90Exhibit No. Description 10.22 Placement Agency Agreement, dated as of November 14, 2017, by and between Leap Therapeutics, Inc.,Raymond James & Associates, Inc. and Ladenburg Thalmann & Co. Inc. (incorporated by reference toExhibit 10.2 to the Current Report on Form 8-K (file No. 0001-3799) filed with the Securities and ExchangeCommission on November 17, 2017). 10.23 Voting Agreement, dated as of November 14, 2017, by and among Leap Therapeutics, Inc., HealthCareVentures VIII, L.P., HealthCare Ventures IX, L.P. and HealthCare Ventures Strategic Fund, L.P. (incorporatedby reference to Exhibit 10.3 to the Current Report on Form 8-K (file No. 0001-3799) filed with the Securitiesand Exchange Commission on November 17, 2017). 10.24 Form of Underwriting Agreement, dated as of March 23, 2018, by and among Leap Therapeutics, Inc. andRaymond James & Associates, Inc. and Ladenburg Thalmann & Co. Inc., as representatives of theunderwriters named therein (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K (fileNo. 001-37990) filed with the Securities and Exchange Commission on March 23, 2018). 10.25 Form of Distribution Agreement, dated as of September 7, 2018, by and between Leap Therapeutics, Inc. andRaymond James & Associates, Inc. (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K (file No. 001-37990) filed with the Securities and Exchange Commission on September 7, 2018). 10.26 Form of Lease, dated as of November 13, 2018, by and between Leap Therapeutics, Inc. and Bulfinch SquareLimited Partnership (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K (fileNo. 001-37990) filed with the Securities and Exchange Commission on November 13, 2018). 21.1*Subsidiaries of Leap Therapeutics, Inc. 23.1*Consent of EisnerAmper LLP related to Leap Therapeutics, Inc. financial statements. 31.1*Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the SecuritiesExchange Act of 1934, as amended. 31.2*Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the SecuritiesExchange Act of 1934, as amended. 32.1***Principal Executive Officer Certification and Principal Financial Officer Certification Pursuant to 18 U.S.C.Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101*The following materials from Leap Therapeutics, Inc.'s Annual Report on Form 10-K for the year endedDecember 31, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) ConsolidatedBalance Sheets at December 31, 2018 and 2017, (ii) Consolidated Statements of Operations for the yearended December 31, 2018 and December 31, 2017, (iii) Consolidated Statements of Shareholders' Equity(Deficit) at December 31, 2018 and December 31, 2017 (iv) Consolidated Statements of Cash Flows for theyear ended December 31, 2018 and December 31, 2017, and (v) Notes to Condensed Consolidated FinancialStatements, tagged as blocks of text.*Exhibits filed herewith **This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to theliabilities of the Section, nor shall it be deemed incorporated byTable of Contents91reference in any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whethermade before or after the date hereof and irrespective of any general incorporation language in any filing.†Indicates management contract or compensation plan ‡Indicates confidential treatment has been granted by the Securities and Exchange Commission with respect to specific portions of thisexhibit. Such portions have been omitted and have been filed separately with the Securities and Exchange Commission as part of anapplication for confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. 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.92 LEAP THERAPEUTICS, INC.April 1, 2019 By: /s/ CHRISTOPHER K. MIRABELLI, PH.D. Name: Christopher K. Mirabelli, Ph.D. Title: President, Chief Executive Officer andChairman of the Board of DirectorsNAME TITLE DATE /s/ CHRISTOPHER K. MIRABELLI, PH.D.Christopher K. Mirabelli, Ph.D. Chief Executive Officer, President and Chairman ofthe Board (Principal Executive Officer) April 1, 2019/s/ DOUGLAS E. ONSIDouglas E. Onsi Chief Financial Officer, Treasurer and Secretary(Principal Financial and Accounting Officer) April 1, 2019/s/ JAMES CAVANAUGH, PH.D.James Cavanaugh, Ph.D. Director April 1, 2019/s/ JOHN LITTLECHILDJohn Littlechild Director April 1, 2019/s/ THOMAS DIETZ, PH.D.Thomas Dietz, Ph.D. Director April 1, 2019/s/ JOSEPH LOSCALZO, M.D., PH.D.Joseph Loscalzo, M.D., Ph.D. Director April 1, 2019/s/ NISSIM MASHAICHNissim Mashaich Director April 1, 2019/s/ WILLIAM LI, M.D.William Li, M.D. Director April 1, 2019/s/ MONICA M. BERTAGNOLLI, M.D.Monica M. Bertagnolli, M.D. Director April 1, 2019Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm F-1Consolidated Balance Sheets as of December 31, 2018 and 2017 F-2Consolidated Statements of Operations for the Years Ended December 31, 2018 and 2017 F-3Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2018 and 2017 F-4Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended December 31, 2018 and 2017 F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 F-6Notes to Consolidated Financial Statements F-7 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofLeap Therapeutics, Inc.Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Leap Therapeutics, Inc. and Subsidiaries (the "Company") as of December 31, 2018and 2017, and the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficiency), and cash flows for each of the yearsthen ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all materialrespects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the consolidated results of their operations and theircash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financialstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations ofthe Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain anunderstanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internalcontrol over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ EisnerAmper LLPWe have served as the Company's auditor since 2014.EISNERAMPER LLPPhiladelphia, PennsylvaniaApril 1, 2019F-1 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts) See notes to consolidated financial statementsF-2 December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $16,284 $25,737 Research and development incentive receivable 836 1,744 Prepaid expenses and other current assets 202 177 Total current assets 17,322 27,658 Property and equipment, net 86 135 Deferred tax assets 124 158 Other assets 1,542 1,111 Total assets $19,074 $29,062 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $3,579 $2,622 Accrued expenses 2,872 3,461 Total current liabilities 6,451 6,083 Non current liabilities: Warrant liability 3,448 11,862 Total liabilities 9,899 17,945 Commitments and contingencies (Note 13) Stockholders' equity: Common stock, $0.001 par value; 100,000,000 shares authorized as of December 31, 2018and 2017, 14,703,159 and 12,354,014 shares issued and outstanding as of December 31,2018 and 2017, respectively 15 12 Additional paid-in capital 162,393 141,770 Accumulated other comprehensive income (loss) 302 (268)Accumulated deficit (153,535) (130,397)Total stockholders' equity 9,175 11,117 Total liabilities and stockholders' equity $19,074 $29,062  Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share and per share amounts) See notes to consolidated financial statementsF-3 Year Ended December 31 2018 2017 Operating expenses: Research and development $21,830 $22,503 General and administrative 8,921 9,849 Total operating expenses 30,751 32,352 Loss from operations (30,751) (32,352)Interest income 447 170 Interest expense (19) (528)Interest expense—related party — (121)Australian research and development incentives 756 1,715 Foreign currency gains (loss) (835) 759 Change in fair value of warrant liability 7,284 473 Loss before income taxes (23,118) (29,884)Income taxes (20) 157 Net loss (23,138) (29,727)Accretion of preferred stock to redemption value — (244)Net loss attributable to common stockholders $(23,138)$(29,971)Net loss per share Basic $(1.64)$(3.27)Diluted $(2.11)$(3.31)Weighted average common shares outstanding Basic 14,144,287 9,161,844 Diluted 14,412,695 9,188,587  Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) See notes to consolidated financial statementsF-4 Year EndedDecember 31, 2018 2017 Net loss $(23,138)$(29,727)Other comprehensive loss: Foreign currency translation adjustments 570 (562)Comprehensive loss $(22,568)$(30,289) Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFSTOCKHOLDERS' EQUITY (DEFICIENCY)(In thousands, except share amounts) See notes to consolidated financial statementsF-5 Common Stock TotalStockholders'Equity(Deficiency) AdditionalPaid-inCapital OtherComprehensiveLoss AccumulatedDeficit Shares Amount Balances at December 31, 2016 — $— $145 $294 $(100,670)$(100,231)Accretion of redeemable preferredstock to redemption value — — (244) — — (244)Conversion of notes payable—related party and accrued interestinto common stock 1,950,768 2 31,143 — — 31,145 Conversion of convertible preferredstock to common stock 3,174,523 3 70,772 — — 70,775 Issuance of common stock inconnection with the SubscriptionAgreement, net of issuance costsof $1,018 1,010,225 1 8,981 — — 8,982 Issuance of common stock inconnection with merger withMacrocure, net of offering costsof $1,331 3,256,898 3 19,927 — — 19,930 Issuance of common stock uponexercise of stock options 3,506 — 20 — — 20 Issuance of common stock inconnection with the PrivatePlacement, net of issuance costsof $236 2,958,094 3 5,426 — — 5,429 Foreign currency translationadjustment — — — (562) — (562)Stock-based compensation — — 5,600 — — 5,600 Net loss — — — — (29,727) (29,727)Balances at December 31, 2017 12,354,014 12 $141,770 $(268)$(130,397)$11,117 Issuance of common stock inconnection with Public Offering,net of issuance costs of $1,304 2,146,667 3 14,793 — — 14,796 Issuance of common stock uponexercise of warrants 200,000 — 2,347 — — 2,347 Issuance of common stock uponexercise of stock options 2,478 — 14 — — 14 Foreign currency translationadjustment — — — 570 — 570 Stock-based compensation — — 3,469 — — 3,469 Net loss — — — — (23,138) (23,138)Balances at December 31, 2018 14,703,159 15 $162,393 $302 $(153,535)$9,175  Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) See notes to consolidated financial statementsF-6 Year EndedDecember 31, 2018 2017 Cash flows from operating activities: Net loss $(23,138)$(29,727)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 49 48 Stock-based compensation expense 3,469 5,600 Non-cash interest expense—related party — 121 Change in fair value of warrant liability (7,284) (473)Changes in operating assets and liabilities, net of impact of assumed net assets of Macrocure: Prepaid expenses and other assets (297) (99)Deferred tax assets 20 (158)Research and development incentive receivable 780 1,458 Accounts payable and accrued expenses 368 1,093 Net cash used in operating activities (26,033) (22,137)Cash flows from investing activities: Purchases of property and equipment — (64)Net cash used in investing activities — (64)Cash flows from financing activities: Proceeds from issuance of common stock in connection with merger with Macrocure — 21,165 Proceeds from issuance of common stock in connection with Subscription Agreement — 10,000 Proceeds from issuance of common stock in connection with Private Placement — 18,000 Proceeds from issuance of common stock, net of underwriter commissions and discounts 15,034 — Proceeds from notes payable—related party — 750 Proceeds from the exercise of common stock warrants 1,217 — Proceeds from the exercise of stock options 14 20 Payment of offering costs (359) (2,172)Net cash provided by financing activities 15,906 47,763 Effect of exchange rate changes on cash and cash equivalents 674 (618)Net increase (decrease) in cash and cash equivalents (9,453) 24,944 Cash and cash equivalents at beginning of period 25,737 793 Cash and cash equivalents at end of period $16,284 $25,737 Supplemental disclosure of non-cash financing activities: Accretion of preferred stock to redemption value $— $244 Reduction in fair value of warrant liability as a result of exercise of common stock warrants $1,130 $— Deferred offering costs included in accounts payable and accrued expenses $41 $131 Conversion of notes payable—related party and accrued interest convertible preferred stock intocommon stock $— $31,145 Conversion of convertible preferred stock into common stock $— $70,775 Value of net assets acquired in connection with merger with Macrocure, excluding cash $— $96 Table of Contents LEAP THERAPEUTICS, INC. AND SUBSIDIARIES Notes To Consolidated Financial Statements (Amounts in thousands, except share and per share amounts) 1. Nature of Business, Basis of Presentation and LiquidityNature of Business Leap Therapeutics, Inc. was incorporated in the state of Delaware as Dekkun Corporation on January 3, 2011 and changed its name to HealthCarePharmaceuticals, Inc. effective May 29, 2014, and then to Leap Therapeutics, Inc. effective November 16, 2015 (the "Company"). During 2015, HealthCarePharmaceuticals Pty Ltd ("HCP Australia") was formed and is a wholly owned subsidiary of the Company. During 2017, the Company merged withMacrocure Ltd. (now "Leap Therapeutics Ltd.") and its wholly owned subsidiary Macrocure, Inc. The Company is a biopharmaceutical company acquiring and developing novel therapeutics at the leading edge of cancer biology. The Company'sapproach is designed to target compelling tumor-promoting and immuno-oncology pathways to generate durable clinical benefit and enhanced outcomes forpatients. The Company's programs are monoclonal antibodies that target key cellular pathways that enable cancer to grow and spread and specificmechanisms that activate the body's immune system to identify and attack cancer.Basis of Presentation The accompanying consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries and have been prepared inconformity with accounting principles generally accepted in the United States of America. All inter-company accounts and transactions are eliminated uponconsolidation.Merger with Macrocure Ltd. The Company entered into a definitive merger agreement (the "Merger Agreement"), dated as of August 29, 2016, with Macrocure Ltd. ("Macrocure"), apublicly held, clinical-stage biotechnology company based in Petach Tikva, Israel, and M-Co Merger Sub Ltd. ("Merger Sub"), a wholly owned subsidiary ofthe Company which provided for the merger of Macrocure with and into Merger Sub, with Macrocure continuing after the merger as a wholly ownedsubsidiary of the Company. Following the merger, the Company changed Macrocure's name to Leap Therapeutics Ltd. Pursuant to the Merger Agreement, theexisting equity holders of the Company invested an additional $10,000 at the closing of the transaction. On January 23, 2017, the Company issued3,256,898 shares of its common stock in exchange for 100% of the outstanding ordinary shares of Macrocure Ltd. upon consummation of the merger (seeNote 3).Reverse Stock Split On January 20, 2017, the Company effected a 1-for-19.86754 reverse stock split of its issued and outstanding shares of common stock and a proportionaladjustment to the existing conversion ratios for each series of the Company's Preferred Stock. Accordingly, all share and per share amounts for all periodspresented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reversestock split and adjustment of the preferred stock conversion ratios.F-7Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)1. Nature of Business, Basis of Presentation and Liquidity (Continued)Liquidity Since inception, the Company has been engaged in organizational activities, including raising capital, and research and development activities. TheCompany does not yet have a product that has been approved by the Food and Drug Administration (the "FDA"), has not generated any revenues and has notyet achieved profitable operations, nor has it ever generated positive cash flows from operations. There is no assurance that profitable operations, if achieved,could be sustained on a continuing basis. Further, the Company's future operations are dependent on the success of the Company's efforts to raise additionalcapital, its research and commercialization efforts, regulatory approval, and, ultimately, the market acceptance of the Company's products. In accordance with ASC 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, thatraise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the consolidated financial statementsare issued. As of December 31, 2018, the Company had an accumulated deficit of $153,535. During the year ended December 31, 2018, the Companyincurred a loss of $23,138 and used $26,033 of cash in operations. The Company expects to continue to generate operating losses in the foreseeable future.On February 5, 2019, the Company completed a public offering whereby it issued 7,557,142 shares of its common stock and warrants to acquire 7,557,142shares of its common stock at a price of $1.75 per unit, which included 985,714 shares and warrants to acquire 985,714 shares issued pursuant to theunderwriters' exercise of their option to purchase additional securities. The aggregate net proceeds received by the Company from the offering wereapproximately $12,081, net of underwriting discounts and commissions and estimated offering expenses. The Company believes that its cash and cashequivalents of $16,284 as of December 31, 2018, together with the net proceeds from the February 2019 Public Offering and the receipt of $836 of researchand development tax incentive payments from the Commonwealth of Australia as a result of the 2018 research and development activities of the Company'sAustralian subsidiary, HealthCare Pharmaceuticals Pty Ltd, net of the current Australia tax liability, will be sufficient to fund its operating expenses for atleast the next 12 months from issuance of the financial statements. In addition, the Company will seek additional funding through public or private equityfinancings or government programs and will seek funding or development program cost-sharing through collaboration agreements or licenses with largerpharmaceutical or biotechnology companies. If the Company does not obtain additional funding or development program cost-sharing, or exceeds its currentspending forecasts or fails to receive the research and development tax incentive payment, the Company has the ability and would be forced to: delay, reduceor eliminate certain clinical trials or research and development programs, reduce or eliminate discretionary operating expenses, and delay company andpipeline expansion, any of which would adversely affect its business prospects. The inability to obtain funding, as and when needed, would have a negativeimpact on the Company's financial condition and ability to pursue its business strategies.2. Summary of Significant Accounting PoliciesPrinciples of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompanyaccounts and transactions are eliminated upon consolidation.F-8Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)Use of Estimates The presentation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.Research and Development Expense Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research anddevelopment activities, including noncash share-based compensation and costs for third-party contractors to perform research, conduct clinical trials andmanufacture drug supplies and materials. The Company accrues for costs incurred by external service providers, including contract research organizationsand clinical investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed by the thirdparties, patient enrollment in clinical trials, administrative costs incurred by the third parties, and other indicators of the services completed. Based on thetiming of amounts invoiced by service providers, the Company may also record payments made to those providers as prepaid expenses that will berecognized as expense in future periods as the related services are rendered.Research and development incentive income and receivable The Company recognizes other income from Australian research and development incentives when there is reasonable assurance that the income will bereceived, the relevant expenditure has been incurred, and the consideration can be reliably measured. The research and development incentive is one of thekey elements of the Australian Government's support for Australia's innovation system and is supported by legislative law primarily in the form of theAustralian Income Tax Assessment Act 1997 as long as eligibility criteria are met. Management has assessed the Company's research and development activities and expenditures to determine which activities and expenditures are likelyto be eligible under the research and development incentive regime described above. At each period end management estimates the refundable tax offsetavailable to the Company based on available information at the time. This estimate is also reviewed by external tax advisors on an annual basis. Under the program, a percentage of eligible research and development expenses incurred by the Company through its subsidiary in Australia arereimbursed. The percentage was 43.5% for the years ended December 31, 2018 and 2017. The research and development incentive receivable represents an amount due in connection with the above program. The Company has recorded aresearch and development incentive receivable of $836 and $1,744 as of December 31, 2018 and 2017, respectively, in the consolidated balance sheets andother income from Australian research and development incentives of $756 and $1,715, in theF-9Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)consolidated statements of operations for the years ended December 31, 2018 and 2017, respectively, related to refundable research and developmentincentive program payments in Australia. The following table shows the change in the research and development incentive receivable from January 1, 2017 to December 31, 2018:Concentration of Credit Risk Financial instruments which potentially subject the Company to credit risk consist principally of cash and cash equivalents. All cash and cashequivalents are held in United States financial institutions and money market funds. At times, the Company may maintain cash balances in excess of thefederally insured amount.Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred income taxes are recognizedfor differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which thedifferences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactmentdate. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.F-10Balance at January 1, 2017 $3,053 Australian research and development incentive income 1,715(1)Cash received for 2016 eligible expenses (3,245)Foreign currency translation 221 Balance at December 31, 2017 1,744 Australian research and development incentive income 756 Cash received for 2016 eligible overseas research and development expenses (740)Cash received for 2017 eligible expenses (793)Foreign currency translation (131)Balance at December 31, 2018 $836 (1)Certain supporting research and development activity is performed outside of Australia when there are no Australian facilitiesthat support the activity ("Overseas research and development activities"). In October 2017, the Commonwealth of Australiaissued the Company a favorable ruling on its Overseas research and development activities, considering such activities to beeligible research and development activities under the Australian Incentive Program. As such, the Company recordedAustralian research and development incentives during the year ended December 31, 2017 for its Overseas research anddevelopment activities performed during the year ended December 31, 2016 of $717.Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued) The Company follows accounting guidance concerning provisions for uncertainty in income tax positions. This guidance clarifies the accounting forincome taxes by prescribing a minimum probability threshold that an uncertain tax position must meet before a financial statement benefit is recognized. Theminimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, of anyrelated appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount ofbenefit that is greater than 50% likely of being realized upon ultimate settlement. The Company recognizes accrued interest and penalties associated with uncertain tax position as part of the income tax provision. There were nouncertain tax positions or income tax related interest and penalties recorded for the years ended December 31, 2018 and 2017. The income tax returns of theCompany for the year ended December 31, 2015 and subsequent years are subject to examination by the Internal Revenue Service and other taxingauthorities, generally for three years after the returns were filed.Foreign Currency Translation The financial statements of the Company's foreign subsidiary are measured using the local currency as the functional currency. Assets and liabilities ofthis subsidiary are translated into U.S. dollars at exchange rates as of the consolidated balance sheet date. Equity is translated at historical exchange rates.Revenues and expenses are translated into U.S. dollars at average rates of exchange in effect during the year. The resulting cumulative translationadjustments have been recorded as a separate component of stockholders' deficiency. Foreign currency transaction gains and losses are included in the resultsof operations.Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over theestimated useful life of each asset. Computer equipment is depreciated over three years. Laboratory equipment, office equipment and furniture and fixturesare depreciated over five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset. Uponretirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss isincluded in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred.Impairment of Long-Lived Assets Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes inbusiness circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when toperform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economictrends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group forrecoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived assetgroup to its carrying value. An impairmentF-11Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount.The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cashflows. To date, the Company has not recorded any impairment losses on long-lived assets.Deferred Offering Costs The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financingsas deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders' equity(deficiency) as a reduction of additional paid-in capital generated as a result of the offering. As of December 31, 2018, there was $162 of deferred offeringcosts included in other assets in the consolidated balance sheets.Other Assets Other assets as of December 31, 2018 and 2017, consist of $1,380 and $1,111, respectively, of deposits made by the Company with certain serviceproviders that are to be applied to future payments due under the service agreements or returned to the Company if not utilized.Fair Value of Financial Instruments Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paidto transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between marketparticipants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use ofunobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair valuehierarchy, of which the first two are considered observable and the last is considered unobservable:•Level 1—Quoted prices in active markets for identical assets or liabilities. •Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quotedprices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated byobservable market data. •Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of theassets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. During the years presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value usingLevel 3 inputs. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transferswithin the hierarchy during the years ended December 31, 2018 and 2017.F-12Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued) A summary of the assets and liabilities carried at fair value in accordance with the hierarchy defined above is as follows (in thousands): Cash equivalents of $16,284 and $25,737 as of December 31, 2018 and 2017, respectively, consisted of overnight investments and money market fundsand are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. The carrying value of the research and development incentive receivable, accounts payable and accrued expenses approximate their fair value due to theshort-term nature of these assets and liabilities. A roll-forward of the recurring fair value measurements of the warrant liability categorized with Level 3 inputs are as follows (in thousands): The warrant liability in the table above is composed of the fair value of warrants to purchase common shares that the Company issued in connection withthe Private Placement (see Notes 7 and 9).F-13 Total Level 1 Level 2 Level 3 December 31, 2018 Assets: Cash equivalents $16,284 $16,284 $— $— Total assets $16,284 $16,284 $— $— Liabilities: Warrant liability $3,448 $— $— $3,448 Total liabilities $3,448 $— $— $3,448 December 31, 2017 Assets: Cash equivalents $25,737 $25,737 $— $— Total assets $25,737 $25,737 $— $— Liabilities: Warrant liability $11,862 $— $— $11,862 Total liabilities $11,862 $— $— $11,862 WarrantLiability Balance—January 1, 2017 $— Initial fair value 12,335 Change in fair value (473)Balance—December 31, 2017 11,862 Exercise of warrants (1,130)Change in Fair value (7,284)Balance—December 31, 2018 $3,448 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)The fair value of the warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurementwithin the fair value hierarchy. The Company utilized a Monte Carlo simulation, which is a statistical method used to generate a defined number of shareprice paths to develop a reasonable estimate of the range of the future expected share prices, to value the warrant liability. The Monte Carlo simulationincorporated assumptions and estimates to value the warrant liability. Estimates and assumptions impacting the fair value measurement included theestimated probability of adjusting the exercise price of the warrants, the number of shares for which the warrants will be exercisable, the remainingcontractual term of the warrants, the risk-free interest rate, the expected dividend yield, and the expected volatility of the price of the underlying commonshares. The Company historically had been a private company and lacks company-specific historical and implied volatility information of its shares. Therefore,it estimated its expected share volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractualterm of the warrants. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to theremaining contractual term of the warrants. The Company estimated a 0% expected dividend yield based on the fact that the Company has never paid ordeclared dividends and does not intend to do so in the foreseeable future.Segment Information The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company'ssingular focus is developing novel, targeted drugs for the treatment of cancer. Substantially all of the Company's tangible assets are held in the United States.Patent Costs All patent related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about therecovery of the expenditure. Amounts incurred are classified as general and administrative expenses.F-14 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)Stock-Based Compensation The Company measures all stock options and other stock-based awards granted to employees based on the fair value on the date of the grant andrecognizes compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of therespective award. Generally, the Company issues stock options to employees with only service-based vesting conditions and records the expense for theseawards using the straight-line method. The Company measures stock-based awards granted to consultants and nonemployees based on the fair value of the award on the date on which therelated service is complete. Compensation expense is recognized over the period during which services are rendered by such consultants and nonemployeesuntil completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the thencurrent fair value of the Company's common stock and updated assumption inputs in the Black-Scholes option-pricing model. Stock-based compensation is classified in the accompanying consolidated statements of operations based on the function to which the related servicesare provided. The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rateestimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rateadjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company's estimate, theCompany may be required to record adjustments to stock-based compensation expense in future periods. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company historically hasbeen a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility basedon the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical dataregarding the volatility of its own traded stock price. The expected term of the Company's stock options has been determined utilizing the "simplified"method for awards that qualify as "plain-vanilla" options. The expected term of stock options granted to nonemployees is equal to the contractual term of theoption award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periodsapproximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends oncommon stock and does not expect to pay any cash dividends in the foreseeable future.Net Loss per Share Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share iscomputed using the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potentialshares of common stock, including the assumed exercise of stock options.F-15Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)Reclassification Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect onpreviously reported results of operations. During the three months ended March 31, 2018, the Company made a policy election to present the change in fair value of its warrant liability separatefrom interest expense within its consolidated statements of operations on a prospective basis. The reclassification had no impact on the Company'spreviously reported financial position or cash flows.Redeemable Convertible Preferred Stock On January 20, 2017, in connection with and prior to the completion of the merger with Macrocure, all of the Company's outstanding shares ofconvertible preferred stock were converted into 3,174,523 shares of common stock.Warrant Liability In connection with entering into the Private Placement (Note 9), the Company issued a warrant to purchase common stock with each share of commonstock sold in the Private Placement. The Company classified the warrants as a liability on its consolidated balance sheet because each warrant represents afreestanding financial instrument that is not indexed to the Company's own shares. The warrant liability was initially recorded at fair value upon entering intothe Private Placement agreement and is subsequently remeasured to fair value at each reporting date. Changes in the fair value of the warrant liability arerecognized in the consolidated statements of operations. Changes in the fair value of the warrant liability will continue to be recognized until the warrants areexercised, expire or qualify for equity classification. If the Company issues shares to discharge the liability, the derivative financial liability is derecognized and common stock and additional paid-incapital are recognized on the issuance of those shares. Warrants are valued using the Monte Carlo simulation model. If the terms of warrants that initiallyrequire the warrant to be classified as a liability lapse, the liability is reclassified out of financial liabilities into equity at its fair value on that date. The cashproceeds received from exercises of warrants are recorded in common stock and additional paid-in capital.Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, and are early adopted by theCompany or adopted as of the specified effective date. In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based PaymentAccounting. The new standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences,classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company adopted this standard effectiveJanuary 1, 2018, which had no impact on the Company's consolidated financial statements.F-16Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued) In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standardis effective for the Company for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Companyadopted this standard effective January 1, 2018, which had no impact on the Company's consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance,modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a resultof the change in terms or conditions. The Company adopted this standard effective January 1, 2018, which had no impact on the Company's condensedconsolidated financial statements. The Company also considered the following recent accounting pronouncements which were not yet adopted as of December 31, 2018: In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-BasedPayment Accounting, which is intended to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance is effective for fiscal years beginning after December 15, 2018, including interimperiods within those fiscal years. Early adoption is permitted. The Company has evaluated the accounting, transition and disclosure requirements of thisstandard and does not expect it to have a material impact on the Company's consolidated financial statements. In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivativesand Hedging (Topic 815) ("ASU 2017-11"), which changes the classification analysis of certain equity-linked financial instruments (or embedded features)with down round features. The amendments require entities that present earnings per share ("EPS") in accordance with Topic 260 to recognize the effect of thedown round feature when triggered with the effect treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Thenew standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluatingthe accounting, transition, and disclosure requirements of this standard and believes that it will have a material impact on the Company's consolidatedfinancial statements. The Company believes that the new standard will change the accounting treatment of the 2017 Warrants from liability to equityclassification and that the effect of the adjustment to the exercise price as a result of the "down round" 2019 public offering will be to record a dividend andreduction of income available to common shareholders in basic EPS. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance will require lessees to recognize a right-of-use asset and alease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value oflease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Under the new guidance, lessor accounting islargely unchanged but certainF-17Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contractswith Customers. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily because lessees must recognize leaseassets and lease liabilities and therefore, will no longer be provided with a source of off-balance sheet financing. The new guidance is effective for theCompany January 1, 2019. The standard is expected to have a material impact on the Consolidated Balance Sheets, but not have an impact on theConsolidated Statements of Operations. The most significant impact will be the recognition of right-of-use assets and lease liabilities for operating leases,which the Company is currently estimating to be approximately $1,500 to $2,000. The Company believes that the impact of other recently issued but not yet adopted accounting pronouncements will not have a material impact on theCompany's consolidated financial position, results of operations, and cash flows, or do not apply to the Company's operations.3. Merger with Macrocure and Related TransactionsMerger with Macrocure Ltd. The Company entered into a definitive merger agreement (the "Merger Agreement"), dated as of August 29, 2016, with Macrocure Ltd. ("Macrocure"), apublicly held, clinical-stage biotechnology company based in Petach Tikva, Israel, and M-Co Merger Sub Ltd. ("Merger Sub"), a wholly owned subsidiary ofthe Company which provided for the merger of Macrocure with and into Merger Sub, with Macrocure continuing after the merger as a wholly ownedsubsidiary of the Company. On January 23, 2017, the Company issued 3,256,898 shares of its common stock, net of fractional shares paid in cash, in exchange for 100% of theoutstanding ordinary shares of Macrocure Ltd. upon consummation of the merger. Pursuant to the terms of the Merger Agreement, each holder of Macrocure'sordinary shares received approximately 0.1815 shares of the Company's common stock, plus cash in lieu of fractional shares based on a value of theCompany's common stock of $9.90 per share. The exchange ratio was based on a final net cash calculation, as of the closing, of $21,875. The merger wasaccounted for as an in-substance recapitalization of the Company, as the transaction was, in essence, an exchange of shares of the Company's common stock(and options and warrants exercisable therefor) for cash. Apart from cash, the net assets acquired were $96, and all Macrocure employees were terminated as ofthe effective time of the merger. Macrocure's cash and nominal assets and liabilities were measured and recognized at their fair values as of the date of themerger, and combined with the assets, liabilities and results of operations of the Company. All Macrocure stock options granted under the Macrocure stock option plans (whether or not then exercisable) and all warrants to purchase Macrocureordinary shares that were outstanding prior to the effective time of the merger became options and warrants, respectively, to purchase the Company's commonstock equal to the number of ordinary shares of Macrocure issuable upon exercise of such stock options and warrants multiplied by the exchange ratio, with acorresponding exercise price equal to the exercise price of such stock options or warrants divided by the exchange ratio. All outstanding and unexercisedMacrocure stock options and warrants assumed by the Company may be exercised solely for shares of the Company's common stock.F-18Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)3. Merger with Macrocure and Related Transactions (Continued) Vesting of all unvested Macrocure equity awards issued and outstanding was accelerated at the effective time of the merger, and all such equity awardsissued and outstanding at the time of the merger remained issued and outstanding. For accounting purposes, since the acceleration of vesting was negotiatedin contemplation of the merger, the remaining unrecognized compensation expense associated with the original grant date fair value of the awards of $280was recognized as a charge in the Company's consolidated statement of operations for the year ended December 31, 2017. In addition, the exercise period forall Macrocure options outstanding at the effective time of the merger was extended beyond the respective periods provided in the original awards. TheCompany recorded a charge of $504 in connection with the extension of the exercise periods in the consolidated statement of operations for the year endedDecember 31, 2017 equal to the difference in the fair value of the options immediately prior to and immediately following the modification of the exerciseperiod. In connection with the merger, the Company applied to be listed on the NASDAQ Global Market. NASDAQ approved the listing, and trading in theCompany's common stock commenced on January 24, 2017, under the trading symbol "LPTX".Recapitalization and Amendments to Certificate of Incorporation On January 20, 2017, in connection with and prior to the completion of the merger with Macrocure, (a) all of the Company's outstanding shares ofconvertible preferred stock were converted into 3,174,523 shares of common stock, (b) the outstanding note payable and accrued interest was converted into1,950,768 shares of common stock, and (c) the Company amended and restated its certificate of incorporation and bylaws to, among other things:(i) authorize 100,000,000 shares of common stock; (ii) eliminate all references to the previously existing series of the Company's preferred stock;(iii) authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company's board of directors and (iv) effect aone for 19.86754 reverse stock split of the Company's common stock outstanding immediately prior to the filing of the amended and restated certificate ofincorporation.Subscription Agreement On January 20, 2017, prior and subject to the consummation of the merger, the Company and HealthCare Ventures IX, L.P. ("HCV IX") entered into asubscription agreement pursuant to which HCV IX purchased 1,010,225 shares of the Company's common stock for $10,000, at a purchase price per share of$9.90.Stock Option Grants On January 20, 2017, in connection with the consummation of the merger with Macrocure, the Company made an option grant to each of threeexecutives to purchase 330,303 of shares of common stock, for a total of 990,909 shares of common stock, pursuant to its Amended and Restated 2012Equity Incentive Plan. The options were granted at an exercise price of $9.90 per share. The options will vest 33% on the first anniversary of the date of grant,and thereafter in equal monthly installments over a period of two years, generally subject to the executive's continued employment.F-19Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)3. Merger with Macrocure and Related Transactions (Continued)Royalty Agreement and Letter Agreement On January 23, 2017, immediately prior to the merger, the Company entered into a royalty agreement with Leap Shareholder Royalty Vehicle, LLC, aDelaware limited liability company (the "Royalty Vehicle"), a special purpose vehicle formed for the specific purpose of entering into the royalty agreement.In connection with the transactions contemplated by the Merger Agreement, the Company declared a special distribution of certain royalty rights to each ofits holders of common stock outstanding immediately prior to the effective time of the merger. These holders collectively beneficially owned or controlled100% of the Company's outstanding common stock at the time of the merger. Pursuant to the royalty agreement, the Company will pay to the special purposevehicle (i) 5% of the Company's net sales of products incorporating its TRX518 compound and (ii) 2% of the Company's net sales of products incorporatingits DKN-01 compound. The royalty agreement has an indefinite term, and neither the Company nor the special purpose vehicle has the right to terminate. TheCompany accounted for the royalty rights as a contingent liability.4. Property and Equipment, Net Property and equipment, net consisted of the following: Depreciation expense was $49 and $48 for the years ended December 31, 2018 and 2017, respectively.5. Accrued Expenses Accrued expenses consist of the following:F-20 December 31, 2018 2017 Computer office equipment $51 $51 Leasehold improvements 69 69 Lab equipment 58 58 Furnitures and fixtures 30 30 208 208 Less: accumulated depreciation (122) (73)Property and equipment, net $86 $135 December 31, 2018 2017 Clinical trials $1,745 $2,116 Professional fees 219 390 Payroll and related expenses 908 955 Accrued expenses $2,872 $3,461 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)6. Notes Payable—Related Party During 2014, the Company entered into a convertible promissory note with a stockholder, and made multiple drawdowns under the note throughout2014, 2015 and 2016. The note accrued interest at a rate of 8% per year. As of December 31, 2016, the Company owed $29,000 aggregate principal and$1,274 of accrued interest in connection with the promissory note. Interest expense from the related-party note was $121 for the year ended December 31,2017. On January 13, 2017, the Company received aggregate proceeds of $750 from an amendment and restatement of the promissory note. On January 20,2017, in accordance with its terms and in connection with and prior and subject to the consummation of the merger with Macrocure, the outstanding notepayable, including principal and accrued interest totaling $31,145, was converted into 1,950,768 shares of common stock.7. Warrants As of December 31, 2018, outstanding warrants to purchase common stock consisted of the following:2017 Warrants On November 14, 2017, in connection with the Private Placement (see Note 9), the Company issued immediately exercisable warrants to purchase2,958,094 shares of common stock to investors. The warrants had an initial exercise price of $6.085 per share, and expire on November 14, 2024. During theyear ended December 31, 2018, 200,000 warrants were exercised resulting in gross proceeds to the Company of $1,217. The warrants contain full ratchet anti-dilution protection provisions. The Company classifies the warrants as a liability on its consolidated balance sheetbecause each warrant represents a freestanding financial instrument that, due to the potential variable nature of the exercise price, is not considered to beindexed to the Company's own shares. The warrant liability was initially recorded at fair value upon entering into the Private Placement and is subsequentlyremeasured to fair value at each reporting date. Changes in the fair value of the warrant liability are recognized as a component of other income (expense), netin the Company's consolidated statement of operations. Changes in the fair value of the warrant liability will continue to be recognized until the warrants areexercised, expire or qualify for equity classification. As a result of the consummation of the February 2019 Public Offering, the exercise price of the 2017 Warrants automatically was adjusted pursuant to,and in accordance with, their terms, to $1.75 per share.F-21December 31, 2018Date Exercisable Number of SharesIssuable Exercise Price Exercisable for Classification1/23/2017 54,516 $0.01 Common Stock Equity11/14/2017 2,758,094 6.085 Common Stock Liability 2,812,610 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)7. Warrants (Continued) The fair value of the warrant liability was determined to be $12,335 on the date of issuance. The Company remeasured the liability as of December 31,2017 and determined that the fair value of the warrant liability was $11,862, resulting in income of $473 recorded in the consolidated statements ofoperations for the year ended December 31, 2017. As of December 31, 2018, the fair value of the warrant liability was $3,448, resulting in income of $7,284recorded in the consolidated statements of operations for the year ended December 31, 2018.8. Preferred Stock On January 1, 2017, the Company had convertible preferred shares which were redeemable outstanding. On January 20, 2017, prior and subject to theconsummation of the merger with Macrocure, all outstanding shares of the Company's convertible preferred stock were converted into 3,174,523 shares ofcommon stock. Accretion of the preferred stock to redemption value during 2017 prior to conversion was $244.9. Common Stock Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders. Common stockholders areentitled to receive dividends, as may be declared by the board of directors, if any, subject to the preferential dividend rights of the preferred stockholders.Through December 31, 2018, no dividends have been declared. As of December 31, 2018, the Company had reserved shares of common stock for the exercise of outstanding stock options and warrants, and for thenumber of shares remaining for grant under the Company's 2012 and 2016 Equity Incentive Plans (see Note 10).Merger with Macrocure Ltd. On January 20, 2017, in connection with and prior to the completion of the merger with Macrocure, (a) all of the Company's outstanding shares ofconvertible preferred stock were converted into 3,174,523 shares of common stock, (b) the outstanding note payable and accrued interest was converted into1,950,768 shares of common stock, and (c) the Company amended and restated its certificate of incorporation and bylaws to, among other things:(i) authorize 100,000,000 shares of common stock; (ii) eliminate all references to the previously existing series of the Company's preferred stock;(iii) authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Company's board of directors and (iv) effect aone for 19.86754 reverse stock split of the Company's common stock outstanding immediately prior to the filing of the amended and restated certificate ofincorporation.Private Placement of Common Stock On November 14, 2017, the Company entered into purchase agreements (collectively, the "Purchase Agreements") with certain accredited institutionalinvestors (collectively, the "Purchasers"), each with substantially similar terms and conditions. Pursuant to the Purchase Agreements, the Company agreed toissue and sell to the Purchasers an aggregate of 2,958,094 shares of unregistered common stock at a price per share of $6.085, for gross proceeds of $18,000(the "Private Placement").F-22Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)9. Common Stock (Continued)Each common share was issued with a detachable warrant to purchase one share of common stock at an exercise price of $6.085 per share, expiring sevenyears after the closing of the Purchase Agreements. The common shares issued in the Private Placement have the same rights and privileges as all other issuedand outstanding common shares. As a result of the consummation of the February 2019 Public Offering, the exercise price of the 2017 Warrants automaticallywas adjusted pursuant to, and in accordance with, their terms, to $1.75 per share. The gross proceeds of $18,000 were first allocated to the fair value of the warrants of $12,335 with the remaining proceeds of $5,665 being allocated tothe common stock. After giving effect to issuance costs related to the Private Placement, net proceeds were $17,250. If all of the Warrants are exercised incash at the stated exercise price during the term, the Company will receive additional proceeds of approximately $18,000 and will issue an aggregate of2,958,094 shares of common stock (the "Warrant Shares"). During the year ended December 31, 2018, there were 200,000 warrants exercised, resulting ingross proceeds to the Company of $1,217. The Company incurred $750 of issuance costs associated with the Private Placement which consisted of legal, consulting and regulatory fees. The costswere allocated between the issuance of the common stock and warrants on a pro rata basis with the allocation of the proceeds, with approximately 68% of thecosts allocated to the warrants and approximately 32% allocated to the common stock. The issuance costs associated with the common stock totaled $236and were recorded as a reduction to additional paid-in capital on the consolidated balance sheet. The issuance costs associated with the warrants totaled $514and were recorded within interest expense on the consolidated statement of operations. HealthCare Ventures IX, L.P. and Eli Lilly and Company, each a holder of more than 5% of the Company's outstanding common stock, also purchasedcommon stock and warrants in the Private Placement. Each of HealthCare Ventures IX, L.P. and Eli Lilly and Company agreed to purchase the common stockand warrants on the same terms and conditions as the other Purchasers in the Private Placement. Three of the Company's directors and executive officers areaffiliated with HealthCare Ventures IX, L.P. and its affiliates. Pursuant to the terms of the Purchase Agreements, the Company was obligated to prepare and file with the SEC a registration statement on Form S-3 (the"Registration Statement") to register for resale the shares and the Warrant Shares on or prior to the date 30 days following the closing of the PrivatePlacement, and use its best commercially reasonable efforts, subject to receipt of necessary information from the Purchasers, to cause the SEC to declare theRegistration Statement effective within 60 days following the closing of the Private Placement or, if the Registration Statement is selected for review by theSEC, within 90 days following the closing of the Private Placement. In order to comply with such obligation, the Company initially filed a registrationstatement for the resale of up to 3,734,914 shares of the shares and Warrant Shares issued in the Private Placement on December 8, 2017. Two of thePurchasers opted not to register their shares or Warrant Shares and therefore, such shares and Warrant Shares were excluded from the Registration Statement.The SEC declared this Registration Statement, as amended, effective on December 15, 2017.F-23Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)9. Common Stock (Continued)Public Offering of Common Stock On March 27, 2018, the Company completed a public offering whereby the Company issued 2,146,667 shares of its common stock at a price of $7.50 pershare, which included 280,000 shares issued pursuant to the underwriters' exercise of their option to purchase additional shares of common stock. Theaggregate net proceeds received by the Company from the offering were approximately $14,796, net of underwriting discounts and commissions andestimated offering expenses payable by the Company.10. Stock-Based CompensationEquity Incentive Plans In September 2012, the Company adopted the 2012 Equity Incentive Plan, as amended (the "Plan"), which provides designated employees of theCompany and its affiliates, certain consultants and advisors who perform services for the Company and its affiliates, and nonemployee members of the Boardof Directors of the Company and its affiliates with the opportunity to receive grants of incentive stock options, nonqualified stock options and stock awards.On January 20, 2017, the Company's stockholders approved the amended and restated 2012 Equity Incentive Plan (the "2012 Plan"), which amended andrestated the Plan and was effective in connection with the completion of the Company's merger with Macrocure. As of December 31, 2018, there were1,353,152 outstanding options issued under the 2012 Plan. On January 20, 2017, the Company's stockholders approved the 2016 Equity Incentive Plan (the "2016 Plan"), which was effective in connection withthe completion of the Company's merger with Macrocure. The number of shares of common stock issuable pursuant to outstanding awards granted under the2016 Plan may not exceed the number that is equal to the sum of (i) 854,321 shares of common stock plus (ii) the number of shares of common stock (not toexceed 103,023 shares) subject to out-of-the-money options issued by Macrocure prior to the closing of the merger and assumed by the Company pursuant tothe merger agreement upon consummation of the merger that expire unexercised. Beginning on January 1, 2018, the number of shares of common stockauthorized for issuance pursuant to the 2016 Plan was increased each January 1 by an amount equal to four percent (4%) of the Company's outstandingcommon stock as of the end of the immediately preceding calendar year or such other amount as determined by the compensation committee of theCompany's Board of Directors. As of December 31, 2018, there were 1,130,871 outstanding options issued under the 2016 Plan. In connection with the merger with Macrocure in January 2017, the Company assumed the Macrocure 2013 Share Incentive Plan (the "2013 Plan"), theMacrocure 2008 Stock Option Plan (the "2008 Plan") and all stock options outstanding under each of the 2013 Plan and the 2008 Plan immediately prior tothe consummation of the merger. By virtue of the terms of the Merger Agreement and the 2013 Plan or the 2008 Plan, as applicable, each stock optionoutstanding immediately prior to the consummation of the merger was automatically converted into a stock option exercisable for a number of shares of theCompany's common stock calculated based on the exchange ratio and the exercise price per share of such outstanding stock option.F-24Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)10. Stock-Based Compensation (Continued) The Company could also make awards of restricted stock under the 2016 Plan. Restricted stock may be issued under the Equity Plan for suchconsideration, in cash, other property or services, or any combination thereof, as is determined by the Board of Directors. During the restriction periodapplicable to the shares of restricted stock, such shares shall be subject to limitations on transferability, subject to forfeiture or repurchase by the Companyand/or subject to other terms and conditions. Upon lapse of such restrictions, the stock certificates representing shares of common stock shall be delivered tothe grantee. As of December 31, 2018, there were 245,678 shares available for grant under the Company's Equity Incentive Plans. A summary of activity under the Company's Equity Incentive Plans is as follows: During the years ended December 31, 2018 and 2017 the Company recognized $3,469 and $5,600 respectively, of stock-based compensation expense. The assumptions that the Company used to determine the grant-date fair value of stock options granted to employees and directors were as follows,presented on a weighted average basis: Stock options generally vest over a three or four year period, as determined by the Compensation Committee of the Board of Directors at the time ofgrant. The options expire ten years from the grantF-25 Options WeightedAverageExercise PricePer Share WeightedAverage RemainingLife in Years AggregateIntrinsicValue Outstanding at December 31, 2016 53,228 $4.93 7.00 $213 Granted 2,220,858 $12.51 Exercised (3,506)$5.55 Forfeited (12,959)$5.78 Outstanding at December 31, 2017 2,257,621 $12.38 8.66 $68 Granted 599,050 $6.68 Exercised (2,478)$5.56 Forfeited (92,281)$7.89 Outstanding at December 31, 2018 2,761,912 $11.30 8.01 $— Options exercisable at December 31, 2018 1,599,633 $13.90 7.40 $— Options vested and expected to vest at December 31, 2018 2,761,912 $11.30 8.01 $— Year EndedDecember 31, Year EndedDecember 31, 2018 2017 Expected volatility 66.94% 68.70%Weighted average risk-free interest rate 2.80% 2.10%Expected dividend yield 0.00% 0.00%Expected term (in years) 6.95 6.6 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)10. Stock-Based Compensation (Continued)date. As of December 31, 2018, there was approximately $5,676 of unrecognized compensation cost related to non-vested stock options, which is expected tobe recognized over a remaining weighted-average period of approximately 2.2 years. Stock-based compensation expense was classified in the consolidated statements of operations as follows:11. Income Taxes The Company had federal, state and foreign net operating loss carryforwards of approximately $106,878, $87,868 and $69,941, respectively, as ofDecember 31, 2018. The U.S. tax losses begin to expire in 2030. The foreign losses are primarily from Israel and have an indefinite carryforward. TheCompany's federal net operating losses include $25,569 which can also be carried forward indefinitely. The Company may be able to utilize its net operating loss carryforwards to reduce future federal and State income tax liabilities. However, these netoperating losses are subject to various limitations under Internal Revenue Code section 382, which limit the use of net operating loss carryforwards to theextent there has been in ownership change of more than 50 percentage points. In addition, the net operating loss carryforwards are subject to examination bythe taxing authorities and could be adjusted or disallowed due to such exams. Although the Company has not undergone an IRC section 382 analysis, it ispossible that the utilization of the Company's net operating loss carryforwards may be limited. In addition, the Company has federal and state research and development tax credits of approximately $2,811 and $483, respectively, that beginexpiring in 2030 for federal and state tax purposes. There is no provision for income taxes in the United States or Israel, because the Company has historically incurred operating losses and maintains a fullvaluation allowance against its deferred tax assets in these jurisdictions. The deferred tax asset recorded in the consolidated balance sheets relates to theCompany's Australian operations.F-26 Year EndedDecember 31, 2018 2017 Research and development $625 $1,834 General and administrative 2,844 3,766 Total $3,469 $5,600 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)11. Income Taxes (Continued) Income (loss) before income taxes consisted of the following: A summary of the Company's current and deferred expense for income tax is as follows: A reconciliation of the Company's statutory income tax rate to the Company's effective income tax rate is as follows:F-27 Year EndedDecember 31, 2018 2017 U.S. $(21,378)$(30,168)Foreign (1,740) 284 Loss before income taxes $(23,118)$(29,884) Year EndedDecember 31, 2018 2017 Current expense (benefit): Federal $— $— State — — Foreign — — Total current expense (benefit): $— $— Deferred expense (benefit): Federal $— $— State — — Foreign 20 (157)Total deferred expense (benefit): $20 $(157)Total income tax expense (benefit): $20 $(157) Year EndedDecember 31, 2018 2017 Federal statutory income tax rate 21.00% 34.00%State taxes, net of federal benefit 7.76% 4.42%Permanent differences 2.38% (2.27)%Tax credits 6.94% 3.45%Tax law change 0.00% (37.65)%Foreign rate differential 0.68% (0.02)%Valuation allowance (38.26)% (3.11)%Other (0.59)% 1.68% (0.09)% 0.50% Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)11. Income Taxes (Continued) The significant components of the Company's deferred tax assets as of December 31, 2018 and 2017 were as follows: As of December 31, 2018 and 2017, the Company had provided a full valuation allowance against its net deferred tax assets, except for its Australiandeferred tax assets, because realization of any future tax benefit cannot be reasonably assured. The valuation allowance increased during the years endedDecember 31, 2018 and 2017, by $8,181 and $17,504, respectively. During 2017, the Company recorded tax charges for the impact of the Tax Act effects using the current available information and technical guidance onthe interpretations of the Tax Act. As permitted by SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act,the Company recorded provisional estimates and have subsequently finalized the accounting analysis based on the guidance, interpretations, and dataavailable as of December 31, 2018. Adjustments made in the fourth quarter of 2018 upon finalization of the accounting analysis were not material to theconsolidated financial statements. The Company follows the authoritative guidance on accounting for and disclosure of uncertainty in tax positions, which requires the Company todetermine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals oflitigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized inthe financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement with therelevant taxing authority. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business the Company issubject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The earliest tax years that maybe subject to examination by jurisdiction are 2015 for both federal and state purposes. In addition, the NOL carryforwards are subject to examination by thetaxing authority and could be adjusted or disallowed due to such exams. The Company's policy is to record interest and penalties related to income taxes aspart of the tax provision. There were no interest and penalties pertaining to uncertain tax positions for the years ended December 31, 2018 or 2017.F-28 Year EndedDecember 30, 2018 2017 Federal net operating loss carryforwards $38,531 $33,232 State net operating loss carryforwards 5,553 4,014 Stock Options 1,632 1,348 Federal research tax credits 2,811 1,799 State research tax credits 382 231 License fees 1,495 1,659 Accrued expenses 88 29 Other 149 182 Total deferred tax assets $50,641 $42,494 Valuation allowance (50,517) (42,336)Net deferred tax asset (liability) $124 $158 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)12. Net Loss Per Share Basic and diluted net loss per share for the years ended December 31, 2018 and 2017 was calculated as follows: The Company's potentially dilutive securities include stock options and warrants. These securities were excluded from the computations of diluted netloss per share for the years ended December 31, 2018 and 2017, as the effect would be to reduce the net loss per share. During the years ended December 31,2018 and 2017, the outstanding warrants issued with the Private Placement is reflected in the diluted net loss per share computation by applying the treasurystock method. The following table includes the potential common shares, presented based on amounts outstanding at each period end, that were excludedfrom the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had ananti-dilutive effect:F-29 Year EndedDecember 31, Year EndedDecember 31, 2018 2017 Numerator: Net loss $(23,138)$(29,727)Accretion of preferred stock to redemption value — (244)Net loss attributable to common stockholders for basic loss per share $(23,138)$(29,971)Less change in fair value of warrant liability 7,284 473 Net loss attributable to common stockholders for diluted loss per share $(30,422)$(30,444)Denominator: Weighted average number of common shares outstanding—basic 14,144,287 9,161,844 Assumed conversion of dilutive securities: Private Placement Warrants 268,408 26,743 Denominator for diluted loss per share—adjusted weighted average shares 14,412,695 9,188,587 Net loss per share attributable to common stockholders—basic $(1.64)$(3.27)Net loss per share attributable to common stockholders—diluted $(2.11)$(3.31) Year Ended December 31, 2018 2017 Options to purchase common stock 2,761,912 2,257,621 Warrants assumed from Macrocure 54,516 54,516 2,816,428 2,312,137 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)13. Commitments and Contingencies Lease Agreements—Effective January 1, 2017, the Company entered into an assignment agreement to assume an operating lease for its office space inCambridge, Massachusetts. Annual rent under the lease, exclusive of operating expenses and real estate taxes, was $289 for the 12-month period endingJuly 31, 2017, $297 for the 12-month period ending July 31, 2018 and $305 for the 12-month period ending April 30, 2019. During the year endedDecember 31, 2018, the Company extended the term through April 30, 2022. Annual rent, exclusive of operating expenses and real estate taxes, for the 12-month periods ending April 30, 2020, April 30, 2021 and April 30, 2022, is $422, $429 and $437, respectively. Effective July 15, 2018, the Company entered into an agreement to assume an operating lease for its research laboratory in Cambridge, Massachusetts.Annual rent under the lease, exclusive of operating expenses and real estate taxes, is $420. The lease expires on April 30, 2020. Future minimum lease payments under these leases as of December 31, 2018 are as follows: Manufacturing Agreements—The Company is party to manufacturing agreements with vendors to manufacture TRX518 and DKN-01, our lead productcandidates, for use in clinical trials. As of December 31, 2018, noncancelable commitments under these agreements totaled $154. License and Service Agreements—On January 3, 2011, the Company entered into a license agreement with Eli Lilly and Company ("Lilly") to grant alicense to the Company for certain intellectual property rights relating to pharmaceutically active compounds that may be useful in the treatment of bonehealing, cancer and, potentially, other medical conditions. The Company issued 9,000,000 shares of Series A Stock to Lilly in consideration for the grant ofthe license. As defined in the license agreement, the Company would be required to pay royalties to Lilly based upon a percentage in the low single digits ofnet sales of developed products, if and when achieved. However, there can be no assurance that clinical or commercialization success of developed productswill occur, and no royalties have been paid or accrued through December 31, 2018. License Agreement—On May 28, 2015, the Company entered into a license agreement with Lonza Sales AG ("Lonza"), pursuant to which Lonzagranted the Company a world-wide, non-exclusive license for certain intellectual property relating to a gene expression system for manufacturing DKN-01.As defined in the license agreement, the Company would be required to pay royalties to Lonza based on a percentage in the low single digits of net sales ofDKN-01, if and when achieved. However, there can be no assurance that clinical or commercialization success will occur, and no royalties have been paid oraccrued through December 31, 2018.F-30Year Ending December 31, OperatingLeases 2019 $803 2020 532 2021 434 2022 146 $1,915 Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)13. Commitments and Contingencies (Continued) Legal Proceedings—At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable andreasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred thecosts related to its legal proceedings. A patent covering the TRX518 antibody and its uses in methods of inducing or enhancing an immune response in a subject was granted in 2013 to theCompany by the European Patent Office (EPO). Three notices of opposition to this patent were filed: two by major pharmaceutical companies and a third byan individual, possibly on behalf of a major pharmaceutical company. At the conclusion of the opposition proceedings before the Opposition Division of theEPO, the Opposition Division issued a decision indicating that the Company's patent was maintained with modified claims that differ from the claims asoriginally granted. These narrowed claims cover the TRX518 antibody and uses of the TRX518 antibody in methods of inducing or enhancing an immuneresponse in a subject. The Company has filed an appeal of the decision of the Opposition Division seeking to obtain broader claims that more closely reflectthe claims as granted in the patent. The EPO Board of Appeal has not yet scheduled a date for the appeal hearing. In 2016, a patent covering the use of the TRX518 antibody in combination with a chemotherapeutic agent for treating cancer was granted to theCompany by the EPO. In March 2017, notices of opposition to this patent were filed at the EPO by ten different entities, including several majorpharmaceutical companies. Oral proceedings at the EPO took place on December 4 and 5, 2018. At the conclusion of the oral proceedings, the OppositionDivision decided that the patent should be revoked in its entirety on the ground that the claims as granted contained added matter. Subsequently, theOpposition Division issued an interlocutory decision restating its conclusion that the claims as granted contained added matter and revoking the patent. TheCompany has filed an appeal of the decision of the Opposition Division seeking to obtain a reversal of the Opposition Division's decision on added matter. Astatement of our grounds of appeal is due on May 23, 2019. The EPO Board of Appeal has not yet scheduled a date for the appeal hearing. Indemnification Agreements—In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors,lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or fromintellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of itsboard of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status orservice as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnificationagreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is notaware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its consolidated financialstatements as of December 31, 2018 and 2017.14. Defined Contribution Plan The Company has a 401(k) defined contribution plan (the "401(k) Plan") for substantially all of its employees. Eligible employees may make pretaxcontributions to the 401(k) Plan up to statutory limits.F-31Table of ContentsLEAP THERAPEUTICS, INC. AND SUBSIDIARIESNotes To Consolidated Financial Statements (Continued)(Amounts in thousands, except share and per share amounts)14. Defined Contribution Plan (Continued)The Company makes matching employee contributions in cash to the 401(k) Plan at a rate of 100% of the first 3% of earnings contributed and 50% of thenext 2% of earnings contributed. Employees participating in the 401(k) Plan are fully vested in the Company matching contributions, and investments aredirected by participants. The Company made matching contributions of $148 and $137 for the years ended December 31, 2018 and 2017, respectively.15. Related Party Transactions During the year ended December 31, 2017, the Company executed promissory notes with stockholders (See Note 6). The Company has a license agreement with a stockholder (See Note 13). On November 14, 2017, the Company entered into Purchase Agreements with certain Purchasers. Each of the Purchase Agreements was on terms andconditions substantially similar to each other Purchase Agreement and pursuant to such Purchase Agreements, the Company, in a private placement, agreedto issue and sell to the Purchasers an aggregate of 2,958,094 Shares of unregistered Common Stock, at a price per share of $6.085, each share issued with aWarrant to purchase one share of Common Stock at an exercise price of $6.085. HealthCare Ventures IX, L.P. and Eli Lilly and Company, each a more than5% direct holder of the Company's Common Stock, purchased Common Stock and Warrants in the Private Placement. Each of HealthCare Ventures IX, L.P.and Eli Lilly and Company agreed to purchase the Common Stock and Warrants on the same terms and conditions as the other Purchasers. Three of theCompany's directors and executive officers are affiliated with HealthCare Ventures IX, L.P. and its affiliates.16. Subsequent EventsPublic Offering of Common Stock On February 5, 2019, the Company completed a public offering whereby the Company issued 7,557,142 shares of its common stock at a price of $1.75per share, which included 985,714 shares issued pursuant to the underwriters' exercise of their option to purchase additional shares of common stock, eachshare issued with a warrant to purchase one share of common stock. Each warrant has an exercise price of $1.95 per share with an exercise period expiringseven years from the date of issuance. The aggregate net proceeds received by the Company from the offering were approximately $12,081, net ofunderwriting discounts and commissions and estimated offering expenses payable by the Company.F-32QuickLinks -- Click here to rapidly navigate through this document Exhibit 21.1 SUBSIDIARIES OFLEAP THERAPEUTICS, INC. Subsidiary Jurisdiction of Incorporation/OrganizationGITR, Inc. DelawareHealthCare Pharmaceuticals Pty Ltd AustraliaLeap Therapeutics Ltd. IsraelQuickLinksExhibit 21.1SUBSIDIARIES OF LEAP THERAPEUTICS, INC.QuickLinks -- Click here to rapidly navigate through this document Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements of Leap Therapeutics, Inc. on Form S-3 (No. 333-221968 and 333-223419)and Form S-8 (No. 333-215787 and 333-223707) of our report dated April 1, 2019, on our audits of the consolidated financial statements as of December 31,2018 and 2017 and for each of the years then ended, which report is included in this Annual Report on Form 10-K to be filed on or about April 1, 2019./s/ EisnerAmper LLPEISNERAMPER LLPPhiladelphia, PennsylvaniaApril 1, 2019QuickLinksExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMQuickLinks -- Click here to rapidly navigate through this document Exhibit 31.1 CERTIFICATION PURSUANT TOSECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a) I, Christopher K. Mirabelli, Ph.D., certify that:1.I have reviewed this Annual Report on Form 10-K of Leap Therapeutics, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to 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 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, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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; and d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: April 1, 2019 /s/ CHRISTOPHER K. MIRABELLI, PH.D.Christopher K. Mirabelli, Ph.D.Chief Executive Officer, President andChairman of the Board(Principal Executive Officer)QuickLinksExhibit 31.1CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)QuickLinks -- Click here to rapidly navigate through this document Exhibit 31.2 CERTIFICATION PURSUANT TOSECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a) I, Douglas E. Onsi, certify that:1.I have reviewed this Annual Report on Form 10-K of Leap Therapeutics, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to 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 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, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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; and d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: April 1, 2019 /s/ DOUGLAS E. ONSIDouglas E. OnsiChief Financial Officer, General Counsel,Treasurer and Secretary(Principal Financial Officer and PrincipalAccounting Officer)QuickLinksExhibit 31.2CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)QuickLinks -- Click here to rapidly navigate through this document Exhibit 32.1 CERTIFICATIONS PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Leap Therapeutics, Inc. (the "Corporation") on Form 10-K for the fiscal year ended December 31, 2018, as filedwith the Securities and Exchange Commission on the date hereof (the "Report"), Christopher K. Mirabelli, Ph.D., the President and Chief Executive Officer ofthe Corporation, and Douglas E. Onsi, the Chief Financial Officer, General Counsel, Treasurer and Secretary of the Corporation, hereby certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based upon their knowledge:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCorporation.A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnishedto the Securities and Exchange Commission or its staff upon request.Date: April 1, 2019 By: /s/ CHRISTOPHER K. MIRABELLI, PH.D.Christopher K. Mirabelli, Ph.D.Chief Executive Officer, President andChairman of the Board(Principal Executive Officer)Date: April 1, 2019 By: /s/ DOUGLAS E. ONSIDouglas E. OnsiChief Financial Officer, General Counsel,Treasurer and Secretary(Principal Financial Officer and PrincipalAccounting Officer)QuickLinksExhibit 32.1

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