Protagonist Therapeutics, Inc.
Annual Report 2016

Plain-text annual report

Table of ContentsIndex to Financial Statements UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016or ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File No. 001-37852 PROTAGONIST THERAPEUTICS, INC.(Exact name of registrant as specified in its charter) Delaware 98-0505495(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)521 Cottonwood Drive, Suite 100Milpitas, California 95035 (408) 649-7370(Address, including zip code, of registrant’s principalexecutive offices) (Telephone number, including area code, of registrant’s principalexecutive offices)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.00001 par value The NASDAQ Global MarketSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK (§ 229.405 of this chapter) is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form10K. Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐Non-accelerated filer ☒ (Do not check if a smaller reporting company) Smaller reporting company ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act of 1934). Yes ☐ No ☒The registrant’s common stock was not publicly traded as of the last business day of the registrant’s most recently completed second fiscal quarter.Number of shares of Common Stock outstanding as of February 28, 2017 was 16,787,990.DOCUMENTS INCORPORATED BY REFERENCE:Portions of the registrant’s definitive Proxy Statement for the registrant’s 2017 Annual Meeting of Stockholders, to be filed subsequent to the date hereof with the Securities andExchange Commission (SEC), are incorporated by reference into Part III of this report. Such proxy statement will be filed with the SEC not later than 120 days after the end of theregistrant’s fiscal year ended December 31, 2016. Table of ContentsIndex to Financial StatementsPROTAGONIST THERAPEUTICS, INC.2016 FORM 10-K ANNUAL REPORTTABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 32 Item 1B. Unresolved Staff Comments 76 Item 2. Properties 76 Item 3. Legal Proceedings 76 Item 4. Mine Safety Disclosures 76 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 77 Item 6. Selected Consolidated Financial Data 79 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 80 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 92 Item 8. Financial Statements and Supplementary Data 93 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 121 Item 9A. Controls and Procedures 121 Item 9B. Other Information 122 PART III Item 10. Directors, Executive Officers, and Corporate Governance 123 Item 11. Executive Compensation 123 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 123 Item 13. Certain Relationships and Related Transactions, and Director Independence 123 Item 14. Principal Accountant Fees and Services 123 PART IV Item 15. Exhibits and Financial Statement Schedules 124 SIGNATURES 125 Table of ContentsIndex to Financial StatementsPART IStatement made in this Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as“believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative ofthese terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future resultsof operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations,intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks anduncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such adifference include, but are not limited to, those discussed in this report in “Item 1A. Risk Factors” and elsewhere in this Annual Report. Forward-lookingstatements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like allstatements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. Wecaution investors that our business and financial performance are subject to substantial risks and uncertainties. Item 1.Business.OverviewWe are a clinical-stage biopharmaceutical company with a proprietary technology platform focused on discovering and developing peptide-based newchemical entities (“NCEs” ) to address significant unmet medical needs. Our primary focus is on developing first-in-class oral peptide drugs that specificallytarget the same biological pathways also targeted by currently marketed injectable antibody drugs. Compared to injectable antibody drugs, our oral peptidesoffer targeted delivery to the gastrointestinal (“GI”) tissue compartment, potential for improved safety due to minimal exposure in the blood, improvedconvenience and compliance due to oral delivery and the opportunity for earlier introduction of targeted therapy for inflammatory bowel disease (“IBD”).Our initial lead product candidates, PTG-100 and PTG-200, are based on this approach and we believe they have the potential to transform the existingtreatment paradigm for IBD, a GI disease consisting primarily of ulcerative colitis (“UC”), and Crohn’s disease (“CD”).PTG-100 and PTG-200 are derived from our proprietary peptide technology platform. Peptide therapeutics represent a substantial and growingtherapeutic class with more than 60 U.S. Food and Drug Administration (“FDA”) approved drugs. Our platform enables us to discover novel, structurallyconstrained peptides that retain certain key advantages of both oral and small molecule and injectable antibody drugs, while overcoming many of theirlimitations as therapeutic agents. Constrained peptides are rigid, well-folded structures typically formed by disulfide bonds that alleviate the fundamentalinstability inherent in traditional peptides, which cannot be delivered orally. Further, these constrained peptides are designed to bind to biological targets,including protein-protein interactions (“PPI”) targets, which are typically approached by antibodies since small molecules cannot bind effectively to thesetargets. It is estimated that up to 80% of all potential disease targets are not amenable to drug development by small molecules and have thereforetraditionally been approached by injectable antibody drugs.Our novel peptides have potential applicability in a wide range of therapeutic areas in addition to GI diseases. Our first product candidate beyond IBDis PTG-300, an injectable hepcidin mimetic, which is currently in pre-clinical development with completion of Investigational New Drug (“IND”) enablingstudies expected by the end of the first half of 2017. A hepcidin mimetic is a peptide that mimics the function of the natural hormone, hepcidin. PTG-300 haspotential utility for the treatment of iron overload disorders, such as b-Thalassemia, hereditary hemochromatosis (“HH”) and sickle cell disease (“SCD”), eachof which may qualify PTG-300 for orphan drug designation. 1Table of ContentsIndex to Financial StatementsOur Product CandidatesPTG-100PTG-100 has first-in-class potential as an oral, alpha-4-beta-7 (“a4b7”) integrin-specific antagonist for the treatment of IBD. The a4b7 integrin isconsidered to be one of the most GI-specific biological targets for IBD. It is a cell surface protein present on T cells that plays an important role in thetrafficking of T cells to the GI tissue compartment by binding to MAdCAM-1, an extracellular protein that resides mostly in the GI vasculature.We are leveraging several factors to inform and guide the clinical development of PTG-100 for the treatment of IBD. First, PTG-100 shares the samea4b7 integrin target as the injectable antibody drug vedolizumab, marketed as Entyvio®, for the treatment of moderate-to-severe UC and CD. Second, weutilized pharmacodynamic (“PD”) biomarker assays similar to those described in scientific publications used with Entyvio® and other antibodies indevelopment as indicators of target engagement to establish proof-of-concept (“POC”) in our Phase 1 clinical trial with PTG-100. These PD data includeincreases in receptor occupancy and decreases in receptor expression. We believe that we can utilize published information describing the development andregulatory path of Entyvio® and other approved antibody drugs for IBD to help inform the design of our clinical development studies.We have completed extensive pre-clinical studies of PTG-100 in which we established pharmacological POC, including effects on T cell traffickingand mucosal healing similar to comparator a4b7 rodent antibody, DATK-32. Following the submission and approval of a Clinical Trial Notification (“CTN”)in Australia in December 2015, we initiated a Phase 1 clinical trial, comprised of three components: a single ascending dose (“SAD”) and multiple ascendingdose (“MAD”) component, each of which evaluated safety, pharmacokinetics (“PK”), and PD-based POC in healthy subjects, using an oral liquid formulationof PTG-100. The Phase 1 clinical trial was completed in June 2016. Dose escalation proceeded up to 1,000 mg, the highest dose tested in the study for bothsingle and multiple dosing. There were no serious adverse events reported in the Phase 1 clinical trial, and no dose-limiting toxicities were observed. Allreported adverse events were of mild to moderate severity. There were no dose-dependent increases observed for any adverse events. The most frequentadverse events reported by subjects on PTG-100 were headache and upper respiratory tract infection. These events were also observed in subjects who tookplacebo.We initiated a global Phase 2b randomized, double-blinded, placebo-controlled dose-finding clinical trial in the fourth quarter of 2016 to assess safetyand efficacy of PTG-100 in moderate-to-severe UC patients. We anticipate that the trial will enroll approximately 240 subjects at approximately 100 sites inthe United States, Canada, Europe (Western, Central, and Eastern), Asia, Australia, and New Zealand. The primary objectives of our Phase 2b clinical trial areto evaluate the safety and tolerability of PTG-100 and its efficacy in the induction of remission in subjects with moderate-to-severe UC. Secondary objectivesare to select PTG-100 induction doses for continued development, to characterize PTG-100 plasma concentrations and pharmacodynamic responses, and toevaluate any immunogenicity over 12 weeks. The trial will include subjects who have had prior exposure to tumor necrosis factor-alpha (“TNF-a”) inhibitorsand subjects who have not been treated with biologics. Subjects will be randomized to one of four dose arms (150mg/300mg/900mg PTG-100 or placebo) for12 weeks of once-daily oral dosing, followed by four weeks of safety follow-up. An interim futility analysis is expected to be performed in the second half of2017, and if futility criteria are not met, one or two PTG-100 doses will be selected for continued randomization of the remaining subjects. We expect tocomplete the study and report top-line data in the second half of 2018. We expect that this trial will support end-of-Phase 2 meetings with global healthauthorities and enable the initiation of a Phase 3 pivotal program.The primary endpoints are consistent with those used in the clinical development of previously approved drugs for UC. The trial is statisticallypowered to detect a clinically meaningful difference in induction of remission in subjects with moderate-to-severe UC who are treated with PTG-100compared to placebo. The evaluation of clinical remission is based on the Mayo Score, which is a well-established composite assessment that utilizes patient-reported outcomes and endoscopic improvement. Secondary efficacy endpoints will include 2Table of ContentsIndex to Financial Statementsendoscopic response, clinical response, endoscopic remission, change in endoscopic subscore, change in stool frequency and rectal bleeding subscores,change in fecal calprotectin, change in the IBD questionnaire, change in Mayo score and change in partial Mayo score, from baseline to multiple pointsduring the induction period.We plan to develop PTG-100 initially for the treatment of moderate-to-severe UC, potentially followed by mild-to-moderate UC, CD, and pediatricIBD, the latter being an orphan indication.PTG-200Our second oral, GI-restricted peptide product candidate is PTG-200, a potential first-in-class Interleukin-23 receptor (“IL-23R”) specific antagonist forthe treatment of IBD. Interleukin-23 (“IL-23”) is a member of the IL-12 family of pro-inflammatory cytokines, and is a protein that regulates inflammatoryand immune function and plays a key role in the development of IBD. By blocking the IL-23 receptor with PTG-200 in the GI tissue compartment, we expectto reduce inflammation while potentially minimizing the risk of systemic side effects due to its GI-restricted nature. The IL-23 pathway is targeted by the IL-12 and IL-23 antagonist infused antibody drug ustekinumab, marketed as Stelara®, for psoriasis, psoriatic arthritis, and moderate-to-severe CD.We have completed pre-clinical POC studies for PTG-200, started IND-enabling studies, and plan to initiate a Phase 1 clinical trial in 2017. We plan todevelop PTG-200 initially for the treatment of moderate-to-severe CD, potentially followed by UC and pediatric IBD, the latter being an orphan indication.PTG-300PTG-300 is an injectable hepcidin mimetic peptide that we are developing for the treatment of iron overload disorders, such as b-Thalassemia, HH andSCD, each of which may qualify for orphan drug designation. Hepcidin is a peptide hormone critical for regulating iron homeostasis. However, hepcidin hassignificant stability, potency and solubility limitations. We have discovered and developed PTG-300 as a stable, soluble hepcidin mimetic that canpotentially be more potent and more amenable for weekly or less frequent subcutaneous delivery compared to hepcidin. We plan to complete IND-enablingstudies by the end of the first half of 2017 and complete a Phase 1 clinical trial that will evaluate safety/ tolerability, pharmacokinetics andpharmacodynamic proof-of-concept by the end of 2017.Additional Product Candidates. We are currently researching potential oral and injectable peptide-based product candidates for a range of conditionsincluding, but not restricted to GI diseases.The Evolution of Antibody Drugs for Targeted Therapy and Their LimitationsBefore the FDA approval of antibody drugs, chemically synthesized oral small molecules were the standard-of-care for the treatment of many diseases.However, small molecules are not capable of blocking most PPIs that underpin cellular processes frequently involved in numerous diseases. It is estimatedthat small molecules cannot be developed as drugs for the treatment of up to 80% of all identified potential disease targets. With the availability of antibodydrugs, targeted therapy for many PPI-driven diseases became feasible.In 2015, six of the top ten selling U.S. drugs were antibody drugs. In 2013, all approved antibody drugs together generated approximately $75 billionin sales. More than 30 antibody drugs have now been approved by the FDA, including the IBD targeted therapy drugs Humira®, Remicade®, and Entyvio®.Despite their growing use, antibody drugs present several limitations for patients including, but not limited to, the following: • Injections or infusions are associated with significant patient burden. Antibody drugs are large proteins that are not stable in the GI tissuecompartment. As a consequence, antibody based therapies are administered primarily by injection or infusion into systemic circulation.Injections or infusions as a mode of delivery can increase patient burden, including site reactions and systemic hypersensitivity, inconvenience,and needle anxiety and phobia, each of which may negatively affect patient compliance. 3Table of ContentsIndex to Financial Statements • Antibody drugs may have significant safety issues. Antibody drugs are typically administered at high concentrations in order to attainappropriate therapeutic levels at distal sites of a disease. High systemic exposure of immunomodulatory agents can increase the risks of use forpatients: • Elevated risk of serious or opportunistic infection, malignancy and severe hypersensitivity events. Many antibody drugs areimmunosuppressive, which may lead to increased risk of serious or opportunistic infection, such as tuberculosis, histoplasmosis andhepatitis B, or malignancy. Further, injection or infusion may increase the risk of severe hypersensitivity reactions includinganaphylaxis. • Long half-life resulting in delayed clearance from the bloodstream. Antibody drugs are large molecules engineered to have long half-lives and to circulate in the bloodstream for extended periods of time. This longevity can be potentially problematic for patients whoexperience adverse reactions and cannot readily eliminate the drug from their systems. • Immunogenicity reactions can lead to loss of response or possible safety risks. Antibody drugs may induce natural immunogenicresponses from the body including the introduction of anti-drug antibodies (“ADAs”). These ADAs can neutralize the action of thetherapeutic antibody either by enhancing its clearance or blocking its function, either of which can result in loss of therapeutic response.ADAs can cause immunogenic reactions in patients leading to possible adverse events, frequently necessitating drug withdrawal. • Antibody drugs are expensive. Compared to other classes of therapeutics, the complexity and size of antibody drugs can result in highmanufacturing, storage and administration costs. To date, these costs have not been significantly reduced through the introduction of biosimilardrugs.Our Solution for IBD: Oral, GI-Restricted PeptidesOur novel peptide therapeutics platform may provide important benefits over existing non-targeted small molecule, injectable antibody, andconventional peptide therapeutics. In addition, our platform represents a major step forward in the evolution of peptides as therapeutics. Most of the morethan 60 currently FDA approved peptides have unstructured shapes, leading to chemical and biological stability limitations, which confine their use toinjectable drugs. In contrast, our peptide technology platform allows us to identify constrained peptides that can serve as a starting point for discovery anddevelopment of oral, selective, and potent peptides. The well-folded conformation in our constrained peptides is typically derived by disulfide bonds, astructural feature inherent in many naturally occurring peptides. For the IBD targets of interest, the size and nature of our peptides is carefully selected andmodified so as to acquire the desired potency and specificity, and also to restrict their presence to the GI tissue compartment when administered orally. Thesefeatures translate to oral, GI-restricted, selective and potent peptide drug candidates with specific advantages compared to antibody drugs: • Oral administration. We are developing our peptide therapeutics in a convenient capsule or tablet form intended for oral administration. Webelieve oral administration may reduce many of the problems and limitations associated with injections or infusions, including injection sitepain and local reactions, inconvenience, anxiety, high rates of immunogenicity and potential safety risks. • Potential for improved safety and tolerability compared to antibody drugs. • Oral and GI-restricted delivery minimizes systemic exposure in the blood. Oral GI-restricted delivery results in lower drug levels in theblood that may provide the potential for an enhanced safety profile over antibody drugs. • Peptides can be cleared more quickly from systemic circulation. Small molecules and peptides below a size threshold can be rapidlycleared from blood circulation by kidney filtration and excretion. Rapid clearance may be beneficial especially if patients need todiscontinue therapy. In contrast, antibody drugs, because of their long plasma half-life, may take months to clear from blood circulationleaving patients exposed to continued or increased safety risk. 4Table of ContentsIndex to Financial Statements • The likelihood of much lower immunogenicity of small stable peptides compared to antibody drugs reduces the risk of loss of response.We believe that ADAs are less likely to be elicited against constrained peptides, due to their small size, lack of epitope density, resistanceto proteolysis, oral tolerance, and minimal systemic absorption. • Potential for localized delivery to site of disease. We believe oral dosing of GI-restricted peptides results in substantially higher drugconcentrations in the diseased GI tissue compartment compared to injectable antibody drugs. This targeted delivery to the site of action may leadto more immediate and significant target engagement at the site of active disease in the GI tissue compartment. • Cost-effective and less complex manufacturing. Because of their size and stability, we believe that our oral, GI-restricted peptide productcandidates can be produced, stored and shipped in a more cost-effective manner than many antibody drugs.In chronic GI diseases such as IBD, we believe that our oral, GI-restricted peptide product candidates may offer improved delivery, the potential forimproved safety and tolerability, and cost efficiencies that may provide an overall benefit to patients, payers, and physicians.Overview of Inflammatory Bowel DiseaseInflammatory bowel disease is a group of chronic autoimmune and inflammatory conditions of the colon and small intestine, consisting primarily ofUC and CD, and characterized by abdominal pain, diarrhea, weight loss, fatigue and anemia. In UC, inflammation starts in the rectum and generally extendsproximally in a continuous manner through the entire colon. In CD, the disease most commonly affects the small intestine and the proximal large intestine.Both UC and CD have periods of various intensity and severity, and when a patient is symptomatic, the disease is considered to be in an active or flare stage.Approximately 25% of UC cases occur in persons before the age of 20. Furthermore, pediatric IBD is considered an orphan indication.Market OverviewAccording to the Crohn’s & Colitis Foundation of America, there were an estimated 1.6 million IBD patients in the United States in 2013, an increaseof approximately 200,000 patients since 2011. As many as 70,000 new cases of IBD are diagnosed in the United States each year. As of 2008, annual directtreatment costs for patients with IBD in the United States were estimated to exceed $6.3 billion, while indirect costs such as missed work days were estimatedto cost an additional $5.5 billion. In 2012, GlobalData estimated that the UC market reached approximately $4.2 billion and the CD market reachedapproximately $3.2 billion, in each case across ten major markets: the United States, France, Germany, Italy, Spain, the United Kingdom, Japan, Canada,China, and India. According to Global Data estimates, these markets are expected to grow at a compound annual growth rate of approximately 3% to 5% overthe ten years from 2012 to 2022.History of IBD TreatmentsNon-Targeted TherapiesSulfasalazine was discovered as the first non-targeted therapy for treatment of UC. Non-targeted therapies continued to evolve, including theintroduction of corticosteroids for treatment of moderate UC in the 1950s. Subsequently, the immunosuppressive drug mercaptopurine was identified for UCin the 1960s, azathiopurine was developed in the 1970s, followed by 5-aminosalicylic acid. While these oral, non-targeted broad-spectrum anti-inflammatoryagents and non-specific immunomodulators continue to be part of the IBD treatment paradigm, especially in mild-to-moderate IBD, these drugs are oftenineffective, and corticosteroid and oral immunosuppressive drugs may have significant and disabling adverse effects that limit their use. 5Table of ContentsIndex to Financial StatementsTNF- a and a4b7 Integrin Targeted Antibody DrugsRecent advances in molecular biology and genomics ushered in the development of the potent and highly targeted biologic drugs. TNF-a wasidentified as a cytokine, a protein involved in cell signaling, that plays an important role in the inflammatory processes associated with IBD. In developingtherapies against TNF-a, small molecule antagonists that directly bind TNF-a and other PPI targets have yet to be discovered and approved as therapeuticsfor the treatment of IBD. Thus, monoclonal antibody drugs emerged as a new class of therapeutics that can inhibit TNF-a activiy. There are currently fiveTNF-a antibody drugs (Humira®, Remicade®, Cimzia®, Simponi® and Inflectra® (infliximab biosimilar)) approved for the treatment of UC and/or CD. In2014, Entyvio®, an intravenously administered antibody that selectively targets the a4b7 integrin, was approved for the treatment of adult patients withmoderate-to-severe UC or CD where one or more standard therapies have not resulted in an adequate response. Entyvio® sales were approximately $530million in 2015 and are projected to peak at approximately $2 billion.While antibody drugs have greatly improved the treatment of IBD, they generally serve as the last-line of treatment before surgery due to theirpotential for severe adverse effects, diminishing efficacy over time, inherent limitations as injectable-based therapies, and high costs of therapy.The Evolving IBD Treatment ParadigmInducing and maintaining clinical remission is the primary goal of treatment for IBD patients. The current treatment paradigm for IBD is considered a“step-up” approach. It involves a sequential “step-up” in treatment to more potent but higher risk therapies according to the level of severity of the patient’sdisease. Thus, targeted biologic therapies are generally reserved for patients with moderate-to-severe disease who have failed to respond to non-targeted oraltherapies including 5-ASA agents, corticosteroids and non-specific immunomodulators. As a result, only a portion of IBD patients currently receive a targetedantibody therapy.For moderate-to-severe IBD patients, physicians may prescribe TNF-a antibody drugs (e.g. Remicade® or Humira®) or Entyvio®, an antibody druginhibiting a4b7 integrin, to induce and maintain clinical remission. Patients who are transitioned to these targeted antibody drugs may fail to respond totreatment or lose response to some or all of these agents over time and may ultimately require surgery. Approximately 50% to 73% of CD and 65% of UCpatients fail to reach remission with TNF-a antibodies. Furthermore, 30% to 40% of UC patients and approximately 40% of CD patients treated with TNF-aantibody drugs stop responding to these agents over time (secondary non-responders) at a rate of approximately 10% to 13% per year. Of the CD patients whoinitially benefit from TNF-a antibody drugs, 25% to 40% of these patients develop intolerable or serious adverse events or lose their response within the firstyear of therapy. Currently, a common approach for IBD patients with lack of efficacy or loss of response to TNF-a antibody drugs is to switch such patients toother TNF-a antibody drugs. Although this is initially successful in 40% to 60% of patients, there remains a lack of treatment options for patients who loseresponses to multiple TNF-a antibody drugs. Further, patient non-adherence with TNF-a antibody drugs in IBD has been reported to be betweenapproximately 30% to 45% resulting in a greater need for hospitalization.The development of new, potent and targeted therapies for IBD with oral delivery may potentially offer more effective treatment options for moderate-to-severe IBD patients. Furthermore, many clinicians are already advocating for an earlier introduction of targeted therapeutics in IBD to reduce, replace ordelay the use of corticosteroids and non-specific oral immunomodulators. This treatment approach is often referred to as a “top-down” approach astherapeutics that are currently at the top of the “step-up” pyramid are moved down to earlier in the treatment paradigm (see Figure 1). We believe we are well-positioned to be leaders in this shift from “step-up” to “top-down” therapy. Our oral, GI-restricted, and targeted peptide drugs work on the same specifictargets as injectable antibody drugs and have the potential to offer improved patient safety, improved compliance and convenience and reducedimmunogenicity as compared to antibody drugs. In addition, key opinion leaders are increasingly viewing the a4b7 integrin antagonist Entyvio® as apreferable alternative to TNF-a blockers for the 6Table of ContentsIndex to Financial Statementstreatment of IBD due to its improved safety profile. Taken together, we believe that these trends may result in our product candidates, if approved, being usedmore broadly than antibody drugs in moderate-to-severe IBD patients and potentially being used for the treatment of mild-to-moderate disease.Figure 1: Transforming the Existing IBD Treatment Paradigm with Oral Targeted Therapy Drugs PTG-100: AN ORAL a4b7 INTEGRIN ANTAGONISTPTG-100 was discovered through our peptide technology platform and is being developed as a potential first-in-class oral, GI-restricted a4b7 integrin-specific antagonist initially for patients with moderate-to-severe UC.Mechanism of ActionIntegrins, such as a4b7, are transmembrane proteins that regulate cellular movement into extravascular tissue and play an important role in modulatingthe inflammatory reaction in the gut. The a4b7 integrin is expressed on the surface of T cells, immune cells that help defend against foreign and potentiallyharmful substances that enter the body. The development of UC is driven by the migration of a4b7 T cells into the GI tissue compartment and theirsubsequent activation within the GI tissue compartment. The entry of a4b7 T cells into the GI tissue compartment is facilitated by the PPI between the a4b7integrin and its corresponding ligand, MAdCAM-1, which is primarily expressed in the GI tissue compartment. Hence, the binding of a4b7 to MAdCAM-1can be categorized as a GI-specific interaction and has been identified as an IBD-specific targeted therapeutic approach. By blocking the binding of a4b7integrin to MAdCAM-1, PTG-100 may prevent T cells from entering the GI tissue compartment, thereby reducing inflammation that leads to the clinicalmanifestations of UC.a4b7 for IBD is targeted by FDA-approved Entyvio® (vedolizumab), which has demonstrated safety and efficacy in patients with moderate-to-severeUC and CD. Since PTG-100 targets the same biological pathway as Entyvio®, we can utilize similar PD-based POC as early as in our pre-clinical studies andPhase 1 clinical trial to inform and guide our Phase 2b development program. We sourced these PD biomarker assays from public scientific publications anddo not maintain any contractual arrangement providing access to this information with the makers of these marketed products.Translating PTG-100’s Pre-Clinical POC to Clinical POCWe have established a potentially efficacious dose range of PTG-100 in mice by demonstrating similar pharmacologic activity between oral PTG-100and an injectable a4b7 antibody in mouse models of IBD. From this 7Table of ContentsIndex to Financial Statementsefficacious dose range in mice, approximately 6-50 mg/kg per day, we are able to directly estimate a potentially efficacious dose range in humans throughallometric scaling based on whole body surface areas, which we determined to be approximately 33-300 mg per day.Concurrently, we employed a complementary approach for establishing a potentially efficacious human dose range and early POC through specificblood PD response markers that reflect a4b7 integrin target engagement of PTG-100 in the GI tissue compartment and correlated those PD measurements withefficacy responses in mouse colitis models. Target engagement is a critical feature for demonstrating that PTG-100 can reach its intended target, thusinhibiting the trafficking of T cells into the GI tissue compartment. Our PD markers were monitored in mice and cynomolgus monkeys (“cyno”), which weresimilarly evaluated in normal healthy volunteers in our Phase 1 clinical trial. These blood PD responses demonstrated that PTG-100 engaged its intendeda4b7 target and helped guide human dosing for our Phase 2b clinical trial.PTG-100’s Pre-Clinical Proof-of-Concept StudiesPre-clinical studies have demonstrated that PTG-100 is a potent and highly selective a4b7 antagonist with minimal systemic absorption. Mouse colitismodels have further demonstrated that PTG-100 can inhibit T cell trafficking in the gut similar to the actions of the mouse a4b7 antagonist antibody.PTG-100 potently inhibited binding of a4b7 to MAdCAM-1 in several human biochemical enzyme-linked immunosorbent assay (“ELISA”) and celladhesion (transformed and primary cells) assays in a low nanomolar concentration range sufficient to inhibit 50% of binding (“IC50”) comparable tovedolizumab. PTG-100 exhibited greater than a 100,000-fold selectivity against other structurally similar integrins, a4b1 and aLb2, in cell adhesion assayswhich is comparable to the selectivity of vedolizumab. PTG-100 was stable in in vitro assays simulating the GI tissue compartment, such as the smallintestine and gastric stomach, with half-lives exceeding 12 hours and in human liver microsomes suggesting strong oral stability and the potential for oncedaily dosing in humans. PTG-100 did not affect the growth of and was not metabolized by common members of the human intestinal microflora. In total,these drug properties provide evidence to characterize PTG-100 as a potential first-in-class orally stable a4b7-specific antagonist. Furthermore, these drugproperties allowed us to demonstrate proof-of-concept in animal colitis studies.Non-clinical metabolism and PK studies demonstrated that much greater amounts of PTG-100 as measured by the maximum concentration (“Cmax”) asa percentage of total drug amount dosed orally, were present in the GI compartments, such as the small intestine, colon and feces compared to the systemicplasma and urine compartments of mice, rats, and cyno, thus confirming its GI-restricted properties. Further, PTG-100 has an oral systemic bioavailability ofless than 0.5%.We designed mouse colitis studies similar to those used for antibody drugs targeting this pathway to specifically monitor T cell trafficking to and fromthe GI tissue compartment (Figure 2). PTG-100 reduced a4b7 memory T cells migrating to the gut lymphoid tissues, including the mesenteric lymph nodes(“MLN”) and Peyer’s patches (“PP”), under inflammatory conditions in the GI tissue compartment. Another example of the ability of PTG-100 to inhibit Tcell trafficking was demonstrated by the reduction in the number of a4b7 cells in colon lesions in colitis mice. Furthermore, treatment benefit wasdemonstrated through blinded video endoscopy analysis for mucosal damage, and assessment of the incidence of bloody feces, which represent symptomsand measurements of UC in humans. In all studies in mouse models of colitis, the effects of oral PTG-100 were comparable to those of an injection of highdoses of a positive control a4b7 antibody. This allows us to define the efficacious dose in mice with potential translation to the efficacious dose in humans. 8Table of ContentsIndex to Financial StatementsFigure 2: PTG-100 Reduces Trafficking of Memory T Cells to MLN and Peyer’s Patches Establishing Blood Pharmacodynamic Readouts of Target EngagementWe have used pre-clinical blood PD response markers that reflect target engagement in the GI tissue compartment and correlate with efficacy responsesin mouse colitis studies to guide our dosing in human studies. Furthermore, we believe these pre-clinical blood PD responses, specifically receptor occupancy(“RO”) increases reflecting target engagement and receptor expression (“RE”) decreases reflecting subsequent pharmacologic activity, can be compared tothe PD responses we observed in our Phase 1 clinical trial in healthy volunteers and ultimately can help to guide the dosing for evaluating clinical benefit inUC patients in the Phase 2b clinical trial. In the mouse colitis model, RO and RE were correlated with in vivo efficacy that can be extrapolated to the bloodRO and RE observed in healthy mice and cyno. These PD markers from mice and cyno have specifically demonstrated increases in RO that peak atapproximately 4 hours following a single dose and multiple doses (Figure 3A), and decreases in RE after multiple doses in healthy mice (Figure 3B) andcolitis mice. In translating the pre-clinical observations into a clinical setting, we are focused on evaluating dose- and time-dependent trends in RO and RE inour Phase 1 clinical trial that can be benchmarked to the animal data to give us greater confidence in progressing PTG-100 in clinical trials. Emphasis isplaced on trends and not on absolute numbers owing to differences in GI transit times in different species and absence of absolute scaling methods fromanimals to humans for GI-restricted drugs. 9Table of ContentsIndex to Financial StatementsFigure 3: (A) Percent Receptor Occupancy and (B) Receptor Expression of a4b7 on CD4+ Memory T Cells in Blood of Healthy Mice Dosed for 14 Days PTG-100’s Non-GLP and GLP Safety Pharmacology and Toxicology StudiesTo date, all toxicology and safety pharmacology studies have not identified any safety issues. Good Laboratory Practices (“GLP”) toxicology studiesin rats and cyno over 42 days and 12 weeks of dosing showed that PTG-100 was well-tolerated at all dose levels with no dose-limiting toxicities. GLP arethose procedural and operational requirements specified by FDA regulation to ensure the validity and reliability of nonclinical studies. No adverse effectswere seen in either rat or cyno studies at all doses tested. Standard safety pharmacology and genotoxicity studies were similarly negative. We are currentlyconducting chronic GLP toxicology studies to support our anticipated Phase 3 program.PTG-100’s Phase 1 Clinical Trial OverviewFollowing the submission and approval of a CTN, we initiated a Phase 1 randomized, double-blind, placebo-controlled clinical trial of PTG-100 in78 normal healthy male volunteers in Australia, which was completed in June 2016. The Phase 1 SAD and MAD components were conducted with a solution-based liquid formulation of PTG-100. In the formulation bridging component of the trial, we compared the relative bioavailability of the liquid formulationto the capsule formulation that is being used in Phase 2b. In addition to determining the safety and tolerability and PK of PTG-100, the SAD and MADcomponents of the trial evaluated PD-based POC through the assessment of a4b7 receptor occupancy that indicates target engagement and a4b7 targetexpression on peripheral blood memory T cells similar to what was done in the pre-clinical studies.Safety and TolerabilityIn both the SAD and MAD portions of the clinical trial, dose escalation proceeded from 100 mg up to the planned 1,000 mg dose level. There were nodose-limiting toxicities. There were no deaths or serious adverse events (“SAEs”) reported in the trial. All reported adverse events were of mild to moderateseverity. There were no dose-dependent increases observed for any adverse events. The most frequent adverse events reported by subjects on PTG-100 wereheadache and upper respiratory tract infection. These events were also observed in subjects who took placebo.PharmacokineticsPTG-100 plasma levels increased in a dose-dependent manner in both single and multiple dosing cohorts. Consistent with the pre-clinical data in mice,rats, and cyno, the blood levels of PTG-100 were extremely low as 10Table of ContentsIndex to Financial Statementsdetermined by the Area Under the Curve (AUC, which is a pharmacokinetic measurement of drug exposure in blood plasma against time) and Cmax(maximum concentration), thus demonstrating the GI-restricted nature of the drug. There was no apparent evidence of drug accumulation at Day 14 in theMAD cohorts perhaps related to the relatively short half-life (“T1/2”) in the blood.PTG-100 fecal levels increased in a dose-dependent manner in the multiple dosing cohorts. Minimum drug levels of PTG-100 were observed in urinesamples, as expected, based on its characteristics as a GI-restricted drug with minimal systemic exposure.Establishing Pharmacodynamic POC in HumansData from our mouse colitis studies support our conclusion that blood receptor occupancy is a correlate of target engagement in the GI tissuecompartment in the dose ranges studied. In our Phase 1 clinical trial, blood receptor occupancy on CD4+ memory a4b7+T cells increased in a dose-dependent and time-dependent manner. For receptor occupancy in the SAD cohorts, treatment groups were significant compared to placebo at 100 mg(p£0.05), 300 mg (p£0.005) and 1,000 mg (p£0.0001). In the MAD cohorts, treatment groups were significant compared to placebo at 100 mg (p<0.0005),300 mg (p<0.0001) and 1,000 mg (p<0.0001) four hours post dose on Day 14.An additional parameter of pharmacologic activity that we measured was the change in a4b7 expression on the blood memory T cells. Based on invitro studies comparing vedolizumab and PTG-100, we expected that a4b7 expression would be reduced over time due to the internalization of the a4b7receptor. Following single and multiple dose administration in the Phase 1 clinical trial, a dose-dependent and time-dependent reduction in a4b7 expressionwas observed, and it appears that the reduction in target expression may become saturated at 300 mg since a similar response was observed in the 1,000 mgcohort following both single and multiple dosing. For a4b7, downregulation of expression was significant in treatment groups, compared to placebo at 300mg and 1,000 mg (p£0.01).The single dose 300 mg cohort was evaluated under fasted and fed (standard high fat diet) conditions. Blood drug levels and blood receptor occupancyof PTG-100 were compared under both conditions. Based on data from this SAD component and previous pre-clinical studies, the MAD component of theclinical trial was conducted under fed conditions.Thus, we observed dose-dependent and time-dependent target engagement and pharmacologic activity of PTG-100 following single- and multiple-dose administration in healthy volunteers consistent with observations in the animal studies.Formulation Change from Phase 1 Clinical Trial to Phase 2b Clinical TrialWe utilized a liquid formulation in the SAD and MAD components of the Phase 1 clinical trial. To support the use of a capsule formulation in thePhase 2b study, we compared the PK in a single dose cross-over evaluation of the liquid and capsule formulation in normal healthy volunteers and observedthat the plasma exposure of the capsule formulation was lower than that of the liquid formulation at the same dose level. The PD effects were highly similarbetween the capsule and liquid formulations, despite the lower plasma exposure of the capsule formulation.PTG-200: AN ORAL IL-23R ANTAGONISTPTG-200 was discovered through our peptide technology platform and is being developed as a potential first-in-class oral, GI-restricted antagonist thatbinds to the IL-23R and specifically blocks its interaction with the IL-23 cytokine. PTG-200 will be initially studied in patients with moderate-to-severe CDpotentially followed by UC and pediatric IBD. 11Table of ContentsIndex to Financial StatementsMechanism of Action and RationaleIL-23 is a member of the IL-12 family of cytokines with pro-inflammatory and autoimmune properties. Cytokines are cell signaling proteins that arereleased by cells and affect the behavior of other cells. Binding of the IL-23 ligand to the IL-23R receptor leads to an expression of pro-inflammatorycytokines involved in the mucosal autocrine cascade that is an important pathway of many inflammatory diseases, including IBD. Furthermore, geneticanalyses of IBD patients have implicated IL-23R mutations as a risk factor associated with susceptibility to IBD. The antagonist infused antibody drugustekinumab (marketed as Stelara® for psoriasis, psoriatic arthritis, and moderate-to-severe CD) is a p40 antagonist antibody that inhibits both the IL-23 andIL-12 pathways. Next-generation IBD antibody drugs, such as guselkumab, target the p19 subunit of the IL-23 ligand and are specific to the IL-23 pathway,which is believed to be an important driver of IBD pathology, while not blockading the IL-12 pathway. IL-12 is believed to be important in immunesurveillance against the development of infections and malignancies.We believe that the oral, GI-restricted nature of PTG-200 will allow PTG-200 to be a potent inhibitor of the IL-23 pathway for the treatment of IBD. Bytargeting IL-23R with our GI-restricted oral IL-23R antagonist PTG-200, we believe PTG-200 will restore proper immune function in the GI tissuecompartment where there is active disease while minimizing the risk of systemic side effects. Several key cell types that reside in gut-associated lymphoidtissue (“GALT”), including T cells, innate lymphoid cells, and natural killer cells, increase their expression of IL-23R during the progression of IBD.Therefore, the high concentrations of PTG-200 in GALT will facilitate access and binding to IL-23R expressed in the same tissue.PTG-200’s Pre-Clinical Proof-of-Concept StudiesPTG-200 potently inhibited binding of IL-23 to the IL-23 receptor in several biochemical (ELISA) and cell (transformed and primary) signaling assaysin a subnanomolar to low nanomolar concentration range sufficient to inhibit 50% of binding. PTG-200 exhibited greater than a 50,000-fold selectivityagainst other structurally similar receptors (IL-12Rb1 and IL-6R) thereby potentially reducing the risk of off target interactions. In total, these drug propertiesprovide evidence to characterize PTG-200 as a potential first-in-class orally stable IL-23R-specific antagonist.In PK studies in rats and cyno, PTG-200 was GI-restricted with less than 0.5% oral systemic bioavailability in plasma or urine and principal exposure inthe small intestine, colon, and feces. Similar results were observed in cyno.We have also completed pre-clinical POC studies in rat 2, 4, 6-trinitrobenzenesulfonic acid (TNBS) colitis models demonstrating that oral delivery ofPTG-200 and other prototype antagonists significantly improved disease outcomes, such as reducing body weight loss, reducing the increased colonweight/length ratio, and reducing the increased colon macroscopic score which is comprised of assessments of colon adhesions, strictures, ulcers, and wallthickness in a dose dependent manner (Figure 4). Furthermore, PTG-200 was found to reduce the increased histopathology summary score, which iscomprised of assessments of mucosal and transmural inflammation, gland loss, and erosion parameters. Finally, PTG-200 was able to reduce the expression ofthe pro-inflammatory IL-23 induced cytokines in the colon and the IBD disease biomarker lipocalin (LCN2) in the serum and feces (Figure 4). 12Table of ContentsIndex to Financial StatementsFigure 4: PTG-200 Reduces Pathology in Rat TNBS-Induced Colitis 13Table of ContentsIndex to Financial StatementsThe efficacy of oral PTG-200 seen in this IBD model was comparable to that of a positive control antibody against the rat IL-23p19 subunit which wasinjected and therefore present in the systemic blood compartment. This allows us to define the efficacious dose range in rats (approximately 28-61 mg/kg perday) with potential translation to the efficacious dose in humans.PTG-200’s Preliminary Pre-Clinical Safety StudiesIn preliminary non-GLP toxicity studies in rats, PTG-200 was well-tolerated with no adverse events at the highest dose level tested. We have initiated 3month GLP toxicology, safety pharmacology, genotoxicity, and current good manufacturing practice (“cGMP”) manufacturing studies in support of startinga Phase 1 clinical trial in 2017.Proposed Clinical PlansWe plan to complete IND-enabling studies and to initiate a Phase 1 clinical trial of PTG-200 in 2017 to evaluate safety, tolerability, and PK. Followingcompletion of the Phase 1 clinical trial, we plan to initiate a randomized, double-blind, placebo-controlled Phase 2 POC clinical trial in patients withmoderate-to-severe CD.PTG-300: AN INJECTABLE HEPCIDIN MIMETICPTG-300 was discovered through our peptide technology platform and is being developed as a novel mimetic of hepcidin to potentially treat ironoverload disorders such as b-Thalassemia, HH and SCD, each of which may qualify for orphan designation. Hepcidin is a naturally-occurring hormoneinvolved in the transport and utilization of iron in the human body. Hepcidin has significant stability, potency, and solubility limitations. In order toeffectively treat iron overload disorders in the body, we designed PTG-300 as a stable, soluble, hepcidin mimetic that can potentially be more potent andmore amenable for weekly or less frequent subcutaneous delivery compared to hepcidin. We believe PTG-300 has the potential to improve disease symptomsand provide better safety by reducing the need for blood transfusions and chelator use in b-Thalassemia patients by treating both the underlying anemia andiron overload associated with the disease. We have achieved POC in pre-clinical studies and have demonstrated that PTG-300 has the potential for greaterpotency, stability, and in vivo efficacy compared to natural hepcidin.Mechanism of ActionThe molecular target of hepcidin is the cellular trans-membrane protein ferroportin, which functions as an export channel for intracellular iron inmacrophages, liver hepatocytes, and duodenal enterocytes. Upon binding to the extracellular domain of ferroportin, hepcidin decreases the delivery of iron tothe blood circulation needed for the production of red blood cells.Overview of b-Thalassemia and Current Therapiesb-Thalassemia is potentially our first clinical indication for PTG-300. Due to repeat transfusions and/ or increased absorption of iron, patients with b-Thalassemia frequently suffer from iron overload which can lead to significant morbidity and mortality. This iron overload is exacerbated in those b-Thalassemia patients who require chronic blood transfusions for survival. A hepcidin mimetic such as PTG-300 will potentially be able to correct the anemiacaused by the genetic mutation underlying b-Thalassemia, thus giving it a dual benefit of increasing the production of red blood cells, reducing excesscirculating iron, and reducing splenomegaly.Globally, prevalence of b-Thalassemia is estimated to be approximately 200,000, with at least 60,000 patients born each year with the disease. In 2010,the b-Thalassemia market was estimated to be greater than $500 million, based largely on drugs consisting of chelating agents used to treat iron overloaddisorders. The 14Table of ContentsIndex to Financial Statementsmarket is expected to grow to nearly $1 billion by 2018. b-Thalassemia has low prevalence in the Americas, with an estimated 2,750 patients and withapproximately 300 patients born each year with the disease. Therefore, b-Thalassemia may qualify for FDA orphan designation.PTG-300’s Pre-clinical Proof-of-Concept StudiesIn pre-clinical studies, we demonstrated that PTG-300 can lower serum iron more effectively than hepcidin and maintain such lowered serum ironlevels for at least 24 hours following a single subcutaneous injection (Figure 5). We have also demonstrated that PTG-300 in a dose dependent manner canreduce serum iron in healthy mice, rats, and cyno.Figure 5: PTG-300 is More Effective Than Hepcidin in Lowering Serum Iron in Healthy Mice PTG-300 was also able to address the underlying anemia present in a mouse genetic model of b-Thalassemia, as shown most prominently by thesignificant increase in red blood cell number (RBC) and hemoglobin (HGB) with the corresponding decrease in reticulocyte content (Figure 6). As aconsequence we also observed a significant reduction in the pathological increases in spleen weight (splenomegaly) by addressing the underlying ineffectiveerythropoiesis. Furthermore, PTG-300 was effective in reducing the increase in liver iron content. In contrast the oral iron chelator deferiprone (DFP) did notcorrect the anemia or the splenomegaly. 15Table of ContentsIndex to Financial StatementsFigure 6: PTG-300 Addresses Ineffective Erythropoiesis in Mouse b-Thalassemia 16Table of ContentsIndex to Financial StatementsPTG-300’s Development ProgramPTG-300 is being manufactured and formulated to support completion of pre-clinical GLP toxicology, genotoxicity, and safety pharmacology studies,which will enable us to complete a single ascending dose Phase 1 clinical trial in normal healthy volunteers in 2017. This study will evaluate safety/tolerability, PK and PD-based POC through the evaluation of PTG-300’s effect on serum iron levels.OUR PEPTIDE TECHNOLOGY PLATFORMOur proprietary technology platform has been successfully applied to a diverse set of biological targets that has led to several pre-clinical and clinical-stage peptide-based NCEs, including our only clinical-stage product candidate PTG-100, and our other product candidates in pre-clinical studies PTG-200and PTG-300, for a variety of clinical indications. Our platform is comprised of a series of tools and methods, including a combination of molecular design,phage display, oral stability, medicinal chemistry, and in vivo pharmacology approaches.The platform is used to develop potential drug candidates: (i) using the structure of a target, when available, (ii) when no target structure exists, or(iii) from publically disclosed peptide starting points. In a structure-based approach, our proprietary molecular design software and structural database ofseveral thousand constrained peptides, termed VectrixTM, are screened to identify suitable scaffolds which form the basis of designing and constructing thefirst set of phage or chemical libraries. The initial hits are identified by either panning or screening such libraries, respectively. When structural information isunavailable for a target, hits are identified by panning a set of 34 proprietary cluster-based phage libraries consisting of millions of constrained peptides.Once the hits are identified, they are optimized using a set of peptide, peptide mimetic and medicinal chemistry techniques that include the incorporation ofnew or manipulation of existing cyclization-constraints, as well as natural or unnatural amino acids and chemical conjugation or acylation techniques. Thesetechniques are applied to optimize potency, selectivity, stability, exposure and ultimately efficacy. For oral stability, a series of in vitro and ex vivo oral-stability assays that portray the chemical and metabolic barriers a peptide will encounter as it transits the GI tract are used to identify metabolically labilespots in the peptides. Such sites form the focus of medicinal-chemistry based optimization to engineer oral stability. Finally, various in vivo pharmacologytools are then used to quantify peptide exposure in relevant GI organs and tissues. The data can then be used to optimize required GI exposure and ultimatelyin vivo efficacy.The key foundations of the platform include:Molecular design tools and large database of constrained scaffoldsThrough advances in genomics, molecular biology and structural genomic initiatives there has been an explosion in the number of known structures ofpotential new drug targets, including PPI targets. In particular, constrained peptides have the required surface complexity to match or complement the largeflat surfaces of PPI targets to provide potent and selective drug candidates. We believe existing commercial molecular design software is not suitable, as it hasbeen developed to identify small molecules that plug cavities of enzymes and do not bind to PPI targets.We have developed a database of all known structures of a sub-class of constrained peptides, known as disulfide-rich peptides (“DRPs”). We havecollected approximately 4,500 DRP scaffolds that are found throughout nature, ranging from single cell organisms to humans. We have created a proprietarymolecular design environment, called VectrixTM. A pattern matching algorithm within VectrixTM allows the selection of an appropriately stable DRPscaffold using the structure of the target of interest. This molecular design process is used to identify constrained peptides as starting points for hit discovery,which are ultimately optimized into potent, selective peptides against targets which are not amenable to small molecule drug discovery.Phage display techniques and cluster librariesPhage display may be used to discover the original hit based on VectrixTM-derived scaffolds, optimize existing hits, or to identify hits against thosetargets in which no structural information exists. For the latter 17Table of ContentsIndex to Financial Statementstargets, a series of pre-existing phage libraries, termed cluster libraries, are used for hit discovery. This includes 20 proprietary libraries of structurally diverseDRPs that sample greater than 85% of their known structural diversity and 14 proprietary libraries that sample different protein loop geometries. Collectivelythese libraries provide immense potential for discovering hits at diverse targets as they are based on natural-DRP scaffolds with these characteristics.Oral stability and in vitro and ex vivo assaysThe GI tract provides a set of chemical and metabolic barriers that hinder the development of oral therapeutic agents. We have developed numerous invitro and ex vivo systems that profile peptide candidates for their stability features needed for oral delivery, GI restriction, and transit through the entire GItract. This includes profiling for chemical stability, specifically pH and redox stability, and metabolic stability against proteases and other enzymes that areeither of human or microbial origin.These in vitro assays identify metabolic weak spots of peptides, which can then be stabilized by peptidic and peptidomimetic modifications withoutlosing potency.Medicinal peptide chemistryWe have significant expertise in optimizing potency, selectivity, oral stability and exposure of constrained peptides using a combination of peptide-cyclization, natural and unnatural amino acids, and various conjugation and acylation techniques. With respect to PTG-300, hit discovery and optimizationrelies exclusively on medicinal chemistry, with no phage display, to develop potent and selective injectable candidates with enhanced exposure in blood.For other targets, such as the discovery of PTG-100 and PTG-200, phage display is tightly coupled to medicinal chemistry and oral stability techniques todevelop potent, selective and oral molecules that are GI-restricted.In vivo pharmacology tools for GI restrictionWhen developing oral, GI-restricted constrained peptides, we correlate efficacy with potency and level of GI tissue compartment exposure. We havedeveloped the required expertise and know-how to build PK and PD relationships to optimize physicochemical features of constrained peptides such thatthey are minimally absorbed and have the required degree of GI tissue compartment exposure over the required duration of time to achieve efficacy. Thisinvolves examining constrained peptide concentrations in various GI tissue compartments, blood, urine, and feces when delivered orally in rodents. In thisfashion, we can understand the degree of tissue targeting, GI restriction and oral stability that is required to achieve efficacy.Future Applications of our PlatformWe believe we have built a versatile, well-validated and unique discovery platform. For example, this peptide technology platform has been used todevelop product candidates for diverse target classes including G-protein-coupled receptors (“GPCRs”), ion channels, transporters and cytokines for a varietyof therapeutic areas. In the future we may tackle other GI diseases and expand our delivery techniques to include other organ/tissue systems, such as the lungand eye, which will provide potential opportunities to pursue a variety of diseases. In addition, the gut may communicate with the immune, central nervous,and endocrine systems, providing the potential of our GI-restricted approach to treat metabolic, cancer and cardiovascular diseases. Lastly, we intend toprogress our platform to achieve systemic bioavailability with peptides, thereby enabling us to address systemic diseases. 18Table of ContentsIndex to Financial StatementsMaterial AgreementsResearch Collaboration and License Agreement with Zealand Pharma A/SIn June 2012, we entered into a Research Collaboration and License Agreement with Zealand Pharma A/S (“Zealand”) to identify, optimize anddevelop novel DRPs to discover a hepcidin mimetic. Under the terms of the agreement, Zealand made an upfront payment and also funded the collaboration.In October 2013, Zealand decided to abandon the collaboration program and, pursuant to the terms of the agreement, we elected to assume theresponsibility for the development and commercialization of the product. Upon Zealand’s abandonment, Zealand assigned to us certain intellectual propertyarising from the collaboration and also granted us an exclusive license to certain background intellectual property rights of Zealand that relate to theproducts assumed by us. Upon the nomination of PTG-300 as a development candidate, we owed Zealand a payment of $250,000. If we initiate a Phase 1clinical trial for PTG-300, we will pay Zealand an additional $250,000. We have the right, but not the obligation, to further develop and commercialize theproducts and, if we successfully develop and commercialize PTG-300 without a partner, we will pay to Zealand up to an additional aggregate of $128.5million for the achievement of certain development, regulatory and sales milestone events. In addition, we will pay to Zealand a low single digit royalty onworldwide net sales of the product until the later of ten years from the first commercial sale of the product or the expiration of the last patent covering theproduct. Due to Zealand’s abandonment of the collaboration program and our assumption of the responsibility for the development and commercialization ofthe product, the agreement has terminated other than with respect to our potential milestone payments and royalty to Zealand.Letter Agreement with Johnson & Johnson Development CorporationIn May 2013, in connection with our sale of Series B Stock, we entered into a letter agreement with Johnson & Johnson Development Corporation(“JJDC”), as amended on April 19, 2016, pursuant to which we granted JJDC a right of first negotiation with respect to the consummation of any proposedsale, transfer, license, commercialization or distribution arrangement (each, a “Transaction”) of our inventions, developments, patents, patent applications,know-how or other proprietary rights or products controlled by us that are necessary for the research, development or commercialization of the PTG-100,PTG-200 and IL-13 programs (each, a “Program”) other than an acquisition, merger, consolidation, or sale of substantially all of our assets. The letteragreement does not apply with respect to the PTG-300 program. The term of JJDC’s right of first negotiation commenced in May 2014 and terminates, withrespect to any Program, 60 days after our filing of an IND (or the foreign equivalent), with respect to each Program (such right of first negotiation period, the“ROFN Period”). On November 1, 2015, JJDC waived their right of first negotiation with respect to PTG-100. Neither we, nor JJDC, have an obligation toenter into a Transaction during the ROFN Period. We are not currently pursuing an IL-13 Program.In the event that we receive a bona fide term sheet for a Program, we are obligated to notify JJDC of such offer (but not the terms thereof) and JJDC hasa period of 30 days to notify us of exercise of its right to negotiate for a Transaction with JJDC. Following expiration of the ROFN Period with respect to anyremaining Program, we are required to deliver to JJDC certain information relating to such Program, including pre-clinical results, manufacturing protocolsand other information relevant to the evaluation of such Program, as determined by us. For a period of 60 days following delivery of such information (the“Exclusive Negotiation Period”), we are required to negotiate in good faith and exclusively with JJDC to enter into a Transaction with JJDC with respect tosuch Program and we are not permitted to enter into negotiations with any third party with respect to a Transaction involving such Program that would impairthe ability of JJDC to exercise its rights under the letter agreement.Finally, for a period of 180 days following expiration of an Exclusive Negotiation Period for a Program (the “Tail Period”), we are not permitted toenter into a Transaction with respect to such Program with a third party on terms that contain upfront payments and pre-launch milestones (valued on a risk-adjusted basis) that are inferior in total economic value to those that JJDC and its affiliates last offered to us, to the extent any such offer was previously madeby JJDC or its affiliates to us. 19Table of ContentsIndex to Financial StatementsJJDC’s right of first negotiation with respect to any Program that has not earlier expired or been waived by JJDC will terminate upon the sale, transfer orother disposition by us of all or substantially all of our assets, our consummation of a merger or consolidation with or into another entity, or the transfer(whether by merger, consolidation, equity financing, or otherwise), in one transaction or a series of related transactions, to a person or group of affiliatedpersons a majority or more of our outstanding voting stock (or the surviving or acquiring entity).CompetitionThe biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. While webelieve that our product candidates, technology, knowledge and experience provide us with competitive advantages, we face competition from establishedand emerging pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions,among others. There are no approved oral peptide-based a4b7 integrins and IL-23 based product candidates for IBD.We believe our principal competition in the treatment of IBD will come from companies with approved agents in the following therapeutic classes,among others: • Infused a4ß7 antibody: Takeda Pharmaceutical Company • Infused IL-23 and IL-12 antibody: Johnson & Johnson • Injectable or infused TNF-a antibody: AbbVie, Johnson & Johnson, Amgen, Pfizer, UCB S.A.We are also aware of several companies developing therapeutic product candidates for the treatment of IBD, including, but not limited to AbbVie,Allergan, Arena Pharmaceuticals, Inc., AstraZeneca, Biogen, Boehringer Ingelheim (adalimumab biosimilar in Pre-Registration), Bristol-Myers Squibb,Celgene (mongersen sodium and ozanimod hydrochloride in Phase 3 clinical trials), Eli Lilly and Company, Galapagos, Gilead, Lycera Corp., MitsubishiTanabe Pharma Corporation, Pfizer (tofacitinib citrate in a Phase 3 clinical trial), Roche/Genentech (etrolizumab in a Phase 3 clinical trial), Samsung Bioepis(adalimumab biosimilar in Pre-Registration), Sandoz (adalimumab biosimilar in Phase 3), Shire, and UCB S.A.We believe our principal competition in the treatment of iron overload disorders, such as ß-Thalassemia, HH and SCD, will come from other pipelineproducts being developed by companies such as Acceleron (luspatercept in a Phase 3 clinical trial), bluebird bio (LentiGlobin in a Phase 3 clinical trial),Bristol-Myers Squibb, Emmaus Medical (glutamine in pre-registration), Gilead, Global Blood Therapeutics, Inc., La Jolla Pharmaceutical, and Novartis AG,among others. We believe competition will also include approved iron chelation therapies that have been developed by Novartis AG and Apotex, amongothers.Intellectual PropertyWe strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to the development of ourbusiness, including seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties. We also rely on tradesecrets relating to our proprietary technology platform and on know-how, and continuing technological innovation to develop, strengthen, and maintain ourproprietary position in the field of peptide-based therapeutics that may be important for the development of our business. We will also take advantage ofregulatory protection afforded through data exclusivity, market exclusivity and patent term extensions 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; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operatewithout infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, 20Table of ContentsIndex to Financial Statementsusing, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid and enforceable patents or tradesecrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to anypatent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will becommercially useful in protecting our commercial products and methods of manufacturing the same. For more information, please see “Item 1A Risk Factors—Risks Related to Our Intellectual Property.”We have two issued patents and numerous patent applications related to our lead product candidates, and possess substantial know-how and tradesecrets relating to the development and commercialization of peptide based therapeutic products. Our proprietary intellectual property, including patent andnon-patent intellectual property, is generally directed to, for example, peptide-based therapeutic compositions, methods of using these peptide-basedtherapeutic compositions to treat or prevent disease, methods of manufacturing peptide-based therapeutic compositions, and other proprietary technologiesand processes related to our lead product development candidates. As of February 10, 2017, our patent portfolio includes the following: • two issued patents and approximately 44 patent applications that we exclusively own related to a4b7 integrin peptide antagonists; • approximately 13 patent applications that we exclusively own related to IL-23R antagonist peptides; • approximately 24 patent applications that we exclusively own related to hepcidin analogues; and • other patent applications that we license or exclusively own related to our core technologies, including methods of peptide modification andcharacterization.Our objective is to continue to expand our portfolio of patents and patent applications in order to protect our product candidates and related peptide-based drug technologies. Examples of the products and technology areas covered by our intellectual property portfolio are described below.a4b7 Integrin Antagonist PeptidesThe a4b7 integrin antagonist peptide patent portfolio includes one issued U.S. patent and pending patent applications directed to compositions ofa4b7 integrin peptide monomers and dimers cyclized through intramolecular bonds and containing amino acid modifications conferring increased stability,potency and/or selectivity, as well as methods of synthesizing and using these antagonist peptides to treat inflammatory disorders. Applications are currentlypending in the United States and other major jurisdictions, including Australia, Canada, China, Japan, and Europe. Patent applications directed to PTG-100composition of matter and uses thereof, if issued from the pending patent applications and if the appropriate maintenance, renewal, annuity or othergovernmental fees are paid, are expected to expire in October 2035 (worldwide, excluding possible patent term extensions). We expect other patentapplications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to result in patents thatwould expire from October 2033 to March 2037 (worldwide, excluding possible patent term extensions).IL-23R Antagonist PeptidesThe IL-23R antagonist peptide patent portfolio includes patent applications directed to compositions of IL-23R antagonist peptides cyclized throughintramolecular bonds and containing amino acid modifications conferring increased stability, potency and/or selectivity, as well as methods of synthesizingand using these antagonist peptides to treat inflammatory disorders. Applications are currently pending in the United States and internationally. Patentapplications directed to PTG-200 composition of matter and uses thereof, if issued from the pending patent applications and if the appropriate maintenance,renewal, annuity or other governmental fees are paid, are expected to expire in July 2035 (worldwide, excluding possible patent term extensions). We expectother patents and patent applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, toexpire from July 2035 to December 2036 (worldwide, excluding possible patent term extensions). 21Table of ContentsIndex to Financial StatementsHepcidin Mimetics AnaloguesThe hepcidin peptide analogues patent portfolio includes patent applications directed to compositions of hepcidin peptide analogues cyclizedthrough intramolecular bonds and containing amino acid modifications conferring increased stability, potency and/or selectivity, as well as methods ofsynthesizing and using these hepcidin peptide analogues to treat iron-related disorders. Applications are currently pending in the United States and othermajor jurisdictions, including Australia, Canada, China, Japan, and Europe. Patent applications directed to PTG-300 composition of matter and uses thereof,if issued from the pending patent applications and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected toexpire in March 2034 (worldwide, excluding possible patent term extensions). We expect other patents and patent applications in this portfolio, if issued, andif the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire from March 2034 to December 2036 (worldwide, excludingpossible patent term extensions).OtherWe also license patents and patent applications directed to processes and methods related to our technology platform. These patents have issued in theUnited States and other major jurisdictions, including Australia and Europe and are expected to expire between September 2019 and February 2023. Materialaspects of our technology platform are protected by trade secrets and confidentiality agreements.In addition to the above, we have established expertise and development capabilities focused in the areas of pre-clinical research and development,manufacturing and manufacturing process scale-up, quality control, quality assurance, regulatory affairs and clinical trial design and implementation. Webelieve that our focus and expertise will help us develop products based on our proprietary intellectual property.The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which wefile, the patent term is 20 years from the date of filing the non-provisional application. In the United States, a patent’s term may be lengthened by patent termadjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent, or may be shortened if apatent is terminally disclaimed over an earlier-filed patent.The term of a patent that covers an FDA approved drug may also be eligible for patent term extension, which permits patent term restoration of a U.S.patent as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up tofive years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Apatent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patentapplicable to an approved drug may be extended. Moreover, a patent can only be extended once, and thus, if a single patent is applicable to multipleproducts, it can only be extended based on one product. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of apatent that covers an approved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of a new drugapplication (“NDA”), we expect to apply for patent term extensions for patents covering our product candidates and their methods of use.Trade SecretsWe rely on trade secrets to protect certain aspects of our technology, particularly in relation to our technology platform. However, trade secrets can bedifficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees,consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintainingphysical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals,organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our tradesecrets may otherwise become known or be independently discovered by competitors. To the extent that our 22Table of ContentsIndex to Financial Statementsconsultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related orresulting know-how and inventions. For more information, please see “Item 1A Risk Factors—Risks Related to Our Intellectual Property.”ManufacturingWe contract with third parties for the manufacturing of all of our product candidates, including PTG-100, PTG-200, and PTG-300, for pre-clinical andclinical studies, and intend to continue to do so in the future. We do not own or operate any manufacturing facilities and we have no plans to build anyowned clinical or commercial scale manufacturing capabilities. We believe that the use of contract manufacturing organization (“CMOs”) eliminates theneed for us to directly invest in manufacturing facilities, equipment and additional staff. Although we rely on contract manufacturers, our personnel andconsultants have extensive manufacturing experience overseeing CMOs. We regularly consider second source or back-up manufacturers for both activepharmaceutical ingredient and drug product manufacturing. To date, our third-party manufacturers have met the manufacturing requirements for the productcandidates in a timely manner. We expect third-party manufacturers to be capable of providing sufficient quantities of our product candidates to meetanticipated full-scale commercial demands but we have not assessed these capabilities beyond the supply of clinical materials to date. We currently engageCMOs on a “fee for services” basis based on our current development plans. We plan to identify CMOs and enter into longer term contracts or commitmentsas we move our product candidates into Phase 3 clinical trials. We believe there are alternate sources of manufacturing that have been and could be engagedand enabled to satisfy its clinical and commercial requirements, however we cannot guarantee that identifying and establishing alternative relationships withsuch sources will be successful, cost effective, or completed on a timely basis without significant delay in the development or commercialization of ourproduct candidates.Government RegulationThe FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirementsupon companies involved in the clinical development, manufacture, marketing and distribution of drugs, such as those we are developing. These agenciesand other federal, state and local entities regulate, among other things, the research and development, testing, manufacture, quality control, safety,effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling andexport and import of our product candidates.U.S. Government RegulationIn the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. The processof obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires theexpenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product developmentprocess, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approvepending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partialsuspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.The process required by the FDA before a drug may be marketed in the United States generally involves the following: • completion of pre-clinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s GLP regulations; • submission to the FDA of an IND application, which must become effective before human clinical trials may begin; 23Table of ContentsIndex to Financial Statements • approval by an independent institutional review board (“IRB”) at each clinical site before each trial may be initiated; • performance of adequate and well-controlled human clinical trials in accordance with good clinical practice (“GCP”) requirements to establishthe safety and efficacy of the proposed drug product for each indication; • submission to the FDA of an NDA; • satisfactory completion of an FDA advisory committee review, if applicable; • satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliancewith cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality andpurity; and • FDA review and approval of the NDA.Pre-clinical StudiesPre-clinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safetyand efficacy. An IND sponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data and any availableclinical data or literature, among other things, to the FDA as part of an IND. Some pre-clinical testing may continue even after the IND is submitted. An INDautomatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or moreproposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concernsbefore the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.Clinical TrialsClinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators inaccordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participationin any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used inmonitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must besubmitted to the FDA as part of the IND (or equivalent submission ex-US). In addition, an IRB or ethics committee (“EC”) at each institution participating inthe clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials mustbe submitted within specific timeframes to the National Institutes of Health (“NIH”) for public dissemination on their www.clinicaltrials.gov website.Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined: • Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosagetolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness. • Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluatethe efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. • Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlledclinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. 24Table of ContentsIndex to Financial StatementsProgress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse eventsoccur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or thesponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to anunacceptable health risk. Similarly, an IRB or EC can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not beingconducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.Marketing ApprovalAssuming successful completion of the required clinical testing, the results of the pre-clinical and clinical studies, together with detailed informationrelating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requestingapproval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under thePrescription Drug User Fee Act (“PDUFA”) guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standardNDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDAbecause the FDA has approximately two months to make a “filing” decision.In addition, under the Pediatric Research Equity Act of 2003 (“PREA”), as amended and reauthorized, certain NDAs or supplements to an NDA mustcontain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and tosupport dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at therequest of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partialwaivers from the pediatric data requirements.The FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”), plan to ensure that the benefits of the drug outweigh itsrisks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such asrestricted distribution methods, patient registries, or other risk minimization tools.The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whetherthey are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event,the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it forfiling. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among otherthings, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed toassure the product’s continued safety, quality and purity.The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, includingclinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and underwhat conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when makingdecisions.Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve anapplication unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistentproduction of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites toassure compliance with GCP requirements. 25Table of ContentsIndex to Financial StatementsAfter evaluating the NDA 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. A complete response lettergenerally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or pre-clinical testing in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that theapplication does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typicallyissue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings orprecautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’ssafety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, includingdistribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability ofthe product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. Afterapproval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subjectto further testing requirements and FDA review and approval.Orphan DesignationThe FDA may grant orphan designation to drugs or biologics intended to treat a rare disease or condition that affects fewer than 200,000 individuals inthe United States, or if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing andmarketing the product for this type of disease or condition will be recovered from sales in the United States. Orphan designation must be requested beforesubmitting a NDA or Biologics License Application (“BLA”). After the FDA grants orphan designation, the identity of the therapeutic agent and its potentialorphan use are disclosed publicly by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review andapproval process.In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, taxadvantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product isentitled to orphan exclusivity, which means the FDA may not approve any other application to market the same product for the same indication for a periodof seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturerwith orphan exclusivity is unable to assure sufficient quantities of the approved orphan designated product. Competitors, however, may receive approval ofdifferent products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication forwhich the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitorobtains approval of the same biological product as defined by the FDA or if our product candidate is determined to be contained within the competitor’sproduct for the same indication or disease. If a drug or biological product designated as an orphan product receives marketing approval for an indicationbroader than what is designated, it may not be entitled to orphan product exclusivity.Post-Approval RequirementsDrugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among otherthings, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverseexperiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling 26Table of ContentsIndex to Financial Statementsclaims are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and theestablishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketingtesting, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register theirestablishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliancewith cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDAregulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements uponthe sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, andeffort in the area of production and quality control to maintain cGMP compliance.Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or ifproblems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events ofunanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions tothe approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition ofdistribution or other restrictions under a REMS program. Other potential consequences include, among other things: • restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; • fines, warning letters or holds on post-approval clinical trials; • refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals; • product seizure or detention, or refusal to permit the import or export of products; or • injunctions or the imposition of civil or criminal penalties.The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only forthe approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulationsprohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.Coverage and ReimbursementSales of our product candidates, if approved, will depend, in part, on the extent to which the cost of such products will be covered and adequatelyreimbursed by third-party payors, such as government healthcare programs, commercial insurance and managed health care organizations. These third-partypayors are increasingly limiting coverage and/or reducing reimbursements for medical products and services by challenging the prices and examining themedical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not considerour products to be cost-effective compared to other therapies, they may not cover our products after approval as a benefit under their plans or, if they do, thelevel of payment may not be sufficient to allow us to sell our products on a profitable basis. 27Table of ContentsIndex to Financial StatementsThere is no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States.Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. The coverage determination process can be a time-consuming and costly process that may require us to provide scientific and clinical support for the use of our products to each payor separately, with noassurance that coverage and adequate reimbursement will be obtained or applied consistently. Even if reimbursement is provided, market acceptance of ourproducts may be adversely affected if the amount of payment for our products proves to be unprofitable for health care providers or less profitable thanalternative treatments, or if administrative burdens make our products less desirable to use.In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including pricecontrols, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, andadoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could reduce physician usage of ourproducts candidates, once approved, and have a material adverse effect on our sales, results of operations and financial condition.The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively referred to asthe ACA, enacted in March 2010, has had and is expected to continue to have a significant impact on the health care industry. The ACA, among other things,imposes a significant annual fee on certain companies that manufacture or import branded prescription drug products. The ACA also increased the Medicaidrebate rate and expanded the rebate program to include Medicaid managed care organizations. It also contains substantial new provisions intended tobroaden access to health insurance, reduce or constrain the growth of health care spending, enhance remedies against health care fraud and abuse, add newtransparency requirements for the health care industry, impose new taxes and fees on pharmaceutical manufacturers, and impose additional health policyreforms, any or all of which may affect our business. Since its enactment, there have been judicial and Congressional challenges to certain aspects of theACA, and there may be additional challenges and amendments to the ACA in the future. The ACA is likely to continue the downward pressure onpharmaceutical pricing, and may also increase our regulatory burdens and operating costs.Other legislative changes have also been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011 resulted inaggregate reductions in Medicare payments to providers of 2% per fiscal year, which went into effect in 2013 and, following passage of the BipartisanBudget Act of 2015, will stay in effect through 2025 unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government torecover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other health care funding.It is uncertain whether and how future legislation, whether domestic or foreign, could affect prospects for our product candidates or what actionsforeign, federal, state, or private payors for health care treatment and services may take in response to any such health care reform proposals or legislation.Adoption of price controls and other cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls andmeasures reforms may prevent or limit our ability to generate revenue, attain profitability or commercialize our product candidates.Other Health Care Laws and Compliance RequirementsWe will also be subject to health care regulation and enforcement by the federal government and the states and foreign governments in which we willconduct our business once our products are approved. The laws that may affect our ability to operate include, but are not limited to: the federal HealthInsurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act,which governs the conduct of certain electronic health care transactions and protects the 28Table of ContentsIndex to Financial Statementssecurity and privacy of protected health information. Criminal health care fraud statutes under HIPAA also prohibits persons and entities from knowingly andwillfully executing a scheme to defraud any health care benefit program, including private payors, or knowingly and willfully falsifying, concealing orcovering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health carebenefits, items or services; the federal health care programs’ Anti-Kickback Statute, which prohibits, among other things, persons from knowingly andwillfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, orthe purchase, order or recommendation of, any good or service for which payment may be made under federal health care programs such as the Medicare andMedicaid programs; federal false claims laws and civil monetary penalties laws that prohibit, among other things, any person or entity from knowinglypresenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement tohave a false claim paid; and the Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics, and medical supplies forwhich payment is available under Medicare, Medicaid, or Children’s Health Insurance Program to report annually to the U.S. Department of Health andHuman Services information related to payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists,podiatrists and chiropractors) and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members.The majority of states also have statutes or regulations similar to the aforementioned federal anti-kickback and false claims laws, which apply to itemsand services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. We may be subject to state lawsgoverning the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are notpreempted by HIPAA, thus complicating compliance efforts. In addition, we may be subject to reporting requirements under state transparency laws, as wellas state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidancepromulgated by the federal government that otherwise restricts certain payments that may be made to health care providers and entities.Because of the breadth of these laws and the narrowness of available statutory and regulatory exceptions, it is possible that some of our businessactivities could be subject to challenge under one or more of such laws. If we or our operations are found to be in violation of any of the laws described aboveor any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, individualimprisonment, disgorgement, exclusion of products from reimbursement under U.S. federal or state health care programs, and the curtailment or restructuringof our operations.Government Regulation Outside of the United StatesIn addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things,clinical studies and any commercial sales and distribution of our products.Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior tothe commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar process thatrequires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies.The requirements and process governing the conduct of clinical studies, product licensing, pricing and reimbursement vary from country to country. Inall cases, the clinical studies are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have theirorigin in the Declaration of Helsinki.If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal ofregulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. 29Table of ContentsIndex to Financial StatementsThe requirements for conducting clinical trials in Australia, where we anticipate conducting Phase 1 trials for PTG-200 and PTG-300, are as follows:Conducting clinical trials for therapeutic drug candidates in Australia is subject to regulation by Australian governmental entities. Approval forinclusion in the Australian Register of Therapeutic Goods (“ARTG”) is required before a pharmaceutical drug product may be marketed in Australia.Typically, the process of obtaining approval of a new therapeutic drug product for inclusion in the ARTG requires compilation of clinical trial data.Clinical trials conducted using “unapproved therapeutic goods” in Australia, being those which have not yet been evaluated by the Therapeutic GoodsAdministration (“TGA”) for quality, safety and efficacy must occur pursuant to either the CTN or Clinical Trial Exemption (“CTX”), process.The CTN process broadly involves: • completion of pre-clinical laboratory and animal testing; • submission to a Human Research Ethics Committee (“HREC”) of all material relating to the proposed clinical trial, including the trial protocol.The TGA does not review any data relating to the clinical trial; • final approval for the conduct of the clinical trial by the institution or organization at which the clinical trial will be conducted (“ApprovingAuthority”), having due regard to the advice from the HREC; and • notification of the clinical trial to the TGA.The CTX process broadly involves: • submission of an application to conduct a clinical trial to the TGA for evaluation and comment; • a sponsor cannot commence a CTX trial until written advice has been received from the TGA regarding the application and approval for theconduct of the trial has been obtained from an ethics committee and the institution at which the trial will be conducted; and • receipt of written advice from the TGA regarding the application. • receipt of approval for the conduct of the trial from an ethics committee and the institution at which the trial will be conducted.In each case, it is required that: • adequate and well-controlled clinical trials demonstrate the quality, safety and efficacy of the therapeutic product; • evidence is compiled which demonstrates that the manufacture of the therapeutic drug product complies with the principles of cGMP; • manufacturing and clinical data is derived to submit to the Australian Committee on Prescription Medicines, which makes recommendations tothe TGA as to whether or not to grant approval to include the therapeutic drug product in the ARTG; and • an ultimate decision is made by the TGA whether to include the therapeutic drug product in the ARTG.Pre-clinical studies include laboratory evaluation of the therapeutic drug product as well as animal studies to assess the potential safety and efficacy ofthe drug. The results of the pre-clinical studies form part of the materials submitted to the HREC in the case of a CTN trial and part of the application to theTGA in the case of a CTX trial.Clinical trials involve administering the investigational product to healthy volunteers or patients under the supervision of a qualified principalinvestigator. The TGA has developed guidelines for a CTN. Under the CTN process, all material relating to the proposed trial is submitted directly to theHREC of each institution at which the trial is to be conducted. An HREC is an independent review committee set up under guidelines of the 30Table of ContentsIndex to Financial StatementsAustralian National Health and Medical Research Council. The role of an HREC is to ensure the protection of rights, safety and wellbeing of human subjectsinvolved in a clinical trial by, among other things, reviewing, approving and providing continuing review of trial protocols and amendments, and of themethods and material to be used in obtaining and documenting informed consent of the trial subjects. The TGA is formally notified by submission of a CTNapplication but does not review the safety of the drug or any aspect of the proposed clinical trial. The approving authority of each institution gives the finalapproval for the conduct of the clinical trial, having due regard to advice from the HREC. Following approval, responsibility for all aspects of the trialconducted under a CTN application remains with the HREC of each investigator’s institution.The standards for clinical research in Australia are set by the TGA and the National Health and Medical Research Council, and compliance with GCP ismandatory. Guidelines, such as those promulgated by the International Conference on Harmonization of Technical Requirements for Registration ofPharmaceuticals for Human Use (“ICH”), are required across all fields, including those related to pharmaceutical quality, nonclinical and clinical datarequirements and study designs. The basic requirements for preclinical data to support a first-in-human study under ICH guidelines are applicable inAustralia. Requirements related to adverse event reporting in Australia are similar to those required in other major jurisdictions.EmployeesAs of December 31, 2016, we had 35 full-time employees, 27 of whom were in research and development of which 2 hold an M.D. and 10 hold Ph.D.degrees. The remaining 8 employees worked in finance, business development, human resources and administrative support of which 2 hold a Ph.D. None ofour employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to begood.Corporate and Other InformationProtagonist Pty Limited (“Protagonist Australia”) was incorporated in Australia in September 2001. We were incorporated as a Delaware corporation in2006, under the name Protagonist Therapeutics, Inc., and became the parent of Protagonist Australia pursuant to a transaction in which all of the issued andoutstanding capital stock of Protagonist Australia was exchanged for shares of our common stock and Series A preferred stock. Our principal executive officesare located at 521 Cottonwood Drive, Suite 100, Milpitas, California 95035. Our telephone number is (408) 649-7370. Our website address iswww.protagonist-inc.com. References to our website address do not constitute incorporation by reference of the information contained on the website, andthe information contained on the website is not part of this document.We make available, free of charge on our corporate website, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K, Proxy Statements, and all amendments to these reports, as soon as reasonably practicable after such material is electronically filed withor furnished to the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act. We also show detail about stocktrading by corporate insiders by providing access to SEC Forms 3, 4 and 5. This information may also be obtained from the SEC’s on-line database, which islocated at www.sec.gov. Our common stock is traded on the NASDAQ Stock Market under the symbol “PTGX.”We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. As such, we are eligible for exemptions fromvarious reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not beingrequired to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regardingexecutive compensation. We will remain an emerging growth company until the earlier of (1) December 31, 2021, (2) the last day of the first fiscal year inwhich our annual gross revenues are $1.0 billion or more, (3) the date on which we have, during the previous rolling three-year period, issued more than $1.0billion in non-convertible debt securities, and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Actof 1934, as amended (Exchange Act). 31Table of ContentsIndex to Financial StatementsItem 1A.Risk FactorsInvesting in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with the otherinformation included or incorporated by reference in this Annual Report on Form 10-K, including the section of this report titled “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes. We cannotassure you that any of the events discussed in the risk factors below will not occur. The occurrence of any of the events or developments described belowcould have a material and adverse impact on our business, results of operations, financial condition, and cash flows and future prospects and, if so, ourfuture prospects would likely be materially and adversely affected. If any of such events were to happen, the trading price of our common stock coulddecline, and you could lose all or part of your investment. Although we have discussed all known material risks, the risks described below are not the onlyones that we may face, and additional risks or uncertainties not known to us or that we currently deem immaterial may also impair our business and futureprospects.Risks Related to Our Financial Position and Capital RequirementsWe have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We havenever generated any revenue from product sales and may never be profitable.We have incurred significant operating losses since our inception in 2006. Our net loss for the years ended December 31, 2016, 2015, and 2014 wasapproximately $37.2 million, $14.9 million, and $11.1 million, respectively. As of December 31, 2016, we had an accumulated deficit of $64.6 million. Ourprior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Weexpect to continue incurring significant research, development and other expenses related to our ongoing operations and product development, and as aresult, we expect to continue incurring losses for the foreseeable future. We also expect these losses to increase as we continue our development of, and seekregulatory approvals for, our peptide-based product candidates.We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we do not currently have any product candidatesin registration or pivotal clinical trials. If any of our peptide-based product candidates fail in clinical trials or do not gain regulatory approval, or even ifapproved, fail to achieve market acceptance, we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increaseprofitability on a quarterly or annual basis. Failure to become and remain profitable may adversely affect the market price of our common stock and ourability to raise capital and continue operations.If one or more of our peptide-based product candidates is approved for commercial sale and we retain commercial rights, we anticipate incurringsignificant costs associated with manufacturing and commercializing such approved peptide-based product candidate. Therefore, even if we are able togenerate revenue from the sale of any approved product, we may never become profitable.We are an early clinical-stage biopharmaceutical company with no approved products and no historical product revenue, which makes it difficult to assessour future prospects and financial results.We are an early clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects.Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. Our operations to date havebeen limited to developing our technology, undertaking pre-clinical studies and clinical trials of our pipeline candidates, including pre-clinical studies andclinical trial of PTG-100 and pre-clinical studies of PTG-200 and PTG-300, as well as our proprietary technology platform. We successfully filed a CTN inAustralia to support our completed Phase 1 clinical trial of PTG-100. We have successfully filed a U.S. IND application to support our ongoing 32Table of ContentsIndex to Financial StatementsPhase 2b study of PTG-100 in ulcerative colitis (“UC”). As an early clinical-stage company, we have not yet demonstrated an ability to generate revenue orsuccessfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields such asbiopharmaceutical drug discovery and development. Consequently, the ability to accurately assess our future operating results or business prospects issignificantly more limited than if we had a longer operating history or approved products on the market.We expect that our financial condition and operating results will fluctuate significantly from period to period due to a variety of factors, many of whichare beyond our control, including, but not limited to: • the clinical outcomes from the continued development of our product candidates; • potential side effects of our product candidates that could delay or prevent approval or cause an approved drug to be taken off the market; • our ability to obtain, as well as the timeliness of obtaining, additional funding to develop, and potentially manufacture and commercialize ourproduct candidates; • competition from existing products directed against the same biological target or therapeutic indications of our product candidates as well asnew products that may receive marketing approval; • the entry of generic versions of products that compete with our product candidates; • the timing of regulatory review and approval of our product candidates; • market acceptance of our product candidates that receive regulatory approval, if any; • our ability to establish an effective sales and marketing infrastructure directly or through collaborations with third parties; • the ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products; • whether Johnson & Johnson Development Corporation (“JJDC”) decides to exercise its rights of first negotiation on any of our assets that aresubject to the Letter Agreement with JJDC, including PTG-200, and we have to negotiate with JJDC for prolonged periods pursuant to theaforementioned agreement; • the ability of third party manufacturers to manufacture in accordance with current good manufacturing practices (“cGMP”) our productcandidates for the conduct of clinical trials and, if approved, for successful commercialization; • our ability as well as the ability of any third party collaborators, to obtain, maintain and protect intellectual property rights covering our productcandidates and technologies, and our ability to develop, manufacture and commercialize our product candidates without infringing on theintellectual property rights of others; • our ability to add infrastructure and manage adequately our future growth; and • our ability to attract and retain key personnel with appropriate expertise and experience to manage our business effectively.Accordingly, the likelihood of our success must be evaluated in light of many potential challenges and variables associated with an early-stagebiopharmaceutical company, many of which are outside of our control, and past results, including operating or financial results, should not be relied on as anindication of future results.We will require substantial additional funding, which may not be available to us on acceptable terms, or at all.Our operations have consumed substantial amounts of cash since inception. We conducted a Phase 1 clinical trial of PTG-100 in healthy volunteersand we have initiated a Phase 2b clinical trial of PTG-100 in patients with 33Table of ContentsIndex to Financial Statementsmoderate-to-severe UC, and we have also commenced IND-enabling studies of PTG-200 and PTG-300. Developing pharmaceutical product candidates,including conducting pre-clinical studies and clinical trials, is expensive. We will require substantial additional future capital in order to complete clinicaldevelopment and, if we are successful, to commercialize any of our current product candidates. If the U.S. Food and Drug Administration (“FDA”) or anyforeign regulatory agency, such as the European Medicines Agency (“EMA”), requires that we perform studies or trials in addition to those that we currentlyanticipate with respect to the development of PTG-100, PTG-200 or any of our other product candidates, or repeat studies or trials, our expenses would furtherincrease beyond what we currently expect, and any delay resulting from such further or repeat studies or trials could also result in the need for additionalfinancing.Based upon our current operating plan and expected expenditures, we believe that our existing cash, cash equivalents, and available-for-sale securitieswill be sufficient to fund our operations for at least the next 12 months. Our existing capital resources will not be sufficient to enable us to initiate any pivotalclinical trials. Accordingly, we expect that we will need to raise substantial additional funds in the future in order to complete clinical development orcommercialize any of our product candidates. Our funding requirements and the timing of our need for additional capital are subject to change based on anumber of factors, including: • the rate of progress and the cost of our studies of PTG-100, PTG-200, and PTG-300 and any other product candidates; • the number of product candidates that we intend to develop using our technology platform; • the costs of research and pre-clinical studies to support the advancement of other product candidates into clinical development; • the timing of, and costs involved in, seeking and obtaining approvals from the FDA and comparable foreign regulatory authorities, including thepotential by the FDA or comparable regulatory authorities to require that we perform more studies than those that we currently expect; • the costs of preparing to manufacture PTG-100, PTG-200 or PTG-300 on a scale sufficient to enable large-scale clinical trials and commercialsupply; • the timing and cost of transitioning our product formulations into the formulations we intend to use in registration trials and commercialize; • the costs of commercialization activities if PTG-100, PTG-200, PTG-300 or any future product candidate is approved, including the formation ofa sales force; • the degree and rate of market acceptance of any products launched by us or our partners; • the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; • our need and ability to hire and retain additional personnel; • our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of sucharrangements; and • the emergence of competing technologies or other adverse market developments.If we are unable to obtain additional funding from equity offerings or debt financings, including on a timely basis, we may be required to: • seek collaborators for one or more of our peptide-based product candidates at an earlier stage than otherwise would be desirable or on terms thatare less favorable than might otherwise be available; • relinquish or license on unfavorable terms our rights to technologies or peptide-based product candidates that we otherwise would seek todevelop or commercialize ourselves; or • significantly curtail one or more of our research or development programs or cease operations altogether. 34Table of ContentsIndex to Financial StatementsRaising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our peptide-basedproduct candidates or technologies.We may seek additional funding through a combination of equity offerings, debt financings, collaborations and/or licensing arrangements. Additionalfunding may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debtsecurities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as astockholder. The incurrence of indebtedness and/or the issuance of certain equity securities could result in fixed payment obligations and could also result incertain additional restrictive covenants, such as limitations on our ability to incur debt and/or issue additional equity, limitations on our ability to acquire orlicense intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, the issuanceof additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. In the event that weenter into collaborations and/or licensing arrangements in order to raise capital, we may be required to accept unfavorable terms, including relinquishing orlicensing to a third party on unfavorable terms our rights to our proprietary technology platform or peptide-based product candidates that we otherwise wouldseek to develop or commercialize ourselves or potentially reserve for future potential arrangements when we might be able to achieve more favorable terms.Risks Related to Our Business and IndustryWe are heavily dependent on the success of our lead product candidates, PTG-100, which is in early-stage clinical development, and PTG-200, which is inpre-clinical development, and the development of other product candidates such as PTG-300, and if any of these products fail to receive regulatoryapproval or are not successfully commercialized, our business would be adversely affected.We currently have no product candidates that are in registration or pivotal clinical trials or are approved for commercial sale, and we may never be ableto develop a marketable product. We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to our leadproduct candidates, PTG-100 and PTG-200 targeting inflammatory bowel disease (“IBD”), and the development of other product candidates such as PTG-300which targets iron overload disorders. We cannot be certain that PTG-100, PTG-200, PTG-300 or any other product candidates will receive regulatoryapproval or, if approved, be successfully commercialized. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of PTG-100, PTG-200, and PTG-300 will remain subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries,each of which has differing regulations. In addition, even if approved, our pricing and reimbursement will be subject to further review and discussions withpayors. We are not permitted to market any product candidate in the United States until after approval of a new drug application (“NDA”) from the FDA, or inany foreign countries until after approval of a marketing application by corresponding regulatory authorities. We completed a Phase 1 clinical trial for PTG-100 in June 2016. We will need to conduct larger, more extensive clinical trials in the target patient population to support a potential application forregulatory approval by the FDA or corresponding regulatory authorities, and we do not expect to be in a position to do so for the near term. We will notreceive any preferential or expedited review of any application for regulatory approval by virtue of the fact that our product candidates target biologicalpathways that are also targeted by currently marketed injectable antibody drugs, and our product candidates will be subject to the regulatory reviewprocesses applicable to completely new drugs.We have not previously submitted an NDA to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate,and we cannot be certain that any of our product candidates will be successful in clinical trial or receive regulatory approval. Filing an application andobtaining regulatory approval for a pharmaceutical product candidate is an extensive, lengthy, expensive and inherently uncertain process, and theregulatory authorities may delay, limit or deny approval of our product candidates for many reasons, including: • we may not be able to demonstrate that any of our product candidates is safe and effective to the satisfaction of the FDA or comparable foreignregulatory authorities; 35Table of ContentsIndex to Financial Statements • the FDA or comparable foreign regulatory authorities may require additional pre-clinical studies or clinical trials prior to granting approval,which would increase our costs and extend the pre-approval development process; • the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or comparable foreign regulatoryauthorities for approval; • the FDA may disagree with the number, design, size, conduct or statistical analysis of one or more of our clinical trials; • contract research organizations (“CROs”) that we retain to conduct clinical trials may take actions outside of our control that materially andadversely impact our clinical trials; • the FDA or comparable foreign regulatory authorities may disagree with, or not accept, our interpretation of data from our pre-clinical studies andclinical trials; • the FDA may require development of a costly and extensive risk evaluation and mitigation strategy (“REMS”), as a condition of approval; • the FDA may identify deficiencies in our manufacturing processes or facilities or those of our third-party manufacturers which would be requiredto be corrected prior to regulatory approval; • the success or further approval of competitor products approved in indications in which we undertake development of our product candidatesmay change the standard of care or change the standard for approval of our product candidate in our proposed indications; and • the FDA or comparable foreign regulatory authorities may change their approval policies or adopt new regulations.Our peptide-based product candidates will require additional research, clinical development, manufacturing activities, regulatory approval in multiplejurisdictions (if regulatory approval can be obtained at all), securing sources of commercial manufacturing supply and building of or partnering with acommercial organization. We cannot assure you that our clinical trials for PTG-100 or our planned clinical trials for PTG-200 will be initiated or completedin a timely manner or successfully, or at all. Further we cannot be certain that we plan to advance any other peptide-based product candidates into clinicaltrials. Moreover, any delay or setback in the development of any product candidate, in particular PTG-100, PTG-200, or PTG-300, would be expected toadversely affect our business and cause our stock price to fall.The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if weare ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.Our business and future profitability is substantially dependent on our ability to successfully develop, obtain regulatory approval for and thensuccessfully commercialize our most advanced peptide-based product candidates, PTG-100, which is in an ongoing Phase 2b trial, and PTG-200 and PTG-300, which are in pre-clinical development. We are not permitted to market or promote any of our peptide-based product candidates before we receiveregulatory approval from the FDA, the EMA or any other foreign regulatory authority, and we may never receive such regulatory approval for any of ourpeptide-based product candidates. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takesmany years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of regulatory authorities.Approval policies, regulations and the types and amount of clinical and manufacturing data necessary to gain approval may change during the course ofclinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none ofour existing product candidates or any product candidates we have in development or may seek to develop in the future will ever obtain regulatory approval. 36Table of ContentsIndex to Financial StatementsOur product candidates could fail to receive regulatory approval for many reasons, including the following: • the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials; • we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe andeffective for its proposed indication; • the results of clinical trials may fail to achieve the level of statistical significance required by the FDA or comparable foreign regulatoryauthorities for approval; • we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; • the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data submitted in support of regulatory approval; • the data collected from pre-clinical studies and clinical trials of our peptide-based product candidates may not be sufficient to support thesubmission of an NDA, supplemental NDA, Biologics License Application (“BLA”) or other regulatory submissions necessary to obtainregulatory approval in the United States or elsewhere; • we or our contractors may not meet the GMP and other applicable requirements for manufacturing processes, procedures, documentation andfacilities necessary for approval by the FDA or comparable foreign regulatory authorities; and • changes to the approval policies or regulations of the FDA or comparable foreign regulatory authorities with respect to our product candidatesmay result in our clinical data becoming insufficient for approval.The lengthy regulatory approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatoryapproval to market PTG-100 and PTG-200, our lead product candidates, or any other product candidate, such as PTG-300, which would harm our business,results of operations and prospects significantly.In addition, even if we were to obtain regulatory approval, regulatory authorities may approve our product candidates for fewer or more limitedindications than what we requested approval for, may include safety warnings or other restrictions that may negatively impact the commercial viability of ourproduct candidates, including the potential for a favorable price or reimbursement at a level that we would otherwise intend to charge for our products.Likewise, regulatory authorities may grant approval contingent on the performance of costly post-marketing clinical trials or the conduct of an expensiveREMS, which could significantly reduce the potential for commercial success or viability of our product candidates. Any of the foregoing possibilities couldmaterially harm the prospects for our product candidates and business and operations.We have not previously submitted an NDA, a BLA, a Marketing Authorization Application (“MAA”), or any corresponding drug approval filing to theFDA, the EMA or any comparable foreign authority for any peptide-based product candidate. Further, our product candidates may not receive regulatoryapproval even if we complete such filings. If we do not receive regulatory approvals for our product candidates, we may not be able to continue ouroperations.Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of futuretrial results. Clinical failure can occur at any stage of clinical development. Further, we have never conducted a Phase 2 or Phase 3 clinical trial orsubmitted an NDA.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 development process. The results of pre-clinical studies and early clinical trials of our product candidates and studies and trials of other products maynot be predictive of the 37Table of ContentsIndex to Financial Statementsresults of later-stage clinical trials. In addition to our planned pre-clinical studies and clinical trials, we expect to have to complete at least two large scale, oradequate, well-controlled trials to demonstrate substantial evidence of efficacy and safety for each product candidate we intend to commercialize. Further,given the patient populations for which we are developing therapeutics, we expect to have to evaluate long-term exposure to establish the safety of ourtherapeutics in a chronic dose setting. We have never conducted a Phase 2 or Phase 3 clinical trial or submitted an NDA, and as a result, we have no history ortrack-record to rely on when entering these phases of the development cycle. For example, the results generated to date in pre-clinical studies and the Phase 1clinical trial for PTG-100 do not ensure that future Phase 2 clinical trials or later clinical trials will have similar results or be successful. Product candidates inlater stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinicaltrials. Clinical trial failures may result from a multitude of factors including, but not limited to, flaws in trial design, dose selection, placebo effect, patientenrollment criteria and failure to demonstrate favorable safety and/or efficacy traits of the product candidate. A number of companies in thebiopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstandingpromising results in earlier trials. Based upon negative or inconclusive results, we may decide, or regulators may require us, to conduct additional clinicaltrials or pre-clinical studies.We may experience delays in ongoing clinical trials, and we do not know whether planned clinical trials will begin on time, need to be redesigned,enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to: • obtaining regulatory approvals to commence a clinical trial; • reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiationand may vary significantly among different CROs and trial sites; • fraud or negligence on the part of CROs, contract manufacturing organizations (“CMOs”), consultants or contractors; • obtaining institutional review board (“IRB”) or ethics committee (“EC”), approval at each site; • recruiting suitable patients to participate in a clinical trial; • having patients complete a clinical trial or return for post-treatment follow-up; • clinical sites deviating from the clinical trial’s protocol or dropping out of a clinical trial; • adding new clinical trial sites; or • manufacturing sufficient quantities of product candidate for use in clinical trials.We could encounter delays if a clinical trial is modified, suspended or terminated by us, by the IRBs or ECs of the institutions in which such clinicaltrials are being conducted, by a Data Safety Monitoring Board, for such trial or by the FDA or other regulatory authorities. Such authorities may impose amodification, suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirementsor our clinical trial protocols, inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory authorities resulting in theimposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmentalregulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of,any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed and our ability to generate product revenuefrom any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our productcandidate development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences mayharm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement orcompletion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. 38Table of ContentsIndex to Financial StatementsIn addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as wedo, which may delay, limit or prevent regulatory approval.Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or renderedimpossible by multiple factors outside our control.We may encounter delays in enrolling, be unable to enroll or maintain, a sufficient number of patients to complete any of our clinical trials. Patientenrollment and retention in clinical trials is a significant factor in the timing of clinical trials and depends on many factors, including the size and nature ofthe patient population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, the number and nature ofcompeting treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of patients to clinical trial sites and the eligibilitycriteria for the clinical trial. Furthermore, any negative results we may report in clinical trials of our product candidates may make it difficult or impossible torecruit and retain patients in other clinical trials of that same candidate. For example, we are aware of a number of therapies that are commercialized or arebeing developed for IBD and we expect to face competition from these investigational drugs or approved drugs for potential subjects in our clinical trials,which may delay the pace of enrollment in our planned clinical trials. Delays or failures in planned patient enrollment or retention may result in increasedcosts, program delays or both, which could have a harmful effect on our ability to develop our product candidates, or could render further developmentimpossible.All of our peptide-based product candidates other than PTG-100 are in research or pre-clinical development and have not entered into clinical trials. If weare unable to develop, test and commercialize our peptide-based product candidates, our business will be adversely affected.As part of our strategy, we also seek to discover, develop and commercialize a portfolio of new peptide-based product candidates in addition to PTG-100. Research programs to identify appropriate biological targets pathways and product candidates require substantial scientific, technical, financial andhuman resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potentialproduct candidates, yet fail to yield product candidates for clinical development for many reasons, including: • our financial and internal resources are insufficient; • our research methodology used may not be successful in identifying potential product candidates; • competitors may develop alternatives that render our product candidates uncompetitive; • our other product candidates may be shown to have harmful side effects or other characteristics that indicate such product candidate is unlikelyto be effective or otherwise unlikely to achieve applicable regulatory approval; • our product candidates may not be capable of being produced in commercial quantities at an acceptable cost, or at all; or • a product candidate may not be accepted by patients, the medical community, healthcare providers or third-party payors.Our research and development strategy for our lead product candidates relies in large part on clinical data and results obtained from antibody and smallmolecule products that are approved or in late-stage development that could ultimately prove to be inaccurate or unreliable for use with our peptide-basedproduct candidate approach.As part of our strategy to mitigate clinical development risk, we seek to develop peptide-based product candidates against biological targets andpathways which have been identified as addressable by approved or later stage products in development. While we utilize pre-clinical in vivo and in vitromodels as well as clinical 39Table of ContentsIndex to Financial Statementsbiomarkers to assess potential safety and efficacy early in the candidate selection and development process, this strategy necessarily relies upon clinical dataand other results obtained by third parties that may ultimately prove to be inaccurate or unreliable or otherwise not applicable to the indications in which wedevelop our peptide-based product candidates. We will have to conduct clinical trials to show the safety and efficacy of our peptide-based productcandidates against the identified biological targets and pathways to show that our peptide-based product candidates can address the identified mechanism ofaction shown by these third party results. For example, PTG-100 is an a4b7 integrin antagonist that targets the same target as the currently marketedinjectable antibody drug, Entyvio ®, and PTG-200 targets the IL-23 biological pathway, which is a pathway targeted by the currently marketed injectableantibody drug, Stelara ®, approved for treatment of psoriasis and Crohn’s disease. If our interpretation of the third party clinical data and results frommolecules directed against the same biological target or pathway or our pre-clinical in vivo and in vitro models prove inaccurate or our assumptions andconclusions about the applicability of our peptide-based product candidates against the same biological targets or pathways are incorrect or inaccurate, thenour development efforts may prove longer and more extensive and our research and development strategy and business and operations could be significantlyharmed.Our proprietary peptide platform may not result in any products of commercial value.We have developed a proprietary peptide technology platform to enable the identification, testing, design and development of new productcandidates. We cannot assure you that our peptide platform will work, nor that any of these potential targets or other aspects of our proprietary drug discoveryand design platform will yield product candidates that could enter clinical development and, ultimately, be commercially valuable. Although we expect tocontinue to enhance the capabilities of our proprietary platform by developing and integrating existing and new research technologies, we may not besuccessful in any of our enhancement and development efforts. For example, we may not be able to enter into agreements on suitable terms to obtaintechnologies required to develop certain capabilities of our peptide platform. In addition, we may not be successful in developing the conditions necessary tosimulate specific tissue function from multiple species, or otherwise develop assays or cell cultures necessary to expand these capabilities. If ourenhancement or development efforts are unsuccessful, we may not be able to advance our drug discovery capabilities as quickly as we expect or identify asmany potential drug candidates as we desire.Our product candidates may cause undesirable side effects or have other properties impacting safety that could delay or prevent their regulatory approval,limit the commercial profile of an approved label, or result in limiting the commercial opportunity for our product candidates if approved.Undesirable side effects that may be caused by our product candidates or caused by similar approved drugs or product candidates in development byother companies, could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay ordenial of regulatory approval by the FDA or other comparable foreign authorities. Results of our clinical trials could reveal a high and unacceptable severityand prevalence of side effects or adverse events related to our product candidates. In such an event, our clinical trials could be suspended or terminated andthe FDA or comparable foreign regulatory authorities could order us to cease further development of our product candidates for any or all targetedindications. In addition, drug-related side effects could negatively affect patient recruitment or the ability of enrolled patients to complete the trial and evenif our clinical trials are completed and our product candidate is approved, drug-related side effects could restrict the label or result in potential productliability claims. Any of these occurrences could significantly harm our business, financial condition and prospects significantly.Moreover, since our product candidates PTG-100 and PTG-200 are being developed for indications for which injectable antibody drugs have beenapproved, we expect that our clinical trials would need to show a risk/benefit profile that is competitive with those existing products and product candidatesin order to obtain regulatory approval or, if approved, a product label that is favorable for commercialization. 40Table of ContentsIndex to Financial StatementsAdditionally if one or more of our product candidates receives marketing approval and we or others later identify undesirable side effects caused bysuch products, a number of potentially significant negative consequences could result, including: • regulatory authorities may withdraw approvals of such product; • regulatory authorities may require additional warnings on the label; • we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; • we could be sued and held liable for harm caused to patients; and • our reputation may suffer.Any of these events could prevent us from achieving or maintaining market acceptance of the particular peptide-based product candidate which couldsignificantly harm our business and prospects.We rely on third parties to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties ordo not meet regulatory requirements or expected deadlines, we may not be able to obtain timely regulatory approval for or commercialize our productcandidates and our business could be substantially harmed.We have relied upon and plan to continue to rely upon third party CROs to monitor and manage clinical trials and collect data for our pre-clinicalstudies and clinical programs. We rely on these parties for execution of our pre-clinical studies and clinical trials, and control only certain aspects of theiractivities. Nevertheless, we are responsible for ensuring that their conduct meets regulatory requirements and that each of our studies and trials is conductedin accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on CROs does not relieve us of our regulatoryresponsibilities. Thus, we and our CROs are required to comply with good clinical practices (“GCPs”), which are regulations and guidelines promulgated bythe FDA, the EMA and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforcethese GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicableGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may notaccept the data or require us to perform additional clinical trials before considering our filing for regulatory approval or approving our marketing application.We cannot assure you that upon inspection by a regulatory authority, such regulatory authority will determine that any of our clinical trials complies withGCPs. While we have agreements governing activities of our CROs, we may have limited influence over their actual performance and the qualifications oftheir personnel conducting work on our behalf. In addition, significant portions of the clinical studies for our peptide-based product candidates are expectedto be conducted outside of the United States, which will make it more difficult for us to monitor CROs and perform visits of our clinical trial sites and willforce us to rely heavily on CROs to ensure the proper and timely conduct of our clinical trials and compliance with applicable regulations, including GCPs.Failure to comply with applicable regulations in the conduct of the clinical studies for our peptide-based product candidates may require us to repeat clinicaltrials, which would delay the regulatory approval process.Some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjectsparticipating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.If any of our relationships with these third party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so oncommercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs,we cannot control whether or not they devote sufficient time and resources to our pre-clinical and clinical programs. If CROs do not successfully carry outtheir contractual duties or obligations or meet expected deadlines, if they need to be 41Table of ContentsIndex to Financial Statementsreplaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatoryrequirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for orsuccessfully commercialize our peptide-based product candidates. As a result, our results of operations and the commercial prospects for our peptide-basedproduct candidates would be harmed, our costs could increase substantially and our ability to generate revenue could be delayed significantly.Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition periodwhen a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or thatthese delays or challenges will not have a material adverse impact on our business, financial condition and prospects.We rely completely on third parties to manufacture our drug substance and clinical drug product and we intend to rely on third parties to producecommercial supplies of any approved peptide-based product candidate.Our clinical trials must be conducted with product manufactured under current good manufacturing practices and for Europe and other major countries,International Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ICH”) guidelines, and we rely on contractmanufactures to manufacture and provide product for us that meet these requirements. We do not currently have nor do we plan to acquire the infrastructureor capability internally to manufacture our pre-clinical and clinical drug supplies and we lack the resources and the capability to manufacture any of ourpeptide-based product candidates on a clinical or commercial scale. We expect to continue to depend on contract manufacturers for the foreseeable future. Inparticular, as we proceed with the development and potential commercialization of PTG-100, we will need to increase the scale at which the drug ismanufactured, which will require the development of new manufacturing processes. We will rely on our contract manufacturer to develop the manufacturingprocesses required for larger scale production. If the contract manufacturer is not successful in developing large scale processes, our development and/orcommercialization of PTG-100 could be materially delayed. In addition, we have no control over the ability of our contract manufacturers to maintainadequate quality control, quality assurance and qualified personnel. Moreover, our contract manufacturers are the sole source of supply for our clinicalproduct candidates, including PTG-100. If we were to experience an unexpected loss of supply for any reason, whether as a result of manufacturing, supply orstorage issues or otherwise, we could experience delays, disruptions, suspensions or termination of our clinical study and planned development program, orbe required to restart or repeat, any ongoing clinical trials.We also rely on our contract manufacturers to purchase from third party suppliers the materials necessary to produce our peptide-based productcandidates for our clinical trials. There are a limited number of suppliers for raw materials that we use to manufacture our drugs and there may be a need toassess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our peptide-based product candidates forour clinical trials, and if approved, for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by ourmanufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Although we generally do not begina clinical trial unless we believe we have a sufficient supply of a peptide-based product candidate to complete the clinical trial, any significant delay in thesupply of a peptide-based product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a contractmanufacturer or other third party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approvalof our peptide-based product candidates. If our contract manufacturers or we are unable to purchase these raw materials after regulatory approval has beenobtained for our peptide-based product candidates, the commercial launch of our peptide-based product candidates would be delayed or there would be ashortage in supply, which would impair our ability to generate revenue from the sale of our peptide-based product candidates. 42Table of ContentsIndex to Financial StatementsIf we submit an application for regulatory approval of any of our product candidates, the facilities used by our contract manufacturers to manufactureour product candidates will be subject to inspection and approval by the FDA or other regulatory authorities. If our contract manufacturers cannotsuccessfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able tosecure and/or maintain regulatory approval for their manufacturing facilities. If the FDA or a comparable foreign regulatory authority does not approve thesefacilities for the manufacture of our peptide-based product candidates or if it withdraws any such approval in the future, we may need to find alternativemanufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our peptide-based productcandidates, if approved.We may fail to obtain orphan drug designations from the FDA for our product candidates, as applicable, and even if we obtain such designations, we maybe unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.Our strategy includes filing for orphan drug designation where available for our product candidates. Under the Orphan Drug Act, the FDA may grantorphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewerthan 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost ofdeveloping the drug or biologic will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financialincentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphandrug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drugexclusivity, which means that the FDA may not approve any other applications, including a full NDA or BLA, to market the same drug or biologic for thesame indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity orwhere the manufacturer is unable to assure sufficient product quantity.We have not obtained nor have we sought to obtain orphan designation for any product candidates to date, although we believe some of the potentialindications of our product candidates could qualify for orphan drug designation and the related benefits if approved for that indication. For example, if PTG-100 or PTG-200 is developed for the treatment of pediatric IBD or PTG-300 for the treatment of iron overload disorders in patients with ß-Thalassemia andpossibly HH and SCD, we plan to file and expect to qualify for orphan drug designation with respect to such indication. Even if we obtain such designations,we may not be the first to obtain regulatory approval of a product candidate for the orphan-designated indication due to the uncertainties associated withdeveloping pharmaceutical products. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indicationbroader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if we areunable to assure sufficient quantities of the product to meet the needs of patients with the orphan-designated disease or condition. Further, even if we obtainorphan drug designation exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs withdifferent active moieties may receive and be approved for the same condition, and only the first applicant to receive approval will receive the benefits ofmarketing exclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same active moiety forthe same condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution topatient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in theregulatory review or approval process. In addition, while we may seek orphan drug designation for our product candidates, we may never receive suchdesignations. 43Table of ContentsIndex to Financial StatementsWe may not be successful in obtaining or maintaining development and commercialization collaborations, and any potential partner may not devotesufficient resources to the development or commercialization of our product candidates or may otherwise fail in development or commercialization efforts,which could adversely affect our ability to develop certain of our product candidates and our financial condition and operating results.We have no current collaborations for any of our product candidates. Even if we are able to establish collaboration arrangements, any suchcollaboration may not ultimately be successful, which could have a negative impact on our business, results of operations, financial condition and growthprospects. While we currently plan to enter into collaborations that are limited to certain identified territories, there can be no assurance that we wouldmaintain significant rights or control of future development and commercialization of such product candidate. Accordingly, if we collaborate with a thirdparty for development and commercialization of a product candidate, we may relinquish some or all of the control over the future success of that productcandidate to the third party, and that partner may not devote sufficient resources to the development or commercialization of our product candidate or mayotherwise fail in development or commercialization efforts, in which event the development and commercialization of the product candidate in thecollaboration could be delayed or terminated and our business could be substantially harmed. In addition, the terms of any potential collaboration or otherarrangement that we may establish may not be favorable to us or may not be perceived as favorable, which may negatively impact the price of our commonstock. In some cases, we may be responsible for continuing development of a product candidate or research program under a collaboration, and the paymentswe receive from our partner may be insufficient to cover the cost of this development or may result in a dispute between the parties. Moreover, collaborationsand sales and marketing arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources tomaintain, which may be detrimental to the development of our other product candidates.We are subject to a number of additional risks associated with our dependence on collaborations with third parties, the occurrence of which couldcause our collaboration arrangements to fail. Conflicts may arise between us and partners, such as conflicts concerning the implementation of developmentplans, efforts and resources dedicated to the product candidate, interpretation of clinical data, the achievement of milestones, the interpretation of financialprovisions or the ownership of intellectual property developed during the collaboration. If any such conflicts arise, a collaborator could act in its own self-interest, which may be adverse to our interests. Any such disagreement between us and a partner could result in one or more of the following, each of whichcould delay or prevent the development or commercialization of our product candidates, and in turn prevent us from generating sufficient revenue to achieveor maintain profitability: • reductions in the payment of royalties or other payments we believe are due pursuant to the applicable collaboration arrangement; • actions taken by a partner inside or outside our collaboration which could negatively impact our rights or benefits under our collaboration; or • unwillingness on the part of a partner to keep us informed regarding the progress of its development and commercialization activities or topermit public disclosure of the results of those activities.In addition, the termination of a collaboration may limit our ability to obtain rights to the product or intellectual property developed by ourcollaborator under terms that would be sufficiently favorable for us to consider further development or investment in the terminated collaboration productcandidate, even if it were returned to us.We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to competeeffectively.The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We havecompetitors worldwide, including major multinational pharmaceutical companies, biotechnology companies, specialty pharmaceutical and genericpharmaceutical companies as well as universities and other research institutions. 44Table of ContentsIndex to Financial StatementsMany of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff, andexperienced marketing and manufacturing organizations. Mergers and acquisitions in our industry may result in even more resources being concentrated inour competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able and may be more effective in selling andmarketing their products. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangementswith large, established companies. Competition may increase further as a result of advances in the commercial applicability of newer technologies and greateravailability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis,pharmaceutical products that are easier to develop, more effective or less costly than any product candidates that we are currently developing or that we maydevelop. If approved, our product candidates are expected to face competition from commercially available drugs as well as drugs that are in the developmentpipelines of our competitors.Pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds thatcould make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate advantages inefficacy, convenience, tolerability or safety in order to overcome price competition and to be commercially successful. If our competitors succeed inobtaining FDA, EMA or other regulatory approval or discovering, developing and commercializing drugs before we do or develop blocking intellectualproperty to which we do not have a license, there would be a material adverse impact on the future prospects for our product candidates and business.We believe our principal competition in the treatment of IBD is from companies with approved agents in the following therapeutic classes, amongothers: • Infused a4b7 antibody: Takeda Pharmaceutical Company • Infused IL-23 and IL-12 antibody: Johnson & Johnson • Injectable or infused TNF-a antibody: AbbVie, Johnson & Johnson, Amgen, Pfizer, UCB S.A.We are also aware of several companies developing therapeutic product candidates for the treatment of IBD, including, but not limited to AbbVie,Allergan, Arena Pharmaceuticals, Inc., AstraZeneca, Biogen, Boehringer Ingelheim (adalimumab biosimilar in Pre-Registration), Bristol-Myers Squibb,Celgene (mongersen sodium and ozanimod hydrochloride in Phase 3 clinical trials), Eli Lilly and Company, Galapagos, Gilead, Lycera Corp., MitsubishiTanabe Pharma Corporation, Pfizer (tofacitinib citrate in a Phase 3 clinical trial), Roche/Genentech (etrolizumab in a Phase 3 clinical trial), Samsung Bioepis(adalimumab biosimilar in Pre-Registration), Sandoz (adalimumab biosimilar in Phase 3), Shire, and UCB S.A.We believe our principal competition in the treatment of iron overload disorders, such as ß-Thalassemia, HH and SCD, will come from other pipelineproducts being developed by companies such as Acceleron (luspatercept in a Phase 3 clinical trial), bluebird bio (LentiGlobin in a Phase 3 clinical trial),Bristol-Myers Squibb, Emmaus Medical (glutamine in pre-registration), Gilead, Global Blood Therapeutics, Inc., La Jolla Pharmaceutical, and Novartis AG,among others. We believe competition will also include approved iron chelation therapies that have been developed by Novartis AG and Apotex, amongothers.We believe that our ability to successfully compete will depend on, among other things: • the efficacy and safety of our product candidates, in particular compared to marketed products and products in late-stage development; • the time it takes for our product candidates to complete clinical development and receive regulatory approval, if at all; • the ability to commercialize and market any of our product candidates that receive regulatory approval; • the price of our products, including in comparison to branded or generic competitors; 45Table of ContentsIndex to Financial Statements • whether coverage and adequate levels of reimbursement are available under private and governmental health insurance plans, includingMedicare; • the ability to protect intellectual property rights related to our product candidates; • the ability to manufacture and sell commercial quantities of any of our product candidates that receive regulatory approval; and • acceptance of any of our approved product candidates by physicians, payors and other healthcare providers.Because our research approach depends on our proprietary technology platform, it may be difficult for us to continue to successfully compete in theface of rapid changes in technology. If we fail to continue to advance our technology platform, technological change may impair our ability to competeeffectively and technological advances or products developed by our competitors may render our technologies or product candidates obsolete, lesscompetitive or not economical.We currently have no marketing and sales organization. To the extent any of our peptide-based product candidates for which we maintain commercialrights is approved for marketing, if we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market andsell our peptide-based product candidates, we may not be able to effectively market and sell any peptide-based product candidates, or generate productrevenue.We currently do not have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order tocommercialize any peptide-based product candidates that receive marketing approval, we would have to build marketing, sales, distribution, managerial andother non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. In the event ofsuccessful development of any of our product candidates, we may elect to build a targeted specialty sales force which will be expensive and time consuming.Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of theseproducts. With respect to our peptide-based product candidates, we may choose to partner with third parties that have direct sales forces and establisheddistribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unableto enter into collaborations with third parties for the commercialization of approved products, if any, on acceptable terms or at all, or if any such partner doesnot devote sufficient resources to the commercialization of our product or otherwise fails in commercialization efforts, we may not be able to successfullycommercialize any of our peptide-based product candidates that receive regulatory approval. If we are not successful in commercializing our peptide-basedproduct candidates, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.Even if our peptide-based product candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, governmentpayors (including Medicare and Medicaid programs), private insurers, and other third-party payors, or others in the medical community necessary forcommercial success.If any of our peptide-based product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance byphysicians, patients, government payors, other third-party payors and other healthcare providers. If any of our approved peptide-based products fail toachieve an adequate level of acceptance, we may not generate significant revenue to become profitable. The degree of market acceptance, if approved forcommercial sale, will depend on a number of factors, including but not limited to: • the efficacy and potential advantages compared to alternative treatments; • effectiveness of sales and marketing efforts; • the cost of treatment in relation to alternative treatments; 46Table of ContentsIndex to Financial Statements • our ability to offer our peptide-based product candidates for sale at competitive prices; • the convenience and ease of administration compared to alternative treatments; • the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; • the willingness of the medical community to offer customers our peptide-based product candidates in addition to or in the place of currentinjectable therapies; • the strength of marketing and distribution support; • the availability of government and third-party coverage and adequate reimbursement; • the prevalence and severity of any side effects; and • any restrictions on the use of our product candidates together with other medications.Because we expect sales of our peptide-based product candidates, if approved, to generate revenue for us to achieve profitability, the failure of ourpeptide-based product candidates to achieve market acceptance would harm our business and could require us to seek collaborations or undertake additionalfinancings sooner than we would otherwise plan.We have focused our limited resources to pursue particular product candidates and indications, and consequently, we may fail to capitalize on productcandidates or indications that may be more profitable or for which there is a greater likelihood of success.Because we have limited financial and managerial resources, we have focused on research programs and product candidates on the discovery anddevelopment of GI-restricted drugs that target the same biological pathways as currently marketed injectable antibody drugs for the treatment of IBD. As aresult, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercialpotential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spendingon current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. Ifwe do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that productcandidate through collaboration partnerships, licensing or other royalty arrangements in cases in which it would have been more advantageous for us toretain sole development and commercialization rights to such product candidate.Even if we obtain and maintain approval for any of our product candidates from the FDA, we may never obtain approval for our product candidatesoutside of the United States, which would limit our market opportunities and adversely affect our business.Sales of our product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketingapproval and, to the extent that we retain commercial rights following clinical development, we would plan to seek regulatory approval to commercialize ourpeptide-based product candidates in the United States, the EU and additional foreign countries. Even if the FDA grants marketing approval for a productcandidate, comparable regulatory authorities of foreign countries must also approve the manufacturing and marketing of the product candidates in thosecountries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than,those in the US, including additional pre-clinical studies or clinical trials. In many countries outside the US, a product candidate must be approved forreimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our products is also subject to approval.We may decide to submit an MAA to the EMA for approval in the EEA. As with the FDA, obtaining approval of an MAA from the EMA is a similarly lengthyand expensive process and the EMA has its own procedures for approval of peptide-based product candidates. Even if a product is approved, the FDA or theEMA, as the case may be, may 47Table of ContentsIndex to Financial Statementslimit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consumingclinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the US and the EEA also have requirements for approval ofdrug candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreignregulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certaincountries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in onecountry does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect onthe regulatory approval process in others. Also, regulatory approval for any of our peptide-based product candidates may be withdrawn. If we fail to complywith the regulatory requirements in international markets and or receive applicable marketing approvals, our target market will be reduced and our ability torealize the full market potential of our peptide-based product candidates will be harmed and our business will be adversely affected.If we fail to comply with state and federal healthcare regulatory laws, we could face substantial penalties, damages, fines, disgorgement, exclusion fromparticipation in governmental healthcare programs, and the curtailment of our operations, any of which could adversely affect our business, operations,and financial condition.Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any future productcandidates we may develop or any product candidates for which we obtain marketing approval. Our arrangements with third-party payors and customers mayexpose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the business or financial arrangements andrelationships through which we would market, sell and distribute our products. Even though we do not and will not control referrals of healthcare services orbill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’rights are and will be applicable to our business. The laws that may affect our ability to operate include, but are not limited to: • the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving,offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, orthe purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under afederal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of this statute or specificintent to violate it in order to have committed a violation; • the federal false claims and civil monetary penalties laws, including the False Claims Act, which impose criminal and civil penalties, includingthrough civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federalgovernment, claims for payment that are false, fictitious, or fraudulent; knowingly making, using, or causing to be made or used, a false record orstatement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using, or causing to be made or used, afalse record or statement to avoid, decrease or conceal an obligation to pay money to the federal government; in addition, the government mayassert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulentclaim for purposes of the False Claims Act; • the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes additional criminal and civil liability for,among other things, willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false orfraudulent statements relating to healthcare matters; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actualknowledge of the statute or specific intent to violate it in order to have committed a violation; 48Table of ContentsIndex to Financial Statements • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their implementingregulations, which also imposes obligations, including mandatory contractual terms, on certain types of people and entities with respect tosafeguarding the privacy, security and transmission of individually identifiable health information; • the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare orMedicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items orservices reimbursable by a Federal or state governmental program; • the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for whichpayment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to thegovernment information related to certain payments and other “transfers of value” made to physicians (defined to include doctors, dentists,optometrists, podiatrists and chiropractors) and teaching hospitals, and requires applicable manufacturers to report annually to the governmentownership and investment interests held by the physicians described above and their immediate family members and payments or other “transfersof value” to such physician owners; and • analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketingarrangements and claims involving healthcare items or services reimbursed by any third-party payor, including commercial insurers; state lawsthat require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevantcompliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and otherpotential referral sources; and state laws that require drug manufacturers to report information related to payments and other transfers of value tophysicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of healthinformation in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thuscomplicating compliance efforts.Further, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”),among other things, amended the intent requirements of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A personor entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, ACA providedthat the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false orfraudulent claim for purposes of the False Claims Act. Moreover, while we do not submit claims and our customers make the ultimate decision on how tosubmit claims, from time to time, we may provide reimbursement guidance to our customers. If a government authority were to conclude that we providedimproper advice to our customers or encouraged the submission of false claims for reimbursement, we could face action against us by government authorities.Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverseeffect on our reputation, business, results of operations and financial condition.We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers, including some who couldinfluence the use of our product candidates, if approved. While we have worked to structure our arrangements to comply with applicable laws, because of thecomplex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, ordiscontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financialrelationships with providers who may influence the ordering of and use our product candidates, if approved, to be in violation of applicable laws.The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially inlight of the lack of applicable precedent and regulations. Federal 49Table of ContentsIndex to Financial Statementsand state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to anumber of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities mayhave to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any suchinvestigation or settlement could increase our costs or otherwise have an adverse effect on our business.If our operations are found to be in violation of any of these laws or any other governmental laws and regulations that may apply to us, we may besubject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcareprograms, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm, diminished profits and the curtailment or restructuring ofour operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance withapplicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our productcandidates and affect the prices we may obtain.In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatorychanges and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our productcandidates, restrict or regulate post-approval activities and affect our ability to profitably sell any peptide-based product candidates for which we obtainmarketing approval.For example, in the United States in March 2010, the ACA was enacted to increase access to health insurance, reduce or constrain the growth ofhealthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and the health insurance industries,impose new taxes and fees on the health industry and impose additional health policy reforms. The law has continued the downward pressure onpharmaceutical pricing, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs. Among the provisionsof the ACA of importance to our potential peptide-based product candidates are the following: • an annual, non-tax deductible fee payable by any entity that manufactures or imports specified branded prescription drugs and biologic agentspayable to the federal government based on each company’s market share of prior year total sales of branded products to certain federalhealthcare programs; • an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; • a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled,infused, instilled, implanted or injected; • extension of manufacturers’ Medicaid rebate liability to individuals enrolled in Medicaid managed care organizations; • expansion of eligibility criteria for Medicaid programs in certain states; • a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiatedprices of applicable brand drugs to eligible beneficiaries under their coverage gap period, as a condition for the manufacturer’s outpatient drugsto be covered under Medicare Part D; • expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; 50Table of ContentsIndex to Financial Statements • a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and • a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,along with funding for such research.The financial impact of the ACA over the next few years will depend on a number of factors including but not limited to the policies reflected inimplementing regulations and guidance and changes in sales volumes for products affected by the new system of rebates, discounts and fees.In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes includedaggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislativeamendments to the statute, will remain in effect through 2025 unless additional action is taken by Congress. In January 2013, the American Taxpayer ReliefAct of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers and increased the statute oflimitations period in which the government may recover overpayments to providers from three to five years. In addition, recently there has been heightenedgovernmental scrutiny over the manner in which drug manufacturers set prices for their commercial products. The implementation of cost containmentmeasures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates, ifapproved.We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federaland state governments will pay for healthcare therapies, which could result in reduced demand for our peptide-based product candidates or additional pricingpressures.Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressionalchallenges. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, that while not a law, is widely viewed as the first step towardthe passage of legislation that would repeal certain aspects of the Affordable Care Act. Further, on January 20, 2017, President Trump signed an ExecutiveOrder directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay theimplementation of any provision of the Affordable Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden onindividuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequentlegislation to replace elements of the Affordable Care Act that are repealed. Thus, the full impact of the Affordable Care Act, or any law replacing elements ofit, on our business remains unclear. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generaterevenue, attain profitability or commercialize our drugs.Legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities forpharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance orinterpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition,increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to morestringent product labeling and post-marketing testing and other requirements.Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.In some countries, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations withgovernmental authorities can take considerable time after the receipt of marketing approval for a product candidate. In addition, there can be considerablepressure by governments and 51Table of ContentsIndex to Financial Statementsother stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments mayfurther complicate pricing negotiations, and pricing negotiations may continue after coverage and reimbursement have been obtained. Reference pricingused by various countries and parallel distribution or arbitrage between low-priced and high-priced countries, can further reduce prices. To obtainreimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our productcandidate to other available therapies, which is time-consuming and costly. If coverage and reimbursement of our product candidates are unavailable orlimited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.Our future success depends on our ability to retain our executive officers and to attract, retain and motivate qualified personnel. If we are not successful inattracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.Our industry has experienced a high rate of turnover of management personnel in recent years. Our ability to compete in the highly competitivebiotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific, medical and regulatorypersonnel. We are highly dependent on our existing senior management team, especially Dinesh V. Patel, Ph.D., our President and Chief Executive Officer,David Y. Liu, Ph.D., our Chief Scientific Officer and Head of Research and Development, Richard S. Shames, M.D., our Chief Medical Officer, Tom O’Neil,our Chief Financial Officer and William Hodder, our Senior Vice President of Corporate Development. We are not aware of any present intention of any ofthese individuals to leave us. In order to induce valuable employees to continue their employment with us, we have provided stock options that vest overtime. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control, andmay at any time be insufficient to maintain retention incentives or counteract more lucrative offers from other companies. All of our employees may terminatetheir employment with us at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and ourinability to find suitable replacements would harm our research and development efforts as well as our business, financial condition and prospects. Oursuccess also depends on our ability to continue to attract, retain and motivate highly skilled and experienced personnel with scientific, medical, regulatory,manufacturing and management training and skills.We may not be able to attract or retain qualified personnel in the future due to the intense competition for a limited number of qualified personnelamong biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other biopharmaceutical and pharmaceutical companies that wecompete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. Ourcompetitors may provide higher compensation or more diverse opportunities and better opportunities for career advancement. Any or all of these competingfactors may limit our ability to continue to attract and retain high quality personnel, which could negatively affect our ability to successfully develop andcommercialize peptide-based product candidates and to grow our business and operations as currently contemplated.We will need to expand the size of our organization, and we may experience difficulties in managing this growth.As of December 31, 2016, we had 35 full-time employees, including 27 employees engaged in research and development. As our development andcommercialization plans and strategies develop and operate as a public company, we expect to need additional managerial, operational, scientific, sales,marketing, development, regulatory, manufacturing, financial and other resources. Future growth would impose significant added responsibilities onmembers of management, including: • designing and managing our clinical trials effectively; • identifying, recruiting, maintaining, motivating and integrating additional employees; • managing our manufacturing and development efforts effectively; 52Table of ContentsIndex to Financial Statements • improving our managerial, development, operational and financial systems and controls; and • expanding our facilities.As our operations expand, we expect that we will need to manage relationships with strategic collaborators, CROs, contract manufacturers, suppliers,vendors and other third parties. Our future financial performance and our ability to develop and commercialize our peptide-based product candidates and tocompete effectively will depend, in part, on our ability to manage any future growth effectively. We may not be successful in accomplishing these tasks ingrowing our company, and our failure to accomplish any of them could adversely affect our business and operations.Significant disruptions of information technology systems or breaches of data security could adversely affect our business.Our business is increasingly dependent on critical, complex and interdependent information technology systems, including Internet-based systems, tosupport business processes as well as internal and external communications. The size and complexity of our internal computer systems and those of ourCROs, contract manufacturers and other third parties on which we rely may make them potentially vulnerable to breakdown, telecommunications andelectrical failures, malicious intrusion and computer viruses that may result in the impairment of key business processes. In addition, our systems arepotentially vulnerable to data security breaches—whether by employees or others—that may expose sensitive data to unauthorized persons. Such datasecurity breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personally identifiableinformation (including sensitive personal information) of our employees, collaborators, clinical trial patients, and others. A data security breach or privacyviolation that leads to disclosure or modification of or prevents access to patient information, including personally identifiable information or protectedhealth information, could harm our reputation, compel us to comply with federal and/or state breach notification laws, subject us to mandatory correctiveaction, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal data,resulting in increased costs or loss of revenue. If we are unable to prevent such data security breaches or privacy violations or implement satisfactory remedialmeasures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost ormisappropriated information, including sensitive patient data. In addition, these breaches and other inappropriate access can be difficult to detect, and anydelay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices that access confidentialinformation increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property.While we have implemented security measures to protect our data security and information technology systems, such measures may not prevent such events.Any such disruptions and breaches of security could have a material adverse effect on the development of our product candidates as well as our business andfinancial condition.Our insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured liabilities.We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include generalliability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know,however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantialamounts, which would adversely affect our financial position and results of operations.If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that couldhave a material adverse effect on the success of our business.We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling,use, storage, treatment and disposal of hazardous materials 53Table of ContentsIndex to Financial Statementsand wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also producehazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk ofcontamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liablefor any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines andpenalties.Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resultingfrom the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition,we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future lawsand regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantialfines, penalties or other sanctions.Our employees, independent contractors, principal investigators, consultants and vendors may engage in misconduct or other improper activities,including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.We are exposed to the risk that our employees, independent contractors, principal investigators, consultants and vendors may engage in fraudulentconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorizedactivities to us that violates: (i) FDA laws and regulations or those of comparable foreign regulatory authorities, including those laws that require thereporting of true, complete and accurate information to the FDA, (ii) manufacturing standards, (iii) federal and state data privacy, security, fraud and abuseand other healthcare laws and regulations established and enforced by comparable foreign regulatory authorities, or (iv) laws that require the true, completeand accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or misrepresentation of informationobtained in the course of clinical trials, creating fraudulent data in our pre-clinical studies or clinical trials or illegal misappropriation of drug product, whichcould result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees andthird-parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or inprotecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actionsare instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on ourbusiness and results of operations, including the imposition of significant fines or other sanctions.If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any of ourpeptide-based product candidates, if approved.We face an inherent risk of product liability as a result of the clinical testing of our peptide-based product candidates and will face an even greater riskif we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitableduring product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects indesign, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under stateconsumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required tostop development or, if approved, limit commercialization of our peptide-based product candidates. Even successful defense would require significantfinancial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: • delay or termination of clinical studies; • injury to our reputation; 54Table of ContentsIndex to Financial Statements • withdrawal of clinical trial participants; • initiation of investigations by regulators; • costs to defend the related litigation; • a diversion of management’s time and our resources; • substantial monetary awards to trial participants or patients; • decreased demand for our peptide-based product candidates; • product recalls, withdrawals or labeling, marketing or promotional restrictions; • loss of revenue from product sales; and • the inability to commercialize any our peptide-based product candidates, if approved.Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims couldprevent or inhibit the development or commercialization of our peptide-based product candidates. We currently carry clinical trial liability insurance for ourclinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amountthat is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have variousexclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court ornegotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficientcapital to pay such amounts.We currently conduct, and intend to continue to conduct a substantial portion of the clinical trials for our product candidates outside of the United States.If approved, we may commercialize our product candidates abroad. We will thus be subject to the risks of doing business outside of the United States.We currently conduct, and intend to continue to conduct, a substantial portion of our clinical trials outside of the United States and, if approved, weintend to also market our peptide-based product candidates outside of the United States. We are thus subject to risks associated with doing business outsideof the United States. With respect to our peptide-based product candidates, we may choose to partner with third parties that have direct sales forces andestablished distribution systems, either to augment our own sales force and distribution systems outside of the United States or in lieu of our own sales forceand distribution systems, which would indirectly expose us to these risks. Our business and financial results in the future could be adversely affected due to avariety of factors associated with conducting development and marketing of our peptide-based product candidates, if approved, outside of the United States,including: • Medical standard of care and diagnostic criteria may differ in foreign jurisdictions, which may impact our ability to enroll and successfullycomplete trials designed for U.S. marketing; • efforts to develop an international sales, marketing and distribution organization may increase our expenses, divert our management’s attentionfrom the acquisition or development of peptide-based product candidates or cause us to forgo profitable licensing opportunities in thesegeographies; • changes in a specific country’s or region’s political and cultural climate or economic condition; • unexpected changes in foreign laws and regulatory requirements; • difficulty of effective enforcement of contractual provisions in local jurisdictions; • inadequate intellectual property protection in foreign countries; • trade-protection measures, import or export licensing requirements such as Export Administration Regulations promulgated by the USDepartment of Commerce and fines, penalties or suspension or revocation of export privileges; 55Table of ContentsIndex to Financial Statements • regulations under the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws; • the effects of applicable foreign tax structures and potentially adverse tax consequences; and • significant adverse changes in foreign currency exchange rates which could make the cost of our clinical trials, to the extent conducted outsideof the US, more expensive.Our headquarters and certain of our data storage facilities are located near known earthquake fault zones. The occurrence of an earthquake, fire or anyother catastrophic event could disrupt our operations or the operations of third parties who provide vital support functions to us, which could have amaterial adverse effect on our business and financial condition.We and some of the third party service providers on which we depend for various support functions, such as data storage, are vulnerable to damagefrom catastrophic events, such as power loss, natural disasters, terrorism and similar unforeseen events beyond our control. Our corporate headquarters andother facilities are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes and fires.We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effecton our business, results of operations, financial condition and prospects.If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, damaged criticalinfrastructure, such as our data storage facilities or financial systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossiblefor us to continue our business for a substantial period of time. We do not have a disaster recovery and business continuity plan in place. We may incursubstantial expenses as a result of the absence or limited nature of our internal or third party service provider disaster recovery and business continuity plans,which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business. Furthermore, integralparties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverseevents. If such an event were to affect our supply chain, it could have a material adverse effect on our development plans and business.The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage andreimbursement for our peptide-based product candidates could limit our ability to generate revenue.The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford medications andtherapies. Sales of any of our peptide-based product candidates that receive marketing approval will depend substantially, both in the United States andinternationally, on the extent to which the costs of our peptide-based product candidates will be paid by health maintenance, managed care, pharmacybenefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurersand other third-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize ourproduct candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain adequatepricing that will allow us to realize a sufficient return on our investment.There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principaldecisions about reimbursement for new products are typically made by the Centers for Medicare & Medicaid Services (“CMS”), an agency within the UnitedStates Department of Health and Human Services. CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare.Private payors tend to follow CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for novel productssuch as ours since there is no body of established practices and precedents for these new products. Reimbursement agencies in Europe may be moreconservative than CMS. 56Table of ContentsIndex to Financial StatementsOutside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and webelieve the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries may cause us to price our tablet vaccine candidates onless favorable terms than we currently anticipate. In many countries, particularly the countries of the European Union, the prices of medical products aresubject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities cantake considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may berequired to conduct a clinical trial that compares the cost-effectiveness of our peptide-based product candidates to other available therapies. In general, theprices of products under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products,but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able tocharge for our peptide-based product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reducedcompared with the United States and may be insufficient to generate commercially reasonable revenues and profits.Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs maycause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provideadequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our tablet vaccine candidatesdue to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downwardpressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result,increasingly high barriers are being erected to the entry of new products into the healthcare market.Risks Related to Our Intellectual PropertyIf we are unable to obtain or protect intellectual property rights related to our product candidates and technologies, we may not be able to competeeffectively in our markets.We rely upon a combination of patent protection, trade secret protection and confidentiality agreements to protect the intellectual property related toour product candidates and technologies. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientificquestions and can be uncertain. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessaryor desirable patent applications at a reasonable cost, in a timely manner, or in all jurisdictions. The patent applications that we own or license may fail toresult in issued patents in the United States or in other foreign countries, or they may fail to result in issued patents with claims that cover our productcandidates or technologies in the United States or in other foreign countries. There is no assurance that all the potentially relevant prior art relating to ourpatent and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even ifpatents have been issued, or do successfully issue, from our patent applications, third parties may challenge the validity, enforceability or scope thereof,which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patent and patentapplications may not adequately protect our intellectual property, provide exclusivity for our product candidates and technologies, or prevent others fromdesigning around our claims.If the breadth or strength of protection provided by the patent and patent applications we hold, obtain or pursue with respect to our product candidatesand technologies is challenged, or if they fail to provide meaningful exclusivity for our product candidates and technologies, it could threaten our ability tocommercialize our product candidates and technologies. Several patent applications covering our product candidates and technologies have been filedrecently. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent, or whether any issued patents will be foundinvalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other 57Table of ContentsIndex to Financial Statementspatents owned by or, if applicable in the future, licensed to us could deprive us of rights necessary for the successful commercialization of any productcandidates and technologies that we may develop. Further, if we encounter delays in our clinical trials or in gaining regulatory approval, the period of timeduring which we could market any of our product candidates under patent protection, if approved, would be reduced. Since patent applications in the UnitedStates and most other countries are confidential for a period of time after filing, we cannot be certain that we or our licensors were the first to file any patentapplication related to our product candidates and technologies. Furthermore, an interference proceeding can be provoked by a third party or instituted by theU.S. Patent and Trademark Office (“PTO”) to determine who was the first to invent any of the subject matter covered by the patent claims of our applications.In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensionsmay be available however the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once thepatent life has expired for a product, we may be open to competition from generic medications.If, in the future, we obtain licenses from third parties, in some circumstances, we may not have the right to control the preparation, filing andprosecution of patent applications or to maintain any patents, covering technology that we license from third parties. We may also require the cooperation ofour licensors to enforce any licensed patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not beprosecuted and enforced in a manner consistent with the best interests of our business. Moreover, if we do obtain necessary licenses, we will likely haveobligations under those licenses, and any failure to satisfy those obligations could give our licensor the right to terminate the license. Termination of anecessary license could have a material adverse impact on our business.If we are unable to protect the confidentiality of our trade secrets and proprietary know-how or if competitors independently develop viable competingproducts, our business and competitive position may be harmed.While we hold two issued patents and have filed patent applications to protect certain aspects of our product candidates, we also rely on trade secretprotection and confidentiality agreements to protect proprietary scientific, business and technical information and know-how that is not or may not bepatentable or that we elect not to patent. For example, we primarily rely on trade secrets and confidentiality agreements to protect our peptide therapeuticstechnology platform. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quicklyduplicate or surpass our technological achievements, thus eroding our competitive position in our market.We seek to protect our proprietary information, data and processes, in part, by confidentiality agreements and invention assignment agreements withour employees, consultants, scientific advisors, contractors and partners. Although these agreements are designed to protect our proprietary information, wecannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain accessto our trade secrets or independently develop substantially equivalent information and techniques. Although we require all of our employees to assign theirinventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have accessto our proprietary know-how and other confidential information related to such technology, we cannot be certain that we have executed such agreementswith all third parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can be we certain thatour agreements will not be breached. If any of the parties to these confidentiality agreements breaches or violates the terms of such agreements, we may nothave adequate remedies for any such breach or violation, and we could lose our trade secrets as a result.We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises andphysical and electronic security of our information technology systems. Monitoring unauthorized uses and disclosures is difficult, and we do not knowwhether the steps we 58Table of ContentsIndex to Financial Statementshave taken to protect our proprietary technologies will be effective. We cannot guarantee that our trade secrets and other proprietary and confidentialinformation will not be disclosed or that competitors will not otherwise gain access to our trade secrets.Enforcing a claim that a third party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time-consuming, and theoutcome is unpredictable. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws ofthe United States. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. As a result, we may encounter significantproblems in protecting and defending our intellectual property both in the United States and abroad. Additionally, if the steps taken to maintain our tradesecrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. We cannot guarantee that ouremployees, former employees or consultants will not file patent applications claiming our inventions. Because of the “first-to-file” laws in the United States,such unauthorized patent application filings may defeat our attempts to obtain patents on our own inventions.Trade secrets and know-how can be difficult to protect as trade secrets and know-how will over time be disseminated within the industry throughindependent development, the publication of journal articles, and the movement of personnel skilled in the art from company to company or academic toindustry scientific positions. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right toprevent such competitor from using that technology or information to compete with us, which could harm our competitive position. If we are unable toprevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitiveadvantage in our market, which could materially adversely affect our business, results of operations and financial condition.Even if we are able to adequately protect our trade secrets and proprietary information, our trade secrets could otherwise become known or could beindependently discovered by our competitors. Competitors could purchase our products and attempt to replicate some or all of the competitive advantageswe derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their owncompetitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independentlydeveloped by a competitor, in the absence of patent protection, we would have no right to prevent them, or those to whom they communicate, from using thattechnology or information to compete with us. If our trade secrets are not adequately protected so as to protect our market against competitors’ products,others may be able to exploit our proprietary peptide product candidate discovery technologies to identify and develop competing product candidates, andthus our competitive position could be adversely affected, as could our business.We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.Competitors may infringe our issued patent or any patents issued as a result of our pending or future patent applications. To counter infringement orunauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, acourt may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party in such infringement proceeding from using thetechnology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings couldput one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly, and could put any of our patent applications at risk ofnot yielding an issued patent.Interference proceedings provoked by third parties or brought by us, the PTO or any foreign patent authority may be necessary to determine the priorityof inventions with respect to our patent or patent applications. An unfavorable outcome could require us to cease using the related technology or to attemptto license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on 59Table of ContentsIndex to Financial Statementscommercially reasonable terms, if any license is offered at all. Our defense of litigation or interference proceedings may fail and, even if successful, may resultin substantial costs and distract our management and other employees.We may not be able to prevent misappropriation of our intellectual property, trade secrets or confidential information, particularly in countries wherethe laws may not protect those rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection withintellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. Inaddition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts orinvestors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.Any issued patents covering our product candidates, including any patent that may issue as a result of our pending or future patent applications, could befound invalid or unenforceable if challenged in court in the United States or abroad.If we initiate legal proceedings against a third party to enforce a patent covering our product candidates or technologies, the defendant couldcounterclaim that such patent is invalid or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity or unenforceability arecommonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity challengecould be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for anunenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the PTO, ormade a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, evenoutside the context of litigation. Such mechanisms include re-examination, inter partes review, post grant review, and equivalent proceedings in foreignjurisdictions, such as opposition or derivation proceedings. Such proceedings could result in revocation or amendment to our patents in such a way that theyno longer cover and protect our product candidates or technologies. The outcome following legal assertions of invalidity and unenforceability isunpredictable. With respect to the validity of our patents, for example, we cannot be certain that there is no invalidating prior art of which we, our patentcounsel, and the patent examiner were unaware of during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability,we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverseimpact on our business.The lives of any patents issued as a result of our pending or future patent applications may not be sufficient to effectively protect our products andbusiness.Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its first effective filing date. Althoughvarious extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates areobtained, once the patent life has expired for a product, we may be open to competition from generic medications. If patents are issued on our pending patentapplications, the resulting patents are projected to expire on dates ranging from 2022 to 2035. In addition, although upon issuance in the United States thelife of a patent can be increased based on certain delays caused by the USPTO, this increase can be reduced or eliminated based on certain delays caused bythe patent applicant during patent prosecution. If we do not have sufficient patent life to protect our products, our business and results of operations will beadversely affected.Competitors could enter the market with generic versions of our product candidates, which may result in a material decline in sales of our productcandidates.Under the Hatch-Waxman Act, a pharmaceutical manufacturer may file an abbreviated new drug application, or ANDA, seeking approval of a genericcopy of an approved innovator product. Under the Hatch-Waxman Act, a manufacturer may also submit an NDA under section 505(b)(2) that references theFDA’s 60Table of ContentsIndex to Financial Statementsfinding of safety and effectiveness of a previously approved drug. A 505(b)(2) NDA product may be for a new or improved version of the original innovatorproduct. Innovative small molecule drugs may be eligible for certain periods of regulatory exclusivity (e.g., five years for new chemical entities, three yearsfor changes to an approved drug requiring a new clinical study, seven years for orphan drugs), which preclude FDA approval (or in some circumstances, FDAfiling and review of) an ANDA or 505(b)(2) NDA relying on the FDA’s finding of safety and effectiveness for the innovative drug. In addition to the benefitsof regulatory exclusivity, an innovator NDA holder may have patents claiming the active ingredient, product formulation or an approved use of the drug,which would be listed with the product in the FDA publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” known as the “OrangeBook.” If there are patents listed in the Orange Book, a generic applicant that seeks to market its product before expiration of the patents must include in theANDA or 505(b)(2) what is known as a “Paragraph IV certification,” challenging the validity or enforceability of, or claiming non-infringement of, the listedpatent or patents. Notice of the certification must be given to the innovator, too, and if within 45 days of receiving notice the innovator sues to protect itspatents, approval of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.Accordingly, if our product candidates are approved, competitors could file ANDAs for generic versions of our product candidates, or 505(b)(2) NDAsthat reference our product candidates. If there are patents listed for our product candidates in the Orange Book, those ANDAs and 505(b)(2) NDAs would berequired to include a certification as to each listed patent indicating whether the ANDA applicant does or does not intend to challenge the patent. We cannotpredict whether any patents issuing from our pending patent applications will be eligible for listing in the Orange Book, how any generic competitor wouldaddress such patents, whether we would sue on any such patents, or the outcome of any such suit.We may not be successful in securing or maintaining proprietary patent protection for products and technologies we develop or license. Moreover, ifany patents that are granted and listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation, theaffected product could more immediately face generic competition and its sales would likely decline materially. Should sales decline, we may have to writeoff a portion or all of the intangible assets associated with the affected product and our results of operations and cash flows could be materially and adverselyaffected.Third party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts.Our commercial success depends in part on our ability to develop, manufacture, market and sell our drug candidates and use our proprietarytechnologies without infringing or otherwise violating the patents and proprietary rights of third parties. There is a substantial amount of litigation involvingpatent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences,derivation proceedings, post grant reviews, inter partes reviews, and reexamination proceedings before the PTO or oppositions and other comparableproceedings in foreign jurisdictions. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in thefields in which we are developing product candidates, and there may be third-party patents or patent applications with claims to materials, formulations,methods of manufacture or methods for treatment related to the use or manufacture of our product candidates and technologies. Third parties, including ourcompetitors may initiate legal proceedings against us alleging that we are infringing or otherwise violating their patent or other intellectual property rights.Given the vast number of patents in our field of technology, we cannot assure you that marketing of our product candidates or practice of our technologieswill not infringe existing patents or patents that may be granted in the future. Because patent applications can take many years to issue and may beconfidential for 18 months or more after filing, and because pending patent claims can be revised before issuance, there may be applications now pending ofwhich we are unaware that may later result in issued patents that may be infringed by the practice of our peptide therapeutics technology platform or themanufacture, use or sale of our product candidates. If a patent holder believes our product candidates or technologies infringe on its patent, the patent 61Table of ContentsIndex to Financial Statementsholder may sue us even if we have received patent protection for our product candidates and technologies. In addition, third parties may obtain patents in thefuture and claim that our product candidates or technologies infringe upon these patents. If any third-party patents were held by a court of competentjurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any finalproduct or formulation itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained alicense under the applicable patents, or until such patents expire. As the biotechnology and pharmaceutical industries expand and more patents are issued,the risk increases that our product candidates or technologies may give rise to claims of infringement of the patent rights of others.Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further practice ourtechnologies or develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involvesubstantial litigation expense and would be a substantial diversion of employee resources from our business. Even if we are successful in defending againstany infringement claims, litigation is expensive and time-consuming and is likely to divert management’s attention and substantial resources from our corebusiness, which could harm our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, includingtreble damages and attorneys’ fees for willful infringement (which may include situations in which we had knowledge of an issued patent but nonethelessproceeded with activity which infringed such patent), limit our uses, pay royalties or redesign our infringing product candidates, which may be impossible orrequire substantial time and monetary expenditure. We may choose to seek, or may be required to seek, a license from the third-party patent holder and wouldmost likely be required to pay license fees or royalties or both, each of which could be substantial. These licenses may not be available on commerciallyreasonable terms, however, or at all. Even if we were able to obtain a license, the rights we obtain may be nonexclusive, which would provide our competitorsaccess to the same intellectual property rights upon which we are forced to rely. Furthermore, even in the absence of litigation, we may need to obtainlicenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may failto obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In such an event, we would be unable to further practice our technologiesor develop and commercialize any of our product candidates at issue, which could harm our business significantly.We may not identify relevant third party patents or may incorrectly interpret the relevance, scope or expiration of a third party patent which mightadversely affect our ability to develop and market our products.We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or theexpiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third party patent and pendingapplication in the United States and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction.The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Ourinterpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market ourproducts. We may incorrectly determine that our products are not covered by a third party patent or may incorrectly predict whether a third party’s pendingapplication will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we considerrelevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctlyinterpret relevant patents may negatively impact our ability to develop and market our products.Because of the expense and uncertainty of litigation, we may not be in a position to enforce our intellectual property rights against third parties.Because of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing our issued patent, any patents that may beissued on as a result of our pending or future patent applications or 62Table of ContentsIndex to Financial Statementsother intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of ourcompany or our shareholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek someother non-litigious action or solution.Intellectual property disputes could cause us to spend substantial resources and distract our personnel from their normal responsibilities.Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time-consuming and, even if resolved in our favor, is likely to divert significant resources from our core business, including distracting our technical andmanagement personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or otherinterim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect onthe market price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available fordevelopment activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conductsuch litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we canbecause of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not beable to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertaintiesresulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in themarketplace.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive, and ourintellectual property rights in some countries outside the United States may be less extensive than those in the United States. Many companies haveencountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The requirements for patentabilitydiffer, in varying degrees, from country to country. The legal systems of some countries, particularly developing countries, do not favor the enforcement ofpatent and other intellectual property rights, especially those relating to life sciences. In addition, the laws of some foreign countries do not protectintellectual property rights, including trade secrets, to the same extent as federal and state laws of the United States. This could make it difficult for us to stopthe infringement of any patents we obtain or the misappropriation of our other intellectual property rights. In addition, many countries limit theenforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited orno benefit. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreignintellectual property laws.Proceedings to enforce our patent rights in foreign jurisdictions, regardless of whether successful, would result in substantial costs and divert our effortsand attention from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets,we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates.Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability tosuccessfully commercialize our product candidates in all of our expected significant foreign markets.Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, mayexport otherwise infringing products to territories where we have patent protection but enforcement is not as strong as in the United States. These productsmay compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may notbe effective or sufficient to prevent them from so competing. 63Table of ContentsIndex to Financial StatementsMany companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legalsystems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competingproducts in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost anddivert our efforts and attention from other aspects of our business.Similarly, if our trade secrets are disclosed in a foreign jurisdiction, competitors worldwide could have access to our proprietary information and wemay be without satisfactory recourse. Such disclosure could have a material adverse effect on our business.Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.The PTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and othersimilar provisions during the patent application process. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patentsand/or applications will be due to be paid to the PTO and various governmental patent agencies outside of the United States in several stages over thelifetime of the patents and/or applications. We employ reputable law firms and other professionals and rely on such third parties to help us comply with theserequirements and effect payment of these fees with respect to the patent and patent applications that we own, and if we in-license intellectual property wemay have to rely upon our licensors to comply with these requirements and effect payment of these fees with respect to any patents and patent applicationsthat we license. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However,there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss ofpatent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a materialadverse effect on our business.Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement ordefense of our issued patents.On September 16, 2011, the Leahy-Smith America Invents Act (Leahy-Smith Act) was signed into law. The Leahy-Smith Act includes a number ofsignificant changes to United States patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patentlitigation. The PTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantivechanges to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, did not become effective until March 2013, 18months after its enactment. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, theLeahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and theenforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patentowners in certain situations. Depending on decisions by the U.S. Congress, the federal courts, and the PTO, the laws and regulations governing patents couldchange in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patent and patents that we might obtain in thefuture. 64Table of ContentsIndex to Financial StatementsIntellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and maynot adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative: • others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our issued patent orany pending patent application we may have; • we might not have been the first to make the inventions covered by the issued patent or pending patent application that we own; • we might not have been the first to file patent applications covering an invention; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectualproperty rights; • pending patent applications that we own or license may not lead to issued patents; • the issued patent that we own or any issued patents that we license may not provide us with any competitive advantages, or may be held invalidor unenforceable, as a result of legal challenges by our competitors; • our competitors might conduct research and development activities in countries where we do not have patent rights and then use the informationlearned from such activities to develop competitive products for sale in our major commercial markets; • we may not develop or in-license additional proprietary technologies that are patentable; and • the patents of others may have an adverse effect on our business.Should any of these events occur, they could significantly harm our business, results of operations and prospects.We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information ofthird parties or that our employees have wrongfully used or disclosed alleged trade secrets of former or other employers.Many of our employees and consultants, including our senior management and our scientific founders, have been employed or retained at universitiesor by other biotechnology or pharmaceutical companies, including potential competitors. Some of our employees and consultants, including each member ofour senior management and each of our scientific founders, executed proprietary rights, non-disclosure and non-competition agreements in connection withsuch previous employment or retention. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how ofothers in their work for us, we may be subject to claims that we or these employees or consultants have used or disclosed intellectual property, including tradesecrets or other proprietary information, of any such employee’s or consultant’s former or other employer. We are not aware of any threatened or pendingclaims related to these matters or concerning the agreements with our senior management or scientific founders, but in the future litigation may be necessaryto defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual propertyrights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.We may be subject to claims challenging the inventorship or ownership of our issued patent, any patents issued as a result of our pending or future patentapplications and other intellectual property.We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our issued patent, any patentsissued as a result of our pending or future applications or 65Table of ContentsIndex to Financial Statementsother intellectual property. For example, we work with third-party contractors in formulating and manufacturing our product candidates. While we believe wehave all rights to any intellectual property related to our product candidates, a third party-contractor may claim they have ownership rights. We have had inthe past, and we may also have in the future, ownership disputes arising, for example, from conflicting obligations of consultants or others who are involvedin developing our product candidates and technologies. For example, some of our consultants are employees of the University of Queensland. Litigation maybe necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to payingmonetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such anoutcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantialcosts and be a distraction to management and other employees.Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our tradesecrets will be misappropriated or disclosed.Because we expect to rely on third parties in the development and manufacture of our product candidates, we must, at times, share trade secrets withthem. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements,consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research ordisclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, includingour trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidentialinformation increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or aredisclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’sdiscovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our businessand results of operations.In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish datapotentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our tradesecrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication ofinformation by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverseimpact on our business.We have not yet registered trademarks for a commercial trade name for our product candidates and failure to secure such registrations could adverselyaffect our business.We have not yet registered trademarks for a commercial trade name for our product candidates. During trademark registration proceedings, we mayreceive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, inthe PTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and toseek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive suchproceedings. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether wehave registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation ofpotential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expendsignificant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe theexisting rights of third parties and be acceptable to the FDA. 66Table of ContentsIndex to Financial StatementsWe may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.We may find that our programs require the use of proprietary rights held by third parties or the growth of our business may depend in part on our abilityto acquire, in-license or use these proprietary rights. We may be unable to acquire or in-license compositions, methods of use, processes or other third partyintellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectualproperty rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectualproperty rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, financial resourcesand greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assignor license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make anappropriate return on our investment. Even if we are able to obtain a license to intellectual property of interest, we may not be able to secure exclusive rights,in which case others could use the same rights and compete with us.If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights wehave, we may have to abandon development of that program and our business and financial condition could suffer.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.We may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of our productcandidates depending on the merits of retaining commercialization rights for ourselves as compared to entering into collaboration arrangements. We willface, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover,collaboration arrangements are complex and time-consuming to negotiate, document, implement and maintain. We may not be successful in our efforts toestablish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaborationsor other arrangements that we may establish may not be favorable to us.Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the effortsand activities of our collaborators. Collaborations are subject to numerous risks, which may include that: • collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations; • collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew developmentor commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products,availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; • collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, abandon a product candidate,repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; • collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products orproduct candidates; • a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwisenot perform satisfactorily in carrying out these activities; • we could grant exclusive rights to our collaborators that would prevent us from collaborating with others; 67Table of ContentsIndex to Financial Statements • collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary informationin a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary informationor expose us to potential liability; • disputes may arise between us and a collaborator that causes the delay or termination of the research, development or commercialization of ourcurrent or future products or that results in costly litigation or arbitration that diverts management attention and resources; • collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development orcommercialization of the applicable current or future products; • collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, wewould not have the exclusive right to develop or commercialize such intellectual property; and • a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminalproceedings.Risks Related to Ownership of our Common StockThe price of our stock may be volatile, and you could lose all or part of your investment.The trading price of our common stock has been, and is likely to be highly volatile and could be subject to wide fluctuations in response to variousfactors, some of which are beyond our control. In addition to the factors discussed in these “Risk Factors” and elsewhere in this quarterly report, these factorsinclude, but are not limited to: • any delay in the commencement, enrollment and ultimate completion of clinical trials; • actual or anticipated results in our clinical trials or those of our competitors; • positive outcomes, or faster development results than expected, by parties developing peptide-based product candidates that are competitivewith our peptide-based product candidates, as well as approval of any such competitive peptide-based product candidates; • failure to successfully develop commercial-scale manufacturing capabilities; • unanticipated serious safety concerns related to the use of any of our peptide-based product candidates; • failure to secure collaboration agreements for our peptide-based product candidates or actual or perceived unfavorable terms of such agreements; • adverse regulatory decisions; • changes in the structure of healthcare payment systems; • changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals; • disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection forour peptide-based product candidates; • our dependence on third parties, including CROs as well as manufacturers; • our failure to successfully commercialize any of our peptide-based product candidates, if approved; • additions or departures of key scientific or management personnel; • failure to meet or exceed any financial guidance or development timelines that we may provide to the public; 68Table of ContentsIndex to Financial Statements • actual or anticipated variations in quarterly operating results; • failure to meet or exceed the estimates and projections of the investment community; • overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance ofour competitors, including changes in market valuations of similar companies; • conditions or trends in the biotechnology and biopharmaceutical industries; • announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by us or our competitors; • our ability to maintain an adequate rate of growth and manage such growth; • issuances of debt or equity securities; • significant lawsuits, including patent or stockholder litigation; • sales of our common stock by us or our stockholders in the future; • trading volume of our common stock; • publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securitiesanalysts; • ineffectiveness of our internal controls; • general political and economic conditions; and • effects of natural or man-made catastrophic events.In addition, the stock market in general, and The NASDAQ Global Market and biotechnology companies in particular, have experienced extreme priceand volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industryfactors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risksor any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the marketprice of our common stock.Volatility in our share price could subject us to securities class action litigation.Securities class action litigations have often been brought against companies following a decline in the market price of their securities. This risk isespecially relevant for us because pharmaceutical companies have experienced significant share price volatility in recent years. If we face such litigation, itcould result in substantial costs and a diversion of management’s attention and resources, which could harm our business.Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject tostockholder approval.As of December 31, 2016, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially ownedapproximately 78% of our stock. Therefore, these stockholders will have substantial influence and may be able to determine all matters requiring stockholderapproval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of anymerger, sale of assets, or other major corporate transaction. This concentration of voting power could, among other things, delay or prevent an acquisition ofour company on terms that other stockholders may desire, which in turn could depress our stock price and may prevent attempts by our stockholders toreplace or remove the board of directors or management. 69Table of ContentsIndex to Financial StatementsWe have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future orotherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to failto meet our periodic reporting obligations.Prior to the IPO, we were a private company and had limited accounting and financial reporting personnel and other resources with which to addressour internal controls and procedures. In connection with the audit of our consolidated financial statements for the years ended December 31, 2015 and 2014,we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting. A materialweakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that amaterial misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.The first material weakness related to a deficiency in the operation of our internal controls over the accounting for non-routine, complex equitytransactions, which resulted in material post-closing adjustments to the convertible preferred stock, additional paid-in capital, interest expense, and gain frommodification of the redeemable convertible preferred stock balances in the consolidated financial statements for the year ended December 31, 2013. Our lackof adequate accounting personnel has resulted in the identification of a second material weakness in our internal control over financial reporting for the yearsended December 31, 2015 and 2014. Specifically, we did not, and have not historically, appropriately designed and implemented controls over the reviewand approval of manual journal entries and the related supporting journal entry calculations.Neither we nor our independent registered public accounting firm has performed or was required to perform an evaluation of our internal control overfinancial reporting in according with Section 404 of the Sarbanes-Oxley Act. We have taken steps to remediate the material weaknesses, including increasingthe depth and experience within our accounting and finance organization, and implemented an approval process related to manual journal entries and therelated supporting journal entry calculations. In addition, we are continuing to work on designing and implementing additional improved processes andinternal controls. While we intend to implement a plan to remediate the material weaknesses, we have not completed the implementation of this plan as ofDecember 31, 2016. Accordingly, we continue to have the material weaknesses as of December 31, 2016. We can give no assurance that our current andplanned implementation will remediate this deficiency in internal control or that additional material weaknesses or significant deficiencies in our internalcontrol over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reportingcould result in errors in our financial statements that could result in a restatement of our financial statements and cause us to fail to meet our reportingobligations.We are obligated to develop and maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of theseinternal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act (Section 404), to furnish a report by management on the effectiveness of ourinternal control over financial reporting for the year ending December 31, 2017. This assessment will need to include disclosure of any material weaknessesidentified by our management in our internal control over financial reporting. Our independent registered public accounting firm will not be required toattest to the effectiveness of our internal control over financial reporting until our first Annual Report required to be filed with the SEC following the date weare no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). At such time as we arerequired to obtain auditor attestation, if we then have a material weakness, we would receive an adverse opinion regarding our internal control over financialreporting from our independent registered accounting firm.We have begun the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation neededto comply with Section 404, and we may not be able to complete our 70Table of ContentsIndex to Financial Statementsevaluation, testing and any required remediation in a timely fashion. Our compliance with Section 404 will require that we incur substantial accountingexpense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting andfinancial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentationnecessary to perform the evaluation needed to comply with Section 404.During our evaluation of our internal control, if we identify one or more material weaknesses in our internal control over financial reporting or fail toremediate our current material weaknesses, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you thatthere will not be material weaknesses in our internal control over financial reporting in the future. Any failure to maintain internal control over financialreporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internalcontrol over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internalcontrol over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our ordinaryshares could decline, and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities. Failure to remedy anymaterial weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies,could also restrict our future access to the capital markets.We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies,our common stock may be less attractive to investors.We are an “emerging growth company” as defined in the JOBS Act, and we intend to take advantage of some of the exemptions from reportingrequirements that are applicable to other public companies that are not emerging growth companies, including: • being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements,with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; • not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; • not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regardingmandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financialstatements; • reduced disclosure obligations regarding executive compensation; and • not being required to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute paymentsnot previously approved.We will remain an emerging growth company, and thus may continue to rely on these exemptions, until the earlier of (1) the last day of the fiscal year(a) following the fifth anniversary of the completion of the IPO, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we aredeemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the priorSeptember 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as thosestandards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption, and, therefore, we will be subject to the same newor revised accounting standards as other public companies that are not “emerging growth companies.” 71Table of ContentsIndex to Financial StatementsFuture sales of our common stock may depress our share price.Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress themarket price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. At December 31, 2016, we hadoutstanding a total of 16,722,280 shares of common stock, notwithstanding any potential exercises of outstanding options. If additional shares of commonstock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.Any sales of securities by our stockholders could have an adverse effect on the trading price of our common stock. In addition, in the future we mayissue common stock or other securities if we need to raise additional capital. The number of our new common stock issued in connection with raisingadditional capital could constitute a material portion of our then outstanding common stock.If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, ourstockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunitiespresent themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or commonstock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result,our stock price may decline.We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to maintaincompliance with our public company responsibilities and corporate governance practices.We will incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reportingobligations under the Securities Exchange Act of 1934, as amended (the Exchange Act), and regulations regarding corporate governance practices. Thelisting requirements of The NASDAQ Global Market require that we satisfy certain corporate governance requirements relating to director independence,distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Ourmanagement and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements, and we will likelyneed to hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Moreover,the reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some activities more time consumingand costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on atimely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being apublic company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or toserve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and otherexpenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, thelisting requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies.Our management and other personnel will need to devote a substantial amount of time to compliance with these requirements. Moreover, these rules andregulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expectthat 72Table of ContentsIndex to Financial Statementsthese rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which could make itmore difficult for us to attract and retain qualified members of our board of directors. We cannot predict or estimate the amount of additional costs we willincur as a public company or the timing of such costs.Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submitunder the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specifiedin the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceivedand operated, can provide only reasonable, not absolute, assurance that the objectives 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 simpleerror or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by anunauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occurand not be detected.During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports.Furthermore, since we have material weaknesses in our internal controls over financial reporting, we may not detect errors on a timely basis and our financialstatements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that wehave effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financialinformation and cause the trading price of our stock to fall. In addition, as a public company we will be required to file accurate and timely quarterly andAnnual Reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions,lawsuits, delisting of our shares from The NASDAQ Global Market or other adverse consequences that would materially harm our business.NASDAQ may delist our securities from its exchange, which could limit investors’ ability to make transactions in our securities and subject us toadditional trading restrictions.Our common stock is listed on The NASDAQ Global Market. We cannot assure you that, in the future, our securities will meet the continued listingrequirements to be listed on The NASDAQ Global Market. If The NASDAQ Global Market delists our common stock, we could face significant materialadverse consequences, including: • a limited availability of market quotations for our securities; • a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringentrules and possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock; • a limited amount of news and analyst coverage for our company; and • a decreased ability to issue additional securities or obtain additional financing in the future.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and tradingvolume could decline.The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or ourbusiness. In the event one or more of the analysts who cover us 73Table of ContentsIndex to Financial Statementsdowngrade our stock or publish inaccurate or unfavorable research about our business, our stock price could be adversely affected. If one or more of theseanalysts cease coverage of our company or fail to publish reports on us regularly, demand for our common stock could decrease, and we could lose visibilityin the financial markets, which might cause our stock price and trading volume to decline.Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third party claims against us and may reducethe amount of money available to us generally.Our amended and restated certificate of incorporation provides that we will indemnify our directors and officers, in each case to the fullest extentpermitted by Delaware law.In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnificationagreements that we have entered into and will enter into with our directors and officers provide that: • we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullestextent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and ina manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminalproceeding, had no reasonable cause to believe such person’s conduct was unlawful; • we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law; • we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that suchdirectors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification; • we will not be obligated pursuant to our bylaws to indemnify a person with respect to proceedings initiated by that person against us or our otherindemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification; • the rights conferred in our bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers,employees and agents and to obtain insurance to indemnify such persons; and • we may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.As a result, if we are required to indemnify one or more of our directors or executive officers, it may reduce our available funds to satisfy successfulthird party claims against us, may reduce the amount of money available to us and may have a material adverse effect on our business and financialcondition.Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, would be your solesource of gain.We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for thedevelopment, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result,capital appreciation, if any, of our common stock would be your sole source of gain on an investment in our common stock for the foreseeable future.Provisions in our corporate charter documents could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace orremove our current management.Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of usthat stockholders may consider favorable, including transactions in 74Table of ContentsIndex to Financial Statementswhich stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay inthe future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or preventany attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our boardof directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect anyattempt by our stockholders to replace current members of our management team.Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantiallyall disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or ourdirectors, officers or employees.Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for anyderivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arisingpursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claimagainst us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forumthat it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors,officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate ofincorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions,which could adversely affect our business and financial condition.Our board of directors has certain characteristics which may delay or prevent a change of our management or a change in control.Our board of directors has the following characteristics which may delay or prevent a change of management or a change in control: • our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, deathor removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • our stockholders may not act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority ofour capital stock would not be able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings calledby the board of directors, the chairman of the board or the chief executive officer; • our certificate of incorporation does not provide for cumulative voting in the election of directors, which limits the ability of minoritystockholders to elect director candidates; • stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or topropose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting asolicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and • our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignatedpreferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impedethe success of any attempt to acquire us. 75Table of ContentsIndex to Financial StatementsOur ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.We have incurred substantial losses during our history. We do not anticipate generating revenue from sales of products for the foreseeable future, ifever, and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset futuretaxable income, if any, until such unused losses expire. Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporationundergoes an “ownership change” (generally defined as a greater than 50 percentage points change (by value) in its equity ownership over a rolling three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-changeincome may be limited. We have not completed our analysis to determine what, if any, impact any prior ownership change has had on our ability to utilizeour net operating loss carryforwards. In addition, we may experience ownership changes in the future or subsequent shifts in our stock ownership, some ofwhich are outside our control. As of December 31, 2016, we had federal net operating loss carryforwards of approximately $48.0 million that could be limitedif we have experienced, or if in the future we experience, an ownership change, which could have an adverse effect on our future results of operations.Provisions under Delaware law and California law could make an acquisition of our company more difficult, limit attempts by our stockholders to replaceor remove our current management and limit the market price of our common stock.Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generallyprohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of our capital stock for aperiod of three years following the date on which the stockholder acquired at least 15% of our common stock. Likewise, because our principal executiveoffices are located in California, the anti-takeover provisions of the California Corporations Code may apply to us under certain circumstances now or in thefuture. Item 1B.Unresolved Staff CommentsNot applicable. Item 2.PropertiesWe lease approximately 11,372 square feet of office and laboratory space in Milpitas, California, under a lease that expires in April 2018, with optionsto extend the lease for a period of three years. In March 2017, we entered into a seven year lease for approximately 42,877 square feet of office and laboratoryspace in Newark, California and intend to relocate our operations to the facility in July 2017. We believe that our existing and new facilities andarrangements are adequate to meet our business needs for at least the next 12 months and that additional space will be available on commercially reasonableterms, if required. Item 3.Legal ProceedingsFrom time to time, we may become subject to litigation and claims arising in the ordinary course of business. We are not currently a party to anymaterial legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effecton our business, operating results, financial condition or cash flows. Item 4.Mine Safety DisclosuresNot applicable. 76Table of ContentsIndex to Financial StatementsPART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock began trading on The NASDAQ Global Market on August 11, 2016 and trades under the symbol “PTGX.” Prior to such time, therewas no public market for our common stock. The following table sets forth the range of high and low quarterly sales prices per share of our common stock forthe periods noted, as reported on The NASDAQ Global Market: Prices High Low 2016 Third Quarter (from August 11, 2016) $22.56 $10.02 Fourth Quarter $26.36 $17.45 On March 2, 2017, the last reported sale price on The NASDAQ Global Market for our common stock was $14.17.HoldersAs of February 28, 2017, we had approximately 25 record holders of our common stock.Performance GraphThe following is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing we makeunder the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation by referencelanguage in such filing. The graph below matches shows the cumulative total stockholder return assuming the investment on the date specified in each of ourcommon stock, the NASDAQ Composite Index, the NASDAQ Biotechnology Index, and the NASDAQ Pharmaceutical Index. The graph tracks theperformance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from August 11, 2016 to December 31,2016. 77Table of ContentsIndex to Financial Statements 8/11/16 8/16 9/16 10/16 11/16 12/16 Protagonist Therapeutics, Inc. $100.00 $102.65 $180.60 $160.68 $213.25 $187.95 NASDAQ Composite $100.00 $101.09 $103.02 $100.53 $103.15 $104.35 NASDAQ Biotechnology $100.00 $97.26 $99.49 $88.67 $94.20 $91.84 NASDAQ Pharmaceutical $100.00 $97.62 $98.65 $88.43 $93.61 $91.40 The stock price performance included in this graph is not necessarily indicative of future stock price performanceRecent Sales of Unregistered Securities(1) In August 2016, upon the closing of our IPO, all 124,374,909 shares of our then-outstanding convertible preferred stock converted into 8,577,571shares of common stock. The issuance of such shares of common stock was exempt from the registration requirements of the Securities Act, pursuant toSection 3(a)(9) and Section 4(a)(2) of the Securities Act.(2) From January 1, 2016 through the date of closing of our IPO, we granted stock options to purchase an aggregate of 644,270 shares of common stockat exercise prices ranging between $1.16 and $6.09 to a total of 36 employees, directors and consultants under our 2007 Stock Option and Incentive Plan.From January 1, 2016 through the date of the closing of our IPO, options to purchase an aggregate of 111,501 shares of common stock were exercised.The offers, sales, and issuances of the securities described in paragraph (2) above were deemed to be exempt from registration under the Securities Actin reliance on Rule 701 thereunder as offers and sales of securities pursuant to certain compensatory benefit plans and contracts relating to compensation incompliance with Rule 701.Issuer Purchases of Equity SecuritiesNone.Dividend PolicyWe have never declared or paid any cash dividends. We currently expect to retain all future earnings, if any, for use in the operation and expansion ofour business, and therefore do not anticipate paying any cash dividends in the foreseeable future.Initial Public OfferingUse of ProceedsOn August 10, 2016, our registration statements on Form S-1 (File Nos. 333-212476 and 333-213071) relating to the IPO became effective. The IPOclosed on August 16, 2016 at which time we issued 7,500,000 shares of our common stock at an initial offering price of $12.00 per share. On September 9,2016, we issued an additional of 252,972 shares of common stock at a price of $12.00 per share following the underwriters’ exercise of their option topurchase additional shares. We received an aggregate of $83.6 million in cash, net of underwriting discounts and commissions, and after deducting offeringcosts paid by us. None of the expenses associated with the IPO were paid to directors, officers, persons owning 10% or more of any class of equity securities,or to their associates, or to our affiliates.Leerink Partners LLC, Barclays Capital Inc. and BMO Capital Markets Corp. acted as the underwriters. Shares of our common stock began trading onthe NASDAQ Global Market on August 11, 2016. The shares were registered under the Securities Act on registration statements on Form S-1 (File Nos. 333-212476 and 333-213071). There has been no material change in the planned use of proceeds from our IPO from that described in the prospectus filed with theSEC pursuant to Rule 424(b)(4) under the Securities Act on August 10, 2016. 78Table of ContentsIndex to Financial StatementsItem 6.Selected Consolidated Financial DataThe following selected consolidated statement of operations data for the years ended December 31, 2016, 2015 and 2014 and the consolidated balancesheet data as of December 31, 2016 and 2015 are derived from our audited consolidated financial statements that are included elsewhere in this report. Theselected consolidated balance sheet data at December 31, 2014 has been derived from our audited consolidated financial statements which are not includedin this report. The data set forth below is not necessarily indicative of results of future operations and should be read in conjunction with “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data”included in this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below: Year Ended December 31, 2016 2015 2014 (In thousands, except for share and per share data) Consolidated Statement of Operations Data: Operating expenses: Research and development $25,705 $11,831 $7,459 General and administrative 6,961 2,963 1,860 Total operating expenses 32,666 14,794 9,319 Loss from operations (32,666) (14,794) (9,319) Interest income 242 19 16 Change in fair value of redeemable convertible preferred stock tranche and warrantliabilities (4,719) (83) (1,769) Other expense (34) — — Net loss $(37,177) $(14,858) $(11,072) Net loss attributable to common stockholders $(37,735) $(14,933) $(11,218) Net loss per share attributable to common stockholders, basic and diluted $(5.80) $(59.32) $(49.38) Weighted-average shares used to compute net loss per share attributable to commonstockholders, basic and diluted 6,501,796 251,717 227,197 December 31, 2016 2015 2014 (In thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and available-for-sale securities $87,749 $11,923 $9,324 Working capital 76,809 11,080 8,563 Total assets 93,990 14,845 10,328 Accumulated deficit (64,593) (27,416) (12,558) Redeemable convertible preferred stock tranche liability — 1,643 — Redeemable convertible preferred stock warrant liability — 480 1,023 Redeemable convertible preferred stock — 36,996 20,576 Total stockholders’ equity (deficit) 87,555 (27,400) (12,621) 79Table of ContentsIndex to Financial StatementsItem 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operations together with “Item 6. Selected FinancialData” and the consolidated financial statements and related notes included elsewhere in this Annual Report. This discussion contains forward-lookingstatements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in theseforward-looking statements as a result of various factors, including those discussed in “Item 1A. Risk Factors” and in other parts of this Annual Report.OverviewWe are a clinical-stage biopharmaceutical company with a proprietary technology platform focused on discovering and developing peptide-based newchemical entities (“NCEs”) to address significant unmet medical needs. Our primary focus is on developing first-in-class peptide drugs that specifically targetbiological pathways also targeted by currently marketed injectable antibody drugs. Compared to injectable antibody drugs, our oral peptides offer targeteddelivery to the gastrointestinal (“GI”) tissue compartment, potential for improved safety due to minimal exposure in the blood, and improved convenienceand compliance due to oral delivery. Our initial lead product candidates, PTG-100 and PTG-200, are based on this approach, and we believe have thepotential to transform the existing treatment paradigm for inflammatory bowel disease (“IBD”), a GI disease consisting primarily of ulcerative colitis (“UC”)and Crohn’s disease (“CD”).PTG-100 is a potential first-in-class oral, alpha-4-beta-7 (“a4b7”) integrin-specific antagonist peptide product candidate which is currently beingevaluated in a global Phase 2b study that is anticipated to enroll approximately 260 patients at about 100 clinical sites. We anticipate completing this trial inthe second half of 2018. Our second lead product candidate, PTG-200, is a potential first-in-class oral Interleukin-23 receptor (“IL-23R”) antagonist beingdeveloped initially for moderate-to-severe CD. Interleukin-23 is a protein produced by white blood cells that regulates inflammatory and immune functions.PTG-200 is currently in Investigational New Drug (“IND”) enabling studies, and we plan to initiate a Phase 1 clinical trial in 2017.Our novel peptides have potential applicability in a wide range of therapeutic areas in addition to GI diseases. Our first product candidate beyond IBDis PTG-300, an injectable hepcidin mimetic, which is currently in pre-clinical development. We plan to complete pre-clinical IND-enabling studies in PTG-300 in the first half of 2017 and complete a Phase 1 study in healthy normal volunteers by the end of 2017. PTG-300 has potential utility for the treatment ofiron overload disorders, such as transfusion-dependent ß-Thalassemia, hereditary hemochromatosis (“HH”) and sickle cell disease (“SCD”), each of whichmay qualify for orphan designation.We are currently researching additional potential oral and injectable peptide-based product candidates for a range of conditions including, but notrestricted to GI diseases.We have not generated any revenue from product sales, and we do not currently have any products approved for commercialization. We have neverbeen profitable and have incurred net losses in each year since inception. Our net losses were $37.2 million, $14.9 million and $11.1 million for the yearsended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, we had an accumulated deficit of $64.6 million. Substantially all of ournet losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associatedwith our operations.In August 2016, we completed our initial public offering (“IPO”) of our common stock pursuant to which we issued 7,500,000 shares of our commonstock at a price of $12.00 per share. In September 2016, we issued an additional of 252,972 shares of common stock at a price of $12.00 per share followingthe underwriters’ exercise of their option to purchase additional shares. We received an aggregate of $83.6 million in cash from the IPO, net of underwritingdiscounts and commissions, and after deducting offering costs paid by us. 80Table of ContentsIndex to Financial StatementsComponents of Our Results of OperationsResearch and Development ExpensesResearch and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates.We recognize all research and development costs as they are incurred.Research and development expenses consist primarily of the following: • expenses incurred under agreements with clinical study sites that conduct research and development activities on our behalf; • employee-related expenses, which include salaries, benefits and stock-based compensation; • laboratory vendor expenses related to the preparation and conduct of preclinical, non-clinical, and clinical studies; • costs related to production of clinical supplies and non-clinical materials, including fees paid to contract manufacturers; • license fees; and • facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense andother supplies.We recognize the funds from grants under government programs as a reduction of research and development expense when the related research costsare incurred. In addition, we recognize the funds related to our Australian research and development tax incentives that are not subject to refund provisions asa reduction of research and development expense. The amounts are determined on a cost reimbursement basis and as the incentive is related to our researchand development expenditures and is non-refundable regardless of whether any Australian tax is owed, the amounts have been recorded as a reduction ofresearch and development expenses. These Australian research and development tax incentives are recognized when there is reasonable assurance that theincentive will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured. As of December 31,2016, the Australian overseas finding research and development tax incentives are no longer deemed to be at risk of clawback as less than 50% of ourresearch and development expenditures under the program were incurred overseas. As a result we have recognized the amounts received for 2014 and 2015and the amount expected to be received for 2016 qualified expenditures as a reduction of research and development expense during the year endedDecember 31, 2016.We allocate direct costs incurred to product candidates when they enter into clinical development. For product candidates in clinical development, weallocate research and development salaries, benefits, stock-based compensation expense and indirect costs to our product candidates on a program-specificbasis, and we include these costs in the program-specific expenses. Program-specific expenses are unallocated when the current clinical expenses are incurredfor our early stage research and drug discovery projects, our internal resources, employees and infrastructure are not tied to any one research or drug discoveryproject and are typically deployed across multiple projects. As such, we do not maintain information regarding these costs incurred for the early stageresearch and drug discovery programs on a project-specific basis prior to the clinical development stage. 81Table of ContentsIndex to Financial StatementsThe following table shows our research and development expenses incurred during the respective periods: Year Ended December 31, 2016 2015 2014 (In thousands) Clinical development expense — PTG-100 $17,988 $1,563 $— Discovery research expense 11,849 11,159 8,036 Less: Reimbursement of expenses under grants and incentives (4,132) (891) (577) Total research and development expenses $25,705 $11,831 $7,459 We expect our research and development expenses will increase as we progress our product candidates, advance our discovery research projects intothe pre-clinical stage and continue our early stage research. The process of conducting research, identifying potential product candidates and conducting pre-clinical and clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval forour product candidates. The probability of success of the product candidates may be affected by numerous factors, including pre-clinical data, clinical data,competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our researchand development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.General and Administrative ExpensesGeneral and administrative expenses consist of personnel costs, allocated facilities costs and other expenses for outside professional services, includinglegal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consistof expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies. We expect to incur additional expenses as aresult of operating as a public company, including expenses related to compliance with the rules and regulations of the Securities and ExchangeCommission, and those of the national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities andother administrative and professional services.Interest IncomeInterest income consists of interest earned on our cash, cash equivalents, and available-for-sale securities.Change in Fair Value of Redeemable Convertible Preferred Stock Tranche and Warrant LiabilitiesChange in fair value of redeemable convertible preferred stock tranche and warrant liabilities consists of the remeasurement of the fair value offinancial liabilities related to our obligation to sell additional redeemable convertible preferred stock shares in subsequent closings contingent upon theachievement of certain development milestones or approval of investors and warrants for the purchase of redeemable convertible preferred stock.In connection with our Series B and Series C redeemable convertible preferred stock financings we were obligated to sell additional shares of Series Band Series C redeemable convertible preferred stock in subsequent closings, in each case, contingent upon the achievement of certain developmentmilestones or upon the approval of the investors. We recorded this redeemable convertible preferred stock tranche liability incurred as a derivative financialinstrument liability at the fair value on the date of issuance, and we remeasured the liability on each subsequent balance sheet date.We issued the shares under our Series B obligation in August 2014, and accordingly, we no longer have an obligation as of that date. In March 2016,upon closing of the second tranche of the Series C redeemable 82Table of ContentsIndex to Financial Statementsconvertible preferred stock, the fair value of the tranche liability was remeasured and the liability was reclassified to redeemable convertible preferred stock.In addition, in connection with the issuance of our Series B redeemable convertible preferred stock financing, we issued freestanding warrants topurchase shares of Series B redeemable convertible preferred stock. We account for these warrants as a liability in our consolidated financial statementsbecause the underlying instrument into which the warrants are exercisable contains redemption provisions that are outside our control. Upon the exercise ofwarrants in April 2016, the fair value of the redeemable convertible preferred stock warrant liability was remeasured and the liability was reclassified toredeemable convertible preferred stock. The remaining unexercised warrants expired in May 2016 and accordingly, are no longer subject to remeasurement.Critical Accounting Policies and EstimatesOur management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, whichhave been prepared in accordance with United States generally accepted accounting principles. 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 revenue generated and expenses incurred during the reporting periods. Ourestimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differfrom these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding ourhistorical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.Accrued Research and Development CostsWe record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which includethe conduct of pre-clinical studies and clinical trials and contract manufacturing activities. We record the estimated costs of research and developmentactivities based upon the estimated amount of services provided but not yet invoiced, and include these costs in accrued liabilities in the consolidatedbalance sheets and within research and development expense in the consolidated statement of operations. These costs are a significant component of ourresearch and development expenses. We record accrued expenses for these costs based on factors such as estimates of the work completed and in accordancewith agreements established with these third-party service providers.We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage ofcompletion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accruedbalance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materiallydifferent from amounts actually incurred, our understanding of the status and timing of services performed, the number of patients enrolled and the rate ofpatient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accruedexpenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers.To date, there have been no material differences from our accrued expenses to actual expenses.Stock-Based CompensationWe recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant,net of estimated forfeitures. We estimate the fair value, and the resulting 83Table of ContentsIndex to Financial Statementsstock-based compensation expense, using the Black-Scholes option-pricing model. The estimated fair value of the stock-based awards is generallyrecognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. Theseassumptions include:Expected Term— Our expected term represents the period that our stock-based awards are expected to be outstanding and is determined using thesimplified method (based on the mid-point between the vesting date and the end of the contractual term). We have very limited historical information todevelop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock option grants.Expected Volatility—Prior to our IPO in August 2016, we were privately held and did not have any trading history for our common stock, the expectedvolatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expectedterm of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle, or area of specialty. We willcontinue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periodscorresponding with the expected term of option.Expected Dividend—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, weused an expected dividend yield of zero.In addition to the Black-Scholes assumptions, we estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluatethe adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. The impact from anyforfeiture rate adjustment would be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from our estimates, wemight be required to record adjustments to stock-based compensation in future periods.For the years ended December 31, 2016, 2015, and 2014, stock-based compensation expense was $2.1 million, $99,000 and $42,000, respectively. Asof December 31, 2016, we had $12.6 million of total unrecognized stock-based compensation costs, net of estimated forfeitures, which we expect torecognize over a weighted-average period of 3.12 years.Historically, for all periods prior to our IPO in August 2016, the fair values of the shares of common stock underlying our share-based awards wereestimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board ofdirectors considered, among other things, contemporaneous valuations of our common stock prepared by an unrelated third-party valuation firm inaccordance with the guidance provide by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-CompanyEquity Securities Issued as Compensation. Given the absence of a public trading market for our common stock, our board of directors exercised reasonablejudgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including ourstage of development; progress of our research and development efforts; the rights, preferences and privileges of our preferred stock relative to those of ourcommon stock; equity market conditions affecting comparable public companies and the lack of marketability of our common stock.For stock options granted after the completion of the IPO, our board of directors determined the fair value of each share of underlying common stockbased on the closing price of our common stock as reported on the date of grant. 84Table of ContentsIndex to Financial StatementsIncome TaxesWe use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on thedifferences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be ineffect when the differences are expected to reverse. We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance isprovided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.As of December 31, 2016, our total gross deferred tax assets were $24.0 million. Due to our lack of earnings history and uncertainties surrounding ourability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarilycomprised of federal and state tax net operating loss and tax credit carryforwards. As of December 31, 2016, our net operating loss carryforwards for federalincome tax purposes of $48.0 million which are available to offset future taxable income, if any, through 2033 and net operating loss carryforwards for stateincome tax purposes of approximately $37.7 million which are available to offset future taxable income, if any, through 2033. As of December 31, 2016, wealso had accumulated Australian tax losses of $9.2 million available for carry forward against future earnings, which under relevant tax laws do not expire butmay not be available under certain circumstances.Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership changes that may have occurredor that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986 (Code), and similar state provisions. These ownershipchange limitations may limit the amount of net operating loss carryforwards and other tax attributes that can be utilized annually to offset future taxableincome and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions overa three-year period resulting in an ownership change of more than 50 percentage points (by value) of the outstanding stock of a company by certainstockholders. Since our formation, we have raised capital through the issuance of capital stock on several occasions, which separately or combined with thepurchasing stockholders’ subsequent disposition of those shares, may have resulted in such ownership changes, or could result in ownership changes in thefuture.Results of OperationsComparison of the year ended December 31, 2016 and 2015 Year EndedDecember 31, DollarChange %Change 2016 2015 (Dollars in thousands) Operating expenses: Research and development $25,705 $11,831 $13,874 117 General and administrative 6,961 2,963 3,998 135 Total operating expenses 32,666 14,794 17,872 121 Loss from operations (32,666) (14,794) (17,872) 121 Interest income 242 19 223 * Change in fair value of redeemable convertible preferred stock tranche and warrant liabilities (4,719) (83) (4,636) * Other expense (34) — (34) 100 Net loss $(37,177) $(14,858) $(22,319) 150 *Percentage not meaningful 85Table of ContentsIndex to Financial StatementsResearch and Development ExpensesResearch and development expenses increased $13.9 million, or 117%, from $11.8 million for the year ended December 31, 2015 to $25.7 million forthe year ended December 31, 2016. The increase was primarily due to an increase of $6.5 million related to contract manufacturing activities for PTG-100clinical trials and other product candidate studies, an increase of $2.8 million in costs for third party consultants, an increase of $2.7 million in pre-clinicalactivities for our product candidates, an increase of $2.6 million in salaries and employee-related expense due to an increase in headcount, an increase of $1.9million in PTG-100 Phase 1 clinical trials and other related studies, an increase of $0.3 million due to achieving certain development milestones in a priorcollaboration agreement related to the initiation of preclinical development studies on PTG-300 and an increase of $0.3 million in facility expenses. Theincreases were partially offset by an increase of $3.3 million in government programs recognized as a reduction of research and development expenses,primarily due to the increase in our Australian research and development tax incentive including the recognition of amounts related to overseas finding thatare no longer deemed to be at risk of clawback and funds earned under the Small Business Research grant awards.General and Administrative ExpensesGeneral and administrative expenses increased $4.0 million, or 135 %, from $3.0 million for the year ended December 31, 2015, to $7.0 million for theyear ended December 31, 2016. The increase was primarily due to an increase of $1.9 million in professional service fees, an increase of $1.8 million increasein salaries and employee-related expense due to an increase in headcount to support the growth of our operations and an increase of $0.3 million in facilityand other administrative expenses.Change in Fair Value of Redeemable Convertible Preferred Stock Tranche and Warrant LiabilitiesChange in fair value of redeemable convertible preferred stock tranche liability and warrant liabilities increased from a charge of $0.1 million for theyear ended December 31, 2015 to a charge of $4.7 million for the year ended December 31, 2016. The change was due to the fair value remeasurement of theoutstanding mark to market liabilities as the fair value increased in 2016.Comparison of the years ended December 31, 2015 and 2014 Year EndedDecember 31, DollarChange %Change 2015 2014 (Dollars in thousands) Operating expenses: Research and development $11,831 $7,459 $4,372 59 General and administrative 2,963 1,860 1,103 59 Total operating expenses 14,794 9,319 5,475 59 Loss from operations (14,794) (9,319) (5,475) 59 Interest income 19 16 3 19 Change in fair value of redeemable convertible preferred stock tranche and warrant liabilities (83) (1,769) 1,686 (95) Net loss $(14,858) $(11,072) $(3,786) 34 Research and Development ExpensesResearch and development expenses increased $4.4 million, or 59%, from $7.5 million for the year ended December 31, 2014 to $11.8 million for theyear ended December 31, 2015. The increase was due to an increase 86Table of ContentsIndex to Financial Statementsof $2.8 million in pre-clinical activities for our product candidates, an increase of $0.8 million in PTG-100 Phase 1 clinical trials, which were incurredprimarily in the fourth quarter of 2015, an increase of $0.6 million related to contract manufacturing activities, an increase of $0.5 million in salaries andemployee-related expenses due to an increase in headcount and an increase of $0.1 million in costs to third party consultants primarily related to research anddevelopment activities for PTG-100. The increases were partially offset by an increase of $0.4 million in government grants recognized as a reduction toresearch and development expenses, primarily due to the increase in Australia research and development tax incentive grant and the Small BusinessInnovation Research grant award obtained in 2015.General and Administrative ExpensesGeneral and administrative expenses increased $1.1 million, or 59%, from $1.9 million for the year ended December 31, 2014, to $3.0 million for theyear ended December 31, 2015. The increase was due to an increase of $0.5 million in salaries and employee-related expenses due to an increase inheadcount, an increase of $0.5 million in professional services fees, primarily for patent related matters and an increase of $0.1 million in facility-related costsdue to the increase in our leased facility space.Change in Fair Value of Redeemable Convertible Preferred Stock Tranche and Warrant LiabilitiesChange in estimated fair value of redeemable convertible preferred stock tranche liability and warrant liability decreased $1.7 million, or 95%, from acharge of $1.8 million for the year ended December 31, 2014 to a charge of $0.1 million for the year ended December 31, 2015. The decrease was due to thefair value remeasurement of the outstanding mark to market liabilities. We issued the shares under our Series B obligation in August 2014, and accordingly,we no longer had an obligation as of that date. However, we will continue to mark to market our Series C obligation until March 2016 when we issued theadditional shares under our Series C obligation.Liquidity and Capital ResourcesLiquidity and Capital ExpendituresAs of December 31, 2016, we had $87.7 million of cash, cash equivalents and available-for-sale securities and an accumulated deficit of $64.6 million.In August 2016, we completed our IPO of our common stock pursuant to which we issued 7,500,000 shares of our common stock at a price of $12.00 pershare. In September 2016, we issued an additional 252,972 shares of common stock at a price of $12.00 per share following the underwriters’ exercise of theiroption to purchase additional shares. We have received an aggregate of $83.6 million in cash, net of underwriting discounts and commissions and afterdeducting offering costs paid by us.Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses isimpacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.We believe, based on our current operating plan and expected expenditures, that our existing cash, cash equivalents, and available-for-sale securitieswill be sufficient to meet our anticipated operating and capital expenditure requirements for at least the next 12 months. We have based this estimate onassumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. If our planned preclinical andclinical trials are successful, or our other product candidates enter clinical trials or advance beyond the discovery stage, we will need to raise additionalcapital in order to further advance our product candidates towards regulatory approval. We will continue to require additional financing to advance ourcurrent product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for theforeseeable future. We will continue to seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or throughother sources of 87Table of ContentsIndex to Financial Statementsfinancing. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including: • the progress, timing, scope, results and costs of our preclinical studies and clinical trials for our product candidates, including the ability toenroll patients in a timely manner for our clinical trials; • the costs of obtaining clinical and commercial supplies and any other product candidates we may identify and develop; • our ability to successfully commercialize the product candidates we may identify and develop; • the manufacturing, selling and marketing costs associated with our lead product candidates and any other product candidates we may identifyand develop, including the cost and timing of expanding our sales and marketing capabilities; • the amount and timing of sales and other revenues from our lead product candidates and any other product candidates we may identify anddevelop, including the sales price and the availability of adequate third-party reimbursement; • the cash requirements of any future acquisitions or discovery of product candidates; • the time and cost necessary to respond to technological and market developments; • the extent to which we may acquire or in-license other product candidates and technologies; • our ability to attract, hire and retain qualified personnel; and • the costs of maintaining, expanding and protecting our intellectual property portfolio.Adequate additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed could have anegative impact on our financial condition and on our ability to pursue our business plans and strategies. Further, our operating plans may change, and wemay need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. If we do raiseadditional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of thesesecurities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, wemay be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures ordeclaring dividends. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with thedevelopment and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operatingexpenditures associated with our current and anticipated product development programs.The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2016 2015 2014 (In thousands) Cash used in operating activities $(29,972) $(14,385) $(7,743) Cash used in investing activities (59,328) (8,264) (299) Cash provided by financing activities 106,307 17,419 9,003 Cash Flows from Operating ActivitiesCash used in operating activities for the year ended December 31, 2016 was $30.0 million, consisting of a net loss of $37.2 million and a net change of$0.1 million in our net operating assets and liabilities, which were offset by non-cash charges of $7.3 million. The non-cash charges were primarily comprisedof $4.2 million for the change in fair value associated with redeemable convertible preferred stock tranche liability, $2.1 million for 88Table of ContentsIndex to Financial Statementsstock-based compensation, $0.5 million for the change in fair value of convertible preferred stock warrant liability, and $0.3 million for depreciation andamortization expense. The change in our net operating assets and liabilities was due primarily to an increase of $1.8 million in prepaid and other currentassets related to advance payments of costs for research activities during the current period and an increase of $1.6 million in the receivable related to theAustralian research and development tax incentives, offset by a $3.3 million increase in our accounts payable and accrued expenses and other payablesrelated to an increase in research and development activities.Cash used in operating activities for the year ended December 31, 2015 was $14.4 million, consisting of a net loss of $14.9 million, which was partiallyoffset by non-cash charges of $0.4 million and a net change of $0.1 million in our net operation assets and liabilities. The non-cash charges were primarilycomprised of $0.6 million for the change in fair value of redeemable convertible preferred stock tranche liability, $0.2 million for depreciation andamortization expense, $0.1 million for stock-based compensation, offset by gain of $0.5 million for the change in fair value of convertible preferred stockwarrant liability. The change in our net operating assets and liabilities was due primarily to an increase of $1.8 million in our accounts payable and accruedliabilities related to an increase in research and development activities, offset by $1.5 million increase in cash used for prepaid and other current assets relatedto payments associated with clinical trials and studies and a $0.2 million increase in a receivable related to the Australia research and development taxincentive.Cash used in operating activities for the year ended December 31, 2014 was $7.7 million, consisting of a net loss of $11.1 million, which was partiallyoffset by non-cash charges primarily of $2.1 million and a net increase of $1.3 million in our net operation assets and liabilities. The non-cash charges wereprimarily comprised of $1.8 million for the change in fair value of our convertible preferred stock tranche and warrant liabilities and $0.3 million fordepreciation and amortization expense. The change in our net operating assets and liabilities was due primarily to decrease of $0.6 million in prepaidexpenses and other current assets related to payments for research and development activities, an increase of $0.4 million in our accounts payable andaccrued liabilities related to an increase in research and development activities and a $0.3 million increase in receivable related to the Australia research anddevelopment tax incentive.Cash Flows from Investing ActivitiesCash used in investing activities for the year ended December 31, 2016 was $59.3 million, consisting of our purchase of available-for-sale securities of$73.2 million and our purchase of property and equipment of $0.4 million, partially offset by the proceeds from maturities of our available-for-sale securitiesof $14.2 million. The purchase of property and equipment was primarily related to the expansion of our laboratory and related equipment.Cash used in investing activities for the year ended December 31, 2015 was $8.3 million, consisting of the purchase of available-for-sale securities of$7.9 million and our purchase of property and equipment of $0.4 million. The purchase of property and equipment was primarily related to the expansion ofour laboratory and the purchase of related equipment.Cash used in investing activities for the year ended December 31, 2014 was related to our purchase of property and equipment of $0.3 million.Cash Flows from Financing ActivitiesCash provided by financing activities for the years ended December 31, 2016 was $106.3 million, consisting of net proceeds of $83.6 million from ourinitial public offering, net proceeds of $22.5 million from the issuance of redeemable convertible preferred stock and proceeds of $0.2 million from theissuance of common stock upon exercise of stock options. 89Table of ContentsIndex to Financial StatementsCash provided by financing activities for the years ended December 31, 2015 and 2014 was primarily related to proceeds from the issuance ofredeemable convertible preferred stock of $17.4 million and $9.0 million, respectively.Contractual Obligations and Other CommitmentsThe following table summarizes our contractual obligations as of December 31, 2016: Payments Due by Period Contractual Obligations: Less Than1 Year 1 to 3 Years 3 to 5 Years More Than5 Years Total (In thousands) Operating lease obligations $368 $87 $— $— $455 Total contractual obligations $368 $87 $— $— $455 In March 2017, we entered into a lease agreement for a new office and laboratory space in Newark, California to relocate our operations to a largerfacility. The lease commencement date is July 1, 2017 and the lease expires on June 30, 2024. The aggregate minimum lease payments under the leaseagreement will be approximately $13.4 million, and we are providing the landlord with a security deposit of $450,000.We enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for pre-clinicalstudies and other services and products for operating purposes, which are cancelable at any time by us, generally upon 30 to 60 days prior written notice.These payments are not included in this table of contractual obligations.In addition to the amounts set forth in the table above, we have certain obligations under licensing agreements with third parties contingent uponachieving various development, regulatory and commercial milestones. In October 2013, the collaboration program under our Research Collaboration andLicense Agreement with Zealand Pharma A/S (Zealand) was abandoned by Zealand. Pursuant to the terms of the agreement, we elected to assume theresponsibility for the development and commercialization of the product candidate. Upon Zealand’s abandonment, Zealand assigned to us certainintellectual property arising from the collaboration and also granted us an exclusive license to certain background intellectual property rights of Zealand thatrelate to the products assumed by us. Upon the nomination of PTG-300 as a development candidate, we owed Zealand a payment of $250,000, which hasbeen recognized within research and development expense in our consolidated statement of operations for the year ended December 31, 2016. If we initiate aPhase 1 clinical trial for PTG-300, we will pay Zealand an additional $250,000. We have the right, but not the obligation, to further develop andcommercialize the product candidate and, if we successfully develop and commercialize PTG-300 without a partner, we will pay to Zealand up to anadditional aggregate of $128.5 million for the achievement of certain development, regulatory and sales milestone events. In addition, we will pay toZealand a low single digit royalty on worldwide net sales of the product. As the achievement and timing of these future milestone payments are not probableand estimable, such amounts have not been included on our consolidated balance sheets or in the contractual obligations table above.Off-Balance Sheet ArrangementsWe have not entered into any off-balance sheet arrangements, as defined under SEC rules, including the use of structured finance, special purposeentities or variable interest entities.Recent Accounting PronouncementsIn August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Disclosure ofUncertainties About an Entity’s Ability to Continue as a Going Concern. 90Table of ContentsIndex to Financial StatementsASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of thedate the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financialstatements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. ASU2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. Weadopted this standard effective December 31, 2016, and there was no impact related to the disclosures in our consolidated financial statements.In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which is intendedto simplify and improve how deferred taxes are classified on the balance sheet. The guidance in this ASU eliminates the current requirement to presentdeferred tax assets and liabilities as current and noncurrent in a classified balance sheet and now requires entities to classify all deferred tax assets andliabilities as noncurrent. The guidance is effective for annual periods beginning after December 15, 2016 and for interim periods within those annual periodsthough early adoption is permitted. We do not expect that the adoption of the guidance will have a material effect on our consolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, (with the exception of short-term leases) at thecommencement date, lessees will be required to recognize a lease liability and a right-of-use asset. Lessor accounting is largely unchanged, while lessees willno longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal yearsbeginning after December 15, 2018, including interim periods within those fiscal years (January 1, 2019, for us). Early application is permitted. Lessees (forcapital and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliestcomparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases thatexpired before the earliest comparative period presented. While we are currently evaluating the impact that the standard will have on our consolidatedfinancial statements, we expect our non-cancellable operating lease commitments will be subject to the new standard and recognized as right-of-use assetsand operating lease liabilities on our consolidated balance sheets, but we do not expect the adoption of the new standard to have a material impact on ourresults of operations.In March 2016, the FASB issued ASU No. 2016-09 Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based PaymentAccounting, which is intended to simplify several aspects of the accounting for employee share-based payment transactions, including the income taxconsequences, the determination of forfeiture rates, classification of awards as either equity or liabilities, and classification on the statement of cashflows. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016 and early adoption is permitted. We arecurrently evaluating the impact that the adoption of ASU 2016-09 will have on our consolidated financial statements and related disclosures.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which is intended to provide financial statementusers with more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date. The new standardreplaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportableforward-looking information to estimate all expected credit losses. This ASU is effective for fiscal years and interim periods within those years beginningafter December 15, 2019 and early adoption is permitted for fiscal years and interim periods within those years beginning after December 15, 2018. We arecurrently evaluating the impact of this new guidance.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and CashPayments, which clarifies the classification of certain cash receipts and cash payments in the statements of cash flow to eliminate the diversity in practicerelated to eight specific cash flow issues. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017, withearly adoption permitted. We are currently evaluating the impact of this new guidance. 91Table of ContentsIndex to Financial StatementsIn November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash, which requires the presentation ofchanges in restricted cash or restricted cash equivalents on the statement of cash flows. This ASU is effective for the fiscal years and interim periods withinthose years beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the impact of this new guidance. Item 7A.Quantitative and Qualitative Disclosures about Market RiskWe are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities.We had $87.7 million and $11.9 million in cash, cash equivalents and available-for-sale securities as of December 31, 2016 and December 31, 2015,respectively. Cash and cash equivalents consist of cash, money market funds, commercial paper, and government bonds. Available-for-sale securities consistof corporate bonds, commercial paper, and government bonds. Short-term available-for-sale securities have maturities less than 365 days as of the balancesheet date. Long-term available-for-sale securities have maturities greater than 365 days as of the balance sheet date. Such interest earning instruments carry adegree of interest rate risk; however, historical fluctuations in interest income have not been material. We had no outstanding debt as of December 31, 2016.Approximately $1.9 million and $0.6 million of our cash balance was located in Australia as of December 31, 2016 and December 31, 2015,respectively. Our expenses, except those related to our Australian operations, are generally denominated in U.S. dollars. For our operations in Australia, themajority of the expenses are denominated in Australian dollars. To date, we have not had a formal hedging program with respect to foreign currency, but wemay do so in the future if our exposure to foreign currency should become more significant. A 10% increase or decrease in current exchange rates would nothave a material effect on our consolidated financial results. 92Table of ContentsIndex to Financial StatementsItem 8.Financial Statements and Supplementary DataPROTAGONIST THERAPEUTICS, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Audited Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 94 Consolidated Balance Sheets 95 Consolidated Statements of Operations 96 Consolidated Statements of Comprehensive Loss 97 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) 98 Consolidated Statements of Cash Flows 99 Notes to the Consolidated Financial Statements 100 Supplementary Financial Data (unaudited) 120 93Table of ContentsIndex to Financial StatementsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders ofProtagonist Therapeutics, Inc.In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive loss, redeemableconvertible preferred stock and stockholders’ equity (deficit), and of cash flows present fairly, in all material respects, the financial position of ProtagonistTherapeutics, Inc. and its subsidiary as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years inthe period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. These financial statementsare the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion./s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaMarch 7, 2017 94Table of ContentsIndex to Financial StatementsPROTAGONIST THERAPEUTICS, INC.Consolidated Balance Sheets(In thousands, except share data) December 31, 2016 2015 Assets Current assets: Cash and cash equivalents $21,084 $4,055 Restricted cash 10 10 Available-for-sale securities - current 56,515 7,868 Research and development tax incentive receivable 2,241 715 Prepaid expenses and other current assets 3,394 1,558 Total current assets 83,244 14, 206 Property and equipment, net 562 609 Available-for-sale securities - noncurrent 10,150 — Other assets 34 30 Total assets $93,990 $14,845 Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $1,163 $1,247 Accrued expenses and other payables 5,272 1,879 Total current liabilities 6,435 3,126 Redeemable convertible preferred stock tranche liability — 1,643 Redeemable convertible preferred stock warrant liability — 480 Total liabilities 6,435 5,249 Commitments and contingencies Redeemable convertible preferred stock, $0.00001 par value: no shares and 126,374,911 shares authorized as of December 31,2016 and 2015, respectively; no shares and 77,185,117 shares issued and outstanding as of December 31, 2016 and 2015,respectively — 36,996 Stockholders’ equity (deficit): Preferred stock, $0.00001 par value, 10,000,000 and no shares authorized as of December 31, 2016 and 2015,respectively; and no shares issued and outstanding as of December 31, 2016 and 2015 — — Common stock, $0.00001 par value, 90,000,000 and 160,000,000 shares authorized as of December 31, 2016 and, 2015,respectively; 16,722,280 and 272,409 shares issued and outstanding as of December 31, 2016 and 2015, respectively — — Additional paid-in capital 152,393 118 Accumulated other comprehensive loss (245) (102)Accumulated deficit (64,593) (27,416)Total stockholders’ equity (deficit) 87,555 (27,400)Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $93,990 $14,845 The accompanying notes are an integral part of these consolidated financial statements. 95Table of ContentsIndex to Financial StatementsPROTAGONIST THERAPEUTICS, INC.Consolidated Statements of Operations(In thousands, except share and per share data) Year Ended December 31, 2016 2015 2014 Operating expenses: Research and development $25,705 $11,831 $7,459 General and administrative 6,961 2,963 1,860 Total operating expenses 32,666 14,794 9,319 Loss from operations (32,666) (14,794) (9,319) Interest income 242 19 16 Change in fair value of redeemable convertible preferred stock tranche and warrant liabilities (4,719) (83) (1,769) Other expense (34) — — Net loss $(37,177) $(14,858) $(11,072) Net loss attributable to common stockholders $(37,735) $(14,933) $(11,218) Net loss per share attributable to common stockholders, basic and diluted $(5.80) $(59.32) $(49.38) Weighted-average shares used to compute net loss per share attributable to common stockholders, basicand diluted 6,501,796 251,717 227,197 The accompanying notes are an integral part of these consolidated financial statements. 96Table of ContentsIndex to Financial StatementsPROTAGONIST THERAPEUTICS, INC.Consolidated Statements of Comprehensive Loss(In thousands) Year Ended December 31, 2016 2015 2014 Net loss $(37,177) $(14,858) $(11,072) Other comprehensive loss: (Loss) gain on translation of foreign operations (76) 3 (54) Unrecognized loss on available-for-sale securities (67) (5) — Comprehensive loss $(37,320) $(14,860) $(11,126) The accompanying notes are an integral part of these consolidated financial statements. 97Table of ContentsIndex to Financial StatementsPROTAGONIST THERAPEUTICS, INC.Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)(In thousands, except share and per share data) RedeemableConvertible PreferredStock CommonStock AdditionalPaid-InCapital AccumulatedOtherComprehensiveLoss AccumulatedDeficit TotalStockholders’Equity(Deficit) Shares Amount Shares Amount Balance at December 31, 2013 24,037,500 $9,122 226,009 $— $135 $(46) $(1,483) $(1,394) Issuance of Series B redeemable convertiblepreferred stock 18,000,000 9,000 — — — — — — Settlement of fair value of series B redeemableconvertible preferred stock tranche liability — 2,308 — — — — — — Accretion of redeemable convertible preferredstock to redemption value — 146 — — (143) — (3) (146) Stock-based compensation expense — — — — 42 — — 42 Issuance of common stock upon the exercise ofoptions — — 2,548 — 3 — — 3 Other comprehensive loss — — — — — (54) — (54) Net loss — — — — — — (11,072) (11,072) Balance at December 31, 2014 42,037,500 20,576 228,557 — 37 (100) (12,558) (12,621) Issuance of Series C redeemable convertiblepreferred stock, net of issuance costs of $138and reclassification of $1,017 to redeemableconvertible preferred stock tranche liability 35,147,617 16,345 — — — — — — Accretion of redeemable convertible preferredstock to redemption value — 75 — — (75) — — (75) Stock-based compensation expense — — — — 99 — — 99 Issuance of common stock upon the exercise ofoptions — — 43,852 — 57 — — 57 Other comprehensive loss — — — — — (2) — (2) Net loss — — — — — — (14,858) (14,858) Balance at December 31, 2015 77,185,117 36,996 272,409 — 118 (102) (27,416) (27,400) Issuance of Series C redeemable convertiblepreferred stock, net of issuance costs 45,189,794 22,488 — — — — — — Settlement of fair value of redeemableconvertible preferred stock tranche liability — 5,837 — — — — — — Exercise of redeemable convertible preferredstock warrant liability 1,999,998 1,025 — — — — — — Accretion of redemption of convertiblepreferred stock to redemption value — 558 — — (558) — — (558) Conversion of redeemable convertible preferredstock to common stock at closing of initialpublic offering (124,374,909) (66,904) 8,577,571 — 66,904 — — 66,904 Issuance of common stock upon initial publicoffering, net of issuance costs — — 7,752,972 — 83,648 — — 83,648 Stock-based compensation expense — — — — 2,130 — — 2,130 Issuance of common stock upon the exercise ofoptions — — 119,328 — 151 — — 151 Other comprehensive loss — — — — — (143) — (143) Net loss — — — — — — (37,177) (37,177) Balance at December 31, 2016 — $— 16,722,280 $— $152,393 $(245) $(64,593) $87,555 The accompanying notes are an integral part of these consolidated financial statements. 98Table of ContentsIndex to Financial StatementsPROTAGONIST THERAPEUTICS, INC.Consolidated Statements of Cash Flows(In thousands) Year EndedDecember 31, 2016 2015 2014 CASH FLOWS FROM OPERATING ACTITIVIES Net loss $(37,177) $(14,858) $(11,072) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 317 247 258 Loss on disposal of property and equipment 34 — — Amortization of premium on available-for-sale securities 117 (8) — Stock-based compensation 2,130 99 42 Change in fair value associated with redeemable convertible preferred stock tranche liability 4,194 626 897 Change in fair value of redeemable convertible preferred stock warrant liability 525 (543) 872 Changes in operating assets and liabilities: Research and development tax credit receivable (1,588) (192) 259 Prepaid expenses and other current assets (1,800) (1,502) 604 Other assets (4) (30) — Accounts payable (115) 898 179 Accrued expenses and other payables 3,395 878 218 Net cash used in operating activities (29,972) (14,385) (7,743) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of available-for-sale securities (73,169) (7,865) — Purchase of property and equipment (379) (399) (299) Proceeds from maturities of available-for-sale securities 14,188 — — Proceeds from sale of property and equipment 32 — — Net cash used in investing activities (59,328) (8,264) (299) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs 22,488 17,362 9,000 Proceeds from issuance of redeemable convertible preferred stock upon exercise of preferred stock warrant liability 20 — — Proceeds from issuance of common stock upon exercise of stock options 151 57 3 Proceeds from issuance of common stock upon initial public offering, net of issuance costs 83,648 — — Net cash provided by financing activities 106,307 17,419 9,003 Effect on exchange rate changes on cash and cash equivalents 22 (39) (97) Net increase (decrease) in cash and cash equivalents 17,029 (5,269) 864 Cash and cash equivalents, beginning of year 4,055 9,324 8,460 Cash and cash equivalents, end of year $21,084 $4,055 $9,324 SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING INFORMATION: Settlement of fair value of redeemable convertible preferred stock liability $5,837 $— $2,308 Tranche liability in connection with the Series C redeemable convertible preferred stock financing $— $1,017 $— Accretion of redeemable convertible preferred stock $558 $75 $146 Conversion of redeemable convertible preferred stock to common stock at closing of initial public offering $66,904 $— $— Reclassification of preferred stock warrant liability to equity $1,005 $— $— Purchase of property and equipment in accounts payable $21 $— $— The accompanying notes are an integral part of these consolidated financial statements. 99Table of ContentsIndex to Financial StatementsPROTAGONIST THERAPEUTICS, INC.Notes to Consolidated Financial Statements1. Organization and Description of BusinessProtagonist Therapeutics, Inc. (the “Company”) was incorporated in the state of Delaware on August 22, 2006 and is headquartered in Milpitas,California. The Company is a clinical-stage biopharmaceutical company with a proprietary peptide technology platform focused on discovering anddeveloping new chemical entities to address significant unmet medical needs.Protagonist Pty Ltd is a wholly-owned subsidiary located in Brisbane, Australia. The Company manages its operations as a single operating segment.Reverse Stock SplitIn July 2016, the Company’s board of directors approved an amendment to the Company’s amended and restated certificate of incorporation to effect areverse split of the Company’s issued and outstanding common stock at a 1-for-14.5 ratio, which was effected on August 1, 2016. The par value andauthorized shares of common stock and convertible preferred stock were not adjusted as a result of the reverse split. All issued and outstanding commonstock, options to purchase common stock and per share amounts contained in the consolidated financial statements have been retroactively adjusted toreflect the reverse stock split for all periods presented. The consolidated financial statements have also been retroactively adjusted to reflect a proportionaladjustment to the conversion ratio for each series of preferred stock in connection with the reverse stock split.Initial Public OfferingOn August 10, 2016, the Company’s registration statement on Form S-1 (File Nos. 333-212476 and 333-213071) relating to its initial public offering(“IPO”) of common stock became effective. The IPO closed on August 16, 2016 at which time the Company issued 7,500,000 shares of its common stock at aprice of $12.00 per share. In addition, upon closing the IPO, all outstanding shares of the redeemable convertible preferred stock converted into 8,577,571shares of common stock and there are no shares of redeemable convertible preferred stock outstanding. In September 2016, the Company issued an additional252,972 shares of common stock at a price of $12.00 per share following the underwriters’ exercise of their option to purchase additional shares. TheCompany received an aggregate of $83.6 million in cash, net of underwriting discounts and commissions, and after deducting offering costs paid by theCompany.LiquidityThe Company has incurred net losses from operations since inception and has an accumulated deficit of $64.6 million as of December 31, 2016. TheCompany’s ultimate success depends on the outcome of its research and development activities. The Company expects to incur additional losses andnegative cash flows for the foreseeable future and it anticipates the need to raise additional capital to fully implement its business plan. The Companyintends to raise such capital through the issuance of additional equity and/or strategic alliances with partner companies. As of December 31, 2016, theCompany had $87.7 million of cash, cash equivalents and available-for-sale securities and management believes the existing cash, cash equivalents andavailable-for-sale securities will be sufficient to meet the Company’s anticipated operating and capital expenditure requirements.2. Summary of Significant Accounting PoliciesBasis of Presentation and ConsolidationThe accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Protagonist Pty Ltd andhave been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). All intercompany balances andtransactions have been eliminated in consolidation. 100Table of ContentsIndex to Financial StatementsThe financial statements of Protagonist Pty Ltd use the Australian dollar as the functional currency since the majority of expense transactions occur insuch currency. Gains and losses from foreign currency transactions were not material for all periods presented. The re-measurement from Australian dollar toU.S. dollars is outlined below: a.Equity accounts, except for the change in retained earnings during the year, have been translated using historical exchange rates. b.All other Australian dollar denominated assets and liabilities as of December 31, 2016 and 2015 have been translated using the year-endexchange rate. c.The consolidated statements of operations have been translated at the weighted average exchange rates in effect during each year, except fordepreciation, which has been translated at historical exchange rates.Foreign currency translation gains and losses are reported as a component of stockholders’ equity (deficit) in accumulated other comprehensive loss onthe consolidated balance sheets.Use of EstimatesThe preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions andjudgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates itsestimates, including those related to accruals for research and development activities, fair value of redeemable convertible preferred stock tranche liability,fair value of redeemable convertible preferred stock warrant liability, fair value of common stock, stock-based compensation and income taxes. Managementbases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under thecircumstances, including assumptions as to future events. Actual results may differ from those estimates.Concentrations of Credit RiskFinancial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and available-for-salesecurities. Substantially all the Company’s cash is held by one financial institution that management believes is of high credit quality. Such deposits may, attimes, exceed federally insured limits.Cash EquivalentsCash equivalents that are readily convertible to cash are stated at cost, which approximates fair value. The Company considers all highly liquidinvestments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of amounts invested in moneymarket funds, commercial paper and government bonds.Restricted CashRestricted cash consisted of cash balances primarily held as security in connection with the Company’s corporate credit card.Available-for-Sale SecuritiesAll marketable securities have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted marketprices or pricing models for similar securities. Management determines the appropriate classification of its marketable securities at the time of purchase andreevaluates such designation 101Table of ContentsIndex to Financial Statementsas of each balance sheet date. Short-term marketable securities have maturities less than 365 days as of the balance sheet date. Long-term marketablesecurities have maturities greater than 365 days as of the balance sheet date. Unrealized gains and losses are excluded from earnings and are reported as acomponent of comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-salesecurities are included in interest income. The cost of securities sold is based on the specific-identification method. Interest on marketable securities isincluded in interest income.Fair Value of Financial InstrumentsFair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financialstatements on a recurring basis (at least annually). The carrying amount of the Company’s financial instruments, including cash equivalents, accountspayable and accrued expenses and other payables approximate fair value due to their short term maturities. See Note 3. Fair Value Measurements regardingthe fair value of the Company’s other financial assets and liabilities.Property and EquipmentProperty and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimateduseful lives of the assets, ranging from three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated usefullives of the assets. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost and accumulateddepreciation are removed from the consolidated balance sheet and any resulting gain or loss is reflected in operations in the period realized.Impairment of Long-Lived AssetsThe Company reviews long-lived assets, primarily comprised of property and equipment, for impairment or whenever events or changes incircumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to thefuture net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured asthe amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset. There have been no suchimpairments of long-lived assets for any of the periods presented.Accrued Research and Development CostsThe Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include theconduct of preclinical studies and clinical trials, and contract manufacturing activities. The Company records the estimated costs of research anddevelopment activities based upon the estimated amount of services provided but not yet invoiced, and include these costs in accrued expenses and otherpayables in the consolidated balance sheets and within research and development expense in the consolidated statements of operations. These costs are asignificant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of thework completed and in accordance with agreements established with its third-party service providers. The Company makes significant judgments andestimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities.The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual servicesperformed, number of patients enrolled, and the rate of patient enrollments may vary from the Company’s estimates, resulting in adjustments to expense infuture periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results ofoperations. 102Table of ContentsIndex to Financial StatementsComprehensive LossComprehensive loss represents all changes in stockholders’ equity (deficit) except those resulting from and distributions to stockholders. TheCompany’s foreign currency translation and unrealized gains and losses on available-for-sale securities represent the only components of othercomprehensive loss that are excluded from the reported net loss and that are presented in the consolidated statements of comprehensive loss.Income TaxesThe Company uses the asset and liability method to account for income taxes in accordance with the authoritative guidance for income taxes. Underthis method, deferred tax assets and liabilities are determined based on future tax consequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective tax bases, and tax loss and credit carryforwards. Deferred tax assets and liabilities aremeasured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. Theeffect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuationallowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income taxpositions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in theperiod in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense. Todate, there have been no interest or penalties recorded in relation to the unrecognized tax benefits.Research and Development CostsResearch and development costs are expensed as incurred and consist of salaries and benefits, stock-based compensation expense, lab supplies andfacility costs, as well as fees paid to others that conduct certain research and development activities on the Company’s behalf.Research and Development Tax IncentiveThe Company is eligible under the AusIndustry research and development tax incentive program to obtain a cash amount from the Australian TaxationOffice (“ATO”). The tax incentive is available to the Company on the basis of specific criteria with which the Company must comply. Specifically, theCompany must have revenue of less than AUD 20.0 million and cannot be controlled by income tax exempt entities. These research and development taxincentives are recognized as contra research and development expense when the right to receive has been attained and funds are considered to be collectible.The tax incentive is denominated in Australian dollars and, therefore, the related receivable is remeasured into U.S. dollars as of each reporting date.Under certain conditions, research and development activities conducted outside Australia (“overseas finding”) also qualify for the research anddevelopment tax incentive. Funds received for overseas finding are at a risk of clawback until substantiation that less than 50% research and developmentexpenditures for a project will be incurred overseas. A deferred tax incentive is recorded upon the cash receipt of the overseas finding funds and a reductionof research and development expenses is not recognized until the Company can substantiate that more than 50% of the total project expenditure will occur inAustralia.When there is reasonable assurance that the grant will be received with remote risk of clawback, the relevant expenditure has been incurred, and theconsideration can be reliably measured, the Company records the research and development incentive, including the overseas finding funds, as research anddevelopment tax incentive receivable and a reduction of research and development expenses for the balance to reflect that the funds are owed to theCompany for the year the eligible costs are incurred. 103Table of ContentsIndex to Financial StatementsSBIR GrantsThe Company has been awarded Small Business Innovation Research (“SBIR”) grants from the National Institute of Diabetes and Digestive andKidney Diseases of the National Institutes of Health (“NIH”) in support of its research activities. The Company records the eligible costs incurred under theSBIR grants as a reduction of research and development expenses.Redeemable Convertible Preferred Stock Tranche LiabilityThe Company has determined that the Company’s obligation to issue additional shares of the Company’s redeemable convertible preferred stockrepresents a freestanding financial instrument, which was accounted for as a liability. The freestanding redeemable convertible preferred stock trancheliability was initially recorded at fair value, with fair value changes recognized in the consolidated statements of operations. At the time of the exercise orexpiration of the option, any remaining value of the redeemable convertible preferred stock tranche liability is reclassified to redeemable convertiblepreferred stock with no further remeasurement required.Redeemable Convertible Preferred Stock Warrant LiabilityThe Company has accounted for its freestanding warrants to purchase shares of the Company’s redeemable convertible preferred stock as liabilities atfair value upon issuance. At the end of each reporting period, changes in estimated fair value during the period are recorded in the consolidated statements ofoperations. The Company continued to adjust the warrant liability for changes in fair value until the earlier of the exercise of the warrants or expiration onMay 10, 2016, and no further remeasurement is required.Stock-based CompensationThe Company measures its stock-based awards made to employees based on the estimated fair values of the awards as of the grant date using the Black-Scholes option-pricing model. Stock-based compensation expense is recognized over the requisite service period using the straight-line method and is basedon the value of the portion of stock-based payment awards that is ultimately expected to vest. As such, the Company’s stock-based compensation is reducedfor the estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.Stock-based compensation expense for options granted to non-employees as consideration for services received is measured on the date of performanceat the fair value of the consideration received or the fair value of the equity instruments issued, using the Black-Scholes option-pricing model, whichever canbe more reliably measured. Compensation expense for options granted to non-employees is periodically remeasured as the underlying options vest.Net Loss per Share Attributable to Common StockholdersBasic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by theweighted average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. The net lossattributable to common stockholders is calculated by adjusting the net loss of the Company for the accretion on the redeemable convertible preferred stock.Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders for all periodspresented since the effect of potentially dilutive securities are anti-dilutive given the net loss of the Company.Recent Accounting PronouncementsIn August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. ASU2014-15 requires management to perform interim and annual assessments 104Table of ContentsIndex to Financial Statementsof an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determiningwhen and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantialdoubt about an entity’s ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periodsending after December 15, 2016, with early adoption permitted. The Company adopted this guidance effective December 31, 2016, and there was no impacton the disclosures to its consolidated financial statements.In November 2015, FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which is intended tosimplify and improve how deferred taxes are classified on the balance sheet. The guidance in this ASU eliminates the current requirement to present deferredtax assets and liabilities as current and noncurrent in a classified balance sheet and now requires entities to classify all deferred tax assets and liabilities asnoncurrent. The guidance is effective for annual periods beginning after December 15, 2016 and for interim periods within those annual periods though earlyadoption is permitted. The Company does not expect that the adoption of the guidance will have a material effect on the Company’s consolidated financialstatements.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, (with the exception of short-term leases) at thecommencement date, lessees will be required to recognize a lease liability and a right-of-use asset. Lessor accounting is largely unchanged, while lessees willno longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal yearsbeginning after December 15, 2018, including interim periods within those fiscal years (January 1, 2019, for us). Early application is permitted. Lessees (forcapital and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliestcomparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases thatexpired before the earliest comparative period presented. While the Company is currently evaluating the impact that the guidance will have on itsconsolidated financial statements, the Company expects the non-cancellable operating lease commitments will be subject to the new guidance andrecognized as right-of-use assets and operating lease liabilities on the Company’s consolidated balance sheets, but the Company does not expect theadoption of the new guidance to have a material impact on the Company’s results of operations.In March 2016, the FASB issued ASU 2016-09 Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based PaymentAccounting, which is intended to simplify several aspects of the accounting for employee share-based payment transactions, including the income taxconsequences, the determination of forfeiture rates, classification of awards as either equity or liabilities, and classification on the statement of cash flows.This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and early adoption is permitted. TheCompany is currently evaluating the impact that the adoption of ASU 2016-09 will have on its consolidated financial statements and related disclosures.In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments– Credit Losses (Topic 326), which is intended to provide financial statement users with more useful information about expected credit losses on financialassets held by a reporting entity at each reporting date. The new standard replaces the existing incurred loss impairment methodology with a methodologythat requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. This ASU iseffective for fiscal years and interim periods within those years beginning after December 15, 2019 and early adoption is permitted for fiscal years and interimperiods within those years beginning after December 15, 2018. The Company is currently evaluating the impact of this new guidance.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and CashPayments, which clarifies the classification of certain cash receipts and cash 105Table of ContentsIndex to Financial Statementspayments in the statements of cash flow to eliminate the diversity in practice related to eight specific cash flow issues. This ASU is effective for fiscal yearsand interim periods within those years beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact ofthis new guidance.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash, which requires the presentation ofchanges in restricted cash or restricted cash equivalents on the statement of cash flows. This ASU is effective for the fiscal years and interim periods withinthose years beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of this new guidance.3. Fair Value MeasurementsFinancial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifiesthe definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell anasset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidanceestablishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability throughcorrelation with market data at the measurement date and for the duration of the instrument’s anticipated life.Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.In determining fair value, the Company utilizes quoted market prices, broker or dealer quotation, or valuation techniques that maximize the use ofobservable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fairvalue.The following table presents the fair value of the Company’s financial assets and liabilities determined using the inputs defined above (amounts inthousands). December 31, 2016 Level 1 Level 2 Level 3 Total Assets: Money market funds $11,270 $— $— $11,270 Corporate bonds — 21,841 — 21,841 Commercial paper — 10,769 — 10,769 Governmental bonds — 41,289 — 41,289 Total financial assets $11,270 $73,899 $— $85,169 106Table of ContentsIndex to Financial Statements December 31, 2015 Level 1 Level 2 Level 3 Total Assets: Money market funds $2,136 $— $— $2,136 Corporate bonds — 7,368 — 7,368 Commercial paper — 500 — 500 Total financial assets $2,136 $7,868 $— $10,004 Liabilities: Redeemable convertible preferred stock tranche liability $— $— $1,643 $1,643 Redeemable convertible preferred stock warrant liability — — 480 480 Total financial liabilities $— $— $2,123 $2,123 The corporate bonds, commercial paper and government bonds are classified as Level 2 as they were valued based upon quoted market prices forsimilar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniquesfor which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s assumptionsin measuring fair value. The fair value measurements of the redeemable convertible preferred stock tranche liability and the redeemable convertible preferredstock warrant liability were based on significant inputs not observed in the market and thus represent a Level 3 measurement.The redeemable convertible preferred stock tranche liability stems from the initial sale of the Company’s Series C redeemable convertible preferredstock wherein the Company was obligated to sell additional shares in subsequent closings contingent upon a majority of the stockholders of the outstandingredeemable convertible preferred stock and/or the achievement of certain development milestones. The subsequent closings were deemed to be freestandingfinancial instruments that were at the option of the holders. The Company estimated the fair value of this liability using a one-step binomial lattice model incombination with the Option Pricing Model. The change in fair value was recognized as a gain or loss in the consolidated statements of operations. See Note10 for further discussion on the redeemable convertible preferred stock tranche liability and related valuations.The determination of the fair value of the redeemable convertible preferred stock warrant liability is discussed in Note 8. Generally, increases ordecreases in the fair value of the underlying redeemable convertible preferred stock would result in a directionally similar impact in the fair valuemeasurement of the warrant liability.The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instruments as follows (in thousands): Year EndedDecember 31, 2016 2015 Redeemable Convertible Preferred Stock Tranche Liability: Beginning balance $1,643 $— Issuance of Series C redeemable convertible preferred stock tranche liability — 1,017 Change in fair value upon revaluation 4,194 626 Settlement of redeemable convertible preferred stock tranche liability due to the issuance of Series C redeemable convertiblepreferred stock (5,837) — Ending balance $— $1,643 107Table of ContentsIndex to Financial Statements Year EndedDecember 31, 2016 2015 Redeemable Convertible Preferred Stock Warrant Liability: Beginning balance $480 $1,023 Change in fair value upon revaluation 525 (543) Reclassification of redeemable convertible preferred stock warrant liability to redeemable convertible preferred stock (1,005) — Ending balance $— $480 4. Balance Sheet ComponentsCash Equivalents and Available-for-sale SecuritiesCash equivalents and available-for-sale securities consisted of the following (in thousands): December 31, 2016 Amortized Gross Unrealized Cost Gains Losses Fair Value Money market funds $11,270 $— $— $11,270 Corporate bonds 21,886 — (45) 21,841 Commercial paper 10,769 — — 10,769 Government bonds 41,316 2 (29) 41,289 Total cash equivalents and available-for-sale securities $85,241 $2 $(74) $85,169 Classified as: Cash equivalents $18,504 Available-for-sale securities - current 56,515 Available-for-sale securities - noncurrent 10,150 Total cash equivalents and available-for-sale securities $85,169 December 31, 2015 Amortized Gross Unrealized Cost Gains Losses Fair Value Money market funds $2,136 $— $— $2,136 Corporate bonds 7,373 — (5) 7,368 Commercial paper 500 — — 500 Total cash equivalents and available-for-sale securities $10,009 $— $(5) $10,004 Classified as: Cash equivalents $2,136 Available-for-sale securities - current 7,868 Total cash equivalents and available-for-sale securities $10,004 All available-for-sale securities - current held as of December 31, 2016 and December 31, 2015 had contractual maturities of less than one year. Allavailable securities – noncurrent held as of December 31, 2016 had contractual maturities of greater than one year but less than two years. There have been nomaterial realized gains or losses on available-for-sale securities for the periods presented. 108Table of ContentsIndex to Financial StatementsPrepaid Expenses and Other Current AssetsPrepaid expenses and other current assets consisted of the following (in thousands): December 31, 2016 2015 Prepaid clinical and research related expenses $2,488 $1,253 Other 906 305 Prepaid expenses and other current assets $3,394 $1,558 Property and Equipment, NetProperty and equipment, net consisted of the following (in thousands): December 31, 2016 2015 Laboratory equipment $1,650 $1,452 Furniture and computer equipment 163 140 Leasehold improvements 62 48 Total property and equipment 1,875 1,640 Less: accumulated depreciation and amortization (1,313) (1,031) Property and equipment, net $562 $609 Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $317,000, $247,000 and $258,000, respectively. As of December 31,2016 and 2015, $8,000 and $51,000, respectively, property and equipment, net, were located in Australia. The remainder of the assets are located in theUnited States.Accrued Expenses and Other PayablesAccrued expenses and other payables consisted of the following (in thousands): December 31, 2016 2015 Accrued clinical and research related expenses $3,617 $976 Accrued employee related expenses 1,420 754 Other 235 149 Total accrued expenses and other payables $5,272 $1,879 5. Research Collaboration and License AgreementIn October 2013, the Company’s former collaboration partner decided to abandon a collaboration program with the Company and, pursuant to theterms of the agreement between the Company and the former collaboration partner, the Company elected to assume the responsibility for the developmentand commercialization of the product. Upon the former collaboration partner’s abandonment, it assigned to the Company certain intellectual property arisingfrom the collaboration and also granted the Company an exclusive license to certain background intellectual property rights of the former collaborationpartner that relate to the products assumed by the Company. Upon the nomination of PTG-300 as a development candidate, the Company owed the formercollaboration partner a payment of $250,000. If the Company initiates a Phase 1 clinical trial for PTG-300, it will pay the former collaboration partner anadditional $250,000. The Company has the right, but not the obligation, to further develop and commercialize the products and, if the Company successfullydevelops and 109Table of ContentsIndex to Financial Statementscommercializes PTG-300 without a partner, the Company will pay to the former collaboration partner up to an additional aggregate of $128.5 million for theachievement of certain development, regulatory and sales milestone events. In addition, the Company will pay to the former collaboration partner a lowsingle digit royalty on worldwide net sales of the product until the later of ten years from the first commercial sale of the product or the expiration of the lastpatent covering the product. For the year ended December 31, 2016, the Company recorded research and development expense of $250,000 under thisagreement. There were no such costs incurred for the years ended December 31, 2015 or 2014.6. Government ProgramsResearch and Development Tax IncentiveThe Company recognized AUD 5.3 million ($4.0 million), AUD 978,000 ($736,000) and AUD 639,000 ($577,000) as a reduction of research anddevelopment expenses for the years ended December 31, 2016, 2015 and 2014, respectively, in connection with the research and development tax incentivefrom Australia. As of December 31, 2016 and December 31, 2015, the research and development tax incentive receivable was AUD 3.1 million ($2.2 million)and AUD 978,000 ($715,000), respectively.In March 2016, the Company received AUD 237,000 ($182,000) for overseas findings and recorded the funds as deferred tax incentive in accruedexpenses and other payables on the consolidated balance sheet due to the possibility that the funds could have to be repaid. In October 2016, the Companyreceived AUD 3.0 million ($2.2 million) including interest, in connection with the Australian research and development tax incentive. Of the funds received,AUD 1.0 million ($0.7 million) reduced the research and development tax incentive receivable and AUD 2.0 million ($1.5 million), which was for overseasfindings, was recorded as deferred tax incentive in accrued expenses and other payables on the consolidated balance sheet due to the risk of clawback.In December 2016, the Company’s research and development project under the AusIndustry research and development tax incentive program wascomplete and the Company substantiated that more than 50% of the total project expenditures occurred in Australia. Therefore, the overseas finding relatedincentive amounts are not deemed to be at risk of clawback and the Company recognized AUD 2.2 million ($1.6 million) as a reduction of research anddevelopment expenses for the overseas findings received in 2016.SBIR GrantIn September 2015, the Company was awarded a Phase 1 SBIR Grant from the National Institute of Diabetes and Digestive and Kidney Diseases of theNational Institutes of Health (“NIH”) in support of research on orally stable peptide antagonists of the Interleukin-23 receptor (“IL-23R”) as potentialtreatments for inflammatory bowel diseases (“IBD”). The total grant award was $224,000 and is for the period from September 2015 to August 2016.In July 2016, the Company was awarded a Phase 1 SBIR Grant from the National Institute of Heart and Lung Diseases of the NIH in support ofpreclinical research aimed at discovering and optimizing lead molecules as novel peptide mimetics of the natural hepcidin hormone. The total grant awardwas $219,000 and is for the period from August 2016 to January 2017.The Company recognizes contra research and development when expenses related to the grants have been incurred and the grant funds becomecontractually due from NIH. The Company recorded $169,000 and $155,000 as a reduction of research and development expenses for the years endedDecember 31, 2016 and 2015, respectively. The Company recorded a receivable for $100,000 and $155,000 as of December 31, 2016 and 2015, respectively,to reflect the eligible costs incurred under the grants that are contractually due to the Company and such amounts are included in the prepaid expenses andother current assets on the consolidated balance sheets. 110Table of ContentsIndex to Financial Statements7. Commitments and ContingenciesLease ArrangementsThe Company leases its facility under a noncancelable operating lease that expires in April 2018. The Company has provided a security deposit of$30,000 as collateral for the lease, which is included in other assets on the consolidated balance sheets.The following table summarizes the Company’s future minimum lease payments as of December 31, 2016 (in thousands): Year Ending December 31: Amount 2017 $368 2018 87 Total $455 The Company’s rent expense was $408,000, $280,000 and $184,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Rentexpense is recognized on a straight-line basis over the term of the leases and accordingly, the Company records the difference between cash rent paymentsand the recognition of rent expense as a deferred rent liability.IndemnificationsIn the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, theCompany may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions willlimit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximumpotential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has also entered intoindemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that mayarise by reason of their status or service as directors or officers to the fullest extent permitted by California corporate law. The Company currently hasdirectors’ and officers’ insurance. To date, the Company has not incurred material costs to defend lawsuits or settle claims related to the indemnificationagreements. The Company believes that the fair value of these indemnification agreements is minimal and has not accrued any amounts for the obligations.8. Preferred Stock WarrantsIn connection with the Series B redeemable convertible preferred stock financing, the Company issued warrants to purchase 4,000,000 shares of SeriesB redeemable convertible preferred stock at an exercise price of $0.01 per share. These warrants would become exercisable only when certain milestones weremet on programs begun as a result of collaborations entered into in 2011 and 2012. In particular, 50% of the warrants would become exercisable upon theCompany publicly announcing its first Investigational New Drug (“IND”) candidate to the extent such IND candidate was the result of, or related to, theCompany’s previous collaboration(s) with Ironwood Pharmaceuticals and/or Zealand Pharma A/S, and the balance would become exercisable upon the firstdosing of a human patient in a clinical trial that was the result of, or related to, the Company’s previous collaboration(s) with Ironwood Pharmaceuticalsand/or Zealand Pharma A/S. In August 2013, the initial closing date for the Series B financing, the Company issued 2,000,000 of the warrants (“First TrancheWarrants”). On August 15, 2014, in connection with the closing of the Series B second tranche financing, the Company issued the balance of the warrants(“Second Tranche Warrants”).The fair value of the warrants outstanding as of December 31, 2015 was remeasured at $480,000, determined using a one-step binomial lattice model incombination with the Option Pricing Model and the 111Table of ContentsIndex to Financial Statementsfollowing assumptions: risk-free interest rate of 0.90%, expected life of 1.6 years and expected volatility of 57.0% and probability of exercisability of 95%and 0% for the first tranche and second tranche, respectively.In March 2016, the Company made a public announcement related to a preclinical candidate which triggered the achievement of the milestone andwarrants to purchase 2,000,000 shares of Series B redeemable convertible preferred stock became exercisable as of that date. In April 2016, 1,999,998 sharesof Series B redeemable convertible preferred stock were issued for cash proceeds of $20,000 in connection with the exercise of warrants. Immediately prior tothe exercise of the warrants, the fair value of the warrants was remeasured at $1.0 million, determined using a hybrid method of the Option Pricing Model witha 67% weighted value per share and the probability-weighted expected return method (“PWERM”) with a 33% weighted value per share. The followingassumptions were used in the Option Pricing Model: risk-free interest rate of 0.73%, expected life of 2.0 years and expected volatility of 52.0%. The PWERMmethod included probabilities of three IPO scenarios occurring in July 2016. The scenarios were weighted based on the Company’s estimate of each eventoccurring in deriving the estimated fair value. Upon the exercise of warrants, the redeemable convertible preferred stock warrant liability of $1.0 million wasreclassified to redeemable convertible preferred stock.In May 2016, the remaining warrants for the purchase of 2,000,000 shares of Series B redeemable convertible preferred stock expired unexercised.The Company recorded a charge of $525,000 and $872,000 for the years ended December 31, 2016 and 2014, respectively, representing the increase inthe fair value of the redeemable convertible preferred stock warrant liability in the consolidated statements of operations. The Company recorded a gain of$543,000 for the year ended December 31, 2015, representing the decrease in the fair value of the redeemable convertible preferred stock warrant liability inthe consolidated statements of operations.9. Redeemable Convertible Preferred StockIn April 2016, 1,999,998 shares of Series B redeemable convertible preferred stock were issued in connection with the exercise of warrants for cashproceeds of $20,000.Following the closing of the IPO, all outstanding shares of the redeemable convertible preferred stock converted into 8,577,571 shares of commonstock and the related carrying value was reclassified to common stock and additional paid-in capital. There were no shares of redeemable convertiblepreferred stock outstanding as of December 31, 2016.The table below provides information on the Company’s redeemable convertible preferred stock as of December 31, 2015 (in thousands, except sharesand original issue price): Shares OriginalIssue Price Authorized Issued andOutstanding CarryingValue AggregateLiquidationPreference Series A $1.00 6,037,500 6,037,500 $1,751 $6,038 Series B $0.50 40,000,000 36,000,000 18,825 18,000 Series C $0.4979 80,337,411 35,147,617 16,420 17,500 Total redeemable convertible preferred stock 126,374,911 77,185,117 $36,996 $41,538 As only the passage of time was required for Series A, B and C to become redeemable, the Company was accreting the carrying value of Series A, B andC to their redemption value over the period from the respective date of issuance to July 2022, (the earliest redemption date) up to the IPO date. In the event ofa change of control of the Company, proceeds would be distributed in accordance with the liquidation preferences set forth in the Company’s Amended andRestated Certificate of Incorporation unless the holders of redeemable convertible 112Table of ContentsIndex to Financial Statementspreferred stock had converted their redeemable convertible preferred stock into shares of common stock. Therefore, redeemable convertible preferred stockwas classified outside of stockholders’ equity (deficit) on the consolidated balance sheets, as Series A, B and C redeemable convertible preferred stock can beredeemed and as events triggering the liquidation preferences were not solely within the Company’s control.The Company recorded $558,000, $75,000, and $146,000 for the accretion of the redeemable convertible preferred stock during the years endedDecember 31, 2016, 2015, and 2014, respectively. The accretion was recorded as an offset to the additional paid in capital until such balance was depletedand any remaining accretion was recorded to accumulated deficit.10. Redeemable Convertible Preferred Stock Tranche LiabilityIn August 2014, the Company completed the closing of the Series B Second Tranche and issued 18,000,000 shares of Series B redeemable convertiblepreferred stock for gross cash proceeds of $9.0 million. At this time the Series B redeemable convertible preferred stock liability was remeasured at $2.3million using a one-step binomial lattice model in combination with option pricing method based on the following assumptions: 100% probability ofachievement of the development milestones, stock price of $0.50 per share, expected term of 0 years and risk-free rate of 0.5%. Upon the closing of the SeriesB Second Tranche, the Series B redeemable convertible preferred stock liability was terminated and the balance of the liability of $2.3 million wasreclassified to redeemable convertible preferred stock.In July 2015, the Company entered into the Series C Preferred Stock Purchase Agreement (“the Series C Agreement”) for the issuance of up to80,337,411 shares of Series C redeemable convertible preferred stock at a price of $0.4979 per share, in multiple closings. The initial closing occurred onJuly 10, 2015, whereby 35,147,617 shares of Series C redeemable convertible preferred stock were issued for gross proceeds of approximately $17.5 million.According to the initial terms of the Series C Agreement, the Company could issue 45,189,794 additional shares under the same terms as the initial closing,in a subsequent closing (“Series C Second Tranche”) contingent upon the achievement of certain development milestones.On the date of the initial closing, the Company recorded a Series C redeemable convertible preferred stock liability of $1.0 million, as the fair value ofthe obligation/right to complete the Series C Second Tranche. The fair value of the Series C redeemable convertible preferred stock liability on the date of theinitial closing was determined using a one-step binomial lattice model in combination with the option pricing method based on the following assumptions:90% probability of achievement of the development milestones, stock price of $0.4979 per share, expected term of 1.0 year, and risk-free rate of 0.5%.At December 31, 2015, the fair value of the Series C redeemable convertible preferred stock liability was remeasured and determined to be $1.6 millionusing a one-step binomial lattice model in combination with the Option Pricing Model based on the following assumptions: 95% probability of achievementof the development milestones, stock price of $0.4979 per share, expected term of 0.53 year, and risk-free rate of 0.9%.In March 2016, the Company completed the closing of the Series C Second Tranche and issued 45,189,794 shares of Series C redeemable convertiblepreferred stock for net cash proceeds of $22.5 million. At this time the Series C redeemable convertible preferred stock liability was remeasured at $5.8million, determined using a hybrid method of the Option Pricing Model with a 67% weighted value per share and the PWERM with a 33% weighted valueper share. The following assumptions were used in the Option Pricing Model: risk-free interest rate of 0.73%, expected life of 2.0 years and expectedvolatility of 52.0%. The PWERM method included probabilities of three IPO scenarios occurring in July 2016. The scenarios were weighted based on theCompany’s estimate of each event occurring in deriving the estimated fair value. Upon the closing of the Series C Second Tranche, the Series C redeemableconvertible preferred stock liability was terminated and the balance of the liability of $5.8 million was reclassified to redeemable convertible preferred stock. 113Table of ContentsIndex to Financial StatementsFor the years ended December 31, 2016, 2015 and 2014, the Company recorded a charge of $4.2 million, $626,000 and $897,000, respectively, for thechange in the fair value of the redeemable convertible preferred stock liability in the consolidated statements of operations.11. Common StockThe Company had reserved shares of common stock for issuance, on an as-converted basis, as follows: December 31, 2016 2015 Redeemable convertible preferred stock outstanding — 5,323,103 Options issued and outstanding 2,393,829 833,178 Options available for future grants 164,328 147,219 Redeemable convertible preferred stock warrants — 275,861 Total 2,558,157 6,579,361 12. Equity PlansEquity Incentive PlanIn May 2007, the Company established its 2007 Stock Option and Incentive Plan (the “2007 Plan”) which provides for the granting of stock options toemployees and consultants of the Company. Options granted under the 2007 Plan may be either incentive stock options (ISOs) or nonqualified stock options(NSOs). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Companyemployees and consultants. Options under the 2007 Plan have a term of ten years and generally vest over a four-year period with one-year cliff vesting.In July 2016, the Company’s board of directors and stockholders approved the 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2007 StockOption Plan and became effective upon the IPO. The 2016 Plan is administered by the Board of Directors or a committee appointed by the Board of Directors,which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Underthe 2016 Plan, 1,200,000 shares of the Company’s common stock have been initially reserved for the issuance of stock options, restricted stock units andother awards to employees, directors and consultants. Options granted under the 2016 Plan expire no later than 10 years from the date of grant. The exerciseprice of each option may not be less than 100% of the fair market value of the common stock at the date of grant. Options may be granted to stockholderspossessing more than 10% of the total combined voting power of all classes of stocks of the Company at an exercise price at least 110% of the fair value ofthe common stock at the date of grant and the options are not exercisable after the expiration of 10 years from the date of grant. Employee stock optionsgenerally vest 25% upon one year of continued service to the Company, with the remainder in monthly increments over three additional years. Uponadoption of the 2016 Plan, no additional stock awards will be issued under the 2007 Stock Option Plan. Options granted under the 2007 Stock Option Planthat were outstanding on the date the 2016 plan became effective remain subject to the terms of the 2007 Stock Option Plan. The number of options availablefor grant under the 2007 Plan was ceased and the number was added to the common stock reserved for issuance under the 2016 Plan. As of December 31,2016, the Company has reserved 1,200,000 shares of common stock for issuance under the 2016 Plan. 114Table of ContentsIndex to Financial StatementsStock OptionsActivity under the Company’s equity incentive plans is set forth below: Options Outstanding OptionsAvailable forGrant OptionsOutstanding Weighted-AverageExercisePrice PerShare Weighted-AverageRemainingContractualLife (years) AggregateIntrinsicValue (in thousands) Balances at December 31, 2013 70,082 284,879 $1.10 7.92 Additional options authorized 240,425 — Options granted (199,519) 199,519 1.83 Options exercised — (2,548) 1.30 Options forfeited 5,844 (5,844) 1.13 Balances at December 31, 2014 116,832 476,006 1.40 8.04 Additional options authorized 431,411 — Options granted (408,623) 408,623 1.24 Options exercised — (43,852) 1.30 Options forfeited 7,599 (7,599) 1.40 Balances at December 31, 2015 147,219 833,178 1.33 8.56 Additional options authorized 1,697,088 — Options granted (1,679,979) 1,679,979 14.24 Options exercised — (119,328) 1.28 Balances at December 31, 2016 164,328 2,393,829 $10.39 8.79 $27,820 Options exercisable – December 31, 2016 492,714 $5.19 7.70 $8,286 Options vested and expected to vest – December 31, 2016 2,369,135 $10.37 8.79 $27,596 The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exerciseprice of the options and the fair value of the Company’s common stock on December 31, 2016. The aggregate intrinsic value of options exercised was$169,000 for the year ended December 31, 2016. The aggregate intrinsic value of options exercised was immaterial for the years ended December 31, 2015and 2014, respectively.During the years ended December 31, 2016, 2015, and 2014 the estimated weighted-average grant-date fair value of common stock underlying optionsgranted was $8.20, $0.69, and $0.82 per share, respectively.Employee Stock Options ValuationThe fair value of employee and director stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with thefollowing assumptions: Year Ended December 31, 2016 2015 2014 Expected term (in years) 4.16 – 5.95 5.89 6.08 Expected volatility 62.5 – 64.8% 59.8% 64.7% Risk-free interest rate 1.27 – 1.79% 1.57 – 1.58% 1.89% Dividend yield — — — Prior to the completion of the Company’s IPO, the fair value of the Company’s shares of common stock underlying its stock options had historicallybeen determined by the Company’s Board of Directors. Because 115Table of ContentsIndex to Financial Statementsthere had been no public market for the Company’s common stock prior to August 2016, the Company’s Board of Directors had determined fair value of thecommon stock at the time of grant of the option by considering a number of objective and subjective factors including important developments in theCompany’s operations, valuations performed by an independent third party, sales of redeemable convertible preferred stock, actual operating results andfinancial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparablepublic companies, and the lack of liquidity of the Company’s common stock, among other factors. For stock options granted after the completion of the IPO,the Company’s Board of Directors determined the fair value of each share of underlying common stock based on the closing price of the Company’s commonstock as reported on the date of grant.In determining the fair value of the options granted, the Company uses the Black-Scholes option-pricing model and assumptions discussed below.Each of these inputs is subjective and generally requires significant judgment to determine.Expected Term—The Company’s expected term represents the period that the Company’s options granted are expected to be outstanding and isdetermined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). The Company has verylimited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior forits stock option grants.Expected Volatility—Since the Company does not have a long trading history for its common stock, the expected volatility is estimated based on theaverage volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants.The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periodscorresponding with the expected term of option.Expected Dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore,the Company used an expected dividend yield of zero.Stock Options Granted to Non-employeesStock-based compensation related to stock options granted to non-employees is recognized as the stock options are earned. The fair value of the stockoptions granted was calculated at each reporting date using the Black-Scholes option-pricing model with the following assumptions: Year Ended December 31, 2016 2015 2014 Expected term (in years) 6.59 –9.97 6.8 9.4 Expected volatility 62.5 – 62.8% 59.8% 64.7%Risk-free interest rate 1.29 – 1.79% 1.95% 2.34%Dividend yield — — — During the years ended December 31, 2016, 2015, and 2014 the Company granted 59,647, 4,816, and 11,805 shares, respectively, to non-employeeconsultants. The Company recorded stock-based compensation expense during the years ended December 31, 2016, 2015, and 2014 of $505,000, $15,000,and $5,000, respectively.Employee Stock Purchase PlanIn July 2016, the Company’s board of directors and stockholders approved the 2016 Employee Stock Purchase Plan (the “2016 ESPP”), which becameeffective upon the IPO. The 2016 ESPP is intended to qualify 116Table of ContentsIndex to Financial Statementsas an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended, and is administered by the Company’s board ofdirectors and the Compensation Committee of the board of directors. Under the 2016 ESPP, 150,000 shares of the Company’s common stock have beeninitially reserved for employee purchases of the Company’s common stock, with an automatic annual increase to the shares issuable under the 2016 ESPP onthe first day of each fiscal year for a period of up to 10 years in an amount equal to (i) the lesser of 1% of the total number of shares of common stockoutstanding on December 31 of the preceding fiscal year and 300,000 shares of the Company’s common stock, or (ii) a lower number determined by theBoard of Directors. The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductionsof up to 15% of their eligible compensation. At the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair marketvalue of the Company’s common stock at the beginning of the offering period or at the end of each applicable purchase period.The fair value of the rights granted under the 2016 ESPP was calculated using the Black-Scholes option-pricing model with the following assumptions: Year Ended December 31, 2016 Expected term (in years) 0.60 Expected volatility 52.48% Risk-free interest rate 0.45% Dividend yield — Stock-Based CompensationTotal stock-based compensation expense recognized for both employees and non-employees for stock options and the 2016 ESPP was as follows (inthousands): Year Ended December 31, 2016 2015 2014 Research and development $1,080 $39 $17 General and administrative 1,050 60 25 Total stock-based compensation expense $2,130 $99 $42 As of December 31, 2016 there was $12.6 million of total unrecognized stock-based compensation costs related to stock options that the Companyexpects to recognize over a period of approximately 3.12 years.13. 401(k) PlanIn March 2012, the Company adopted a retirement and savings plan under Section of 401(k) of Internal Revenue Code (the 401(k) Plan) covering allemployees. The 401(k) Plan allows employees to make pre- and post-tax contributions up to the maximum allowable amount set by the IRS. The Companydoes not make matching contributions to the 401(k) plan on behalf of participants.14. Income TaxesNo provision for income taxes was recorded for the years ended December 31, 2016, 2015 and 2014. The Company has incurred net operating lossesfor all the periods presented. The Company has not reflected any benefit of such net operating loss carryforwards in the consolidated financial statements.The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. 117Table of ContentsIndex to Financial StatementsThe following table presents domestic and foreign components of net loss for the periods presented (in thousands): Year Ended December 31, 2016 2015 2014 Domestic $(34,977) $(10,483) $(9,515) Foreign (2,200) (4,375) (1,557) Total net loss $(37,177) $(14,858) $(11,072) The effective tax rate of the provision for income taxes differs from the federal statutory rate as follows: Year Ended December 31, 2016 2015 2014 Federal statutory income tax rate 34.0% 34.0% 34.0% State taxes, net of federal benefit 6.5 (2.7) 4.1 Warrant revaluation (4.3) (0.2) (5.5) Foreign tax rate difference (1.6) (11.8) (6.8) Change in valuation allowance (36.0) (19.9) (26.5) Other 1.4 0.6 0.7 Provision for income taxes 0.0% 0.0% 0.0% The components of the deferred tax assets are as follows (in thousands): December 31, 2016 2015 Deferred tax assets: Net operating loss carryforwards $21,501 $9,513 Depreciation and amortization 419 480 Accruals/other 908 293 Research and development credits & foreign credits 1,143 285 Total deferred tax assets 23,971 10,571 Valuation allowance (23,971) (10,571) Net deferred tax assets $— $— Realization of the deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain. The Company hasestablished a valuation allowance to offset deferred tax assets as of December 31, 2016 and 2015 due to the uncertainty of realizing future tax benefits fromits net operating loss carryforwards and other deferred tax assets. The valuation allowance increased by approximately $13.4 million, $3.0 million and $2.9million during the year ended December 31, 2016, 2015 and 2014, respectively. The increase in the valuation allowance is mainly related to the increase innet operating loss carryforwards incurred during the respective taxable years.At December 31, 2016, the Company had net operating loss carryforwards for federal income tax purposes of approximately $48.0 million which areavailable to offset future taxable income, if any, through 2033 and net operating loss carryforwards for state income tax purposes of approximately $37.7million which are available to offset future taxable income, if any, through 2033.At December 31, 2016 the Company also had accumulated Australian tax losses of $9.2 million available for carry forward against future earningswhich, under relevant tax laws, do not expire but may not be available under certain circumstances. As of December 31, 2016, the Company also had $1.1million of federal and $0.6 118Table of ContentsIndex to Financial Statementsmillion of state research and development tax credit carryforwards available to reduce future income taxes. The federal research and development tax creditswill begin to expire in 2035, if not utilized. The state research and development tax credits have no expiration date.Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an ownershipchange for tax purposes, as defined in Section 382 of the Internal Revenue Code. As a result of such ownership changes, the Company’s ability to realize thepotential future benefit of tax losses and tax credits that existed at the time of the ownership change may be significantly reduced. The Company’s deferredtax asset and related valuation allowance would be reduced as a result.It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other expense, as necessary.A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): Year Ended December 31, 2016 2015 2014 Balance at beginning of year $805 $— $— Additions based on tax positions related to in prior years 707 690 — Additions based on tax positions related to current year 619 115 — Balance at end of year $2,131 $805 $— The Company does not expect that its uncertain tax positions will materially change in the next twelve months. The reversal of the uncertain taxbenefits would not impact the Company’s effective tax rate as the Company continues to maintain a full valuation allowance against its deferred tax assets.The Company files income tax returns in the United States federal jurisdiction, the State of California and Australia. The Company is not currentlyunder examination by income tax authorities in federal, state or other jurisdictions. The Company’s tax returns for 2012 through 2016 remain open forexamination due to the carryover of unused net operating losses and tax credits.15. Net Loss per Share Attributable to Common StockholdersAs the Company had net losses for the years ended December 31, 2016, 2015 and 2014, all potential common shares were determined to be anti-dilutive. The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders (in thousands, exceptshare and per share data): Year Ended December 31, 2016 2015 2014 Numerator: Net loss $(37,177) $(14,858) $(11,072) Accretion of redeemable convertible preferred stock (558) (75) (146) Net loss attributable to common stockholders $(37,735) $(14,933) $(11,218) Denominator: Weighted-average shares used to compute net loss per common share, basic and diluted 6,501,796 251,717 227,197 Net loss per share attributable to common stockholders, basic and diluted $(5.80) $(59.32) $(49.38) 119Table of ContentsIndex to Financial StatementsThe following outstanding shares of potentially dilutive securities have been excluded from diluted net loss per share calculations for the yearsended December 31, 2016, 2015 and 2014, because their inclusion would be anti-dilutive: Year Ended December 31, 2016 2015 2014 Redeemable convertible preferred stock on an as-converted basis — 5,323,103 2,899,134 Options to purchase common stock 2,393,829 833,178 476,006 Warrants to purchase redeemable convertible preferred stock on an as-converted basis — 275,861 275,861 Total 2,393,829 6,432,142 3,651,001 16. Subsequent EventsIn March 2017, the Company entered into a lease agreement for a new office and laboratory space in Newark, California to relocate its operations to alarger facility. The lease commencement date is July 1, 2017 and the lease expires on June 30, 2024. The Company aggregate minimum lease paymentstotaling $13.4 million under the lease agreement and will provide the landlord with a letter of credit as the security deposit of $450,000.17. Supplementary Financial Data (unaudited)The following table presents the selected quarterly financial data for the years ended December 31, 2016 and 2015: Consolidated Statements of Operations Quarter Ended March 31 June 30 September 30 December 31 (In thousands, except per share amounts) 2016 Loss from operations $(7,040) $(7,091) $(7,138) $(11,397) Net loss $(11,747) $(7,098) $(7,084) $(11,248) Net loss per share of common stock attributable to common stockholders, basic anddiluted $(40.96) $(19.07) $(0.87) $(0.67) 2015 Loss from operations $(2,689) $(3,083) $(4,021) $(5,001) Net loss $(2,697) $(3,219) $(3,449) $(5,493) Net loss per share of common stock attributable to common stockholders, basic anddiluted $(11.75) $(13.78) $(12.79) $(20.31) 120Table of ContentsIndex to Financial StatementsItem 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. Item 9A.Controls and ProceduresEvaluation of disclosure controls and proceduresManagement, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2016.Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures were not effective as of December 31, 2016 to provide reasonable assurance because of the material weaknesses in ourinternal controls over financial reporting as described below.Exemption from management’s report on internal control over financial reporting for the fiscal year ended December 31, 2016This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting on anattestation report of our independent registered public accounting firm due to a transition period established by the rules of the Securities and ExchangeCommission for newly public companies.Material WeaknessesIn connection with the audit of our consolidated financial statements for the years ended December 31, 2015 and 2014, we and our independentregistered public accounting firm identified two material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or acombination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annualor interim financial statements will not be prevented or detected on a timely basis.The first material weakness related to a deficiency in the operation of our internal controls over the accounting for non-routine, complex equitytransactions, which resulted in material post-closing adjustments to the convertible preferred stock, additional paid-in capital, interest expense, and gain frommodification of the redeemable convertible preferred stock balances in the consolidated financial statements for the year ended December 31, 2013. Our lackof adequate accounting personnel has resulted in the identification of a second material weakness in our internal control over financial reporting for the yearsended December 31, 2015 and 2014. Specifically, we did not, and have not historically, appropriately design and implement controls over the review andapproval of manual journal entries and the related supporting journal entry calculations.Remediation PlansWhile we intend to implement a plan to remediate the material weaknesses, we have not completed the implementation of this plan as of December 31,2016. Accordingly, we continue to have the material weaknesses as of December 31, 2016. We can give no assurance that our current and plannedimplementation will remediate this deficiency in internal control or that additional material weaknesses or significant deficiencies in our internal controlover financial reporting will not be identified in the future. Our plan to remediate the material weaknesses includes implementing a new accounting softwaresystem, adding additional accounting personnel and performing a review of manual journal entries. We identified and began implementation of anaccounting system to improve our information systems related controls, which went into production in early 2017. We have recruited and intend to continueto recruit additional finance and accounting personnel as needed to enhance segregation of duties, we will continue to utilize consultants with technicalaccounting expertise as needed, and we will establish formal written policies for our accounting function. 121Table of ContentsIndex to Financial StatementsChanges in internal control over financial reportingThere have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B.Other InformationEntry into a Material Definitive Agreement.On March 6, 2017, we entered into a Lease (the “Lease”) with BMR-Pacific Research Center LP of approximately 42,877 rentable square feet of officeand laboratory space located at 7707 Gateway Boulevard, Newark, California (the “Facility”).The term of the Lease commences when we commence business operations in the Facility, but in no event earlier than June 1, 2017 or later than July 1,2017. Upon commencement of the Lease, the Lease has a term of seven years. The monthly base rent starts at $3.40 per square foot in the first year of theLease, increases to $3.60 per square foot in the second year of the Lease, and escalates by 3.0% annually each year thereafter.The foregoing description of the Lease does not purport to be complete and is qualified in its entirety by reference to the Lease, a copy of which is filedas Exhibit 10.9 to this annual report on Form 10-K and is incorporated herein by reference. 122Table of ContentsIndex to Financial StatementsPART III Item 10.Directors, Executive Officers, Corporate GovernanceExcept as set forth below, the information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with theSEC in connection with our 2017 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2016.We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executiveofficer and principal financial officer. The Code of Business Conduct and Ethics is posted on our website at http://www.protagonist-inc.com/.We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code ofBusiness Conduct and Ethics by posting such information on our website, at the address and location specified above and, to the extent required by thelisting standards of The NASDAQ Global Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information. Item 11.Executive CompensationThe information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our2017 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2016. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our2017 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2016. Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our2017 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2016. Item 14.Principal Accountant Fees and ServicesThe information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our2017 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2016. 123Table of ContentsIndex to Financial StatementsPART IV Item 15.Exhibits and Financial Statement Schedules (a)The following documents are filed as part of this report: (1)FINANCIAL STATEMENTSThe financial statements filed as part of this Annual Report on Form 10-K are included in Part II, Item 8 of this Annual Report on Form 10-K. (2)FINANCIAL STATEMENT SCHEDULESFinancial statement schedules have been omitted in this Annual Report on Form 10-K because they are not applicable, not required under theinstructions, or the information requested is set forth in the financial statements or related notes thereto. (3)EXHIBITSThe exhibits listed in the accompanying Exhibit Index are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. 124Table of ContentsIndex to Financial StatementsSIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized. PROTAGONIST THERAPEUTICS, INC.Date: March 7, 2017 By: /s/ Dinesh V. Patel, Ph.D. Dinesh V. Patel, Ph.D. President, Chief Executive Officer and Director (Principal Executive Officer PEO)POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dinesh V. Patel and ThomasP. O’Neil, and each of them, his true and lawful attorneys-in-fact, with full power of substitution, for him in any and all capacities, to sign any and allamendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securitiesand Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or any of them or their substitute or substitutes may lawfully do orcause to be done by virtue thereof.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 in the capacities and on the dates indicated: Signature Title Date/s/ Dinesh V. Patel, Ph.D. President, Chief Executive Officer and Director March 7, 2017Dinesh V. Patel, Ph.D. (Principal Executive Officer PEO) /s/ Thomas P. O’Neil Chief Financial Officer March 7, 2017Thomas P. O’Neil (Principal Financial and Accounting Officer PFO and AO) /s/ Harold E. Selick, Ph.D Chairman of the Board of Directors March 7, 2017Harold E. Selick, Ph.D /s/ Chaitan Khosla, Ph.D. Director March 7, 2017Chaitan Khosla, Ph.D. /s/ Julie Papanek Director March 7, 2017Julie Papanek /s/ Armen Shanafelt, Ph.D. Director March 7, 2017Armen Shanafelt, Ph.D. /s/ William D. Waddill Director March 7, 2017William D. Waddill 125Table of ContentsIndex to Financial StatementsEXHIBIT INDEX ExhibitNumber Exhibit Description Incorporation By Reference Form SEC File No. Exhibit Filing Date FiledHerewith 3.1 Amended and Restated Certificate of Incorporation 8-K 001-3785237852 3.1 08/16/2016 3.2 Amended and Restated Bylaws S-1/A 333-212476 3.2 08/01/2016 4.1 Specimen stock certificate evidencing the shares of commonstock S-1/A 333-212476 4.1 08/01/2016 4.2 Amended and Restated Investor Rights Agreement, by andamong Protagonist Therapeutics, Inc. and the stockholdersnamed therein, dated July 10, 2015. S-1/A 333-212476 4.2 08/01/2016 10.1+ Protagonist Therapeutics, Inc. 2007 Stock Option and IncentivePlan, as amended and restated, and form of option agreement,exercise notice, joinder, and adoption agreement thereunder. S-1 333-212476 10.1 07/11/2016 10.2+ Protagonist Therapeutics, Inc. 2016 Equity Incentive Plan andforms of stock option grant notice, option agreement, notice ofexercise, restricted stock unit grant notice and restricted stockunit agreement thereunder. S-1/A 333-212476 10.2 08/01/2016 10.3+ Protagonist Therapeutics, Inc. 2016 Employee Stock PurchasePlan. S-1/A 333-212476 10.3 08/01/2016 10.4+ Form of Indemnity Agreement for Directors and Officers. S-1/A 333-212476 10.4 08/01/2016 10.5 Lease, dated September 30, 2013, by and between the Registrantand Berrueta Family Partnership. S-1 333-212476 10.5 07/11/2016 10.6 First Amendment to Lease, dated March 24, 2014, by andbetween the Registrant and Berrueta Family Partnership. S-1 333-212476 10.6 07/11/2016 10.7 Second Amendment to Lease, dated May 4 2015, by andbetween the Registrant and Berrueta Family L.P. S-1 333-212476 10.7 07/11/2016 10.8 Third Amendment to Lease, dated August 11, 2015, by andbetween the Registrant and Berrueta Family L.P. S-1 333-212476 10.8 07/11/2016 10.9 Lease, dated March 6, 2017, by and between the Registrant andBMR-Pacific Research Center LP. X 126Table of ContentsIndex to Financial StatementsExhibitNumber Exhibit Description Incorporation By Reference Form SEC File No. Exhibit Filing Date FiledHerewith 10.10+ Severance Agreement, dated August 1, 2016, by and between theRegistrant and Dinesh Patel. S-1/A 333-212476 10.9 08/01/2016 10.11+ Severance Agreement, dated August 1, 2016, by and between theRegistrant and David Y. Liu, Ph.D. S-1/A 333-212476 10.10 08/01/2016 10.12+ Severance Agreement, dated August 1, 2016, by and between theRegistrant and William Hodder. S-1/A 333-212476 10.11 08/01/2016 10.13+ Severance Agreement, dated August 1, 2016, by and between theRegistrant and Tom O’Neil. S-1/A 333-212476 10.12 08/01/2016 10.14+ Severance Agreement, dated August 1, 2016, by and between theRegistrant and Richard Shames, M.D. S-1/A 333-212476 10.13 08/01/2016 10.15† Research and Collaboration Agreement, dated June 16, 2012, by andamong the Registrant, Protagonist Pty. Ltd. and Zealand Pharma A/S. S-1 333-212476 10.17 07/11/2016 10.16† Contract Extension Letter of Agreement, dated June 1, 2013, by andamong the Registrant, Protagonist Pty. Ltd. and Zealand Pharma A/S. S-1 333-212476 10.18 07/11/2016 10.17† Agreement on Addition of Additional Collaboration Program, datedSeptember 16, 2013, by and among the Registrant, Protagonist Pty.Ltd. and Zealand Pharma A/S. S-1 333-212476 10.19 07/11/2016 10.18† Protagonist Assumption of Responsibility, dated January 28, 2014,by and between the Registrant and Zealand Pharma A/S. S-1 333-212476 10.20 07/11/2016 10.19† Agreement to Assign Patent Applications, dated February 7, 2014, byand between the Registrant, Protagonist Pty. Ltd. and ZealandPharma A/S. S-1 333-212476 10.21 07/11/2016 10.20† Abandonment Agreement, dated February 28, 2014, by and amongthe Registrant, Protagonist Pty. Ltd. and Zealand Pharma A/S. S-1 333-212476 10.22 07/11/2016 10.21 Letter Agreement, dated as of May 10, 2013, by and between theRegistrant and Johnson & Johnson Development Corporation, asamended. S-1 333-212476 10.23 07/11/2016 127Table of ContentsIndex to Financial StatementsExhibitNumber Exhibit Description Incorporation By Reference Form SEC File No. Exhibit Filing Date FiledHerewith 21.1 List of Subsidiaries X 23.1 Consent of Independent Registered PublicAccounting Firm X 24.1 Power of Attorney (included in signature page of thisForm 10-K) X 31.1 Certification of Chief Executive Officer required byRule 13a-14(a) or Rule 15d-14(a) of the SecuritiesExchange Act of 1934, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification of Chief Financial Officer required byRule 13a-14(a) or Rule 15d-14(a) of the SecuritiesExchange Act of 1934, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X 32.1* Certification of Chief Executive Officer and ChiefFinancial Officer, as required by Rule 13a-14(b) orRule 15d-14(b) and Section 1350 of Chapter 63 ofTitle 18 of the United States Code (18 U.S.C. §1350),as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Extension Calculation LinkbaseDocument X 101.DEF XBRL Taxonomy Extension Definition LinkbaseDocument X 101.LAB XBRL Taxonomy Extension Labels LinkbaseDocument X 101.PRE XBRL Taxonomy Extension Presentation LinkbaseDocument X +Indicates management contract or compensatory plan, contract or agreement.†Confidential treatment has been granted for a portion of this exhibit.*This certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K is not deemed filed with the Securities and ExchangeCommission and is not to be incorporated by reference into any filing of Protagonist Therapeutics, Inc. under the Securities Act of 1933, as amended, orthe Securities Exchange Act of 1934, as amended, whether made before or after the date of the Form 10-K, irrespective of any general incorporationlanguage contained in such filing. 128Exhibit 10.9LEASEby and betweenBMR-PACIFIC RESEARCH CENTER LP,a Delaware limited partnershipandPROTAGONIST THERAPEUTICS, INC.,a Delaware corporationTable of Contents 1. Lease of Premises 1 2. Basic Lease Provisions 2 3. Term 4 4. Possession and Commencement Date. 4 5. Condition of Premises 6 6. Rentable Area 6 7. Rent 7 8. Rent Adjustments 8 9. Operating Expenses 8 10. Taxes on Tenant’s Property 14 11. Security Deposit 14 12. Use 17 13. Rules and Regulations, CC&Rs, Parking Facilities and Common Area 21 14. Project Control by Landlord 21 15. Quiet Enjoyment 22 16. Utilities and Services 23 17. Alterations 26 18. Repairs and Maintenance 29 19. Liens 30 20. Estoppel Certificate 31 21. Hazardous Materials 31 22. Odors and Exhaust 34 23. Insurance; Waiver of Subrogation 35 24. Damage or Destruction 38 25. Eminent Domain 41 26. Surrender 41 27. Holding Over 42 28. Indemnification and Exculpation 43 29. Assignment or Subletting 44 30. Subordination and Attornment 48 31. Defaults and Remedies 49 i32. Bankruptcy 54 33. Brokers 55 34. Definition of Landlord 55 35. Limitation of Landlord’s Liability 56 36. Joint and Several Obligations 56 37. Representations 57 38. Confidentiality 57 39. Notices 57 40. Miscellaneous 58 iiLEASETHIS LEASE (this “Lease”) is entered into as of this 6th day of March, 2017 (the “Execution Date”), by and between BMR-PACIFIC RESEARCHCENTER LP, a Delaware limited partnership (“Landlord”), and PROTAGONIST THERAPEUTICS, INC., a Delaware corporation (“Tenant”).RECITALSA. WHEREAS, Landlord owns certain real property (the “Property”) and the improvements on the Property located at 7333-7999 Gateway Boulevard,Newark, California, including the buildings located thereon; andB. WHEREAS, Landlord wishes to lease to Tenant, and Tenant desires to lease from Landlord, certain premises as shown on Exhibit A attached hereto(the “Premises”) located on the first (1st) and second (2nd) floors of the building addressed at 7707 Gateway Boulevard, Newark, California (the “Building”),pursuant to the terms and conditions of this Lease, as detailed below.AGREEMENTNOW, THEREFORE, Landlord and Tenant, in consideration of the mutual promises contained herein and for other good and valuable consideration,the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows:1. Lease of Premises1.1. Effective on the Term Commencement Date (as defined below), Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, thePremises, including exclusive shafts, cable runs and mechanical spaces, for use by Tenant in accordance with the Permitted Use (as defined below) and noother uses. The Property and all landscaping, parking facilities, private drives and other improvements and appurtenances related thereto, including theBuilding, the Amenities Building (as defined below), the nine (9) other buildings currently located on the Property and each additional building that isconstructed on the Property (following substantial completion of such building), are hereinafter collectively referred to as the “Project.” All portions of theBuilding that are for the non-exclusive use of the tenants of the Building only, and not the tenants of the Project generally, such as service corridors,stairways, elevators, public restrooms and public lobbies (all to the extent located in the Building), are hereinafter referred to as “Building Common Area.”All portions of the Project that are for the non-exclusive use of tenants of the Project generally, including driveways, sidewalks, parking areas, landscapedareas, and (to the extent not located in a building other than the Amenities Building) service corridors, stairways, elevators, public restrooms, public lobbiesand the amenities building (the “Amenities Building”) in which Landlord currently provides certain amenities, including food services, a fitness center and aconference center (“Amenities Building Services”) (but excluding Building Common Area), are hereinafter referred to as “Project Common Area.” TheBuilding Common Area and Project Common Area are collectively referred to herein as “Common Area.” The Building is located on a portion of the Projectcommonly referred to as the “North Campus,”which is that part of the Project to the north of Gateway Boulevard comprised of the Building and five (5) other buildings commonly referred to as Buildings1, 2, 3, 6 and 7, together with all appurtenances thereto (collectively, the “North Campus”).2. Basic Lease Provisions. For convenience of the parties, certain basic provisions of this Lease are set forth herein. The provisions set forth herein aresubject to the remaining terms and conditions of this Lease and are to be interpreted in light of such remaining terms and conditions.2.1. This Lease shall take effect upon the Execution Date and, except as specifically otherwise provided within this Lease, each of the provisionshereof shall be binding upon and inure to the benefit of Landlord and Tenant from the date of execution and delivery hereof by all parties hereto.2.2. In the definitions below, each current Rentable Area (as defined below) is expressed in square feet. Rentable Area and “Tenant’s Pro Rata Shares”are all subject to adjustment as provided in this Lease. Definition or Provision Means the Following(As of the Term Commencement Date)Approximate Rentable Area of Premises 42,877 square feetApproximate Rentable Area of Building 148,848 square feetApproximate Rentable Area of North Campus 966,271 square feetApproximate Rentable Area of Project 1,389,517 square feetTenant’s Pro Rata Share of Building 28.81%Tenant’s Pro Rata Share of North Campus 4.44%Tenant’s Pro Rata Share of Project 3.09%2.3. Initial monthly installments of Base Rent for the Premises (“Base Rent”) as of the Term Commencement Date, subject to adjustment under thisLease: Dates Square Feet ofRentable Area Base Rent per SquareFoot of Rentable Area Monthly Base Rent Month 1 – Month 6 21,291* $3.40 monthly $72,389.40 Month 7 – Month 12 31,291* $3.40 monthly $106,389.40 Month 13 – Month 24 42,877 $3.60 monthly $154,357.20 *Base Rent for months one (1) through (6) of the Term will be calculated based upon 21,291 square feet of Rentable Area and Base Rent for months seven(7) through twelve (12) of the Term will be calculated based upon 31,291 square feet of Rentable Area; provided, however, that Tenant’s Pro Rata Sharesshall, at all times, be calculated based on the total Rentable Area of the Premises. 22.4. Estimated Term Commencement Date: July 1, 20172.5. Estimated Term Expiration Date: June 30, 20242.6. Security Deposit: $450,000 (subject to Section 11.7 below)2.7. Permitted Use: Office, R&D, laboratory and vivarium use in conformity with all federal, state, municipal and local laws, codes, ordinances, rulesand regulations of Governmental Authorities (as defined below), committees, associations, or other regulatory committees, agencies or governing bodieshaving jurisdiction over the Premises, the Building, the Property, the Project, Landlord or Tenant, including both statutory and common law and hazardouswaste rules and regulations (“Applicable Laws”)2.8. Address for Rent Payment:BMR-Pacific Research Center LPAttention Entity 285P.O. Box 511415Los Angeles, California 90051-79702.9. Address for Notices to Landlord:BMR-Pacific Research Center LP17190 Bernardo Center DriveSan Diego, California 92128Attn: Legal Department2.10. Address for Notices to Tenant:Protagonist Therapeutics, Inc.7707 Gateway Boulevard,Newark, CaliforniaAttn: Tom O’Neil, Chief Financial Officer2.11. Address for Invoices to Tenant:Protagonist Therapeutics, Inc.7707 Gateway Boulevard,Newark, CaliforniaAttn: Tom O’Neil, Chief Financial Officer 32.12. The following Exhibits are attached hereto and incorporated herein by reference: Exhibit A PremisesExhibit B Work LetterExhibit B-1 Tenant Work Insurance ScheduleExhibit C Acknowledgement of Term Commencement Date and Term Expiration DateExhibit D FF&EExhibit E Form of Letter of CreditExhibit F Rules and RegulationsExhibit G Approved Vendor ListExhibit H Tenant’s Personal PropertyExhibit I Form of Estoppel CertificateExhibit J Landlord Work Area3. Term. The actual term of this Lease (as the same may be earlier terminated in accordance with this Lease, the “Term”) shall commence on the actual TermCommencement Date (as defined in Article 4) and end on the date (the “Term Expiration Date”) that is eighty-four (84) months after the actual TermCommencement Date, subject to earlier termination of this Lease as provided herein. TENANT HEREBY WAIVES THE REQUIREMENTS OF SECTION1933 OF THE CALIFORNIA CIVIL CODE, AS THE SAME MAY BE AMENDED FROM TIME TO TIME.4. Possession and Commencement Date.4.1. The “Term Commencement Date” shall be the earlier of (a) the Estimated Term Commencement Date and (b) the later of (i) June 1, 2017 and(ii) the day Tenant commences business operations in the Premises. Tenant shall execute and deliver to Landlord written acknowledgment of the actual TermCommencement Date and the Term Expiration Date within ten (10) days after Tenant takes occupancy of the Premises, in the form attached as Exhibit Chereto. Failure to execute and deliver such acknowledgment, however, shall not affect the Term Commencement Date or Landlord’s or Tenant’s liabilityhereunder. Failure by Tenant to obtain validation by any medical review board or other similar governmental licensing of the Premises required for thePermitted Use by Tenant shall not serve to extend the Term Commencement Date. The term “Substantially Complete” or “Substantial Completion” meansthat the Tenant Improvements (as defined below) are substantially complete in accordance with the Approved Plans (as defined in the Work Letter), exceptfor minor punch list items.4.2. Tenant shall cause the work (the “Tenant Improvements”) described in the Work Letter attached hereto as Exhibit B (the “Work Letter”) to beconstructed in the Premises pursuant to the Work Letter at a cost to Landlord not to exceed Four Hundred Sixty-Nine Thousand Three Hundred Sixty-FiveDollars ($469,365) (the “TI Allowance”). The TI Allowance may be applied to the costs of (m) construction, (n) project review by Landlord (which fee shallequal three percent (3%) of the cost of the Tenant Improvements, including the TI Allowance), (o) commissioning of mechanical, electrical and plumbingsystems by a licensed, qualified commissioning agent hired by Tenant, and review of such party’s commissioning 4report by a licensed, qualified commissioning agent hired by Landlord, (p) space planning, architect, engineering and other related services performed bythird parties unaffiliated with Tenant, (q) building permits and other taxes, fees, charges and levies by Governmental Authorities (as defined below) forpermits or for inspections of the Tenant Improvements, and (r) costs and expenses for labor, material, equipment and fixtures. In no event shall the TIAllowance be used for (v) the cost of work that is not authorized by the Approved Plans (as defined in the Work Letter) or otherwise approved in writing byLandlord, (w) payments to Tenant or any affiliates of Tenant, (x) the purchase of any furniture, personal property or other non-building system equipment,(y) costs resulting from any default by Tenant of its obligations under this Lease or (z) costs that are recoverable by Tenant from a third party (e.g., insurers,warrantors, or tortfeasors).4.3. Tenant shall have until December 31, 2018 to expend the unused portion of the TI Allowance, after which date Landlord’s obligation to fundsuch costs shall expire.4.4. In no event shall any unused TI Allowance entitle Tenant to a credit against Rent payable under this Lease. Tenant shall deliver to Landlord (a) acertificate of occupancy (or its substantial equivalent) for the Premises suitable for the Permitted Use (if required by Applicable Law for legal occupancy ofthe Premises) and (b) a Certificate of Substantial Completion in the form of the American Institute of Architects document G704, executed by the projectarchitect and the general contractor.4.5. Tenant shall have exclusive access to the Premises (subject to the terms, conditions and provisions of Section 4.6 below) from and after theExecution Date for purposes of (a) constructing the Tenant Improvements (in accordance with all of the terms, conditions and provisions of this Lease and theWork Letter), (b) the placement of Tenant’s furniture, fixtures, equipment and personal property, and (c) commencing business operations in the Premises;provided, however, that, prior to entering upon the Premises, Tenant shall furnish to Landlord evidence satisfactory to Landlord that insurance coveragesrequired of Tenant under the provisions of Article 23 are in effect, and such entry shall be subject to all the terms and conditions of this Lease other than thepayment of Base Rent, the Property Management Fee (as defined below) or Tenant’s Adjusted Share of Operating Expenses (as defined below) (except that, inthe event that Tenant uses the Premises for the purposes set forth in Subsection (c) above prior to the Term Commencement Date, Tenant shall be obligated topay the Property Management Fee and Tenant’s Adjusted Share of Operating Expenses from and after the date that Tenant first commences businessoperations in the Premises).4.6 Notwithstanding anything to the contrary in this Lease, Tenant acknowledges that, as of the Execution Date, Landlord is in the process ofconstructing certain work on the slab, vapor barrier and flooring in the portion of the first (1st) floor of the Premises outlined on Exhibit J attached hereto(such work, the “Landlord Work”). From and after the Execution Date, Tenant shall permit Landlord to enter the Premises at all times (including duringbusiness hours) to construct the Landlord Work, and Tenant shall (at no cost to Tenant) otherwise reasonably cooperate with Landlord throughout theconstruction process to enable Landlord to complete the Landlord Work in a timely and efficient manner. In constructing the Landlord Work, Landlord shallreasonably cooperate with Tenant so as to cause as little interference to Tenant as is 5reasonably possible; provided, however, that in no event shall Landlord’s construction of the Landlord Work in the Premises (a) cause Rent (as definedbelow) to abate under this Lease, (b) give rise to any claim by Tenant for damages or (c) constitute a forcible or unlawful entry, a detainer or an eviction ofTenant. In the event that Landlord fails to complete the Landlord Work on or before the Term Commencement Date (as defined in Section 4.1 above), theTerm Commencement Date shall be extended on a day-for-day basis until Landlord completes the Landlord Work (such that the Term Commencement Dateshall be the date immediately following the day that Landlord completes the Landlord Work).4.7 Landlord and Tenant shall mutually agree upon the selection of the architect, engineer, general contractor and major subcontractors, andLandlord and Tenant shall each participate in the review of the competitive bid process; provided that the architects, engineers, general contractors andsubcontractors listed on Exhibit G attached hereto are pre-approved by Landlord for the initial Tenant Improvements. Landlord may refuse to approve anyarchitects, consultants, contractors, subcontractors or material suppliers that Landlord reasonably believes could cause labor disharmony or may not havesufficient experience, in Landlord’s reasonable opinion, to perform work in an occupied Class “A” laboratory research building and in lab areas.4.8 Tenant shall pay all utility charges, together with any fees, surcharges and taxes thereon for the period beginning on the date that Tenant firstaccesses the Premises for any reason after the Execution Date.5. Condition of Premises. Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to thecondition of the Premises, the Building or the Project, or with respect to the suitability of the Premises, the Building or the Project for the conduct of Tenant’sbusiness. Tenant acknowledges that (a) it is fully familiar with the condition of the Premises and agrees to take the same in its condition “as is” as of theExecution Date and (b) Landlord shall have no obligation to alter, repair or otherwise prepare the Premises for Tenant’s occupancy or to pay for or constructany improvements to the Premises, except with respect to payment of the TI Allowance. Tenant’s taking of possession of the Premises shall, except asotherwise agreed to in writing by Landlord and Tenant, conclusively establish that the Premises, the Building and the Project were at such time in good,sanitary and satisfactory condition and repair.6. Rentable Area.6.1. The term “Rentable Area” shall reflect such areas as reasonably calculated by Landlord’s architect, as the same may be reasonably adjusted fromtime to time by Landlord in consultation with Landlord’s architect to reflect changes to the Premises, the Building or the Project, as applicable; provided thatin no event will the Base Rent payable pursuant to this Lease change as a result of any remeasurement of the Premises, Building or Project, unless due to aphysical change of the same.6.2. The Rentable Area of the Building is generally determined by making separate calculations of Rentable Area applicable to each floor within theBuilding and totaling the Rentable Area of all floors within the Building. The Rentable Area of a floor is computed by measuring to the outside finishedsurface of the permanent outer Building walls. The full area 6calculated as previously set forth is included as Rentable Area, without deduction for columns and projections or vertical penetrations, including stairs,elevator shafts, flues, pipe shafts, vertical ducts and the like, as well as such items’ enclosing walls.6.3. The term “Rentable Area,” when applied to the Premises, is that area equal to the usable area of the Premises, plus an equitable allocation ofRentable Area within the Building that is not then utilized or expected to be utilized as usable area, including that portion of the Building devoted tocorridors, equipment rooms, restrooms, elevator lobby, atrium and mailroom.6.4. The Rentable Area of the Project is the total Rentable Area of all buildings within the Project.6.5. Review of allocations of Rentable Areas as between tenants of the Building and the Project shall be made as frequently as Landlord deemsappropriate, including in order to facilitate an equitable apportionment of Operating Expenses (as defined below). If such review is by a licensed architectand allocations are certified by such licensed architect as being correct, then Tenant shall be bound by such certifications.7. Rent.7.1. Tenant shall pay to Landlord as Base Rent for the Premises, commencing on the Term Commencement Date, the sums set forth in Section 2.3,subject to the rental adjustments provided in Article 8 hereof. Base Rent shall be paid in equal monthly installments as set forth in Section 2.3, subject to therental adjustments provided in Article 8 hereof, each in advance on the first day of each and every calendar month during the Term.7.2. In addition to Base Rent, commencing on the Expense Trigger Date (as defined in Section 9.5 below), Tenant shall pay to Landlord as additionalrent (“Additional Rent”) at times hereinafter specified in this Lease (a) Tenant’s Adjusted Share (as defined below) of Operating Expenses (as defined below),(b) the Property Management Fee (as defined below), (c) [intentionally omitted] and (d) any other amounts that Tenant assumes or agrees to pay under theprovisions of this Lease that are owed to Landlord, including any and all other sums that may become due by reason of any default of Tenant or failure onTenant’s part to comply with the agreements, terms, covenants and conditions of this Lease to be performed by Tenant, after notice and the lapse of anyapplicable cure periods.7.3. Base Rent and Additional Rent shall together be denominated “Rent.” Rent shall be paid to Landlord, without abatement, deduction or offset, inlawful money of the United States of America to the address set forth in Section 2.8 or to such other person or at such other place as Landlord may from timedesignate in writing. In the event the Term commences or ends on a day other than the first day of a calendar month, then the Rent for such fraction of amonth shall be prorated for such period on the basis of the number of days in the month and shall be paid at the then-current rate for such fractional month.7.4. Tenant’s obligation to pay Rent shall not be discharged or otherwise affected by (a) any Applicable Laws now or hereafter applicable to thePremises, (b) any other restriction on 7Tenant’s use, (c) except as expressly provided herein, any casualty or taking or (d) any other occurrence; and Tenant waives all rights now or hereafterexisting to terminate or cancel this Lease or quit or surrender the Premises or any part thereof, or to assert any defense in the nature of constructive eviction toany action seeking to recover rent. Tenant’s obligation to pay Rent with respect to any period or obligations arising, existing or pertaining to the period priorto the date of the expiration or earlier termination of the Term or this Lease shall survive any such expiration or earlier termination; provided, however, thatnothing in this sentence shall in any way affect Tenant’s obligations with respect to any other period.8. Rent Adjustments. Base Rent shall be subject to an annual upward adjustment of three percent (3%) of the then-current Base Rent. The first suchadjustment shall become effective commencing on the second (2nd) annual anniversary of the Term Commencement Date, and subsequent adjustments shallbecome effective on every successive annual anniversary for so long as this Lease continues in effect.9. Operating Expenses.9.1. As used herein, the term “Operating Expenses” shall include:(a) Government impositions, including property tax costs consisting of real and personal property taxes (including amounts due under anyimprovement bond upon the Building or the Project (including the parcel or parcels of real property upon which the Building, the other buildings in theProject and areas serving the Building and the Project are located)) or assessments in lieu thereof imposed by any federal, state, regional, local or municipalgovernmental authority, agency or subdivision (each, a “Governmental Authority”); taxes on or measured by gross rentals received from the rental of space inthe Project; taxes based on the square footage of the Premises, the Building or the Project, as well as any parking charges, utilities surcharges or any othercosts levied, assessed or imposed by, or at the direction of, or resulting from Applicable Laws or interpretations thereof, promulgated by any GovernmentalAuthority in connection with the use or occupancy of the Project or the parking facilities serving the Project; taxes on this transaction or any document towhich Tenant is a party creating or transferring an interest in the Premises; any fee for a business license to operate an office building; and any expenses,including the reasonable cost of attorneys or experts, reasonably incurred by Landlord in seeking reduction by the taxing authority of the applicable taxes,less tax refunds obtained as a result of an application for review thereof; and(b) All other costs of any kind paid or incurred by Landlord in connection with the operation or maintenance of the Building and the Project(including the Amenities Building, which shall include (i) Project office rent at fair market rental for a commercially reasonable amount of space for Projectmanagement personnel located in the Amenities Building, to the extent an office used for Project operations is maintained at the Project, plus customaryexpenses for such office, and (ii) fair market rent for the portion of the Amenities Building used in providing the Amenities Building Services), and costs ofrepairs and replacements to improvements within the Project as appropriate to maintain the Project as required hereunder, including costs of funding suchreasonable reserves as Landlord, consistent with good business practice, may establish to provide for future repairs and replacements, or as any Lender (asdefined below) may require; costs of utilities furnished to the Common Area; 8sewer fees; cable television; trash collection; cleaning, including windows (including those of the Amenities Building); heating, ventilation andair-conditioning (“HVAC”); maintenance of landscaping and grounds; snow removal; maintenance of drives and parking areas; maintenance of the roof(including that of the Amenities Building); security services and devices; building supplies; maintenance or replacement of equipment utilized for operationand maintenance of the Project; license, permit and inspection fees; sales, use and excise taxes on goods and services purchased by Landlord in connectionwith the operation, maintenance or repair of the Building or Project systems and equipment; telephone, postage, stationery supplies and other expensesincurred in connection with the operation, maintenance or repair of the Project; accounting, legal and other professional fees and expenses incurred inconnection with the Project; costs of furniture, draperies, carpeting, landscaping supplies, snow removal and other customary and ordinary items of personalproperty provided by Landlord for use in Common Area or in the Project office; capital expenditures (amortized over the useful life thereof, as reasonablydetermined by Landlord, in accordance with generally accepted accounting principles, but in no event longer than fifteen (15) years) (any such capitalexpenditures, “Permitted Capital Expenditures”); costs of complying with Applicable Laws (except to the extent such costs are incurred to remedynon-compliance as of the Execution Date with Applicable Laws); costs to keep the Project in compliance with, or costs or fees otherwise required under orincurred pursuant to any CC&Rs (as defined below), including condominium fees; insurance premiums, including premiums for commercial general liability,property casualty, earthquake, terrorism and environmental coverages; portions of insured losses paid by Landlord as part of the deductible portion of a losspursuant to the terms of insurance policies; service contracts; costs of services of independent contractors retained to do work of a nature referenced above;and costs of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with theday-to-day operation and maintenance of the Project, its equipment, the adjacent walks, landscaped areas, drives and parking areas, including janitors, floorwaxers, window washers, watchmen, gardeners, sweepers, plow truck drivers, handymen, and engineering/maintenance/facilities personnel.(c) Notwithstanding the foregoing, Operating Expenses shall not include any net income, franchise, capital stock, estate or inheritance taxes, ortaxes that are the personal obligation of Tenant or of another tenant of the Project; any leasing commissions; expenses that relate to preparation of rentalspace for a tenant; expenses of initial development and construction, including grading, paving, landscaping and decorating (as distinguished frommaintenance, repair and replacement of the foregoing); legal expenses relating to other tenants; costs of repairs to the extent reimbursed by payment ofinsurance proceeds received by Landlord; interest upon loans to Landlord or secured by a loan agreement, mortgage, deed of trust, security instrument orother loan document covering the Project or a portion thereof (collectively, “Loan Documents”) (provided that interest upon a government assessment orimprovement bond payable in installments shall constitute an Operating Expense under Subsection 9.1(a)); salaries of executive officers of Landlord;depreciation claimed by Landlord for tax purposes (provided that this exclusion of depreciation is not intended to delete from Operating Expenses actualcosts of repairs and replacements and reasonable reserves in regard thereto that are provided for in Subsection 9.1(b)); taxes that are excluded from OperatingExpenses by the last sentence of Subsection 9.1(a); costs or expenses incurred in connection with the financing or sale of the Project or any portion thereof;costs expressly excluded from 9Operating Expenses elsewhere in this Lease or that are charged to or paid by Tenant under other provisions of this Lease; professional fees and disbursementsand other costs and expenses related to the ownership (as opposed to the use, occupancy, operation, maintenance or repair) of the Project; costs incurred byLandlord due to the violation by Landlord of any law, code, regulation, ordinance or the like that would not have been incurred but for such violation; costs,including permit, license and inspection costs, incurred with respect to the installation of other tenants’ or occupants’ improvements made for tenants or otheroccupants in the Building or incurred in renovating or otherwise improving, decorating, painting or redecorating space for tenants or other occupants in theBuilding; expenses in connection with services or other benefits which are not offered to Tenant or for which Tenant is charged for directly but which areprovided to another tenant or occupant of the Building, without charge; electric power costs or other utility costs that any tenant pays directly to the localpublic service company; costs (including in connection therewith all attorneys’ fees) arising from claims, disputes or potential disputes in connection withpotential or actual claims, litigation or arbitrations pertaining to another tenant of the Building; advertising and promotional expenses; charitable or politicalcontributions; costs incurred in connection with the acquisition of art work (provided that costs to repair and maintain art work may be included in OperatingExpenses); costs reimbursed by insurance or by other tenants of the Project; penalties, fines or interest incurred as a result of Landlord’s inability or failure tomake payment of taxes or other obligations of Landlord when due and/or to file any tax or informational returns when due, or from Landlord’s failure to makeany payment of taxes required to be made by Landlord hereunder before delinquency; bad debt loss, rent loss or reserves for bad debt or rental losses; capitalexpenditures other than Permitted Capital Expenditures; costs incurred to investigate, remove or remediate any Hazardous Materials (a) at the Project inviolation of Applicable Laws as of the Execution Date (unless placed at the Project by a Tenant Party), (b) to the extent brought onto the Project after theExecution Date by (i) Landlord or any Landlord Parties, or (ii) a tenant at the Project other than Tenant (provided, however, in the event that Landlord is notable to determine which specific tenant brought the Hazardous Materials onto the Project, this exclusion to Operating Expenses shall not apply, provided,further, that Landlord shall use reasonable efforts to determine which specific tenant, if any, brought the Hazardous Materials onto the Project), or (c) to theextent reimbursed by payment of insurance proceeds received by Landlord; and any item that, if included in Operating Expenses, would involve a doublecollection for such item by Landlord. To the extent that Tenant uses more than Tenant’s Pro Rata Share of any item of Operating Expenses, Tenant shall payLandlord for such excess in addition to Tenant’s obligation to pay Tenant’s Pro Rata Share of Operating Expenses (such excess, together with Tenant’s ProRata Share, “Tenant’s Adjusted Share”).9.2. Tenant shall pay to Landlord on the first day of each calendar month of the Term (and any period of occupancy prior to the Term as furtherdescribed in Section 9.5), as Additional Rent, (a) the Property Management Fee (as defined below), (b) [intentionally omitted] and (c) Landlord’s estimate ofTenant’s Adjusted Share of Operating Expenses with respect to the Building and the Project, as applicable, for such month.(w) The “Property Management Fee” shall equal three percent (3%) of Base Rent due from Tenant. Tenant shall pay the Property ManagementFee in accordance with Section 9.2 with respect to the entire Term (and any period of occupancy prior to the Term as 10further described in Section 9.5), including any extensions thereof or any holdover periods, regardless of whether Tenant is obligated to pay Base Rent,Operating Expenses or any other Rent with respect to any such period or portion thereof. For the first twelve (12) months of the Term (and any period ofoccupancy prior to the Term as further described in Section 9.5), the Property Management Fee shall be calculated as if Tenant were paying One HundredForty-Five Thousand Seven Hundred Eighty-One and 80/100 Dollars ($145,781.80) per month for Base Rent.(x) [Intentionally omitted].(y) Within ninety (90) days after the conclusion of each calendar year (or such longer period as may be reasonably required by Landlord),Landlord shall furnish to Tenant a statement showing in reasonable detail the actual Operating Expenses, Tenant’s Adjusted Share of Operating Expenses,and the cost of providing utilities to the Premises for the previous calendar year (“Landlord’s Statement”). Any additional sum due from Tenant to Landlordshall be due and payable within thirty (30) days after receipt of an invoice therefor. If the amounts paid by Tenant pursuant to this Section exceed Tenant’sAdjusted Share of Operating Expenses for the previous calendar year, then Landlord shall credit the difference against the Rent next due and owing fromTenant; provided that, if the Lease term has expired, Landlord shall accompany Landlord’s Statement with payment for the amount of such difference.(z) Any amount due under this Section for any period that is less than a full month shall be prorated for such fractional month on the basis ofthe number of days in the month.9.3. Landlord may, from time to time, modify Landlord’s calculation and allocation procedures for Operating Expenses, so long as such modificationsproduce Dollar results substantially consistent with Landlord’s then-current practice at the Project. Landlord or an affiliate(s) of Landlord currently own otherproperty(ies) adjacent to the Project or its neighboring properties (collectively, “Neighboring Properties”). In connection with Landlord performing servicesfor the Project pursuant to this Lease, similar services may be performed by the same vendor(s) for Neighboring Properties. In such a case, Landlord shallreasonably allocate to each Building and the Project the costs for such services based upon the ratio that the square footage of the Building or the Project (asapplicable) bears to the total square footage of all of the Neighboring Properties or buildings within the Neighboring Properties for which the services areperformed, unless the scope of the services performed for any building or property (including the Building and the Project) is disproportionately more or lessthan for others, in which case Landlord shall equitably allocate the costs based on the scope of the services being performed for each building or property(including the Building and the Project). Since the Project consists of multiple buildings, certain Operating Expenses may pertain to a particular building(s),certain Operating Expenses may pertain to the North Campus, and other Operating Expenses to the Project as a whole. Landlord reserves the right in itsreasonable discretion to allocate in a reasonable and equitable manner any such costs applicable to any particular building within the Project to suchbuilding, any costs applicable to the North Campus to the buildings comprising the North Campus (including the Building), and other such costs applicableto the Project to each building in the Project (including the Building), with the tenants in each 11building being responsible for paying their respective proportionate shares of their buildings to the extent required under their leases. Landlord shall allocatesuch costs to the buildings (including the Building) in a reasonable, non-discriminatory manner, and such allocation shall be binding on Tenant.9.4. Landlord’s annual statement shall be final and binding upon Tenant unless Tenant, within forty-five (45) days after Tenant’s receipt thereof, shallcontest any item therein by giving written notice to Landlord, specifying each item contested and the reasons therefor; provided that Tenant shall in allevents pay the amount specified in Landlord’s annual statement, pending the results of the Independent Review and determination of the Accountant(s), asapplicable and as each such term is defined below. If, during such thirty (30)-day period, Tenant reasonably and in good faith questions or contests thecorrectness of Landlord’s statement of Tenant’s Adjusted Share of Operating Expenses, Landlord shall provide Tenant with reasonable access to Landlord’sbooks and records to the extent relevant to determination of Operating Expenses, and such information as Landlord reasonably determines to be responsiveto Tenant’s written inquiries. In the event that, after Tenant’s review of such information, Landlord and Tenant cannot agree upon the amount of Tenant’sAdjusted Share of Operating Expenses, then Tenant shall have the right to have an independent public accounting firm hired by Tenant on an hourly basisand not on a contingent-fee basis (at Tenant’s sole cost and expense) and approved by Landlord (which approval Landlord shall not unreasonably withholdor delay) audit and review such of Landlord’s books and records for the year in question as directly relate to the determination of Operating Expenses for suchyear (the “Independent Review”), but not books and records of entities other than Landlord. Landlord shall make such books and records available at thelocation where Landlord maintains them in the ordinary course of its business. Landlord need not provide copies of any books or records. Tenant shallcommence the Independent Review within fifteen (15) days after the date Landlord has given Tenant access to Landlord’s books and records for theIndependent Review. Tenant shall complete the Independent Review and notify Landlord in writing of Tenant’s specific objections to Landlord’s calculationof Operating Expenses (including Tenant’s accounting firm’s written statement of the basis, nature and amount of each proposed adjustment) no later thansixty (60) days after Landlord has first given Tenant access to Landlord’s books and records for the Independent Review. Landlord shall review the results ofany such Independent Review. The parties shall endeavor to agree promptly and reasonably upon Operating Expenses taking into account the results of suchIndependent Review. If, as of the date that is sixty (60) days after Tenant has submitted the Independent Review to Landlord, the parties have not agreed onthe appropriate adjustments to Operating Expenses, then the parties shall engage a mutually agreeable independent third party accountant with at least ten(10) years’ experience in commercial real estate accounting in the Newark, California area, that has not represented Landlord or Tenant in any capacity withinthe previous five (5) year period (the “Accountant”). If the parties cannot agree on the Accountant, each shall within ten (10) days after such impasse appointan Accountant (different from the accountant and accounting firm that conducted the Independent Review) and, within ten (10) days after the appointment ofboth such Accountants, those two Accountants shall select a third (which cannot be the accountant and accounting firm that conducted the IndependentReview). If either party fails to timely appoint an Accountant, then the Accountant the other party appoints shall be the sole Accountant. Within ten (10) daysafter appointment of the Accountant(s), Landlord and Tenant shall each simultaneously give the 12Accountants (with a copy to the other party) its determination of Operating Expenses, with such supporting data or information as each submitting partydetermines appropriate. Within ten (10) days after such submissions, the Accountants shall by majority vote select either Landlord’s or Tenant’sdetermination of Operating Expenses. The Accountants may not select or designate any other determination of Operating Expenses. The determination of theAccountant(s) shall bind the parties. If the parties agree or the Accountant(s) determine that the Operating Expenses actually paid by Tenant for the calendaryear in question exceeded Tenant’s obligations for such calendar year, then Landlord shall, at Tenant’s option, either (a) credit the excess to the nextsucceeding installments of estimated Additional Rent or (b) pay the excess to Tenant within thirty (30) days after delivery of such results. If the parties agreeor the Accountant(s) determine that Tenant’s payments of Operating Expenses for such calendar year were less than Tenant’s obligation for the calendar year,then Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of such results. If the Independent Review reveals or the Accountant(s)determine that the Operating Expenses billed to Tenant by Landlord and paid by Tenant to Landlord for the applicable calendar year in question exceededby more than five percent (5%) what Tenant should have been billed during such calendar year, then Landlord shall pay the reasonable cost of theIndependent Review and the reasonable cost of the Accountant(s). In all other cases Tenant shall pay the cost of the Independent Review and theAccountant(s).9.5. Tenant shall not be responsible for Operating Expenses with respect to any time period prior to the Term Commencement Date; provided,however, that if Tenant commences business operations in the Premises prior to the Term Commencement Date, Tenant shall be responsible for OperatingExpenses from the date that Tenant so commences business operations in the Premises (the Term Commencement Date or such earlier date, as applicable, the“Expense Trigger Date”); and provided, further, that Landlord may annualize certain Operating Expenses incurred prior to the Expense Trigger Date over thecourse of the budgeted year during which the Expense Trigger Date occurs, and Tenant shall be responsible for the annualized portion of such OperatingExpenses corresponding to the number of days during such year, commencing with the Expense Trigger Date, for which Tenant is otherwise liable forOperating Expenses pursuant to this Lease. Tenant’s responsibility for Tenant’s Adjusted Share of Operating Expenses shall continue to the later of (a) thedate of termination of the Lease and (b) the date Tenant has fully vacated the Premises (provided that in the event of termination of the Lease due to a defaultby Tenant, Tenant’s responsibility for Operating Expenses will be governed by Article 31 and not the foregoing provisions).9.6. Operating Expenses for the calendar year in which Tenant’s obligation to share therein commences and for the calendar year in which suchobligation ceases shall be prorated on a basis reasonably determined by Landlord. Expenses such as taxes, assessments and insurance premiums that areincurred for an extended time period shall be prorated based upon the time periods to which they apply so that the amounts attributed to the Premises relatein a reasonable manner to the time period wherein Tenant has an obligation to share in Operating Expenses.9.7. Within thirty (30) days after the end of each calendar month, Tenant shall submit to Landlord an invoice, or, in the event an invoice is notavailable, an itemized list, of all costs and expenses that (a) Tenant has incurred (either internally or by employing third parties) during the prior month and(b) for which Tenant reasonably believes it is entitled to reimbursements from Landlord pursuant to the terms of this Lease or the Work Letter. 139.8. In the event that the Building, North Campus or Project is less than fully occupied during a calendar year, Tenant acknowledges that Landlordmay extrapolate Operating Expenses that vary depending on the occupancy of the Building, North Campus or Project, as applicable, to equal Landlord’sreasonable estimate of what such Operating Expenses would have been, had the Building, North Campus or Project, as applicable, been ninety-five percent(95%) occupied during such calendar year; provided, however, that Landlord shall not recover more than one hundred percent (100%) of OperatingExpenses.10. Taxes on Tenant’s Property.10.1. Tenant shall be solely responsible for the payment of any and all taxes levied upon (a) personal property and trade fixtures located at thePremises and (b) any gross or net receipts of or sales by Tenant, and shall pay the same prior to delinquency.10.2. If any such taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property or, if the assessed valuationof the Building, the Property or the Project is increased by inclusion therein of a value attributable to Tenant’s personal property or trade fixtures, and ifLandlord, after written notice to Tenant, pays the taxes based upon any such increase in the assessed value of the Building, the Property or the Project, thenTenant shall, upon demand, repay to Landlord the taxes so paid by Landlord.10.3. If any improvements in or alterations to the Premises, whether owned by Landlord or Tenant and whether or not affixed to the real property so asto become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which improvements conforming to Landlord’sbuilding standards (the “Building Standard”) in other spaces in the Building are assessed, then the real property taxes and assessments levied againstLandlord or the Building, the Property or the Project by reason of such excess assessed valuation shall be deemed to be taxes levied against personal propertyof Tenant and shall be governed by the provisions of Section 10.2. Any such excess assessed valuation due to improvements in or alterations to space in theProject leased by other tenants at the Project shall not be included in Operating Expenses. If the records of the applicable governmental assessor’s office areavailable and sufficiently detailed to serve as a basis for determining whether such Tenant improvements or alterations are assessed at a higher valuation thanthe Building Standard, then such records shall be binding on both Landlord and Tenant.11. Security Deposit.11.1. Tenant shall deposit with Landlord on or before the Execution Date the sum set forth in Section 2.6 (the “Security Deposit”), which sum shall beheld by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept and performed byTenant during the period commencing on the Execution Date and ending upon the expiration or termination of Tenant’s obligations under this Lease. IfTenant Defaults (as defined below) with respect to any provision of this Lease, including any provision relating to the payment of Rent, then Landlord may(but shall not be required to) use, apply or 14retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or to compensate Landlord for any other loss or damagethat Landlord may suffer by reason of Tenant’s default. If any portion of the Security Deposit is so used or applied, then Tenant shall, within ten (10) daysfollowing demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant’s failure todo so shall be a material breach of this Lease. The provisions of this Article shall survive the expiration or earlier termination of this Lease. TENANTHEREBY WAIVES THE REQUIREMENTS OF SECTION 1950.7 OF THE CALIFORNIA CIVIL CODE, AS THE SAME MAY BE AMENDED FROM TIMETO TIME.11.2. In the event of bankruptcy or other debtor-creditor proceedings against Tenant, the Security Deposit shall be deemed to be applied first to thepayment of Rent and other charges due Landlord for all periods prior to the filing of such proceedings.11.3. Landlord may deliver to any successor-in-interest to Landlord under this Lease the funds deposited hereunder by Tenant, and thereuponLandlord shall be discharged from any further liability with respect to such deposit. This provision shall also apply to any subsequent transfers.11.4. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, then the Security Deposit, or any balance thereof,shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within thirty (30) days after the expiration or earliertermination of this Lease.11.5. If the Security Deposit shall be in cash, Landlord shall hold the Security Deposit in an account at a banking organization selected by Landlord;provided, however, that Landlord shall not be required to maintain a separate account for the Security Deposit, but may intermingle it with other funds ofLandlord. Landlord shall be entitled to all interest and/or dividends, if any, accruing on the Security Deposit. Landlord shall not be required to credit Tenantwith any interest for any period during which Landlord does not receive interest on the Security Deposit.11.6. The Security Deposit may be in the form of cash, a letter of credit or any other security instrument acceptable to Landlord in its sole discretion.Tenant may at any time, except when Tenant is in Default (as defined below), deliver a letter of credit (the “L/C Security”) as the entire Security Deposit, asfollows:(a) If Tenant elects to deliver L/C Security, then Tenant shall provide Landlord, and maintain in full force and effect throughout the Term anduntil the date that is ninety (90) days after the then-current Term Expiration Date, a letter of credit in the form of Exhibit E issued by an issuer reasonablysatisfactory to Landlord, in the amount of the Security Deposit, with an initial term of at least one year. Landlord may require the L/C Security to be re-issuedby a different issuer at any time during the Term if Landlord reasonably believes that the issuing bank of the L/C Security is or may soon become insolvent;provided, however, Landlord shall return the existing L/C Security to the existing issuer immediately upon receipt of the substitute L/C Security. If any issuerof the L/C Security shall become insolvent or placed into FDIC receivership, then Tenant shall immediately deliver to Landlord (without the 15requirement of notice from Landlord) substitute L/C Security issued by an issuer reasonably satisfactory to Landlord, and otherwise conforming to therequirements set forth in this Article. As used herein with respect to the issuer of the L/C Security, “insolvent” shall mean the determination of insolvency asmade by such issuer’s primary bank regulator (i.e., the state bank supervisor for state chartered banks; the OCC or OTS, respectively, for federally charteredbanks or thrifts; or the Federal Reserve for its member banks). If, at the Term Expiration Date, any Rent remains uncalculated or unpaid, then (i) Landlordshall with reasonable diligence complete any necessary calculations, (ii) Tenant shall extend the expiry date of such L/C Security from time to time asLandlord reasonably requires and (iii) in such extended period, Landlord shall not unreasonably refuse to consent to an appropriate reduction of the L/CSecurity. Tenant shall reimburse Landlord’s actual and reasonable legal costs in handling Landlord’s acceptance of L/C Security or its replacement orextension.(b) If Tenant delivers to Landlord satisfactory L/C Security in place of the entire Security Deposit, Landlord shall, within thirty (30) days ofTenant’s written request, remit to Tenant any cash Security Deposit Landlord previously held.(c) Landlord may draw upon the L/C Security, and hold and apply the proceeds in the same manner and for the same purposes as the SecurityDeposit, if (i) an uncured Default (as defined below) exists, (ii) as of the date that is forty-five (45) days before any L/C Security expires (even if suchscheduled expiry date is after the Term Expiration Date) Tenant has not delivered to Landlord an amendment or replacement for such L/C Security,reasonably satisfactory to Landlord, extending the expiry date to the earlier of (1) ninety (90) days after the then-current Term Expiration Date or (2) the datethat is one year after the then-current expiry date of the L/C Security, (iii) the L/C Security provides for automatic renewals, Landlord asks the issuer toconfirm the current L/C Security expiry date, and the issuer fails to do so within ten (10) business days, (iv) Tenant fails to pay (when and as Landlordreasonably requires) any bank charges for Landlord’s transfer of the L/C Security or (v) the issuer of the L/C Security ceases, or announces that it will cease, tomaintain an office in the city where Landlord may present drafts under the L/C Security (and fails to permit drawing upon the L/C Security by overnightcourier or facsimile). This Section does not limit any other provisions of this Lease allowing Landlord to draw the L/C Security under specifiedcircumstances.(d) Tenant shall not seek to enjoin, prevent, or otherwise interfere with Landlord’s draw under L/C Security, even if it violates this Lease.Tenant acknowledges that the only effect of a wrongful draw would be to substitute a cash Security Deposit for L/C Security, causing Tenant no legallyrecognizable damage. Landlord shall hold the proceeds of any draw in the same manner and for the same purposes as a cash Security Deposit. In the event of awrongful draw, the parties shall cooperate to allow Tenant to post replacement L/C Security simultaneously with the return to Tenant of the wrongfully drawnsums, and Landlord shall upon request confirm in writing to the issuer of the L/C Security that Landlord’s draw was erroneous.(e) If Landlord transfers its interest in the Premises, then Tenant shall at Tenant’s expense, within five (5) business days after receiving a requestfrom Landlord, deliver (and, if the issuer requires, Landlord shall consent to) an amendment to the L/C Security naming Landlord’s grantee as substitutebeneficiary. If the required Security Deposit changes while L/C Security is in force, then Tenant shall deliver (and, if the issuer requires, Landlord shallconsent to) a corresponding amendment to the L/C Security. 1611.7 If Tenant, as of the fourth (4th) annual anniversary of the Term Commencement Date (the “L/C Security Reduction Date”), (a) has a marketcapitalization of Two Hundred Fifty Million Dollars ($250,000,000) or more, and (b) has not been in Default under this Lease during the twelve (12) monthperiod immediately preceding the L/C Security Reduction Date ((a) and (b), collectively, the “L/C Security Reduction Obligations”), then Tenant, no laterthan sixty (60) days after the L/C Security Reduction Date, may notify Landlord in writing that Tenant desires to reduce the Security Deposit by the L/CSecurity Reduction Amount (as defined below), which notification shall include (y) a certificate (in form and substance reasonably acceptable to Landlord)from Tenant’s Chief Financial Officer certifying that Tenant has satisfied the L/C Security Reduction Obligations, and (z) Tenant’s most recentunconsolidated financial statements audited by a nationally recognized accounting firm. If, within ten (10) business days following Landlord’s receipt ofsuch notice, Landlord reasonably determines that Tenant has met the L/C Security Reduction Obligations, then Landlord shall notify Tenant in writing andthe Security Deposit shall be reduced by an amount equal to Two Hundred Twenty-Five Thousand Dollars ($225,000) (such amount, the “L/C SecurityReduction Amount”), such that the amount of the required Security Deposit under the Lease shall be Two Hundred Twenty-Five Thousand Dollars($225,000). If Landlord is holding a cash Security Deposit, then it shall return to Tenant cash in an amount equal to the L/C Security Reduction Amountwithin thirty (30) days of its approval of such certification. If the Security Deposit is in the form of the L/C Security, Tenant may provide to Landlord areplacement L/C Security in the amount of the reduced Security Deposit. Provided such replacement L/C Security complies with the terms and provisions ofthis Article 11, Landlord shall, within thirty (30) days after its receipt of such replacement L/C Security, return to Tenant the L/C Security then being held byLandlord.12. Use.12.1. Tenant shall use the Premises for the Permitted Use, and shall not use the Premises, or permit or suffer the Premises to be used, for any otherpurpose without Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion. During the Term, Tenant shall,subject to Force Majeure, casualty and all of the other terms, conditions and provisions of this Lease, have access to the Premises twenty-four (24) hours perday, seven (7) days per week.12.2. Tenant shall not use or occupy the Premises in violation of Applicable Laws; zoning ordinances; or the certificate of occupancy (or itssubstantial equivalent) issued for the Building or the Project, and shall, upon five (5) days’ written notice from Landlord, discontinue any use of the Premisesthat is declared or claimed by any Governmental Authority having jurisdiction to be a violation of any of the above, or that in Landlord’s reasonable opinionviolates any of the above. Tenant shall comply with any direction of any Governmental Authority having jurisdiction that shall, by reason of the nature ofTenant’s use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupationthereof, and shall indemnify, defend (at the option of and with counsel reasonably acceptable to the indemnified party(ies)), save, reimburse and holdharmless (collectively, “Indemnify,” “Indemnity” or “Indemnification,” as the case may require) the 17Landlord and its affiliates, employees, agents and contractors; and any lender, mortgagee, ground lessor or beneficiary (each, a “Lender” and, collectivelywith Landlord and its affiliates, employees, agents and contractors, the “Landlord Indemnitees”) harmless from and against any and all demands, claims,liabilities, losses, costs, expenses, actions, causes of action, damages, suits or judgments, and all reasonable expenses (including reasonable attorneys’ fees,charges and disbursements, regardless of whether the applicable demand, claim, action, cause of action or suit is voluntarily withdrawn or dismissed) incurredin investigating or resisting the same (collectively, “Claims”) of any kind or nature that arise before, during or after the Term as a result of Tenant’s breach ofthis Section.12.3. Tenant shall not do or permit to be done anything that will invalidate or increase the cost of any fire, environmental, extended coverage or anyother insurance policy covering the Building or the Project, and shall comply with all rules, orders, regulations and requirements of the insurers of theBuilding and the Project, and Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason ofTenant’s failure to comply with the provisions of this Article.12.4. Tenant shall keep all doors opening onto public corridors closed, except when in use for ingress and egress.12.5. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made to existinglocks or the mechanisms thereof without Landlord’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Tenant shall,upon termination of this Lease, return to Landlord all keys to offices and restrooms either furnished to or otherwise procured by Tenant. In the event any keyso furnished to Tenant is lost, Tenant shall pay to Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key ifLandlord shall deem it necessary to make such change.12.6. No awnings or other projections shall be attached to any outside wall of the Building. No curtains, blinds, shades or screens shall be attached toor hung in, or used in connection with, any window or door of the Premises other than Landlord’s standard window coverings. Neither the interior nor exteriorof any windows shall be coated or otherwise sunscreened without Landlord’s prior written consent, nor shall any bottles, parcels or other articles be placed onthe windowsills or items attached to windows that are visible from outside the Premises. No equipment, furniture or other items of personal property shall beplaced on any exterior balcony without Landlord’s prior written consent.12.7. No sign, advertisement or notice (“Signage”) shall be exhibited, painted or affixed by Tenant on any part of the Premises or the Buildingwithout Landlord’s prior written consent. Signage shall conform to Landlord’s design criteria. For any Signage, Tenant shall, at Tenant’s own cost andexpense, (a) acquire all permits for such Signage in compliance with Applicable Laws and (b) design, fabricate, install and maintain such Signage in a first-class condition. Tenant shall be responsible for reimbursing Landlord for costs incurred by Landlord in removing any of Tenant’s Signage upon theexpiration or earlier termination of the Lease. Interior signs on entry doors to the Premises and the directory tablet shall be inscribed, painted or affixed forTenant by Landlord at Tenant’s sole cost and expense, and shall be of a size, color 18and type and be located in a place acceptable to Landlord. The directory tablet shall be provided exclusively for the display of the name and location oftenants only. Tenant shall not place anything on the exterior of the corridor walls or corridor doors other than Landlord’s standard lettering. At Landlord’soption, Landlord may install any Tenant Signage, and Tenant shall pay all costs associated with such installation within thirty (30) days after demandtherefor.Subject to all of the terms, conditions and provisions of this Section 12.7, Tenant shall be entitled to install, at its sole cost and expense, a strip on theBuilding’s monument sign (“Monument Signage”). The graphics, materials, size, color, design, lettering, lighting (if any), specifications and exact locationof the Monument Signage (collectively, the “Signage Specifications”) shall be subject to the prior written approval of Landlord, which approval shall not beunreasonably withheld. In addition, the Monument Signage and all Signage Specifications therefore shall be subject to Tenant’s receipt of all requiredgovernmental permits and approvals, and shall be subject to all Applicable Laws and any covenants, conditions and restrictions affecting the Project. In theevent Tenant does not receive the necessary permits and approvals for the Monument Signage, Tenant’s and Landlord’s rights and obligations under theremaining provisions of this Lease shall not be affected. The cost of installation of the Monument Signage, as well as all costs of design and construction ofsuch Monument Signage and all other costs associated with such Monument Signage, including, without limitation, permits, maintenance and repair, shall bethe sole responsibility of Tenant. Should the Monument Signage require maintenance or repairs as determined in Landlord’s reasonable judgment, Landlordshall have the right to provide written notice thereof to Tenant, and Tenant shall cause such repairs and/or maintenance to be performed within thirty(30) days after receipt of such notice from Landlord at Tenant’s sole cost and expense. Should Tenant fail to perform such maintenance and repairs within theperiod described in the immediately preceding sentence, Landlord shall have the right to cause such work to be performed and to charge Tenant, asAdditional Rent, for the cost of such work. Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, cause theMonument Signage to be removed from the Building’s monument sign and shall cause the monument sign to be restored to the condition existing prior tothe placement of such Monument Signage. If Tenant fails to remove such Monument Signage and to restore the monument sign as provided in theimmediately preceding sentence on or before the expiration or earlier termination of this Lease, then Landlord may perform such work, and all costs andexpenses incurred by Landlord in so performing such work shall be reimbursed by Tenant to Landlord within ten (10) days after Tenant’s receipt of invoicetherefore. The immediately preceding sentence shall survive the expiration or earlier termination of this Lease.The rights to the Monument Signage shall be personal to the originally named Tenant and may not be transferred. Should the name of the originalTenant change, then the Monument Signage may be modified at Tenant’s sole cost and expense to reflect the new name, but only if the new name does not(i) relate to an entity that is of a character, reputation, or associated with a political orientation or a faction, that is inconsistent with the quality of theBuilding or would otherwise reasonably offend an institutional landlord of a project comparable to the Project, taking into consideration the level andvisibility of such signage or (ii) cause Landlord to be in default under any lease or license with another tenant of the Project. 1912.8. Tenant may only place equipment within the Premises with floor loading consistent with the Building’s structural design unless Tenant obtainsLandlord’s prior written approval. Tenant may place such equipment only in a location designed to carry the weight of such equipment.12.9. Tenant shall cause any equipment or machinery to be installed in the Premises so as to reasonably prevent sounds or vibrations therefrom fromextending into the Common Area or other offices in the Project.12.10. Tenant shall not (a) do or permit anything to be done in or about the Premises that shall in any way obstruct or interfere with the rights of othertenants or occupants of the Project, or injure or annoy them, (b) use or allow the Premises to be used for immoral, unlawful or objectionable purposes,(c) cause, maintain or permit any nuisance or waste in, on or about the Project or (d) take any other action that would in Landlord’s reasonable determinationin any manner adversely affect other tenants’ quiet use and enjoyment of their space or adversely impact their ability to conduct business in a professionaland suitable work environment. Notwithstanding anything in this Lease to the contrary, Tenant may not install any security systems (including cameras)outside the Premises or that record sounds or images outside the Premises without Landlord’s prior written consent, which Landlord may withhold in its soleand absolute discretion.12.11. Notwithstanding any other provision herein to the contrary, Tenant shall be responsible for all liabilities, costs and expenses arising out of orin connection with the compliance of the Premises with the Americans with Disabilities Act, 42 U.S.C. § 12101, et seq., and any state and local accessibilitylaws, codes, ordinances and rules (collectively, and together with regulations promulgated pursuant thereto, the “ADA”), and Tenant shall Indemnify theLandlord Indemnitees from and against Claims arising out of any such failure of the Premises to comply with the ADA. The Premises have not undergoneinspection by a Certified Access Specialist (as defined in California Civil Code Section 55.52). A Certified Access Specialist can inspect the Premises anddetermine whether the Premises comply with all of the applicable construction-related accessibility standards under State law. Although State law does notrequire a Certified Access Specialist inspection of the Premises, Landlord may not prohibit Tenant from obtaining a Certified Access Specialist inspection ofthe Premises for the occupancy or potential occupancy of Tenant, if requested by Tenant. Landlord and Tenant shall agree on the arrangements for the timeand manner of the Certified Access Specialist inspection, the payment of the fee for the Certified Access Specialist inspection, and the cost of making anyrepairs necessary to correct violations of construction-related accessibility standards within the Premises. For the avoidance of doubt, “Lenders” shall alsoinclude historic tax credit investors and new market tax credit investors. The provisions of this Section shall survive the expiration or earlier termination ofthis Lease.12.12. Tenant shall maintain temperature and humidity in the Premises in accordance with ASHRAE standards at all times. 2013. Rules and Regulations, CC&Rs, Parking Facilities and Common Area.13.1. Tenant shall have the non-exclusive right, in common with others, to use the Common Area in conjunction with Tenant’s use of the Premises forthe Permitted Use, and such use of the Common Area and Tenant’s use of the Premises shall be subject to the rules and regulations adopted by Landlord andattached hereto as Exhibit F, together with such other reasonable and nondiscriminatory rules and regulations as are hereafter promulgated by Landlord in itssole and absolute discretion (the “Rules and Regulations”); provided that any future Rules and Regulations do not materially and adversely affect Tenant’sability to use the Premises for the Permitted Use. Tenant shall and shall ensure that its contractors, subcontractors, employees, subtenants and inviteesfaithfully observe and comply with the Rules and Regulations. Landlord shall not be responsible to Tenant for the violation or non-performance by any othertenant or any agent, employee or invitee thereof of any of the Rules and Regulations.13.2. This Lease is subject to any recorded covenants, conditions or restrictions on the Project or Property, as the same may be amended, amendedand restated, supplemented or otherwise modified from time to time (the “CC&Rs”). Tenant shall, at its sole cost and expense, comply with the CC&Rs.13.3. Tenant shall have a non-exclusive, irrevocable license to use Tenant’s Pro Rata Share of parking facilities serving the Building in common onan unreserved basis with other tenants of the Building during the Term at no additional cost. As of the Execution Date, Tenant’s Pro Rata Share of parkingfacilities amounts to approximately one hundred thirty-seven (137) unreserved parking spaces (i.e., 3.2 spaces per 1,000 square feet of Rentable Area withinthe Premises).13.4. Tenant agrees not to unreasonably overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of theparking facilities. Landlord reserves the right to determine that parking facilities are becoming overcrowded and to limit Tenant’s use thereof; provided thatin no event shall Landlord exercise such right in a manner that reduces Tenant’s parking allocation below 3.2 spaces per 1,000 square feet of Rentable Areawithin the Premises. Upon such determination, Landlord may reasonably allocate parking spaces among Tenant and other tenants of the Building or theProject. Nothing in this Section, however, is intended to create an affirmative duty on Landlord’s part to monitor parking.14. Project Control by Landlord.14.1. Landlord reserves full control over the Building and the Project to the extent not inconsistent with Tenant’s enjoyment of the Premises asprovided by this Lease. This reservation includes Landlord’s right to subdivide the Project; convert the Building and other buildings within the Project tocondominium units; change the size of the Project by selling all or a portion of the Project or adding real property and any improvements thereon to theProject; grant easements and licenses to third parties; maintain or establish ownership of the Building separate from fee title to the Property; make additionsto or reconstruct portions of the Building and the Project; install, use, maintain, repair, replace and relocate for service to the Premises and other parts of theBuilding or the Project pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises, the Building or elsewhere at the Project; andalter or relocate 21any other Common Area or facility, including private drives, lobbies, entrances and landscaping; provided, however, that such rights shall be exercised in away that does not materially adversely affect Tenant’s beneficial use and occupancy of the Premises, including the Permitted Use and Tenant’s access to thePremises. Tenant acknowledges that Landlord specifically reserves the right to allow the exclusive use of corridors and restroom facilities located on specificfloors to one or more tenants occupying such floors; provided, however, that Tenant shall not be deprived of the use of the corridors reasonably required toserve the Premises or of restroom facilities serving the floor upon which the Premises are located.14.2. Possession of areas of the Premises necessary for utilities, services, safety and operation of the Building is reserved to Landlord.14.3. Tenant shall, at Landlord’s request, promptly execute such further documents as may be reasonably appropriate to assist Landlord in theperformance of its obligations hereunder; provided that Tenant need not execute any document that creates additional liability for Tenant, unreasonablydiminishes Tenant’s rights hereunder or that deprives Tenant of the quiet enjoyment and use of the Premises as provided for in this Lease.14.4. Landlord may, at any and all reasonable times during non-business hours (or during business hours, if (a) with respect to Subsections 14.4(u)through 14.4(y), Tenant so requests, and (b) with respect to Subsection 14.4(z), if Landlord so requests), and upon twenty-four (24) hours’ prior notice (whichmay be oral or by email to the office manager or other Tenant-designated individual at the Premises; but provided that no time restrictions shall apply oradvance notice be required if an emergency necessitates immediate entry), enter the Premises to (u) inspect the same and to determine whether Tenant is incompliance with its obligations hereunder, (v) supply any service Landlord is required to provide hereunder, (w) alter, improve or repair any portion of theBuilding other than the Premises for which access to the Premises is reasonably necessary, (x) post notices of nonresponsibility, (y) access the telephoneequipment, electrical substation and fire risers and (z) show the Premises to prospective tenants during the final year of the Term and current and prospectivepurchasers and lenders at any time. In connection with any such alteration, improvement or repair as described in Subsection 14.4(w), Landlord may erect inthe Premises or elsewhere in the Project scaffolding and other structures reasonably required for the alteration, improvement or repair work to be performed. Inno event shall Tenant’s Rent abate as a result of Landlord’s activities pursuant to this Section; provided, however, that all such activities shall be conductedin such a manner so as to cause as little interference to Tenant as is reasonably possible. Landlord shall at all times retain a key with which to unlock all of thedoors in the Premises. If an emergency necessitates immediate access to the Premises, Landlord may use whatever force is necessary to enter the Premises, andany such entry to the Premises shall not constitute a forcible or unlawful entry to the Premises, a detainer of the Premises, or an eviction of Tenant from thePremises or any portion thereof.15. Quiet Enjoyment. Landlord covenants that Tenant, upon paying the Rent and performing its obligations contained in this Lease, may peacefully andquietly have, hold and enjoy the Premises, free from any claim by Landlord or persons claiming under Landlord, but subject to all of the terms and provisionshereof, provisions of Applicable Laws and rights of record to which this Lease is or may become subordinate. This covenant is in lieu of any other quietenjoyment covenant, either express or implied. 2216. Utilities and Services.16.1. Tenant shall pay for all water (including the cost to service, repair and replace reverse osmosis, de-ionized and other treated water), gas, heat,light, power, telephone, internet service, cable television, other telecommunications and other utilities supplied to the Premises, together with any fees,surcharges and taxes thereon. If any such utility is not separately metered to Tenant, Tenant shall pay Tenant’s Adjusted Share of all charges of such utilityjointly metered with other premises as Additional Rent or, in the alternative, Landlord may, at its option, monitor the usage of such utilities by Tenant andcharge Tenant with the cost of purchasing, installing and monitoring such metering equipment, which cost shall be paid by Tenant as Additional Rent.Landlord may base its bills for utilities on reasonable estimates; provided that Landlord adjusts such billings promptly thereafter or as part of the nextLandlord’s Statement to reflect the actual cost of providing utilities to the Premises. To the extent that Tenant uses more than Tenant’s Pro Rata Share of anyutilities, then Tenant shall pay Landlord for Tenant’s Adjusted Share of such utilities to reflect such excess. In the event that the Building, North Campus orProject is less than fully occupied during a calendar year, Tenant acknowledges that Landlord may extrapolate utility usage that varies depending on theoccupancy of the Building, North Campus or Project (as applicable) to equal Landlord’s reasonable estimate of what such utility usage would have been hadthe Building, North Campus or Project, as applicable, been ninety-five percent (95%) occupied during such calendar year; provided, however, that Landlordshall not recover more than one hundred percent (100%) of the cost of such utilities.16.2. Landlord shall not be liable for, nor shall any eviction of Tenant result from, the failure to furnish any utility or service, whether or not suchfailure is caused by accidents; breakage; casualties (to the extent not caused by the party claiming Force Majeure); Severe Weather Conditions (as definedbelow); physical natural disasters (but excluding weather conditions that are not Severe Weather Conditions); strikes, lockouts or other labor disturbances orlabor disputes (other than labor disturbances and labor disputes resulting solely from the acts or omissions of the party claiming Force Majeure); acts ofterrorism; riots or civil disturbances; wars or insurrections; shortages of materials (which shortages are not unique to the party claiming Force Majeure);government regulations, moratoria or other governmental actions, inactions or delays; failures to grant consent or delays in granting consent by any Lenderwhose consent is required under any applicable Loan Document; failures by third parties to deliver gas, oil or another suitable fuel supply, or inability of theparty claiming Force Majeure, by exercise of reasonable diligence, to obtain gas, oil or another suitable fuel; or other causes beyond the reasonable control ofthe party claiming that Force Majeure has occurred (collectively, “Force Majeure”); or, to the extent permitted by Applicable Laws, Landlord’s negligence. Inthe event of such failure, Tenant shall not be entitled to termination of this Lease or any abatement or reduction of Rent, nor shall Tenant be relieved from theoperation of any covenant or agreement of this Lease. “Severe Weather Conditions” means weather conditions that are materially worse than those thatreasonably would be anticipated for the Property at the applicable time based on historic meteorological records. In the event that the negligence or willfulmisconduct of Landlord (or any Landlord Party) causes an interruption of any utilities or services that Landlord must provide pursuant to this Lease,Landlord shall use commercially reasonable efforts to pursue the restoration of such utilities and/or services as soon as reasonably possible. 2316.3. Tenant shall pay for, prior to delinquency of payment therefor, any utilities and services that may be furnished to the Premises during or, ifTenant occupies the Premises after the expiration or earlier termination of the Term, after the Term, beyond those utilities provided by Landlord, includingtelephone, internet service, cable television and other telecommunications, together with any fees, surcharges and taxes thereon. Upon Landlord’s demand,utilities and services provided to the Premises that are separately metered shall be paid by Tenant directly to the supplier of such utilities or services.16.4. Tenant shall not, without Landlord’s prior written consent, use any device in the Premises (including data processing machines) that will in anyway (a) increase the amount of ventilation, air exchange, gas, steam, electricity or water required or consumed in the Premises based upon Tenant’s Pro RataShare of the Building or Project (as applicable) beyond the existing capacity of the Building or the Project usually furnished or supplied for the PermittedUse or (b) exceed Tenant’s Pro Rata Share of the Building’s or Project’s (as applicable) capacity to provide such utilities or services.16.5. If Tenant shall require utilities or services in excess of those usually furnished or supplied for tenants in similar spaces in the Building or theProject by reason of Tenant’s equipment or extended hours of business operations, then Tenant shall first procure Landlord’s consent for the use thereof,which consent Landlord may condition upon the availability of such excess utilities or services, and Tenant shall pay as Additional Rent an amount equal tothe cost of providing such excess utilities and services.16.6. Landlord shall provide water in Common Area for lavatory and landscaping purposes only, which water shall be from the local municipal orsimilar source; provided, however, that if Landlord determines that Tenant requires, uses or consumes water provided to the Common Area for any purposeother than ordinary lavatory purposes, Landlord may install a water meter (“Tenant Water Meter”) and thereby measure Tenant’s water consumption for allpurposes. Tenant shall pay Landlord for the costs of any Tenant Water Meter and the installation and maintenance thereof during the Term. If Landlordinstalls a Tenant Water Meter, Tenant shall pay for water consumed, as shown on such meter, as and when bills are rendered. If Tenant fails to timely makesuch payments, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred or payments made by Landlord forany of the reasons or purposes stated in this Section shall be deemed to be Additional Rent payable by Tenant and collectible by Landlord as such.16.7. Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and utility systems (a “Service Stoppage”),when Landlord deems necessary or desirable, due to accident, emergency or the need to make repairs, alterations or improvements, until such repairs,alterations or improvements shall have been completed, and Landlord shall further have no responsibility or liability for failure to supply elevator facilities,plumbing, ventilation, air conditioning or utility service when prevented from doing so by Force Majeure or, to the extent permitted by Applicable Laws,Landlord’s negligence. Without limiting the foregoing, it is expressly understood and agreed that any covenants on Landlord’s part to furnish 24any service pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit ofTenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of Force Majeure or, to the extent permitted byApplicable Laws, Landlord’s negligence. Except in case of emergencies (in which event no notice shall be required), Landlord shall provide Tenant withtwenty-four (24) hours’ notice prior to any Service Stoppage (which notice may be oral or by email to the office manager or other Tenant-designatedindividual at the Premises).16.8. As of the Execution Date, an existing back-up generator (the “Generator”) is connected to the Premises’ emergency electrical panel. Landlordshall deliver the Generator to Tenant on the Execution Date in good working order, condition and repair. Except for Landlord’s obligation to deliver theGenerator to Tenant on the Execution Date in good working order, condition and repair (as set forth in the immediately preceding grammatical sentence),Tenant acknowledges and agrees that Landlord has made no representation or warranty (express or implied) regarding the condition of the Generator or thesuitability of the Generator for Tenant’s use. From and after the Execution Date, the Generator shall be the sole responsibility of Tenant and Landlord shallhave no obligations with respect thereto. Tenant shall, at its sole cost and expense, maintain and keep the Generator (a) in good condition and repair, (b) inaccordance with industry standard practices, (c) in compliance with all Applicable Laws (including, without limitation, any required permits); and Tenantshall otherwise be solely responsible for any repair, maintenance and/or replacement costs with respect to the Generator. If requested in writing by Landlord,Tenant shall provide to Landlord copies of any Generator maintenance contracts and any Generator maintenance reports; provided, however, that Tenantshall not be required to provide such copies to Landlord more than one (1) time per year (except that such limitation shall not apply at any time that Tenant isin Default of this Lease). Notwithstanding anything to the contrary in this Lease, Landlord shall have no liability, and Tenant shall have no right or remedy,on account of any interruption or impairment with respect to the Generator.16.9. For the Premises, Tenant shall (subject to Landlord’s obligations as set forth in Section 18.1 below) (a) maintain and operate the HVAC systemsused for the Permitted Use only (“Base HVAC”) and (b) subject to Subsection 16.9(a), furnish HVAC as reasonably required (except as this Lease otherwiseprovides) for reasonably comfortable occupancy of the Premises twenty-four (24) hours a day, every day during the Term, subject to casualty, eminentdomain or as otherwise specified in this Article. Notwithstanding anything to the contrary in this Section, Landlord shall have no liability, and Tenant shallhave no right or remedy, on account of any interruption or impairment in HVAC services. In the event of any interruption or impairment in HVAC servicesdue to any portion of the HVAC system which Landlord is obligated to maintain hereunder, Landlord will use commercially reasonable efforts to correct suchinterruption or impairment as soon as reasonably possible.16.10. For any utilities serving the Premises for which Tenant is billed directly by such utility provider, Tenant agrees to furnish to Landlord (a) anyinvoices or statements for such utilities within thirty (30) days after Tenant’s receipt thereof, (b) within thirty (30) days after Landlord’s request, any otherutility usage information reasonably requested by Landlord, and (c) within thirty (30) days after each calendar year during the Term, authorization to allowLandlord to access Tenant’s usage information necessary for Landlord to complete an ENERGY 25STAR® Statement of Performance (or similar comprehensive utility usage report (e.g., related to Labs 21), if requested by Landlord) and any otherinformation reasonably requested by Landlord for the immediately preceding year; and Tenant shall comply with any other energy usage or consumptionrequirements required by Applicable Laws. Tenant shall retain records of utility usage at the Premises, including invoices and statements from the utilityprovider, throughout the Term and for such period of time after the expiration or earlier termination of this Lease as may be required in order for Landlord tocomply with Applicable Laws. Tenant acknowledges that any utility information for the Premises, the Building and the Project may be shared with thirdparties, including Landlord’s consultants and Governmental Authorities. In the event that Tenant fails to comply with this Section, Tenant hereby authorizesLandlord to collect utility usage information directly from the applicable utility providers. In addition to the foregoing, Tenant shall comply with allApplicable Laws related to the disclosure and tracking of energy consumption at the Premises. The provisions of this Section shall survive the expiration orearlier termination of this Lease.17. Alterations.17.1. Tenant shall make no alterations, additions or improvements other than the Tenant Improvements in or to the Premises or engage in anyconstruction, demolition, reconstruction, renovation or other work (whether major or minor) of any kind in, at or serving the Premises (“Alterations”) withoutLandlord’s prior written approval, which approval may be subject to the consent of one or more Lenders, if required under any applicable Loan Document,but which approval Landlord shall not otherwise unreasonably withhold; provided, however, that, in the event any proposed Alteration affects (a) anystructural portions of the Building, including exterior walls, the roof, the foundation or slab, foundation or slab systems (including barriers and subslabsystems) or the core of the Building, (b) the exterior of the Building or (c) any Building systems, including elevator, plumbing, HVAC, electrical, security,life safety and power, then Landlord may withhold its approval in its sole and absolute discretion. Tenant shall, in making any Alterations, use only thosearchitects, contractors, suppliers and mechanics of which Landlord has given prior written approval, which approval shall be in Landlord’s commerciallyreasonable discretion. In seeking Landlord’s approval, Tenant shall provide Landlord, at least thirty (30) days in advance of the desired commencement dateof any proposed construction, with plans, specifications, bid proposals, certified stamped engineering drawings and calculations by Tenant’s engineer ofrecord or architect of record (including connections to the Building’s structural system, modifications to the Building’s envelope, non-structural penetrationsin slabs or walls, and modifications or tie-ins to life safety systems), work contracts, requests for laydown areas and such other information concerning thenature and cost of the Alterations as Landlord may reasonably request, provided that Tenant shall not commence any such Alterations that require Landlord’sconsent unless and until Tenant has received the written approval of Landlord and any and all Lenders whose consent is required under any applicable LoanDocument. In no event shall Tenant use or Landlord be required to approve any architects, consultants, contractors, subcontractors or material suppliers thatLandlord reasonably believes could cause labor disharmony or may not have sufficient experience, in Landlord’s reasonable opinion, to perform work in anoccupied Class “A” laboratory research building and in tenant-occupied lab areas. 2617.2. Tenant shall not construct or permit to be constructed partitions or other obstructions that might interfere with free access to mechanicalinstallation or service facilities of the Building or with other tenants’ components located within the Building, or interfere with the moving of Landlord’sequipment to or from the enclosures containing such installations or facilities.17.3. Tenant shall accomplish any work performed on the Premises or the Building in such a manner as to permit any life safety systems to remainfully operable at all times.17.4. Any work performed on the Premises, the Building or the Project by Tenant or Tenant’s contractors shall be done at such times and in suchmanner as Landlord may from time to time reasonably designate; provided that Tenant will be permitted to perform Alterations during business hours so longas such Alterations do not create any noise, odors, vibration or other disturbance which (in Landlord’s sole discretion) could disturb other tenants of theBuilding. Tenant covenants and agrees that all work done by Tenant or Tenant’s contractors shall be performed in full compliance with Applicable Laws.Within thirty (30) days after completion of any Alterations, Tenant shall provide Landlord with complete “as built” drawing print sets and electronic CADDfiles on disc (or files in such other current format in common use as Landlord reasonably approves or requires) showing any changes in the Premises, as wellas a commissioning report prepared by a licensed, qualified commissioning agent hired by Tenant and approved by Landlord for all new or affectedmechanical, electrical and plumbing systems. Any such “as built” plans shall show the applicable Alterations as an overlay on the Building as-built plans;provided that Landlord provides the Building “as built” plans to Tenant.17.5. Before commencing any Alterations or Tenant Improvements, Tenant shall (a) give Landlord at least thirty (30) days’ prior written notice of theproposed commencement of such work and the names and addresses of the persons supply labor or materials therefor so that Landlord may enter the Premisesto post and keep posted thereon and therein notices or to take any further action that Landlord may reasonably deem proper for the protection of Landlord’sinterest in the Project and (b) shall, if required by Landlord, secure, at Tenant’s own cost and expense, a completion and lien indemnity bond satisfactory toLandlord for such work (provided that Landlord shall only be permitted to impose such requirement in connection with Alterations costing in excess ofSeventy-Five Thousand Dollars ($75,000)).17.6. Tenant shall repair any damage to the Premises caused by Tenant’s removal of any property from the Premises. During any such restorationperiod, Tenant shall pay Rent to Landlord as provided herein as if such space were otherwise occupied by Tenant. The provisions of this Section shall survivethe expiration or earlier termination of this Lease.17.7. The Premises plus any Alterations; Signage; Tenant Improvements; attached equipment, decorations, fixtures and trade fixtures; laboratorycasework and related appliances; and other additions and improvements attached to or built into the Premises made by either of the parties (including allfloor and wall coverings; paneling; sinks and related plumbing fixtures; fixed laboratory benches; exterior venting fume hoods; walk-in freezers andrefrigerators; ductwork; conduits; electrical panels and circuits; attached machinery and equipment; and built-in furniture and cabinets, in each case, togetherwith all additions and accessories thereto), shall (unless, prior to such construction or installation, Landlord elects otherwise in writing) at all 27times remain the property of Landlord, shall remain in the Premises and shall (unless, prior to construction or installation thereof, Landlord elects otherwise inwriting) be surrendered to Landlord upon the expiration or earlier termination of this Lease. For the avoidance of doubt, the items listed on Exhibit Hattached hereto (which Exhibit H may be updated by Tenant from and after the Term Commencement Date, subject to Landlord’s written consent) constituteTenant’s property and shall be removed by Tenant upon the expiration or earlier termination of the Lease.17.8. Notwithstanding any other provision of this Article to the contrary, in no event shall Tenant remove any improvement from the Premises inwhich any Lender has a security interest or as to which Landlord contributed payment, including the Tenant Improvements, without Landlord’s prior writtenconsent, which consent Landlord may withhold in its sole and absolute discretion; provided that Landlord hereby confirms that the items listed on Exhibit Hremain the property of Tenant and may be removed by Tenant in its sole discretion (subject to the terms, conditions and provisions set forth in Section 17.6above).17.9. If Tenant shall fail to remove any of its property from the Premises prior to the expiration or earlier termination of this Lease, then Landlordmay, at its option, remove the same in any manner that Landlord shall choose and store such effects without liability to Tenant for loss thereof or damagethereto, and Tenant shall pay Landlord, upon demand, any costs and expenses incurred due to such removal and storage or Landlord may, at its sole optionand without notice to Tenant, sell such property or any portion thereof at private sale and without legal process for such price as Landlord may obtain andapply the proceeds of such sale against any (a) amounts due by Tenant to Landlord under this Lease and (b) any expenses incident to the removal, storageand sale of such personal property.17.10. Tenant shall pay to Landlord an amount equal to three percent (3%) of the cost to Tenant of all Alterations to cover Landlord’s overhead andexpenses for plan review, engineering review, coordination, scheduling and supervision thereof or obtaining any required Lender consent. For purposes ofpayment of such sum, Tenant shall submit to Landlord copies of all bills, invoices and statements covering the costs of such charges, accompanied bypayment to Landlord of the fee set forth in this Section. Tenant shall reimburse Landlord for any extra expenses incurred by Landlord by reason of faultywork done by Tenant or its contractors, or by reason of delays caused by such work, or by reason of inadequate clean-up.17.11. Within sixty (60) days after final completion of any Alterations performed by Tenant with respect to the Premises, Tenant shall submit toLandlord documentation showing the amounts expended by Tenant with respect to such Alterations, together with supporting documentation reasonablyacceptable to Landlord.17.12. Tenant shall take, and shall cause its contractors to take, commercially reasonable steps to protect the Premises during the performance of anyAlterations or Tenant Improvements, including covering or temporarily removing any window coverings so as to guard against dust, debris or damage. 2817.13. Tenant shall require its contractors and subcontractors performing work on the Premises to name Landlord and its affiliates and Lenders asadditional insureds on their respective insurance policies.17.14. Notwithstanding anything to the contrary contained in this Lease, Tenant shall have no obligation to remove any portion of the TenantImprovements or any subsequent Alterations approved by Landlord, unless Landlord shall have notified Tenant in writing that removal at the end of theTerm would be required at the time of Landlord’s consent to such Tenant Improvements or Alterations.18. Repairs and Maintenance.18.1. Landlord shall repair and maintain in good condition and repair the structural and exterior portions and Common Area of the Building and theProject, including roofing and covering materials; foundations (excluding any architectural slabs, but including any structural slabs); exterior walls;plumbing; fire sprinkler systems (if any); the chiller(s) located on the roof of the Building which do not exclusively serve the Premises or any other tenant’spremises; elevators; and base Building electrical systems installed or furnished by Landlord.18.2. Except for services of Landlord, if any, required by Section 18.1, Tenant shall at Tenant’s sole cost and expense maintain and keep the Premises(including but not limited to the HVAC systems serving the Premises (other than the chiller(s) to be maintained by Landlord pursuant to Section 18.1 above),any supplemental HVAC serving the Premises, and any other systems or equipment exclusively serving the Premises) and every part thereof in goodcondition and repair, damage thereto from ordinary wear and tear excepted, and shall, within ten (10) days after receipt of written notice from Landlord,provide to Landlord any maintenance records that Landlord reasonably requests. Tenant shall, upon the expiration or sooner termination of the Term,surrender the Premises to Landlord in as good a condition as when received, ordinary wear and tear excepted, and with the Tenant Improvements in as good acondition as existed on the Term Commencement Date; and shall, at Landlord’s request and Tenant’s sole cost and expense, remove all telephone and datasystems, wiring and equipment from the Premises, and repair any damage to the Premises caused thereby. Landlord shall have no obligation to alter, remodel,improve, repair, decorate or paint the Premises or any part thereof, other than pursuant to the terms and provisions of the Work Letter.18.3. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance that is Landlord’s obligation pursuant to thisLease unless such failure shall persist for an unreasonable time after Tenant provides Landlord with written notice of the need of such repairs or maintenance.Tenant waives its rights under Applicable Laws now or hereafter in effect to make repairs at Landlord’s expense.18.4. If any excavation shall be made upon land adjacent to or under the Building, or shall be authorized to be made, Tenant shall afford to theperson causing or authorized to cause such excavation, license to enter the Premises for the purpose of performing such work as such person shall deemnecessary or desirable to preserve and protect the Building from injury or damage and to support the same by proper foundations, without any claim fordamages or liability against Landlord and without reducing or otherwise affecting Tenant’s obligations under this Lease. Landlord will use commerciallyreasonable efforts to minimize any disruption to Tenant’s business operations due to work performed in accordance with this Section. 2918.5. This Article relates to repairs and maintenance arising in the ordinary course of operation of the Building and the Project. In the event of acasualty described in Article 24, Article 24 shall apply in lieu of this Article. In the event of eminent domain, Article 25 shall apply in lieu of this Article.18.6. Costs incurred by Landlord pursuant to this Article shall constitute Operating Expenses to the extent permitted by Section 9.1.19. Liens.19.1. Subject to the immediately succeeding sentence, Tenant shall keep the Premises, the Building and the Project free from any liens arising out ofwork or services performed, materials furnished to or obligations incurred by Tenant. Tenant further covenants and agrees that any mechanic’s ormaterialman’s lien filed against the Premises, the Building or the Project for work or services claimed to have been done for, or materials claimed to havebeen furnished to, or obligations incurred by Tenant shall be discharged or bonded by Tenant within twenty (20) days after the filing thereof, at Tenant’s solecost and expense.19.2. Should Tenant fail to discharge or bond against any lien of the nature described in Section 19.1, Landlord may, at Landlord’s election, pay suchclaim or post a statutory lien bond or otherwise provide security to eliminate the lien as a claim against title, and Tenant shall immediately reimburseLandlord for the costs thereof as Additional Rent. Tenant shall Indemnify the Landlord Indemnitees from and against any Claims arising from any such liens,including any administrative, court or other legal proceedings related to such liens.19.3. In the event that Tenant leases or finances the acquisition of office equipment, furnishings or other personal property of a removable natureutilized by Tenant in the operation of Tenant’s business, Tenant warrants that any Uniform Commercial Code financing statement shall, upon its face or byexhibit thereto, indicate that such financing statement is applicable only to removable personal property of Tenant located within the Premises. In no eventshall the address of the Premises, the Building or the Project be furnished on a financing statement without qualifying language as to applicability of the lienonly to removable personal property located in an identified suite leased by Tenant. Should any holder of a financing statement record or place of record afinancing statement that appears to constitute a lien against any interest of Landlord or against equipment that may be located other than within an identifiedsuite leased by Tenant, Tenant shall, within ten (10) days after filing such financing statement, cause (a) a copy of the lender security agreement or otherdocuments to which the financing statement pertains to be furnished to Landlord to facilitate Landlord’s ability to demonstrate that the lien of such financingstatement is not applicable to Landlord’s interest and (b) Tenant’s lender to amend such financing statement and any other documents of record to clarify thatany liens imposed thereby are not applicable to any interest of Landlord in the Premises, the Building or the Project. 3020. Estoppel Certificate. Tenant shall, within ten (10) business days after receipt of written notice from Landlord, execute, acknowledge and deliver astatement in writing substantially in the form attached to this Lease as Exhibit I, or on any other form reasonably requested by a current or proposed Lender orencumbrancer or proposed purchaser, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of suchmodification and certifying that this Lease as so modified is in full force and effect) and the dates to which rental and other charges are paid in advance, ifany, (b) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if anyare claimed, and (c) setting forth such further information with respect to this Lease or the Premises as may be requested thereon. Any such statements may berelied upon by any prospective purchaser or encumbrancer of all or any portion of the Property. Tenant’s failure to deliver any such statement within such theprescribed time shall, at Landlord’s option, constitute a Default (as defined below) under this Lease, and, in any event, shall be binding upon Tenant that theLease is in full force and effect and without modification except as may be represented by Landlord in any certificate prepared by Landlord and delivered toTenant for execution.21. Hazardous Materials.21.1. Tenant shall not cause or permit any Hazardous Materials (as defined below) to be brought upon, kept or used in or about the Premises, theBuilding or the Project in violation of Applicable Laws by Tenant or any of its employees, agents, contractors or invitees (collectively with Tenant, each a“Tenant Party”). If (a) Tenant breaches such obligation, (b) the presence of Hazardous Materials as a result of such a breach results in contamination of theProject, any portion thereof, or any adjacent property, (c) contamination of the Premises otherwise occurs during the Term or any extension or renewal hereofor holding over hereunder (other than if such contamination results from migration of Hazardous Materials from outside the Premises not caused by a TenantParty) or (d) contamination of the Project occurs as a result of Hazardous Materials that are placed on or under or are released into the Project by a TenantParty, then Tenant shall Indemnify the Landlord Indemnitees from and against any and all Claims of any kind or nature, including (w) diminution in value ofthe Project or any portion thereof, (x) damages for the loss or restriction on use of rentable or usable space or of any amenity of the Project, (y) damagesarising from any adverse impact on marketing of space in the Project or any portion thereof and (z) sums paid in settlement of Claims that arise before, duringor after the Term as a result of such breach or contamination. This Indemnification by Tenant includes costs incurred in connection with any investigation ofsite conditions or any clean-up, remedial, removal or restoration work required by any Governmental Authority because of Hazardous Materials for whichTenant is responsible under the terms of this Section present in the air, soil or groundwater above, on, under or about the Project. Without limiting theforegoing, if the presence of any Hazardous Materials in, on, under or about the Project, any portion thereof or any adjacent property caused or permitted byany Tenant Party results in any contamination of the Project, any portion thereof or any adjacent property, then Tenant shall promptly take all actions at itssole cost and expense as are necessary to return the Project, any portion thereof or any adjacent property to its respective condition existing prior to the timeof such contamination; provided that Landlord’s written approval of such action shall first be obtained, which approval Landlord shall not unreasonablywithhold; and provided, further, that it shall be reasonable for Landlord to withhold its consent if such actions could have a material adverse long-term or 31short-term effect on the Project, any portion thereof or any adjacent property. Tenant’s obligations under this Section shall not be affected, reduced or limitedby any limitation on the amount or type of damages, compensation or benefits payable by or for Tenant under workers’ compensation acts, disability benefitacts, employee benefit acts or similar legislation.21.2. Landlord acknowledges that it is not the intent of this Article to prohibit Tenant from operating its business for the Permitted Use. Tenant mayoperate its business according to the custom of Tenant’s industry so long as the use or presence of Hazardous Materials is strictly and properly monitored inaccordance with Applicable Laws. As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenantagrees to deliver to Landlord (a) a list identifying each type of Hazardous Material to be present at the Premises that is subject to regulation under anyenvironmental Applicable Laws in the form of a Tier II form pursuant to Section 312 of the Emergency Planning and Community Right-to-Know Act of 1986(or any successor statute) or any other form reasonably requested by Landlord, (b) a list of any and all approvals or permits from Governmental Authoritiesrequired in connection with the presence of such Hazardous Material at the Premises and (c) correct and complete copies of (i) notices of violations ofApplicable Laws related to Hazardous Materials and (ii) plans relating to the installation of any storage tanks to be installed in, on, under or about the Project(provided that installation of storage tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent Landlord maywithhold in its sole and absolute discretion) and closure plans or any other documents required by any and all Governmental Authorities for any storagetanks installed in, on, under or about the Project for the closure of any such storage tanks (collectively, “Hazardous Materials Documents”). Tenant shalldeliver to Landlord updated Hazardous Materials Documents, within fourteen (14) days after receipt of a written request therefor from Landlord, not moreoften than once per year, unless (m) there are any changes to the Hazardous Materials Documents or (n) Tenant initiates any Alterations or changes itsbusiness, in either case in a way that involves any material increase in the types or amounts of Hazardous Materials, in which case Tenant shall deliverupdated Hazardous Materials documents (without Landlord having to request them) before or, if not practicable to do so before, as soon as reasonablypracticable after the occurrence of the events in Subsection 21.2(m) or (n). For each type of Hazardous Material listed, the Hazardous Materials Documentsshall include (t) the chemical name, (u) the material state (e.g., solid, liquid, gas or cryogen), (v) the concentration, (w) the storage amount and storagecondition (e.g., in cabinets or not in cabinets), (x) the use amount and use condition (e.g., open use or closed use), (y) the location (e.g., room number or otheridentification) and (z) if known, the chemical abstract service number. Notwithstanding anything in this Section to the contrary, Tenant shall not be requiredto provide Landlord with any documents containing information of a proprietary nature, unless such documents contain a reference to Hazardous Materials oractivities related to Hazardous Materials. Landlord may, at Landlord’s expense, cause the Hazardous Materials Documents to be reviewed by a person or firmqualified to analyze Hazardous Materials to confirm compliance with the provisions of this Lease and with Applicable Laws. In the event that a review of theHazardous Materials Documents indicates non-compliance with this Lease or Applicable Laws, Tenant shall, at its expense, diligently take steps to bring itsstorage and use of Hazardous Materials into compliance. Notwithstanding anything in this Lease to the contrary or Landlord’s review into Tenant’sHazardous Materials Documents or use or disposal of hazardous materials, however, Landlord shall not have and expressly disclaims any liability 32related to Tenant’s or other tenants’ use or disposal of Hazardous Materials, it being acknowledged by Tenant that Tenant is best suited to evaluate the safetyand efficacy of its Hazardous Materials usage and procedures.21.3. Tenant represents and warrants to Landlord that is not nor has it been, in connection with the use, disposal or storage of Hazardous Materials,(a) subject to a material enforcement order issued by any Governmental Authority or (b) required to take any remedial action.21.4. At any time, and from time to time, prior to the expiration of the Term, Landlord shall have the right to conduct appropriate tests of the Projector any portion thereof to demonstrate that Hazardous Materials are present or that contamination has occurred due to the acts or omissions of a Tenant Party.Tenant shall pay all reasonable costs of such tests if such tests reveal that Hazardous Materials exist at the Project as a result of a violation of this Lease byTenant or any Tenant Party.21.5. If underground or other storage tanks storing Hazardous Materials installed or utilized by Tenant are located on the Premises, or are hereafterplaced on the Premises by Tenant (or by any other party, if such storage tanks are utilized by Tenant), then Tenant shall monitor the storage tanks, maintainappropriate records, implement reporting procedures, properly close any underground storage tanks, and take or cause to be taken all other steps necessary orrequired under the Applicable Laws. Tenant shall have no responsibility or liability for underground or other storage tanks installed by anyone other thanTenant unless Tenant utilizes such tanks, in which case Tenant’s responsibility for such tanks shall be as set forth in this Section.21.6. Tenant shall promptly report to Landlord any actual or suspected presence of mold or water intrusion at the Premises of which Tenant becomesaware.21.7. Tenant’s obligations under this Article shall survive the expiration or earlier termination of the Lease. During any period of time needed byTenant or Landlord after the termination of this Lease to complete the removal from the Premises of any such Hazardous Materials, Tenant shall be deemed aholdover tenant and subject to the provisions of Article 27.21.8. As used herein, the term “Hazardous Material” means any toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,mutagenic or otherwise hazardous substance, material or waste that is or becomes regulated by Applicable Laws or any Governmental Authority.21.9. Notwithstanding anything to the contrary in this Lease, Landlord shall have sole control over the equitable allocation of fire control areas (asdefined in the Uniform Building Code as adopted by the city or municipality(ies) in which the Project is located (the “UBC”)) within the Project for thestorage of Hazardous Materials. Notwithstanding anything to the contrary in this Lease, the quantity of Hazardous Materials allowed by this Section isspecific to Tenant and shall not run with the Lease in the event of a Transfer (as defined in Article 29). In the event of a Transfer, if the use of HazardousMaterials by such new tenant (“New Tenant”) is such that New Tenant utilizes fire control areas in the Project in excess of New Tenant’s Pro 33Rata Share of the Building or the Project, as applicable, then New Tenant shall, at its sole cost and expense and upon Landlord’s written request, establishand maintain a separate area of the Premises classified by the UBC as an “H” occupancy area for the use and storage of Hazardous Materials, or take suchother action as is necessary to ensure that its share of the fire control areas of the Building and the Project is not greater than New Tenant’s Pro Rata Share ofthe Building or the Project, as applicable. Notwithstanding anything in this Lease to the contrary, Landlord shall not have and expressly disclaims anyliability related to Tenant’s or other tenants’ use or disposal of fire control areas, it being acknowledged by Tenant that Tenant and other tenants are bestsuited to evaluate the safety and efficacy of its Hazardous Materials usage and procedures.22. Odors and Exhaust. Tenant acknowledges that Landlord would not enter into this Lease with Tenant unless Tenant assured Landlord that under nocircumstances will any other occupants of the Building or the Project (including persons legally present in any outdoor areas of the Project) be subjected toodors or fumes (whether or not noxious), and that the Building and the Project will not be damaged by any exhaust, in each case from Tenant’s operations,including in Tenant’s vivarium. Landlord and Tenant therefore agree as follows:22.1. Tenant shall not cause or permit (or conduct any activities that would cause) any release of any odors or fumes of any kind from the Premises.22.2. If the Building has a ventilation system that, in Landlord’s judgment, is adequate, suitable, and appropriate to vent the Premises in a mannerthat does not release odors affecting any indoor or outdoor part of the Project, Tenant shall vent the Premises through such system. If Landlord at any timereasonably determines that any existing ventilation system is inadequate, or if no ventilation system exists, Tenant shall in compliance with Applicable Lawsvent all fumes and odors from the Premises (and remove odors from Tenant’s exhaust stream) as Landlord reasonably requires. The placement andconfiguration of all ventilation exhaust pipes, louvers and other equipment shall be subject to Landlord’s reasonable approval. Tenant acknowledgesLandlord’s legitimate desire to maintain the Project (indoor and outdoor areas) in an odor-free manner, and Landlord may require Tenant to abate and removeall odors in a manner that goes beyond the requirements of Applicable Laws.22.3. Tenant shall, at Tenant’s sole cost and expense, provide odor eliminators and other devices (such as filters, air cleaners, scrubbers and whateverother equipment may in Landlord’s reasonable judgment be necessary or appropriate from time to time) to completely remove, eliminate and abate any odors,fumes or other substances in Tenant’s exhaust stream that, in Landlord’s judgment, emanate from Tenant’s Premises. Any work Tenant performs under thisSection shall constitute Alterations.22.4. Tenant’s responsibility to remove, eliminate and abate odors, fumes and exhaust shall continue throughout the Term. Landlord’s approval ofthe Tenant Improvements shall not preclude Landlord from requiring additional measures to eliminate odors, fumes and other adverse impacts of Tenant’sexhaust stream (as Landlord may reasonably designate in Landlord’s reasonable discretion). Tenant shall install additional equipment as Landlordreasonably requires from time to time under the preceding sentence. Such installations shall constitute Alterations. 3422.5. If Tenant fails to install satisfactory odor control equipment within ten (10) business days after Landlord’s demand made at any time, thenLandlord may, without limiting Landlord’s other rights and remedies, require Tenant to cease and suspend any operations in the Premises that, in Landlord’sreasonable determination, cause odors, fumes or exhaust. For example, if Landlord determines that Tenant’s production of a certain type of product causesodors, fumes or exhaust, and Tenant does not install satisfactory odor control equipment within ten (10) business days after Landlord’s request, then Landlordmay require Tenant to stop producing such type of product in the Premises unless and until Tenant has installed odor control equipment satisfactory toLandlord.23. Insurance; Waiver of Subrogation.23.1. Landlord shall maintain insurance for the Building and the Project in amounts equal to full replacement cost (exclusive of the costs ofexcavation, foundations and footings, engineering costs or such other costs to the extent the same are not incurred in the event of a rebuild and withoutreference to depreciation taken by Landlord upon its books or tax returns) or such lesser coverage as Landlord may elect, provided that such coverage shallnot be less than the amount of such insurance Landlord’s Lender, if any, requires Landlord to maintain, providing protection against any peril generallyincluded within the classification “Fire and Extended Coverage,” together with insurance against sprinkler damage (if applicable), vandalism and maliciousmischief. Landlord, subject to availability thereof, shall further insure, if Landlord deems it appropriate, coverage against flood, environmental hazard,earthquake, loss or failure of building equipment, rental loss during the period of repairs or rebuilding, Workers’ Compensation insurance and fidelity bondsfor employees employed to perform services. Notwithstanding the foregoing, Landlord may, but shall not be deemed required to, provide insurance for anyimprovements installed by Tenant or that are in addition to the standard improvements customarily furnished by Landlord, without regard to whether or notsuch are made a part of or are affixed to the Building.23.2. In addition, Landlord shall carry Commercial General Liability insurance with limits of not less than One Million Dollars ($1,000,000) peroccurrence/general aggregate for bodily injury (including death), or property damage with respect to the Project.23.3. Tenant shall, at its own cost and expense, procure and maintain during the Term the following insurance for the benefit of Tenant and Landlord(as their interests may appear) with insurers financially acceptable and lawfully authorized to do business in the state where the Premises are located:(a) Commercial General Liability insurance on a broad-based occurrence coverage form, with coverages including but not limited to bodilyinjury (including death), property damage (including loss of use resulting therefrom), premises/operations, personal & advertising injury, and contractualliability with limits of liability of not less than $2,000,000 for bodily injury and property damage per occurrence, $2,000,000 general aggregate, which limitsmay be met by use of excess and/or umbrella liability insurance provided that such coverage is at least as broad as the primary coverages required herein. 35(b) Commercial Automobile Liability insurance covering liability arising from the use or operation of any auto, including those owned, hiredor otherwise operated or used by or on behalf of the Tenant. The coverage shall be on a broad-based occurrence form with combined single limits of not lessthan $1,000,000 per accident for bodily injury and property damage.(c) Commercial Property insurance covering property damage to the full replacement cost value and business interruption. Covered propertyshall include all tenant improvements in the Premises (to the extent not insured by Landlord pursuant to Section 23.1) and Tenant’s Property includingpersonal property, furniture, fixtures, machinery, equipment, stock, inventory and improvements and betterments, which may be owned by Tenant orLandlord and required to be insured hereunder, or which may be leased, rented, borrowed or in the care custody or control of Tenant, or Tenant’s employees.Such insurance, with respect only to all Tenant Improvements, Alterations or other work performed on the Premises by Tenant (collectively, “Tenant Work”),shall name Landlord and Landlord’s current and future mortgagees as loss payees as their interests may appear. Such insurance shall be written on an “allrisk” of physical loss or damage basis including the perils of fire, extended coverage, electrical injury, mechanical breakdown, windstorm, vandalism,malicious mischief, sprinkler leakage, back-up of sewers or drains, flood, earthquake and such other risks Landlord may from time to time designate, for thefull replacement cost value of the covered items with an agreed amount endorsement with no co-insurance. Business interruption coverage shall have limitssufficient to cover Tenant’s lost profits and necessary continuing expenses, including rents due Landlord under the Lease. The minimum period of indemnityfor business interruption coverage shall be twelve (12) months plus twelve (12) months’ extended period of indemnity.(d) Workers’ Compensation insurance as is required by statute or law, or as may be available on a voluntary basis and Employers’ Liabilityinsurance with limits of not less than the following: each accident, Five Hundred Thousand Dollars ($500,000); disease ($500,000); disease (each employee),Five Hundred Thousand Dollars ($500,000).(e) Medical malpractice insurance at limits of not less than $1,000,000 each claim during such periods, if any, that Tenant engages in thepractice of medicine at the Premises. For avoidance of doubt, Tenant shall not be required to carry the foregoing medical malpractice insurance so long asTenant is not (i) treating patients at the Premises, (ii) conducting clinical trials on human beings at the Premises or (iii) otherwise engaging in the practice ofmedicine at the Premises.(f) Pollution Legal Liability insurance is required if Tenant stores, handles, generates or treats Hazardous Materials, as determined solely byLandlord, on or about the Premises. Such coverage shall include bodily injury, sickness, disease, death or mental anguish or shock sustained by any person;property damage including physical injury to or destruction of tangible property including the resulting loss of use thereof, clean-up costs, and the loss of useof tangible property that has not been physically injured or destroyed; and defense costs, charges and expenses incurred in the investigation, adjustment ordefense of claims for such compensatory damages. Coverage shall apply to both sudden and non-sudden pollution conditions including the discharge,dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants 36or pollutants into or upon land, the atmosphere or any watercourse or body of water. Claims-made coverage is permitted, provided the policy retroactive dateis continuously maintained prior to the commencement date of this agreement, and coverage is continuously maintained during all periods in which Tenantoccupies the Premises. Coverage shall be maintained with limits of not less than $1,000,000 per incident with a $2,000,000 policy aggregate and for a periodof two (2) years thereafter.(g) During all construction by Tenant at the Premises, with respect to tenant improvements being constructed (including the TenantImprovements and any Alterations, insurance required in Exhibit B-1 must be in place.23.4. The insurance required of Tenant by this Article shall be with companies at all times having a current rating of not less than A- and financialcategory rating of at least Class VII in “A.M. Best’s Insurance Guide” current edition. Tenant shall obtain for Landlord from the insurance companies/brokeror cause the insurance companies/broker to furnish certificates of insurance evidencing all coverages required herein to Landlord. Tenant shall give twenty(20) days’ prior written notice to Landlord if any such policy is to be cancelled or reduced below the coverage requirements of this Article (except in theevent of non-payment of premium, in which case ten (10) days’ written notice shall be given). All such policies shall be written as primary policies, notcontributing with and not in excess of the coverage that Landlord may carry. Tenant’s required policies shall contain severability of interests clauses statingthat, except with respect to limits of insurance, coverage shall apply separately to each insured or additional insured. Tenant shall, at least twenty-five(25) days prior to the expiration of such policies, furnish Landlord with renewal certificates of insurance or binders. Tenant agrees that if Tenant does not takeout and maintain such insurance, Landlord may (but shall not be required to) procure such insurance on Tenant’s behalf and at its cost to be paid by Tenantas Additional Rent. Commercial General Liability, Commercial Automobile Liability, Umbrella Liability and Pollution Legal Liability insurance as requiredabove shall name Landlord, BioMed Realty, L.P., and BRE Edison Parent L.P., and their respective officers, employees, agents, general partners, members,subsidiaries, affiliates and Lenders (“Landlord Parties”) as additional insureds as respects liability arising from work or operations performed by or on behalfof Tenant, Tenant’s use or occupancy of Premises, and ownership, maintenance or use of vehicles by or on behalf of Tenant.23.5. In each instance where insurance is to name Landlord Parties as additional insureds, Tenant shall, upon Landlord’s written request, alsodesignate and furnish certificates evidencing such Landlord Parties as additional insureds to (a) any Lender of Landlord holding a security interest in theBuilding or the Project, (b) the landlord under any lease whereunder Landlord is a tenant of the real property upon which the Building is located if theinterest of Landlord is or shall become that of a tenant under a ground lease rather than that of a fee owner and (c) any management company retained byLandlord to manage the Project.23.6. Tenant assumes the risk of damage to any fixtures, goods, inventory, merchandise, equipment and leasehold improvements, and Landlord shallnot be liable for injury to Tenant’s business or any loss of income therefrom, relative to such damage, all as more particularly set forth within this Lease.Tenant shall, at Tenant’s sole cost and expense, carry such insurance as Tenant desires for Tenant’s protection with respect to personal property of Tenant orbusiness interruption. 3723.7. Tenant and its insurers hereby waive any and all rights of recovery or subrogation against the Landlord Parties with respect to any loss, damage,claims, suits or demands, howsoever caused, that are covered, or should have been covered, by valid and collectible insurance, including any deductibles orself-insurance maintained thereunder. If necessary, Tenant agrees to endorse the required insurance policies to permit waivers of subrogation as requiredhereunder and hold harmless and indemnify the Landlord Parties for any loss or expense incurred as a result of a failure to obtain such waivers of subrogationfrom insurers. Such waivers shall continue so long as Tenant’s insurers so permit. Any termination of such a waiver shall be by written notice to Landlord,containing a description of the circumstances hereinafter set forth in this Section. Tenant, upon obtaining the policies of insurance required or permittedunder this Lease, shall give notice to its insurance carriers that the foregoing waiver of subrogation is contained in this Lease. If such policies shall not beobtainable with such waiver or shall be so obtainable only at a premium over that chargeable without such waiver, then Tenant shall notify Landlord of suchconditions.23.8. Landlord may require insurance policy limits required under this Lease to be raised to conform with requirements of Landlord’s Lender.23.9. Any costs incurred by Landlord pursuant to this Article shall constitute a portion of Operating Expenses.23.10. The provisions of this Article shall survive the expiration or earlier termination of this Lease.24. Damage or Destruction.24.1. In the event of a partial destruction of (a) the Premises, (b) the Building, (c) the Common Area or (d) the Project ((a)-(d) collectively, the“Affected Areas”) by fire or other perils covered by extended coverage insurance not exceeding twenty-five percent (25%) of the full insurable value thereof,and provided that (w) the damage thereto is such that the Affected Areas may be repaired, reconstructed or restored within a period of six (6) months from thedate of the happening of such casualty, (x) Landlord shall receive insurance proceeds from its insurer or Lender sufficient to cover the cost of such repairs,reconstruction and restoration (except for any deductible amount provided by Landlord’s policy, which deductible amount, if paid by Landlord, shallconstitute an Operating Expense), (y) the repair, reconstruction or restoration of the Affected Areas is permitted by all applicable Loan Documents orotherwise consented to by any and all Lenders whose consent is required thereunder, and (z) such casualty was not intentionally caused by a Tenant Party,then Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration of the Affected Areas and this Lease shallcontinue in full force and effect.24.2. In the event of any damage to or destruction of the Building or the Project other than as described in Section 24.1, Landlord may elect to repair,reconstruct and restore the Building or the Project, as applicable, in which case this Lease shall continue in full force and 38effect. If Landlord elects not to repair, reconstruct and restore the Building or the Project, as applicable, then this Lease shall terminate as of the date of suchdamage or destruction. In the event of any damage or destruction (regardless of whether such damage is governed by Section 24.1 or this Section), if (a) inLandlord’s determination as set forth in the Damage Repair Estimate (as defined below), the Affected Areas cannot be repaired, reconstructed or restoredwithin twelve (12) months after the date of the Damage Repair Estimate, (b) subject to Section 24.6, the Affected Areas are not actually repaired,reconstructed and restored within eighteen (18) months after the date of the Damage Repair Estimate, or (c) the damage and destruction occurs within the lasttwelve (12) months of the then-current Term, then Tenant shall have the right to terminate this Lease, effective as of the date of such damage or destruction,by delivering to Landlord its written notice of termination (a “Termination Notice”) (y) with respect to Subsections 24.2(a) and (c), no later than fifteen(15) days after Landlord delivers to Tenant Landlord’s Damage Repair Estimate and (z) with respect to Subsection 24.2(b), no later than fifteen (15) days aftersuch eighteen (18) month period (as the same may be extended pursuant to Section 24.6) expires. If Tenant provides Landlord with a Termination Noticepursuant to Subsection 24.2(z), Landlord shall have an additional thirty (30) days after receipt of such Termination Notice to complete the repair,reconstruction and restoration. If Landlord does not complete such repair, reconstruction and restoration within such thirty (30) day period, then Tenant mayterminate this Lease by giving Landlord written notice within two (2) business days after the expiration of such thirty (30) day period. If Landlord doescomplete such repair, reconstruction and restoration within such thirty (30) day period, then this Lease shall continue in full force and effect.24.3. As soon as reasonably practicable, but in any event within sixty (60) days following the date of damage or destruction, Landlord shall notifyTenant of Landlord’s good faith estimate of the period of time in which the repairs, reconstruction and restoration will be completed (the “Damage RepairEstimate”), which estimate shall be based upon the opinion of a contractor reasonably selected by Landlord and experienced in comparable repair,reconstruction and restoration of similar buildings. Additionally, Landlord shall give written notice to Tenant within sixty (60) days following the date ofdamage or destruction of its election not to repair, reconstruct or restore the Building or the Project, as applicable.24.4. Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby without further obligation tothe other from the date possession of the Premises is surrendered to Landlord, except with regard to (a) items occurring prior to the damage or destruction and(b) provisions of this Lease that, by their express terms, survive the expiration or earlier termination hereof.24.5. In the event of repair, reconstruction and restoration as provided in this Article, all Rent to be paid by Tenant under this Lease shall be abatedproportionately based on the extent to which Tenant’s use of the Premises is impaired during the period of such repair, reconstruction or restoration, unlessLandlord provides Tenant with other space during the period of repair, reconstruction and restoration that, in Tenant’s reasonable opinion, is suitable for thetemporary conduct of Tenant’s business; provided, however, that the amount of such abatement shall be reduced by the amount of Rent that is received byTenant as part of the business interruption or loss of rental income with respect to the Premises from the proceeds of business interruption or loss of rentalincome insurance. 3924.6. Notwithstanding anything to the contrary contained in this Article, (a) Landlord shall not be required to repair, reconstruct or restore anydamage or destruction to the extent that Landlord is prohibited from doing so by any applicable Loan Document or any Lender whose consent is requiredthereunder withholds its consent, and (b) should Landlord be delayed or prevented from completing the repair, reconstruction or restoration of the damage ordestruction to the Premises after the occurrence of such damage or destruction by Force Majeure or delays caused by a Lender or Tenant Party, then the timefor Landlord to commence or complete repairs, reconstruction and restoration shall be extended on a day-for-day basis; provided, however, that, at Landlord’selection in the event of an occurrence under clause (b), Landlord shall be relieved of its obligation to make such repairs, reconstruction and restoration uponLandlord’s delivery of written notice to Tenant.24.7. If Landlord is obligated to or elects to repair, reconstruct or restore as herein provided, then Landlord shall be obligated to make such repairs,reconstruction or restoration only with regard to (a) those portions of the Premises that were originally provided at Landlord’s expense and (b) the CommonArea portion of the Affected Areas. The repairs, reconstruction or restoration of improvements not originally provided by Landlord or at Landlord’s expenseshall be the obligation of Tenant. In the event Tenant has elected to upgrade certain improvements from the Building Standard, Landlord shall, upon theneed for replacement due to an insured loss, provide only the Building Standard, unless Tenant again elects to upgrade such improvements and pay anyincremental costs related thereto, except to the extent that excess insurance proceeds, if received, are adequate to provide such upgrades, in addition toproviding for basic repairs, reconstruction and restoration of the Premises, the Building and the Project.24.8. Notwithstanding anything to the contrary contained in this Article, Landlord shall not have any obligation whatsoever to repair, reconstruct orrestore the Premises if the damage resulting from any casualty covered under this Article occurs during the last twelve (12) months of the Term or anyextension thereof, or to the extent that insurance proceeds are not available therefor.24.9. Landlord’s obligation, should it elect or be obligated to repair, reconstruct or restore, shall be limited to the Affected Areas, and shall beconditioned upon Landlord receiving any permits or authorizations required by Applicable Laws. Tenant shall, at its expense, replace or fully repair all ofTenant’s personal property and any Alterations installed by Tenant existing at the time of such damage or destruction. If Affected Areas are to be repaired,reconstructed or restored in accordance with the foregoing, Landlord shall make available to Tenant any portion of insurance proceeds it receives that areallocable to the Alterations constructed by Tenant pursuant to this Lease; provided Tenant is not then in default under this Lease, and subject to therequirements of any Lender of Landlord.24.10. This Article sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction. Accordingly,the parties hereby waive the provisions of California Civil Code Sections 1932(2) and 1933(4) (and any successor statutes) permitting the parties to terminatethis Lease as a result of any damage or destruction. 4025. Eminent Domain.25.1. In the event (a) the whole of all Affected Areas or (b) such part thereof as shall substantially interfere with Tenant’s use and occupancy of thePremises for the Permitted Use shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right ofappropriation, condemnation or eminent domain, or sold to prevent such taking, Tenant or Landlord may terminate this Lease effective as of the datepossession is required to be surrendered to such authority, except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, bytheir express terms, survive the expiration or earlier termination hereof.25.2. In the event of a partial taking of (a) the Building or the Project or (b) drives, walkways or parking areas serving the Building or the Project forany public or quasi-public purpose by any lawful power or authority by exercise of right of appropriation, condemnation, or eminent domain, or sold toprevent such taking, then, without regard to whether any portion of the Premises occupied by Tenant was so taken, Landlord may elect to terminate this Lease(except with regard to (y) items occurring prior to the taking and (z) provisions of this Lease that, by their express terms, survive the expiration or earliertermination hereof) as of such taking if such taking is, in Landlord’s sole opinion, of a material nature such as to make it uneconomical to continue use of theunappropriated portion for the Permitted Use.25.3. To the extent permitted under all applicable Loan Documents or otherwise consented to by any and all Lenders whose consent is requiredthereunder, Tenant shall be entitled to any award that is specifically awarded as compensation for (a) the taking of Tenant’s personal property that wasinstalled at Tenant’s expense and (b) the costs of Tenant moving to a new location. Except as set forth in the previous sentence, any award for such takingshall be the property of Landlord.25.4. If, upon any taking of the nature described in this Article, this Lease continues in effect, then Landlord shall promptly proceed to restore theAffected Areas to substantially their same condition prior to such partial taking. To the extent such restoration is infeasible, as determined by Landlord in itssole and absolute discretion, the Rent shall be decreased proportionately to reflect the loss of any portion of the Premises no longer available to Tenant.Notwithstanding anything to the contrary contained in this Article, Landlord shall not be required to restore the Affected Areas to the extent that Landlord isprohibited from doing so by any applicable Loan Document or any Lender whose consent is required thereunder withholds its consent.25.5. This Article sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction. Accordingly,the parties hereby waive the provisions of California Code of Civil Procedure Section 1265.130 (and any successor statutes) permitting the parties toterminate this Lease as a result of any damage or destruction.26. Surrender.26.1. At least thirty (30) days prior to Tenant’s surrender of possession of any part of the Premises, Tenant shall provide Landlord with a facilitydecommissioning and Hazardous Materials closure plan for the Premises (“Exit Survey”) prepared by an independent third party 41state-certified professional with appropriate expertise, which Exit Survey must be reasonably acceptable to Landlord. The Exit Survey shall comply with theAmerican National Standards Institute’s Laboratory Decommissioning guidelines (ANSI/AIHA Z9.11-2008) or any successor standards published by ANSI orany successor organization (or, if ANSI and its successors no longer exist, a similar entity publishing similar standards). In addition, prior to, and as acondition to, Tenant’s surrender of possession of any part of the Premises, Tenant shall (a) provide Landlord with written evidence of all appropriategovernmental releases obtained by Tenant in accordance with Applicable Laws, including laws pertaining to the surrender of the Premises, (b) placeLaboratory Equipment Decontamination Forms on all decommissioned equipment to assure safe occupancy by future users and (c) conduct a site inspectionwith Landlord. In addition, Tenant agrees to remain responsible after the surrender of the Premises for the remediation of any recognized environmentalconditions set forth in the Exit Survey (for which Tenant is responsible pursuant to the terms of this Lease) and comply with any recommendations set forth inthe Exit Survey. During any period of time needed after the expiration or earlier termination of this Lease to complete the requirements set forth in thisSection, Tenant shall be deemed a holdover tenant and subject to the provisions of Article 27. Tenant’s obligations under this Section shall survive theexpiration or earlier termination of the Lease.26.2. No surrender of possession of any part of the Premises shall release Tenant from any of its obligations hereunder, unless such surrender isaccepted in writing by Landlord.26.3. The voluntary or other surrender of this Lease by Tenant shall not effect a merger with Landlord’s fee title or leasehold interest in the Premises,the Building, the Property or the Project, unless Landlord consents in writing, and shall, at Landlord’s option, operate as an assignment to Landlord of any orall subleases.26.4. The voluntary or other surrender of any ground or other underlying lease that now exists or may hereafter be executed affecting the Building orthe Project, or a mutual cancellation thereof or of Landlord’s interest therein by Landlord and its lessor shall not effect a merger with Landlord’s fee title orleasehold interest in the Premises, the Building or the Property and shall, at the option of the successor to Landlord’s interest in the Building or the Project, asapplicable, operate as an assignment of this Lease.27. Holding Over.27.1. If, with Landlord’s prior written consent, Tenant holds possession of all or any part of the Premises after the Term, Tenant shall become a tenantfrom month to month after the expiration or earlier termination of the Term, and in such case Tenant shall continue to pay (a) Base Rent in accordance withArticle 7, as adjusted in accordance with Article 8, and (b) any amounts for which Tenant would otherwise be liable under this Lease if the Lease were still ineffect, including payments for Tenant’s Adjusted Share of Operating Expenses. Any such month-to-month tenancy shall be subject to every other term,covenant and agreement contained herein.27.2. Notwithstanding the foregoing, if Tenant remains in possession of the Premises after the expiration or earlier termination of the Term withoutLandlord’s prior written consent, 42(a) Tenant shall become a tenant at sufferance subject to the terms and conditions of this Lease, except that the monthly rent shall be equal to one hundredfifty percent (150%) of the Rent in effect during the last thirty (30) days of the Term, and (b) Tenant shall be liable to Landlord for any and all damagessuffered by Landlord as a result of such holdover, including any lost rent or consequential, special and indirect damages (in each case, regardless of whethersuch damages are foreseeable).27.3. Acceptance by Landlord of Rent after the expiration or earlier termination of the Term shall not result in an extension, renewal or reinstatementof this Lease.27.4. The foregoing provisions of this Article are in addition to and do not affect Landlord’s right of reentry or any other rights of Landlord hereunderor as otherwise provided by Applicable Laws.27.5. The provisions of this Article shall survive the expiration or earlier termination of this Lease.28. Indemnification and Exculpation.28.1. Tenant agrees to Indemnify the Landlord Indemnitees from and against any and all Claims of any kind or nature, real or alleged, arising from(a) injury to or death of any person or damage to any property occurring within or about the Premises, the Building, the Property or the Project, arisingdirectly or indirectly out of (i) the presence at or use or occupancy of the Premises or Project by a Tenant Party, (ii) an act or omission on the part of anyTenant Party, (b) a breach or default by Tenant in the performance of any of its obligations hereunder (including any Claim asserted by any Lender againstany Landlord Indemnitees under any Loan Document as a direct result of such breach or default by Tenant) or (c) injury to or death of persons or damage to orloss of any property, real or alleged, arising from the serving of alcoholic beverages at the Premises or Project, including liability under any dram shop law,host liquor law or similar Applicable Law, except to the extent directly caused by Landlord’s negligence or willful misconduct. Tenant’s obligations underthis Section shall not be affected, reduced or limited by any limitation on the amount or type of damages, compensation or benefits payable by or for Tenantunder workers’ compensation acts, disability benefit acts, employee benefit acts or similar legislation. Tenant’s obligations under this Section shall survivethe expiration or earlier termination of this Lease.28.2. Notwithstanding anything in this Lease to the contrary, Landlord shall not be liable to Tenant for and Tenant assumes all risk of (a) damage orlosses caused by fire, electrical malfunction, gas explosion or water damage of any type (including broken water lines, malfunctioning fire sprinkler systems,roof leaks or stoppages of lines), unless any such loss is due to Landlord’s willful disregard of written notice by Tenant of need for a repair that Landlord isresponsible to make for an unreasonable period of time, and (b) damage to personal property or scientific research, including loss of records kept by Tenantwithin the Premises (in each case, regardless of whether such damages are foreseeable). Tenant further waives any claim for injury to Tenant’s business or lossof income relating to any such damage or destruction of personal property as described in this Section. Notwithstanding anything in the foregoing or thisLease to the contrary, except (x) as otherwise provided herein (including Section 27.2), (y) as may be 43provided by Applicable Laws or (z) in the event of Tenant’s breach of Article 21 or Section 26.1, in no event shall Landlord or Tenant be liable to the otherfor any consequential, special or indirect damages arising out of this Lease, including lost profits (provided that this Subsection 28.2(z) shall not limitTenant’s liability for Base Rent or Additional Rent pursuant to this Lease).28.3. Landlord and the Landlord Parties shall not be liable for any damages arising from any act, omission or neglect of any other tenant in theBuilding or the Project, or of any other third party.28.4. Tenant acknowledges that security devices and services, if any, while intended to deter crime, may not in given instances prevent theft or othercriminal acts. Landlord shall not be liable for injuries or losses caused by criminal acts of third parties, and Tenant assumes the risk that any security device orservice may malfunction or otherwise be circumvented by a criminal. If Tenant desires protection against such criminal acts, then Tenant shall, at Tenant’ssole cost and expense, obtain appropriate insurance coverage. Tenant’s security programs and equipment for the Premises shall be coordinated with Landlordand subject to Landlord’s reasonable approval.28.5. The provisions of this Article shall survive the expiration or earlier termination of this Lease.29. Assignment or Subletting.29.1. Except as hereinafter expressly permitted, none of the following (each, a “Transfer”), either voluntarily or by operation of Applicable Laws,shall be directly or indirectly performed without Landlord’s prior written consent: (a) Tenant selling, hypothecating, assigning, pledging, encumbering orotherwise transferring this Lease or subletting the Premises or (b) a controlling interest in Tenant being sold, assigned or otherwise transferred (other than as aresult of shares in Tenant being sold on a public stock exchange). For purposes of the preceding sentence, “control” means (a) owning (directly or indirectly)more than fifty percent (50%) of the stock or other equity interests of another person or (b) possessing, directly or indirectly, the power to direct or cause thedirection of the management and policies of such person. Notwithstanding the foregoing, Tenant shall have the right to Transfer, without Landlord’s priorwritten consent, Tenant’s interest in this Lease or the Premises or any part thereof to any person that (i) acquires all or substantially all of the assets of Tenant,(ii) is a successor to Tenant by merger, consolidation or reorganization, or (iii) as of the date of determination and at all times thereafter directly, or indirectlythrough one or more intermediaries, controls, is controlled by or is under common control with Tenant (any person described in (i), (ii), or (iii), a “Tenant’sAffiliate”); provided that Tenant shall notify Landlord in writing at least ten (10) business days prior to the effectiveness of such Transfer to Tenant’s Affiliate(an “Exempt Transfer”) and otherwise comply with the requirements of this Lease regarding such Transfer; and provided, further, that the person that will bethe tenant under this Lease after the Exempt Transfer has a net worth (as of both the day immediately prior to and the day immediately after the ExemptTransfer) that is equal to or greater than the greater of (x) the net worth of the transferring Tenant as of the Execution Date, and (z) the lesser of (i) the networth of the Transferring Tenant as of the date of the Exempt Transfer, and (ii) a net worth of Five Hundred Million Dollars ($500,000,000). For purposes ofthe immediately preceding 44sentence, “control” requires both (a) owning (directly or indirectly) more than fifty percent (50%) of the stock or other equity interests of another person and(b) possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of such person. In no event shall Tenantperform a Transfer to or with an entity that is a tenant at the Project or that is in discussions or negotiations with Landlord or an affiliate of Landlord to leasepremises at the Project or a property owned by Landlord or an affiliate of Landlord. Notwithstanding anything in this Lease to the contrary, if (a) Tenant orany proposed transferee, assignee or sublessee of Tenant has been required by any prior landlord, Lender or Governmental Authority to take material remedialaction in connection with Hazardous Materials contaminating a property if the contamination resulted from such party’s action or omission or use of theproperty in question or (b) Tenant or any proposed transferee, assignee or sublessee is subject to a material enforcement order issued by any GovernmentalAuthority in connection with the use, disposal or storage of Hazardous Materials, then Landlord shall have the right to terminate this Lease in Landlord’s soleand absolute discretion (with respect to any such matter involving Tenant), and it shall not be unreasonable for Landlord to withhold its consent to anyproposed transfer, assignment or subletting (with respect to any such matter involving a proposed transferee, assignee or sublessee).29.2. In the event Tenant desires to effect a Transfer, then, at least thirty (30) but not more than ninety (90) days prior to the date when Tenant desiresthe Transfer to be effective (the “Transfer Date”), Tenant shall provide written notice to Landlord (the “Transfer Notice”) containing information (includingreferences) concerning the character of the proposed transferee, assignee or sublessee; the Transfer Date; the most recent unconsolidated financial statementsof Tenant and of the proposed transferee, assignee or sublessee satisfying the requirements of Section 40.2 (“Required Financials”); any ownership orcommercial relationship between Tenant and the proposed transferee, assignee or sublessee; copies of Hazardous Materials Documents for the proposedtransferee, assignee or sublessee; and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlordshall reasonably require.29.3. Landlord, in determining whether consent should be given to a proposed Transfer, may give consideration to (a) the financial strength of Tenantand of such transferee, assignee or sublessee (notwithstanding Tenant remaining liable for Tenant’s performance), (b) any change in use that such transferee,assignee or sublessee proposes to make in the use of the Premises and (c) Landlord’s desire to exercise its rights under Section 29.7 to cancel this Lease. In noevent shall Landlord be deemed to be unreasonable for declining to consent to a Transfer if any applicable Loan Document prohibits such assignment or anyLender whose consent is required thereunder withholds its consent, or if the Transfer is to a transferee, assignee or sublessee of poor reputation, lackingfinancial qualifications or seeking a change in the Permitted Use, or jeopardizing directly or indirectly the status of Landlord or any of Landlord’s affiliates asa Real Estate Investment Trust under the Internal Revenue Code of 1986 (as the same may be amended from time to time, the “Revenue Code”).Notwithstanding anything contained in this Lease to the contrary, (w) no Transfer shall be consummated on any basis such that the rental or other amounts tobe paid by the occupant, assignee, manager or other transferee thereunder would be based, in whole or in part, on the income or profits derived by thebusiness activities of such occupant, assignee, manager or other transferee; (x) Tenant shall not furnish or render any 45services to an occupant, assignee, manager or other transferee with respect to whom transfer consideration is required to be paid, or manage or operate thePremises or any capital additions so transferred, with respect to which transfer consideration is being paid; (y) Tenant shall not consummate a Transfer withany person in which Landlord owns an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the RevenueCode); and (z) Tenant shall not consummate a Transfer with any person or in any manner that could cause any portion of the amounts received by Landlordpursuant to this Lease or any sublease, license or other arrangement for the right to use, occupy or possess any portion of the Premises to fail to qualify as“rents from real property” within the meaning of Section 856(d) of the Revenue Code, or any similar or successor provision thereto or which could cause anyother income of Landlord to fail to qualify as income described in Section 856(c)(2) of the Revenue Code.29.4. The following are conditions precedent to a Transfer or to Landlord considering a request by Tenant to a Transfer:(a) Tenant shall remain fully liable under this Lease. Tenant agrees that it shall not be (and shall not be deemed to be) a guarantor or surety ofthis Lease, however, and waives its right to claim that is it is a guarantor or surety or to raise in any legal proceeding any guarantor or surety defensespermitted by this Lease or by Applicable Laws;(b) If Tenant or the proposed transferee, assignee or sublessee does not or cannot deliver the Required Financials, then Landlord may elect tohave either Tenant’s ultimate parent company or the proposed transferee’s, assignee’s or sublessee’s ultimate parent company provide a guaranty of theapplicable entity’s obligations under this Lease, in a form acceptable to Landlord, which guaranty shall be executed and delivered to Landlord by theapplicable guarantor prior to the Transfer Date;(c) In the case of an Exempt Transfer, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord that the Transferqualifies as an Exempt Transfer;(d) Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord that the value of Landlord’s interest under this Lease shallnot be diminished or reduced by the proposed Transfer. Such evidence shall include evidence respecting the relevant business experience and financialresponsibility and status of the proposed transferee, assignee or sublessee;(e) Tenant shall reimburse Landlord for Landlord’s actual costs and expenses, including reasonable attorneys’ fees, charges and disbursementsincurred in connection with the review, processing and documentation of such request;(f) Except with respect to an Exempt Transfer, if Tenant’s transfer of rights or sharing of the Premises provides for the receipt by, on behalf of oron account of Tenant of any consideration of any kind whatsoever (including a premium rental for a sublease or lump sum payment for an assignment, butexcluding Tenant’s reasonable costs in marketing and subleasing the Premises) in excess of the rental and other charges due to Landlord under this Lease,Tenant shall pay fifty percent (50%) of all of such excess to Landlord, after making deductions for any 46reasonable marketing expenses, tenant improvement funds expended by Tenant, alterations, cash concessions, brokerage commissions, attorneys’ fees andfree rent actually paid by Tenant. If such consideration consists of cash paid to Tenant, payment to Landlord shall be made upon receipt by Tenant of suchcash payment;(g) The proposed transferee, assignee or sublessee shall agree that, in the event Landlord gives such proposed transferee, assignee or sublesseenotice that Tenant is in default under this Lease, such proposed transferee, assignee or sublessee shall thereafter make all payments otherwise due Tenantdirectly to Landlord, which payments shall be received by Landlord without any liability being incurred by Landlord, except to credit such payment againstthose due by Tenant under this Lease, and any such proposed transferee, assignee or sublessee shall agree to attorn to Landlord or its successors and assignsshould this Lease be terminated for any reason; provided, however, that in no event shall Landlord or its Lenders, successors or assigns be obligated to acceptsuch attornment;(h) Landlord’s consent to any such Transfer shall be effected on Landlord’s commercially reasonable forms;(i) Tenant shall not then be in Default hereunder in any respect;(j) Such proposed transferee, assignee or sublessee’s use of the Premises shall be the same as the Permitted Use;(k) Landlord shall not be bound by any provision of any agreement pertaining to the Transfer, except for Landlord’s written consent to thesame;(l) Tenant shall pay all transfer and other taxes (including interest and penalties) assessed or payable for any Transfer;(m) Landlord’s consent (or waiver of its rights) for any Transfer shall not waive Landlord’s right to consent or refuse consent to any laterTransfer;(n) Tenant shall deliver to Landlord one executed copy of any and all written instruments evidencing or relating to the Transfer; and(o) Tenant shall deliver to Landlord a list of Hazardous Materials (as defined below), certified by the proposed transferee, assignee or sublesseeto be true and correct, that the proposed transferee, assignee or sublessee intends to use or store in the Premises. Additionally, Tenant shall deliver toLandlord, on or before the date any proposed transferee, assignee or sublessee takes occupancy of the Premises, all of the items relating to HazardousMaterials of such proposed transferee, assignee or sublessee as described in Section 21.2.29.5. Any Transfer that is not in compliance with the provisions of this Article or with respect to which Tenant does not fulfill its obligationspursuant to this Article shall be void and shall, at the option of Landlord, terminate this Lease. 4729.6. Notwithstanding any Transfer, Tenant shall remain fully and primarily liable for the payment of all Rent and other sums due or to become duehereunder, and for the full performance of all other terms, conditions and covenants to be kept and performed by Tenant. The acceptance of Rent or any othersum due hereunder, or the acceptance of performance of any other term, covenant or condition thereof, from any person or entity other than Tenant shall notbe deemed a waiver of any of the provisions of this Lease or a consent to any Transfer.29.7. If Tenant delivers to Landlord a Transfer Notice indicating a desire to transfer this Lease to a proposed transferee, assignee or sublessee otherthan pursuant to an Exempt Transfer, then Landlord shall have the option, exercisable by giving notice to Tenant at any time within ten (10) business daysafter Landlord’s receipt of such Transfer Notice, to terminate this Lease as of the date specified in the Transfer Notice as the Transfer Date, except for thoseprovisions that, by their express terms, survive the expiration or earlier termination hereof. If Landlord exercises such option, then Tenant shall have the rightto withdraw such Transfer Notice by delivering to Landlord written notice of such election within five (5) days after Landlord’s delivery of notice electing toexercise Landlord’s option to terminate this Lease. In the event Tenant withdraws the Transfer Notice as provided in this Section, this Lease shall continue infull force and effect. No failure of Landlord to exercise its option to terminate this Lease shall be deemed to be Landlord’s consent to a proposed Transfer.29.8. If Tenant sublets the Premises or any portion thereof, Tenant hereby immediately and irrevocably assigns to Landlord, as security for Tenant’sobligations under this Lease, all rent from any such subletting, and appoints Landlord as assignee and attorney-in-fact for Tenant, and Landlord (or a receiverfor Tenant appointed on Landlord’s application) may collect such rent and apply it toward Tenant’s obligations under this Lease; provided that, until theoccurrence of a Default (as defined below) by Tenant, Tenant shall have the right to collect such rent.29.9. In the event that Tenant enters into a sublease for the entire Premises in accordance with this Article that expires within two (2) days of the TermExpiration Date, the term expiration date of such sublease shall, notwithstanding anything in this Lease, the sublease or any consent to the sublease to thecontrary, be deemed to be the date that is two (2) days prior to the Term Expiration Date.30. Subordination and Attornment.30.1. This Lease shall be subject and subordinate to the lien of any mortgage, deed of trust, or lease in which Landlord is tenant now or hereafter inforce against the Building or the Project and to all advances made or hereafter to be made upon the security thereof without the necessity of the executionand delivery of any further instruments on the part of Tenant to effectuate such subordination.30.2. Notwithstanding the foregoing, Tenant shall execute and deliver upon demand such further instrument or instruments evidencing suchsubordination of this Lease to the lien of any such mortgage or mortgages or deeds of trust or lease in which Landlord is tenant as may be required byLandlord; provided that such instrument(s) contain commercially reasonable non-disturbance language in favor of Tenant. If any Lender so elects, however,this Lease shall be 48deemed prior in lien to any such lease, mortgage, or deed of trust upon or including the Premises regardless of date and Tenant shall execute a statement inwriting to such effect at Landlord’s request. If Tenant fails to execute any document required from Tenant under this Section within ten (10) days after writtenrequest therefor, Tenant hereby constitutes and appoints Landlord or its special attorney-in-fact to execute and deliver any such document or documents inthe name of Tenant. Such power is coupled with an interest and is irrevocable. For the avoidance of doubt, “Lenders” shall also include historic tax creditinvestors and new market tax credit investors.30.3. Upon written request of Landlord and opportunity for Tenant to review, Tenant agrees to execute any Lease amendments not materially alteringthe terms of this Lease, if required by a Lender incident to the financing of the real property of which the Premises constitute a part.30.4. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trustmade by Landlord covering the Premises, Tenant shall at the election of the purchaser at such foreclosure or sale attorn to the purchaser upon any suchforeclosure or sale and recognize such purchaser as Landlord under this Lease.31. Defaults and Remedies.31.1. Late payment by Tenant to Landlord of Rent and other sums due shall cause Landlord to incur costs not contemplated by this Lease, the exactamount of which shall be extremely difficult and impracticable to ascertain. Such costs include processing and accounting charges and late charges that maybe imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Therefore, if any installment of Rent due from Tenant is notreceived by Landlord within three (3) days after the date such payment is due, Tenant shall pay to Landlord (a) an additional sum of five percent (5%) of theoverdue Rent as a late charge plus (b) interest at an annual rate (the “Default Rate”) equal to the lesser of (a) ten percent (10%) and (b) the highest ratepermitted by Applicable Laws. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord shall incur by reasonof late payment by Tenant and shall be payable as Additional Rent to Landlord due with the next installment of Rent or within five (5) business days afterLandlord’s demand, whichever is earlier. Landlord’s acceptance of any Additional Rent (including a late charge or any other amount hereunder) shall not bedeemed an extension of the date that Rent is due or prevent Landlord from pursuing any other rights or remedies under this Lease, at law or in equity.Notwithstanding anything to the contrary in this Section, Tenant shall not be obligated to pay a late charge pursuant to this Section for the first (1st) latepayment of Rent during any twelve (12) month period during the Term, unless Tenant fails to make such payment within five (5) days after Tenant’s receiptof notice from Landlord regarding such late payment.31.2. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent payment herein stipulated shall be deemed to be other than onaccount of the Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accordand satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue anyother 49remedy provided in this Lease or in equity or at law. If a dispute shall arise as to any amount or sum of money to be paid by Tenant to Landlord hereunder,Tenant shall have the right to make payment “under protest,” such payment shall not be regarded as a voluntary payment, and there shall survive the right onthe part of Tenant to institute suit for recovery of the payment paid under protest.31.3. If Tenant fails to pay any sum of money required to be paid by it hereunder or perform any other act on its part to be performed hereunder, ineach case within the applicable cure period (if any) described in Section 31.4, then Landlord may (but shall not be obligated to), without waiving or releasingTenant from any obligations of Tenant, make such payment or perform such act; provided that such failure by Tenant unreasonably interfered with the use ofthe Building or the Project by any other tenant or with the efficient operation of the Building or the Project, or resulted or could have resulted in a violationof Applicable Laws or the cancellation of an insurance policy maintained by Landlord. Notwithstanding the foregoing, in the event of an emergency,Landlord shall have the right to enter the Premises and act in accordance with its rights as provided elsewhere in this Lease. In addition to the late chargedescribed in Section 31.1, Tenant shall pay to Landlord as Additional Rent all sums so paid or incurred by Landlord, together with interest at the DefaultRate, computed from the date such sums were paid or incurred.31.4. The occurrence of any one or more of the following events shall constitute a “Default” hereunder by Tenant:(a) Tenant abandons the Premises;(b) Tenant fails to make any payment of Rent, as and when due, or to satisfy its obligations under Article 19, where such failure shall continuefor a period of three (3) days after written notice thereof from Landlord to Tenant;(c) Tenant fails to observe or perform any obligation or covenant contained herein (other than described in Sections 31.4(a) and 31.4(b)) to beperformed by Tenant, where such failure continues for a period of ten (10) days after written notice thereof from Landlord to Tenant; provided that, if thenature of Tenant’s default is such that it reasonably requires more than ten (10) days to cure, Tenant shall not be deemed to be in Default if Tenantcommences such cure within such ten (10) day period and thereafter diligently prosecutes the same to completion; and provided, further, that such cure iscompleted no later than sixty (60) days after Tenant’s receipt of written notice from Landlord;(d) Tenant makes an assignment for the benefit of creditors;(e) A receiver, trustee or custodian is appointed to or does take title, possession or control of all or substantially all of Tenant’s assets;(f) Tenant files a voluntary petition under the United States Bankruptcy Code or any successor statute (as the same may be amended from timeto time, the “Bankruptcy Code”) or an order for relief is entered against Tenant pursuant to a voluntary or involuntary proceeding commenced under anychapter of the Bankruptcy Code; 50(g) Any involuntary petition is filed against Tenant under any chapter of the Bankruptcy Code and is not dismissed within one hundred twenty(120) days;(h) Tenant fails to deliver an estoppel certificate in accordance with Article 20; or(i) Tenant’s interest in this Lease is attached, executed upon or otherwise judicially seized and such action is not released within one hundredtwenty (120) days of the action.Notices given under this Section shall specify the alleged default and shall demand that Tenant perform the provisions of this Lease or pay the Rent that is inarrears, as the case may be, within the applicable period of time, or quit the Premises. No such notice shall be deemed a forfeiture or a termination of thisLease unless Landlord elects otherwise in such notice.31.5. In the event of a Default by Tenant, and at any time thereafter, with or without notice or demand and without limiting Landlord in the exerciseof any right or remedy that Landlord may have, Landlord has the right to do any or all of the following:(a) Halt any Tenant Improvements and Alterations and order Tenant’s contractors, subcontractors, consultants, designers and material suppliersto stop work;(b) Terminate Tenant’s right to possession of the Premises by written notice to Tenant or by any lawful means, in which case Tenant shallimmediately surrender possession of the Premises to Landlord. In such event, Landlord shall have the immediate right to re-enter and remove all persons andproperty, and such property may be removed and stored in a public warehouse or elsewhere at the cost and for the account of Tenant, all without service ofnotice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage that may be occasioned thereby; and(c) Terminate this Lease, in which event Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlordshall have the immediate right to re-enter and remove all persons and property, and such property may be removed and stored in a public warehouse orelsewhere at the cost and for the account of Tenant, all without service of notice or resort to legal process and without being deemed guilty of trespass orbecoming liable for any loss or damage that may be occasioned thereby. In the event that Landlord shall elect to so terminate this Lease, then Landlord shallbe entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant’s default, including:(i) The sum of:A. The worth at the time of award of any unpaid Rent that had accrued at the time of such termination; plusB. The worth at the time of award of the amount by which the unpaid Rent that would have accrued during the periodcommencing with termination of the Lease and ending at the time of award exceeds that portion of the loss of Landlord’s rental income from the Premises thatTenant proves to Landlord’s reasonable satisfaction could have been reasonably avoided; plus 51C. The worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of awardexceeds that portion of the loss of Landlord’s rental income from the Premises that Tenant proves to Landlord’s reasonable satisfaction could have beenreasonably avoided; plusD. Any other amount necessary to compensate Landlord for all the detriment caused by Tenant’s failure to perform its obligationsunder this Lease or that in the ordinary course of things would be likely to result therefrom, including the cost of restoring the Premises to the conditionrequired under the terms of this Lease, including any rent payments not otherwise chargeable to Tenant (e.g., during any “free” rent period or rent holiday);plusE. At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time byApplicable Laws; or(ii) At Landlord’s election, as minimum liquidated damages in addition to any (A) amounts paid or payable to Landlord pursuant toSection 31.5(c)(i)(A) prior to such election and (B) costs of restoring the Premises to the condition required under the terms of this Lease, an amount (the“Election Amount”) equal to either (Y) the positive difference (if any, and measured at the time of such termination) between (1) the then-present value of thetotal Rent and other benefits that would have accrued to Landlord under this Lease for the remainder of the Term if Tenant had fully complied with the Leaseminus (2) the then-present cash rental value of the Premises as determined by Landlord for what would be the then-unexpired Term if the Lease remained ineffect, computed using the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one (1) percentage point (the “DiscountRate”) or (Z) twelve (12) months (or such lesser number of months as may then be remaining in the Term) of Base Rent and Additional Rent at the rate lastpayable by Tenant pursuant to this Lease, in either case as Landlord specifies in such election. Landlord and Tenant agree that the Election Amountrepresents a reasonable forecast of the minimum damages expected to occur in the event of a breach, taking into account the uncertainty, time and cost ofdetermining elements relevant to actual damages, such as fair market rent, time and costs that may be required to re-lease the Premises, and other factors; andthat the Election Amount is not a penalty.As used in Sections 31.5(c)(i)(A) and (B), “worth at the time of award” shall be computed by allowing interest at the Default Rate. As used in Section 31.5(c)(i)(C), the “worth at the time of the award” shall be computed by taking the present value of such amount, using the Discount Rate.31.6. In addition to any other remedies available to Landlord at law or in equity and under this Lease, Landlord shall have the remedy described inCalifornia Civil Code Section 1951.4 and may continue this Lease in effect after Tenant’s Default or abandonment and recover Rent as it becomes due,provided Tenant has the right to sublet or assign, subject only to reasonable limitations. In addition, Landlord shall not be liable in any way whatsoever forits 52failure or refusal to relet the Premises. For purposes of this Section, the following acts by Landlord will not constitute the termination of Tenant’s right topossession of the Premises:(a) Acts of maintenance or preservation or efforts to relet the Premises, including alterations, remodeling, redecorating, repairs, replacements orpainting as Landlord shall consider advisable for the purpose of reletting the Premises or any part thereof; or(b) The appointment of a receiver upon the initiative of Landlord to protect Landlord’s interest under this Lease or in the Premises.Notwithstanding the foregoing, in the event of a Default by Tenant, Landlord may elect at any time to terminate this Lease and to recover damages to whichLandlord is entitled.31.7. If Landlord does not elect to terminate this Lease as provided in Section 31.5, then Landlord may, from time to time, recover all Rent as itbecomes due under this Lease. At any time thereafter, Landlord may elect to terminate this Lease and to recover damages to which Landlord is entitled.31.8. In the event Landlord elects to terminate this Lease and relet the Premises, Landlord may execute any new lease in its own name. Tenanthereunder shall have no right or authority whatsoever to collect any Rent from such tenant. The proceeds of any such reletting shall be applied as follows:(a) First, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord, including storage charges or brokeragecommissions owing from Tenant to Landlord as the result of such reletting;(b) Second, to the payment of the costs and expenses of reletting the Premises, including (i) alterations and repairs that Landlord deemsreasonably necessary and advisable and (ii) reasonable attorneys’ fees, charges and disbursements incurred by Landlord in connection with the retaking ofthe Premises and such reletting;(c) Third, to the payment of Rent and other charges due and unpaid hereunder; and(d) Fourth, to the payment of future Rent and other damages payable by Tenant under this Lease.31.9. All of Landlord’s rights, options and remedies hereunder shall be construed and held to be nonexclusive and cumulative. Landlord shall havethe right to pursue any one or all of such remedies, or any other remedy or relief that may be provided by Applicable Laws, whether or not stated in this Lease.No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any Rent or other payments due hereunder or anyomission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults otherthan as specified in such waiver. Notwithstanding any provision of this Lease to the contrary, in no event shall Landlord be required to mitigate its damageswith respect to any default by Tenant, except as required by Applicable Laws. Any 53such obligation imposed by Applicable Laws upon Landlord to relet the Premises after any termination of this Lease shall be subject to the reasonablerequirements of Landlord to (a) lease to high quality tenants on such terms as Landlord may from time to time deem appropriate in its discretion and(b) develop the Project in a harmonious manner with a mix of uses, tenants, floor areas, terms of tenancies, etc., as determined by Landlord. Landlord shall notbe obligated to relet the Premises to (y) any Tenant’s Affiliate or (z) any party (i) unacceptable to a Lender, (ii) that requires Landlord to make improvementsto or re-demise the Premises, (iii) that desires to change the Permitted Use, (iv) that desires to lease the Premises for more or less than the remaining Term or(v) to whom Landlord or an affiliate of Landlord may desire to lease other available space in the Project or at another property owned by Landlord or anaffiliate of Landlord.31.10. Landlord’s termination of (a) this Lease or (b) Tenant’s right to possession of the Premises shall not relieve Tenant of any liability to Landlordthat has previously accrued or that shall arise based upon events that occurred prior to the later to occur of (y) the date of Lease termination and (z) the dateTenant surrenders possession of the Premises.31.11. To the extent permitted by Applicable Laws, Tenant waives any and all rights of redemption granted by or under any present or futureApplicable Laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the Premises due to Tenant’s default hereunder orotherwise.31.12. Landlord shall not be in default or liable for damages under this Lease unless Landlord fails to perform obligations required of Landlordwithin a reasonable time, but in no event shall such failure continue for more than thirty (30) days after written notice from Tenant specifying the nature ofLandlord’s failure; provided, however, that if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, thenLandlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same tocompletion. In no event shall Tenant have the right to terminate or cancel this Lease or to withhold or abate rent or to set off any Claims against Rent as aresult of any default or breach by Landlord of any of its covenants, obligations, representations, warranties or promises hereunder, except as may otherwise beexpressly set forth in this Lease.31.13. In the event of any default by Landlord, Tenant shall give notice by registered or certified mail to any (a) beneficiary of a deed of trust or(b) mortgagee under a mortgage covering the Premises, the Building or the Project and to any landlord of any lease of land upon or within which thePremises, the Building or the Project is located, and shall offer such beneficiary, mortgagee or landlord a reasonable opportunity to cure the default,including time to obtain possession of the Building or the Project by power of sale or a judicial action if such should prove necessary to effect a cure;provided that Landlord shall have furnished to Tenant in writing the names and addresses of all such persons who are to receive such notices.32. Bankruptcy. In the event a debtor, trustee or debtor in possession under the Bankruptcy Code, or another person with similar rights, duties and powersunder any other Applicable Laws, proposes to cure any default under this Lease or to assume or assign this Lease and is obliged to provide adequateassurance to Landlord that (a) a default shall be cured, (b) Landlord shall be 54compensated for its damages arising from any breach of this Lease and (c) future performance of Tenant’s obligations under this Lease shall occur, then suchadequate assurances shall include any or all of the following, as designated by Landlord in its sole and absolute discretion:32.1. Those acts specified in the Bankruptcy Code or other Applicable Laws as included within the meaning of “adequate assurance,” even if thisLease does not concern a shopping center or other facility described in such Applicable Laws;32.2. A prompt cash payment to compensate Landlord for any monetary defaults or actual damages arising directly from a breach of this Lease;32.3. A cash deposit in an amount at least equal to the then-current amount of the Security Deposit; or32.4. The assumption or assignment of all of Tenant’s interest and obligations under this Lease.33. Brokers.33.1. Tenant represents and warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Leaseother than Newmark Cornish and Carey (“Broker”), and that it knows of no other real estate broker or agent that is or might be entitled to a commission inconnection with this Lease. Landlord represents and warrants that it has had no dealings with any real estate broker or agent in connection with thenegotiation of this Lease other than Kidder Mathews, and that it knows of no other real estate broker or agent that is or might be entitled to a commission inconnection with this Lease. Landlord shall compensate Broker in relation to this Lease pursuant to a separate agreement between Landlord and Broker.33.2. Tenant represents and warrants that no broker or agent has made any representation or warranty relied upon by Tenant in Tenant’s decision toenter into this Lease, other than as contained in this Lease.33.3. Tenant acknowledges and agrees that the employment of brokers by Landlord is for the purpose of solicitation of offers of leases fromprospective tenants and that no authority is granted to any broker to furnish any representation (written or oral) or warranty from Landlord unless expresslycontained within this Lease. Landlord is executing this Lease in reliance upon Tenant’s representations, warranties and agreements contained within Sections33.1 and 33.2.33.4. Tenant agrees to Indemnify the Landlord Indemnitees from any and all cost or liability for compensation claimed by any broker or agent, otherthan Broker, employed or engaged by Tenant or claiming to have been employed or engaged by Tenant.34. Definition of Landlord. With regard to obligations imposed upon Landlord pursuant to this Lease, the term “Landlord,” as used in this Lease, shall referonly to Landlord or Landlord’s then-current successor-in-interest. In the event of any transfer, assignment or conveyance of Landlord’s interest in this Leaseor in Landlord’s fee title to or leasehold interest in the Property, as applicable, Landlord herein named (and in case of any subsequent transfers orconveyances, the subsequent Landlord) shall be automatically freed and relieved, from and after the date of 55such transfer, assignment or conveyance, from all liability for the performance of any covenants or obligations contained in this Lease thereafter to beperformed by Landlord and, without further agreement, the transferee, assignee or conveyee of Landlord’s in this Lease or in Landlord’s fee title to orleasehold interest in the Property, as applicable, shall be deemed to have assumed and agreed to observe and perform any and all covenants and obligationsof Landlord hereunder during the tenure of its interest in the Lease or the Property. Landlord or any subsequent Landlord may transfer its interest in thePremises or this Lease without Tenant’s consent.35. Limitation of Landlord’s Liability.35.1. If Landlord is in default under this Lease and, as a consequence, Tenant recovers a monetary judgment against Landlord, the judgment shall besatisfied only out of (a) the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Buildingand the Project, (b) rent or other income from such real property receivable by Landlord or (c) the consideration received by Landlord from the sale,financing, refinancing or other disposition of all or any part of Landlord’s right, title or interest in the Building or the Project.35.2. Neither Landlord nor any of its affiliates, nor any of their respective partners, shareholders, directors, officers, employees, members or agentsshall be personally liable for Landlord’s obligations or any deficiency under this Lease, and service of process shall not be made against any shareholder,director, officer, employee or agent of Landlord or any of Landlord’s affiliates. No partner, shareholder, director, officer, employee, member or agent ofLandlord or any of its affiliates shall be sued or named as a party in any suit or action, and service of process shall not be made against any partner or memberof Landlord except as may be necessary to secure jurisdiction of the partnership, joint venture or limited liability company, as applicable. No partner,shareholder, director, officer, employee, member or agent of Landlord or any of its affiliates shall be required to answer or otherwise plead to any service ofprocess, and no judgment shall be taken or writ of execution levied against any partner, shareholder, director, officer, employee, member or agent of Landlordor any of its affiliates.35.3. Each of the covenants and agreements of this Article shall be applicable to any covenant or agreement either expressly contained in this Leaseor imposed by Applicable Laws and shall survive the expiration or earlier termination of this Lease.36. Joint and Several Obligations. If more than one person or entity executes this Lease as Tenant, then:36.1. Each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions andagreements of this Lease to be kept, observed or performed by Tenant, and such terms, covenants, conditions, provisions and agreements shall be bindingwith the same force and effect upon each and all of the persons executing this Agreement as Tenant; and36.2. The term “Tenant,” as used in this Lease, shall mean and include each of them, jointly and severally. The act of, notice from, notice to, refundto, or signature of any one or 56more of them with respect to the tenancy under this Lease, including any renewal, extension, expiration, termination or modification of this Lease, shall bebinding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted, so given orreceived such notice or refund, or so signed.37. Representations. Tenant guarantees, warrants and represents that (a) Tenant is duly incorporated or otherwise established or formed and validly existingunder the laws of its state of incorporation, establishment or formation, (b) Tenant has and is duly qualified to do business in the state in which the Property islocated, (c) Tenant has full corporate, partnership, trust, association or other appropriate power and authority to enter into this Lease and to perform allTenant’s obligations hereunder, (d) each person (and all of the persons if more than one signs) signing this Lease on behalf of Tenant is duly and validlyauthorized to do so and (e) neither (i) the execution, delivery or performance of this Lease nor (ii) the consummation of the transactions contemplated herebywill violate or conflict with any provision of documents or instruments under which Tenant is constituted or to which Tenant is a party. In addition, Tenantguarantees, warrants and represents that none of (x) it, (y) its affiliates or partners nor (z) to the best of its knowledge, its members, shareholders or other equityowners or any of their respective employees, officers, directors, representatives or agents is a person or entity with whom U.S. persons or entities are restrictedfrom doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’sSpecially Designated and Blocked Persons List) or under any statute, executive order (including the September 24, 2001, Executive Order Blocking Propertyand Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism) or other similar governmental action.38. Confidentiality. Tenant shall keep the terms and conditions of this Lease and any information provided to Tenant or its employees, agents orcontractors pursuant to Article 9 confidential and shall not (a) disclose to any third party any terms or conditions of this Lease or any other Lease-relateddocument (including subleases, assignments, work letters, construction contracts, letters of credit, subordination agreements, non-disturbance agreements,brokerage agreements or estoppels) or (b) provide to any third party an original or copy of this Lease (or any Lease-related document). Landlord shall notrelease to any third party any non-public financial information or non-public information about Tenant’s ownership structure that Tenant gives Landlord.Notwithstanding the foregoing, confidential information under this Section may be released by Landlord or Tenant under the following circumstances: (x) ifrequired by Applicable Laws (including, without limitation, any applicable rules and regulations established by the United States Securities and ExchangeCommission) or in any judicial proceeding; provided that the releasing party has given the other party reasonable notice of such requirement, if feasible,(y) to a party’s attorneys, accountants, brokers, lenders, potential lenders, investors, potential investors and other bona fide consultants or advisers (withrespect to this Lease only); provided such third parties agree to be bound by this Section or (z) to bona fide prospective assignees or subtenants of this Lease;provided they agree in writing to be bound by this Section.39. Notices. Except as otherwise stated in this Lease, any notice, consent, demand, invoice, statement or other communication required or permitted to begiven hereunder shall be in writing and shall be given by (a) personal delivery, (b) overnight delivery with a reputable international 57overnight delivery service, such as FedEx, or (c) facsimile or email transmission, so long as such transmission is followed within one (1) business day bydelivery utilizing one of the methods described in Subsection 39(a) or (b). Any such notice, consent, demand, invoice, statement or other communicationshall be deemed delivered (x) upon receipt, if given in accordance with Subsection 39(a); (y) one (1) business day after deposit with a reputable internationalovernight delivery service, if given if given in accordance with Subsection 39(b); or (z) upon transmission, if given in accordance with Subsection 39(c).Except as otherwise stated in this Lease, any notice, consent, demand, invoice, statement or other communication required or permitted to be given pursuantto this Lease shall be addressed to Tenant at the Premises, or to Landlord or Tenant at the addresses shown in Sections 2.9 and 2.10 or 2.11, respectively.Either party may, by notice to the other given pursuant to this Section, specify additional or different addresses for notice purposes.40. Miscellaneous.40.1. Landlord reserves the right to change the name of the Building or the Project in its sole discretion.40.2. To induce Landlord to enter into this Lease, Tenant agrees that it shall furnish to Landlord, from time to time, within ten (10) business days afterreceipt of Landlord’s written request, the most recent year-end unconsolidated financial statements reflecting Tenant’s current financial condition audited bya nationally recognized accounting firm. Tenant shall, within ninety (90) days after the end of Tenant’s financial year, furnish Landlord with a certified copyof Tenant’s year-end unconsolidated financial statements for the previous year audited by a nationally recognized accounting firm. Tenant represents andwarrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete inall respects. If audited financials are not otherwise prepared, unaudited financials complying with generally accepted accounting principles and certified bythe chief financial officer of Tenant as true, correct and complete in all respects shall suffice for purposes of this Section. The provisions of this Section shallnot apply at any time while Tenant is a corporation whose shares are traded on any nationally recognized stock exchange.40.3. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and shall not beeffective as a lease or otherwise until execution by and delivery to both Landlord and Tenant.40.4. The terms of this Lease are intended by the parties as a final, complete and exclusive expression of their agreement with respect to the terms thatare included herein, and may not be contradicted or supplemented by evidence of any other prior or contemporaneous agreement.40.5. Landlord may, but shall not be obligated to, record a short form or memorandum hereof without Tenant’s consent. Within ten (10) days afterreceipt of written request from Landlord, Tenant shall execute a termination of any short form or memorandum of lease recorded with respect hereto. Tenantshall be responsible for the cost of recording any short form or memorandum of this Lease, including any transfer or other taxes incurred in connection withsuch recordation. Neither party shall record this Lease. 5840.6. Where applicable in this Lease, the singular includes the plural and the masculine or neuter includes the masculine, feminine and neuter. Thewords “include,” “includes,” “included” and “including” mean “‘include,’ etc., without limitation.” The word “shall” is mandatory and the word “may” ispermissive. The section headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part of thisLease. Landlord and Tenant have each participated in the drafting and negotiation of this Lease, and the language in all parts of this Lease shall be in allcases construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant.40.7. Except as otherwise expressly set forth in this Lease, each party shall pay its own costs and expenses incurred in connection with this Lease andsuch party’s performance under this Lease; provided that, if either party commences an action, proceeding, demand, claim, action, cause of action or suitagainst the other party arising out of or in connection with this Lease, then the substantially prevailing party shall be reimbursed by the other party for allreasonable costs and expenses, including reasonable attorneys’ fees and expenses, incurred by the substantially prevailing party in such action, proceeding,demand, claim, action, cause of action or suit, and in any appeal in connection therewith (regardless of whether the applicable action, proceeding, demand,claim, action, cause of action, suit or appeal is voluntarily withdrawn or dismissed). In addition, Landlord shall, upon demand, be entitled to all reasonableattorneys’ fees and all other reasonable costs incurred in the preparation and service of any notice or demand hereunder, regardless of whether a legal action issubsequently commenced, or incurred in connection with any contested matter or other proceeding in bankruptcy court concerning this Lease.40.8. Time is of the essence with respect to the performance of every provision of this Lease.40.9. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition.40.10. Notwithstanding anything to the contrary contained in this Lease, Tenant’s obligations under this Lease are independent and shall not beconditioned upon performance by Landlord.40.11. Whenever consent or approval of either party is required, that party shall not unreasonably withhold, condition or delay such consent orapproval, except as may be expressly set forth to the contrary.40.12. Any provision of this Lease that shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provisionhereof, and all other provisions of this Lease shall remain in full force and effect and shall be interpreted as if the invalid, void or illegal provision did notexist. 5940.13. Each of the covenants, conditions and agreements herein contained shall inure to the benefit of and shall apply to and be binding upon theparties hereto and their respective heirs; legatees; devisees; executors; administrators; and permitted successors and assigns. This Lease is for the sole benefitof the parties and their respective heirs, legatees, devisees, executors, administrators and permitted successors and assigns, and nothing in this Lease shallgive or be construed to give any other person or entity any legal or equitable rights. Nothing in this Section shall in any way alter the provisions of this Leaserestricting assignment or subletting.40.14. This Lease shall be governed by, construed and enforced in accordance with the laws of the state in which the Premises are located, withoutregard to such state’s conflict of law principles.40.15. Tenant guarantees, warrants and represents that the individual or individuals signing this Lease have the power, authority and legal capacityto sign this Lease on behalf of and to bind all entities, corporations, partnerships, limited liability companies, joint venturers or other organizations andentities on whose behalf such individual or individuals have signed.40.16. This Lease may be executed in one or more counterparts, each of which, when taken together, shall constitute one and the same document.40.17. No provision of this Lease may be modified, amended or supplemented except by an agreement in writing signed by Landlord and Tenant.40.18. No waiver of any term, covenant or condition of this Lease shall be binding upon Landlord unless executed in writing by Landlord. Thewaiver by Landlord of any breach or default of any term, covenant or condition contained in this Lease shall not be deemed to be a waiver of any precedingor subsequent breach or default of such term, covenant or condition or any other term, covenant or condition of this Lease.40.19. To the extent permitted by Applicable Laws, the parties waive trial by jury in any action, proceeding or counterclaim brought by the otherparty hereto related to matters arising out of or in any way connected with this Lease; the relationship between Landlord and Tenant; Tenant’s use oroccupancy of the Premises; or any claim of injury or damage related to this Lease or the Premises.40.20. Throughout the Term, Tenant shall have the right to use the furniture, fixtures and equipment currently located within the Premises and listedon Exhibit D attached hereto (collectively, the “FF&E”). Landlord has made no representations or warranties, express, implied or otherwise, regarding thecondition or working order of the FF&E. Tenant confirms that it has had the reasonable opportunity to inventory and inspect the FF&E and hereby representsthat (i) it accepts the FF&E “AS IS AND WITH ALL FAULTS”, and (ii) it is satisfied that all items of FF&E listed on Exhibit D attached hereto are currentlylocated within the Premises and are hereby accepted by Tenant, subject to and in accordance with the terms of this Section. Tenant acknowledges and agreesthat Landlord shall continue to own the FF&E, and Tenant shall acquire no ownership interest therein. Throughout the Term, Tenant shall be obligated to(a) maintain, repair, safeguard and keep lien free the FF&E, and (b) ensure that the FF&E is covered by the insurance policy required to be maintained byTenant pursuant to 60Section 23.3(c) of this Lease. With the exception of ordinary wear and tear, Tenant shall promptly repair or replace any FF&E that becomes damaged,destroyed or for any reason is no longer located at the Premises, and shall keep a detailed log of any such repairs or replacements. All replacements shall be ofsubstantially similar style and quality as the original items of FF&E so replaced. Tenant shall provide Landlord with a copy of such log upon request. In noevent shall Landlord have any liability or responsibility with respect to the FF&E, and Landlord shall have no responsibility to repair or refurbish the FF&Eat any time. At the expiration or earlier termination of the Term, Landlord and Tenant shall jointly inventory the FF&E then located within the Premises, andTenant shall pay to Landlord, within thirty (30) days following the effective date of expiration or earlier termination of this Lease, an amount equal to thecost to repair or replace any items of the FF&E which are no longer located at the Premises, are of inferior style or quality as compared with the originalFF&E, or which exhibit damage beyond ordinary wear and tear as reasonably determined by Landlord.[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 61IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written. LANDLORD:BMR-PACIFIC RESEARCH CENTER LP,a Delaware limited partnershipBy: Name: Title: TENANT:PROTAGONIST THERAPEUTICS, INC.,a Delaware corporationBy: Name: Title: EXHIBIT APREMISES EXHIBIT BWORK LETTERThis Work Letter (this “Work Letter”) is made and entered into as of the day of March, 2017, by and between BMR-PACIFIC RESEARCHCENTER LP, a Delaware limited partnership (“Landlord”), and PROTAGONIST THERAPEUTICS, INC., a Delaware corporation (“Tenant”), and is attachedto and made a part of that certain Lease dated as of March , 2017 (as the same may be amended, amended and restated, supplemented or otherwise modifiedfrom time to time, the “Lease”), by and between Landlord and Tenant for the Premises located at 7707 Gateway Boulevard, Newark, California. Allcapitalized terms used but not otherwise defined herein shall have the meanings given them in the Lease.1. General Requirements.1.1. Authorized Representatives.(a) Landlord designates, as Landlord’s authorized representative (“Landlord’s Authorized Representative”), (i) Ben Evans as the personauthorized to initial plans, drawings, approvals and to sign change orders pursuant to this Work Letter and (ii) an officer of Landlord as the person authorizedto sign any amendments to this Work Letter or the Lease. Tenant shall not be obligated to respond to or act upon any such item until such item has beeninitialed or signed (as applicable) by the appropriate Landlord’s Authorized Representative. Landlord may change either Landlord’s AuthorizedRepresentative upon one (1) business day’s prior written notice to Tenant.(b) Tenant designates Tom O’Neil (“Tenant’s Authorized Representative”) as the person authorized to initial and sign all plans, drawings,change orders and approvals pursuant to this Work Letter. Landlord shall not be obligated to respond to or act upon any such item until such item has beeninitialed or signed (as applicable) by Tenant’s Authorized Representative. Tenant may change Tenant’s Authorized Representative upon one (1) businessday’s prior written notice to Landlord.1.2. Schedule. The schedule for design and development of the Tenant Improvements, including the time periods for preparation and review ofconstruction documents, approvals and performance, shall be in accordance with a schedule to be prepared by Tenant (the “Schedule”). Tenant shall preparethe Schedule so that it is a reasonable schedule for the completion of the Tenant Improvements. The Schedule shall clearly identify all activities requiringLandlord participation, including specific dates and time periods when Tenant’s contractor will require access to areas of the Project outside of the Premises.As soon as the Schedule is completed, Tenant shall deliver the same to Landlord for Landlord’s approval, which approval shall not be unreasonably withheld,conditioned or delayed. Such Schedule shall be approved or disapproved by Landlord within ten (10) business days after delivery to Landlord. Landlord’sfailure to respond within such ten (10) business day period shall be deemed approval by Landlord. If Landlord disapproves the Schedule, then Landlord shallnotify Tenant in writing of its objections to such Schedule, and the parties shall confer and negotiate in good faith to reach agreement on the Schedule. TheSchedule shall be subject to adjustment as mutually agreed upon in writing by the parties, or as provided in this Work Letter. B-11.3. Tenant’s Architects, Contractors and Consultants. The architect, engineering consultants, design team, general contractor and subcontractorsresponsible for the construction of the Tenant Improvements shall be selected by Tenant and approved by Landlord, which approval Landlord shall notunreasonably withhold, condition or delay. Landlord may refuse to use any architects, consultants, contractors, subcontractors or material suppliers thatLandlord reasonably believes could cause labor disharmony or may not have sufficient experience, in Landlord’s reasonable opinion, to perform work in anoccupied Class “A” laboratory research building and in lab areas. All Tenant contracts related to the Tenant Improvements shall provide that Tenant mayassign such contracts and any warranties with respect to the Tenant Improvements to Landlord at any time.2. Tenant Improvements. All Tenant Improvements shall be performed by Tenant’s contractor, at Tenant’s sole cost and expense (subject to Landlord’sobligations with respect to any portion of the TI Allowance) and in accordance with the Approved Plans (as defined below), the Lease and this Work Letter.To the extent that the total projected cost of the Tenant Improvements (as reasonably projected by Landlord) exceeds the TI Allowance (such excess, the“Excess TI Costs”), Tenant shall advance to Landlord any Excess TI Costs within ten (10) days after receipt of an invoice therefor, but in any case beforeTenant commences the Tenant Improvements. If the actual Excess TI Costs are less than the Excess TI Costs paid by Tenant to Landlord, Landlord shallcredit Tenant with the overage paid by Tenant against Tenant’s Rent obligations, beginning after Landlord has completed the final accounting for the TenantImprovements (which final accounting shall be completed within thirty (30) days following the completion of the Tenant Improvements). If the cost of theTenant Improvements (as reasonably projected by Landlord) increases over Landlord’s initial projection, then Landlord may notify Tenant and Tenant shalldeposit any additional Excess TI Costs with Landlord in the same way that Tenant deposited the initial Excess TI Costs. If Tenant fails to pay, or is late inpaying, any sum due to Landlord under this Work Letter (and Tenant fails to cure such non-payment within three (3) business days after notice fromLandlord), then Landlord shall have all of the rights and remedies set forth in the Lease for nonpayment of Rent (including the right to interest and the rightto assess a late charge), and for purposes of any litigation instituted with regard to such amounts the same shall be considered Rent. All material andequipment furnished by Tenant or its contractors as the Tenant Improvements shall be new or “like new;” the Tenant Improvements shall be performed in afirst-class, workmanlike manner; and the quality of the Tenant Improvements shall be of a nature and character not less than the Building Standard. Tenantshall take, and shall require its contractors to take, commercially reasonable steps to protect the Premises during the performance of any TenantImprovements, including covering or temporarily removing any window coverings so as to guard against dust, debris or damage. All Tenant Improvementsshall be performed in accordance with Article 17 of the Lease; provided that, notwithstanding anything in the Lease or this Work Letter to the contrary, in theevent of a conflict between this Work Letter and Article 17 of the Lease, the terms of this Work Letter shall govern. B-22.1. Work Plans. Tenant shall prepare and submit to Landlord for approval schematics covering the Tenant Improvements prepared in conformitywith the applicable provisions of this Work Letter (the “Draft Schematic Plans”). The Draft Schematic Plans shall contain sufficient information and detail toaccurately describe the proposed design to Landlord and such other information as Landlord may reasonably request. Landlord shall notify Tenant in writingwithin ten (10) business days after receipt of the Draft Schematic Plans whether Landlord approves or objects to the Draft Schematic Plans and of the manner,if any, in which the Draft Schematic Plans are unacceptable. Landlord’s failure to respond within such ten (10) business day period shall be deemed approvalby Landlord. If Landlord reasonably objects to the Draft Schematic Plans, then Tenant shall revise the Draft Schematic Plans and cause Landlord’s objectionsto be remedied in the revised Draft Schematic Plans. Tenant shall then resubmit the revised Draft Schematic Plans to Landlord for approval, such approval notto be unreasonably withheld, conditioned or delayed. Landlord’s approval of or objection to revised Draft Schematic Plans and Tenant’s correction of thesame shall be in accordance with this Section until Landlord has approved the Draft Schematic Plans in writing or been deemed to have approved them. Theiteration of the Draft Schematic Plans that is approved or deemed approved by Landlord without objection shall be referred to herein as the “ApprovedSchematic Plans.”2.2. Construction Plans. Tenant shall prepare final plans and specifications for the Tenant Improvements that (a) are consistent with and are logicalevolutions of the Approved Schematic Plans and (b) incorporate any other Tenant-requested (and Landlord-approved) Changes (as defined below). As soonas such final plans and specifications (“Construction Plans”) are completed, Tenant shall deliver the same to Landlord for Landlord’s approval, whichapproval shall not be unreasonably withheld, conditioned or delayed. All such Construction Plans shall be submitted by Tenant to Landlord in electronic.pdf, CADD and full-size hard copy formats, and shall be approved or disapproved by Landlord within ten (10) business days after delivery to Landlord.Landlord’s failure to respond within such ten (10) business day period shall be deemed approval by Landlord. If the Construction Plans are disapproved byLandlord, then Landlord shall notify Tenant in writing of its objections to such Construction Plans, and the parties shall confer and negotiate in good faith toreach agreement on the Construction Plans. Promptly after the Construction Plans are approved by Landlord and Tenant, two (2) copies of such ConstructionPlans shall be initialed and dated by Landlord and Tenant, and Tenant shall promptly submit such Construction Plans to all appropriate GovernmentalAuthorities for approval. The Construction Plans so approved, and all change orders specifically permitted by this Work Letter, are referred to herein as the“Approved Plans.”2.3. Changes to the Tenant Improvements. Any changes to the Approved Plans (each, a “Change”) shall be requested and instituted in accordancewith the provisions of this Article 2 and shall be subject to the written approval of the non-requesting party in accordance with this Work Letter.(a) Change Request. Either Landlord or Tenant may request Changes after Landlord approves the Approved Plans by notifying the other partythereof in writing in substantially the same form as the AIA standard change order form (a “Change Request”), which Change Request shall detail the natureand extent of any requested Changes, including (a) the B-3Change, (b) the party required to perform the Change and (c) any modification of the Approved Plans and the Schedule, as applicable, necessitated by theChange. If the nature of a Change requires revisions to the Approved Plans, then the requesting party shall be solely responsible for the cost and expense ofsuch revisions and any increases in the cost of the Tenant Improvements as a result of such Change. Change Requests shall be signed by the requestingparty’s Authorized Representative.(b) Approval of Changes. All Change Requests shall be subject to the other party’s prior written approval, which approval shall not beunreasonably withheld, conditioned or delayed. The non-requesting party shall have three (3) business days after receipt of a Change Request to notify therequesting party in writing of the non-requesting party’s decision either to approve or object to the Change Request. The non-requesting party’s failure torespond within such three (3) business day period shall be deemed approval by the non-requesting party.2.4. Preparation of Estimates. Tenant shall, before proceeding with any Change, using its best efforts, prepare as soon as is reasonably practicable (butin no event more than five (5) business days after delivering a Change Request to Landlord or receipt of a Change Request) an estimate of the increased costsor savings that would result from such Change, as well as an estimate of such Change’s effects on the Schedule. Landlord shall have five (5) business daysafter receipt of such information from Tenant to (a) in the case of a Tenant-initiated Change Request, approve or reject such Change Request in writing, or(b) in the case of a Landlord-initiated Change Request, notify Tenant in writing of Landlord’s decision either to proceed with or abandon the Landlord-initiated Change Request.2.5. Quality Control Program; Coordination. Tenant shall provide Landlord with information regarding the following (together, the “QCP”): (a)Tenant’s general contractor’s quality control program and (b) evidence of subsequent monitoring and action plans. The QCP shall be subject to Landlord’sreasonable review and approval and shall specifically address the Tenant Improvements. Tenant shall ensure that the QCP is regularly implemented on ascheduled basis and shall provide Landlord with reasonable prior notice and access to attend all inspections and meetings between Tenant and its generalcontractor. At the conclusion of the Tenant Improvements, Tenant shall deliver the quality control log to Landlord, which shall include all records of qualitycontrol meetings and testing and of inspections held in the field, including inspections relating to concrete, steel roofing, piping pressure testing and systemcommissioning.3. Completion of Tenant Improvements. Tenant, at its sole cost and expense (except for the TI Allowance), shall perform and complete the TenantImprovements in all respects (a) in substantial conformance with the Approved Plans, (b) otherwise in compliance with provisions of the Lease and this WorkLetter and (c) in accordance with Applicable Laws, the requirements of Tenant’s insurance carriers, the requirements of Landlord’s insurance carriers (to theextent Landlord provides its insurance carriers’ requirements to Tenant) and the board of fire underwriters having jurisdiction over the Premises. The TenantImprovements shall be deemed completed at such time as Tenant shall furnish to Landlord (t) evidence satisfactory to Landlord that (i) all TenantImprovements have been completed and paid for in full (which shall be evidenced by the architect’s certificate of completion and the general contractor’sand each B-4subcontractor’s and material supplier’s final unconditional waivers and releases of liens, each in a form acceptable to Landlord in its reasonable discretionand complying with Applicable Laws, and a Certificate of Substantial Completion in the form of the American Institute of Architects document G704,executed by the project architect and the general contractor, together with a statutory notice of substantial completion from the general contractor), (ii) allTenant Improvements have been accepted by Landlord, (iii) any and all liens related to the Tenant Improvements have either been discharged of record (bypayment, bond, order of a court of competent jurisdiction or otherwise) or waived by the party filing such lien and (iv) no security interests relating to theTenant Improvements are outstanding, (u) all certifications and approvals with respect to the Tenant Improvements that may be required from anyGovernmental Authority and any board of fire underwriters or similar body for the use and occupancy of the Premises (including a certificate of occupancy(or its substantial equivalent) for the Premises for the Permitted Use), (v) certificates of insurance required by the Lease to be purchased and maintained byTenant, (w) an affidavit from Tenant’s architect certifying that all work performed in, on or about the Premises is in accordance with the Approved Plans,(x) complete “as built” drawing print sets, project specifications and shop drawings and electronic CADD files on disc (showing the Tenant Improvements asan overlay on the Building “as built” plans (provided that Landlord provides the Building “as-built” plans provided to Tenant) of all contract documents forwork performed by their architect and engineers in relation to the Tenant Improvements, (y) a commissioning report prepared by a licensed, qualifiedcommissioning agent hired by Tenant and approved by Landlord for all new or affected mechanical, electrical and plumbing systems (which report Landlordmay hire a licensed, qualified commissioning agent to peer review, and whose reasonable recommendations Tenant’s commissioning agent shall perform andincorporate into a revised report) and (z) such other “close out” materials as Landlord reasonably requests consistent with Landlord’s own requirements for itscontractors, such as copies of manufacturers’ warranties, operation and maintenance manuals and the like.4. Insurance.4.1. Property Insurance. At all times during the period beginning with commencement of construction of the Tenant Improvements and ending withfinal completion of the Tenant Improvements, Tenant shall maintain, or cause to be maintained (in addition to the insurance required of Tenant pursuant tothe Lease), property insurance insuring Landlord and the Landlord Parties, as their interests may appear. Such policy shall, on a completed values basis forthe full insurable value at all times, insure against loss or damage by fire, vandalism and malicious mischief and other such risks as are customarily coveredby the so-called “broad form extended coverage endorsement” upon all Tenant Improvements and the general contractor’s and any subcontractors’machinery, tools and equipment, all while each forms a part of, or is contained in, the Tenant Improvements or any temporary structures on the Premises, or isadjacent thereto; provided that, for the avoidance of doubt, insurance coverage with respect to the general contractor’s and any subcontractors’ machinery,tools and equipment shall be carried on a primary basis by such general contractor or the applicable subcontractor(s). Tenant agrees to pay any deductible,and Landlord is not responsible for any deductible, for a claim under such insurance. Such property insurance shall contain an express waiver of any right ofsubrogation by the insurer against Landlord and the Landlord Parties, and shall name Landlord and its affiliates as loss payees as their interests may appear. B-54.2. Workers’ Compensation Insurance. At all times during the period of construction of the Tenant Improvements, Tenant shall, or shall cause itscontractors or subcontractors to, maintain statutory workers’ compensation insurance as required by Applicable Laws.5. Liability. Tenant assumes sole responsibility and liability for any and all injuries or the death of any persons, including Tenant’s contractors andsubcontractors and their respective employees, agents and invitees, and for any and all damages to property caused by, resulting from or arising out of any actor omission on the part of Tenant, Tenant’s contractors or subcontractors, or their respective employees, agents and invitees in the prosecution of the TenantImprovements. Tenant agrees to Indemnify the Landlord Indemnitees from and against all Claims due to, because of or arising out of any and all suchinjuries, death or damage, whether real or alleged, and Tenant and Tenant’s contractors and subcontractors shall assume and defend at their sole cost andexpense all such Claims; provided, however, that nothing contained in this Work Letter shall be deemed to Indemnify Landlord from or against liabilitycaused by Landlord’s negligence or willful misconduct. Any deficiency in design or construction of the Tenant Improvements shall be solely theresponsibility of Tenant, notwithstanding the fact that Landlord may have approved of the same in writing.6. TI Allowance.6.1. Application of TI Allowance. Landlord shall contribute the TI Allowance and any Excess TI Costs advanced by Tenant to Landlord toward thecosts and expenses incurred in connection with the performance of the Tenant Improvements, in accordance with Article 4 of the Lease. If the entire TIAllowance is not applied toward or reserved for the costs of the Tenant Improvements on or before the deadline set forth in Section 4.3 of the Lease, thenTenant shall not be entitled to a credit of such unused portion of the TI Allowance. If the entire Excess TI Costs advanced by Tenant to Landlord are notapplied toward the costs of the Tenant Improvements, then Landlord shall promptly return such excess to Tenant following completion of the TenantImprovements. Tenant may apply the TI Allowance for the payment of construction and other costs in accordance with the terms and provisions of the Lease.6.2. Approval of Budget for the Tenant Improvements. Notwithstanding anything to the contrary set forth elsewhere in this Work Letter or the Lease,Landlord shall not have any obligation to expend any portion of the TI Allowance until Landlord and Tenant shall have approved in writing the budget forthe Tenant Improvements (the “Approved Budget”). Prior to Landlord’s approval of the Approved Budget, Tenant shall pay all of the costs and expensesincurred in connection with the Tenant Improvements as they become due. Landlord shall not be obligated to reimburse Tenant for costs or expenses relatingto the Tenant Improvements that exceed the amount of the TI Allowance. Landlord shall not unreasonably withhold, condition or delay its approval of anybudget for Tenant Improvements that is proposed by Tenant.6.3. Fund Requests. Upon submission by Tenant to Landlord of (a) a statement (a “Fund Request”) setting forth the total amount of the TI Allowancerequested, (b) a summary of the Tenant Improvements performed using AIA standard form Application for Payment (G 702) executed by the generalcontractor and by the architect, (c) invoices from the general contractor, the architect, and any subcontractors, material suppliers and other parties requestingpayment with respect to the amount of the TI Allowance then being requested, (d) unconditional lien B-6releases from the general contractor and each subcontractor and material supplier with respect to previous payments made by either Landlord or Tenant forthe Tenant Improvements in a form acceptable to Landlord and complying with Applicable Laws and (e) conditional lien releases from the general contractorand each subcontractor and material supplier with respect to the Tenant Improvements performed that correspond to the Fund Request each in a formacceptable to Landlord and complying with Applicable Laws, then Landlord shall, within thirty (30) days following receipt by Landlord of a Fund Requestand the accompanying materials required by this Section, pay to (as elected by Landlord) the applicable contractors, subcontractors and material suppliers orTenant (for reimbursement for payments made by Tenant to such contractors, subcontractors or material suppliers either prior to Landlord’s approval of theApproved TI Budget or as a result of Tenant’s decision to pay for the Tenant Improvements itself and later seek reimbursement from Landlord in the form ofone lump sum payment in accordance with the Lease and this Work Letter), the amount of Tenant Improvement costs set forth in such Fund Request;provided, however, that Landlord shall not be obligated to make any payments under this Section until the budget for the Tenant Improvements is approvedin accordance with Section 6.2, and any Fund Request under this Section shall be subject to the payment limits set forth in Section 6.2 above and Article 4 ofthe Lease. Notwithstanding anything in this Section to the contrary, Tenant shall not submit a Fund Request more often than every thirty (30) days. Anyadditional Fund Requests submitted by Tenant shall be void and of no force or effect.6.4. Accrual Information. In addition to the other requirements of this Section 6, Tenant shall, no later than the second (2nd) business day of eachmonth until the Tenant Improvements are complete, provide Landlord with an estimate of (a) the percentage of design and other soft cost work that has beencompleted, (b) design and other soft costs spent through the end of the previous month, both from commencement of the Tenant Improvements and solely forthe previous month, (c) the percentage of construction and other hard cost work that has been completed, (d) construction and other hard costs spent throughthe end of the previous month, both from commencement of the Tenant Improvements and solely for the previous month, and (e) the estimated date ofSubstantial Completion of the Tenant Improvements.7. Miscellaneous.7.1. Incorporation of Lease Provisions. Sections 40.6 through 40.19 of the Lease are incorporated into this Work Letter by reference, and shall applyto this Work Letter in the same way that they apply to the Lease.7.2. General. Except as otherwise set forth in the Lease or this Work Letter, this Work Letter shall not apply to improvements performed in anyadditional premises added to the Premises at any time or from time to time, whether by any options under the Lease or otherwise; or to any portion of thePremises or any additions to the Premises in the event of a renewal or extension of the original Term, whether by any options under the Lease or otherwise,unless the Lease or any amendment or supplement to the Lease expressly provides that such additional premises are to be delivered to Tenant in the samecondition as the initial Premises.[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] B-7IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter to be effective on the date first above written.LANDLORD: BMR-PACIFIC RESEARCH CENTER LP,a Delaware limited partnershipBy: Name: Title: TENANT:PROTAGONIST THERAPEUTICS, INC.,a Delaware corporationBy: Name: Title: B-8EXHIBIT B-1TENANT WORK INSURANCE SCHEDULETenant shall be responsible for requiring all of Tenant contractors doing construction or renovation work to purchase and maintain such insurance asshall protect it from the claims set forth below which may arise out of or result from any Tenant Work whether such Tenant Work is completed by Tenant orby any Tenant contractors or by any person directly or indirectly employed by Tenant or any Tenant contractors, or by any person for whose acts Tenant orany Tenant contractors may be liable:1. Claims under workers’ compensation, disability benefit and other similar employee benefit acts which are applicable to the Tenant Work to be performed.2. Claims for damages because of bodily injury, occupational sickness or disease, or death of employees under any applicable employer’s liability law.3. Claims for damages because of bodily injury, or death of any person other than Tenant’s or any Tenant contractors’ employees.4. Claims for damages insured by usual personal injury liability coverage which are sustained (a) by any person as a result of an offense directly orindirectly related to the employment of such person by Tenant or any Tenant contractors or (b) by any other person.5. Claims for damages, other than to the Tenant Work itself, because of injury to or destruction of tangible property, including loss of use therefrom.6. Claims for damages because of bodily injury or death of any person or property damage arising out of the ownership, maintenance or use of any motorvehicle.Tenant contractors’ Commercial General Liability Insurance shall include premises/operations (including explosion, collapse and undergroundcoverage if such Tenant Work involves any underground work), elevators, independent contractors, products and completed operations, and blanketcontractual liability on all written contracts, all including broad form property damage coverage.Tenant contractors’ Commercial General, Automobile, Employers and Umbrella Liability Insurance shall be written for not less than limits of liabilityas follows: a. Commercial General Liability: Bodily Injury and Property Damage Commercially reasonable amounts, but in any event no less than$1,000,000 per occurrence and $2,000,000 general aggregate, with$2,000,000 products and completed operations aggregate. B-1-1b. Commercial Automobile Liability: Bodily Injury and Property Damage $1,000,000 per accident c. Employer’s Liability: Each AccidentDisease – Policy LimitDisease – Each Employee $500,000$500,000$500,000d. Umbrella Liability: Bodily Injury and Property Damage Commercially reasonable amounts (excess of coverages a, b and cabove), but in any event no less than $5,000,000 per occurrence /aggregate.All subcontractors for Tenant contractors shall carry the same coverages and limits as specified above, unless different limits are reasonably approved byLandlord. The foregoing policies shall contain a provision that coverages afforded under the policies shall not be canceled or not renewed until at least thirty(30) days’ prior written notice has been given to the Landlord. Certificates of insurance including required endorsements showing such coverages to be inforce shall be filed with Landlord prior to the commencement of any Tenant Work and prior to each renewal. Coverage for completed operations must bemaintained for the lesser of ten (10) years and the applicable statue of repose following completion of the Tenant Work, and certificates evidencing thiscoverage must be provided to Landlord. The minimum A.M. Best’s rating of each insurer shall be A- VII. Landlord and its mortgagees shall be named asadditional insureds under Tenant contractors’ Commercial General Liability, Commercial Automobile Liability and Umbrella Liability Insurance policies asrespects liability arising from work or operations performed, or ownership, maintenance or use of autos, by or on behalf of such contractors. Each contractorand its insurers shall provide waivers of subrogation with respect to any claims covered or that should have been covered by valid and collectible insurance,including any deductibles or self-insurance maintained thereunder.If any contractor’s work involves the handling or removal of asbestos (as determined by Landlord in its sole and absolute discretion), such contractor shallalso carry Pollution Legal Liability insurance. Such coverage shall include bodily injury, sickness, disease, death or mental anguish or shock sustained byany person; property damage, including physical injury to or destruction of tangible property (including the resulting loss of use thereof), clean-up costs andthe loss of use of tangible property that has not been physically injured or destroyed; and defense costs, charges and expenses incurred in the investigation,adjustment or defense of claims for such damages. Coverage shall apply to both sudden and non-sudden pollution conditions including the discharge,dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants orpollutants into or upon land, the atmosphere or any watercourse or body of water. Claims-made coverage is permitted, provided the policy retroactive date iscontinuously maintained prior to the Term Commencement Date, and coverage is continuously maintained during all periods in which Tenant occupies thePremises. Coverage shall be maintained with limits of not less than $1,000,000 per incident with a $2,000,000 policy aggregate. B-1-2EXHIBIT CACKNOWLEDGEMENT OF TERM COMMENCEMENT DATEAND TERM EXPIRATION DATETHIS ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE AND TERM EXPIRATION DATE is entered into as of [ ], 2017, withreference to that certain Lease (the “Lease”) dated as of [ ], 2017, by PROTAGONIST THERAPEUTICS, INC., a Delaware corporation (“Tenant”), infavor of BMR-PACIFIC RESEARCH CENTER LP, a Delaware limited partnership (“Landlord”). All capitalized terms used herein without definition shallhave the meanings ascribed to them in the Lease.Tenant hereby confirms the following:1. Tenant accepted possession of the Premises for construction of improvements or the installation of personal or other property on [ ], 20[ ], and foruse in accordance with the Permitted Use on [ ], 20[ ]. Tenant first occupied the Premises for the Permitted Use on [ ], 20[ ].2. The Premises are in good order, condition and repair.3. The Tenant Improvements are Substantially Complete.4. All conditions of the Lease to be performed by Landlord as a condition to the full effectiveness of the Lease have been satisfied, and Landlord hasfulfilled all of its duties in the nature of inducements offered to Tenant to lease the Premises.5. In accordance with the provisions of Article 4 of the Lease, the Term Commencement Date is [ ], 20[ ], and, unless the Lease is terminated prior tothe Term Expiration Date pursuant to its terms, the Term Expiration Date shall be [ ], 20[ ].6. The Lease is in full force and effect, and the same represents the entire agreement between Landlord and Tenant concerning the Premises[, except[ ]].7. Tenant has no existing defenses against the enforcement of the Lease by Landlord, and there exist no offsets or credits against Rent owed or to be owedby Tenant.8. The obligation to pay Rent is presently in effect and all Rent obligations on the part of Tenant under the Lease commenced to accrue on [ ], 20[ ],with Base Rent payable on the dates and amounts set forth in the chart below: Dates ApproximateSquare Feet ofRentable Area Base Rent per SquareFoot of Rentable Area Monthly Base Rent[ ]/[ ]/[ ]-[ ]/[ ]/[ ] [ ] $[ ] monthly [ ] C-19. The undersigned Tenant has not made any prior assignment, transfer, hypothecation or pledge of the Lease or of the rents thereunder or sublease of thePremises or any portion thereof.[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] C-2IN WITNESS WHEREOF, Tenant has executed this Acknowledgment of Term Commencement Date and Term Expiration Date as of the date firstwritten above.TENANT: PROTAGONIST THERAPEUTICS, INC.,a Delaware corporationBy: Name: Title: C-3EXHIBIT DFF&E2 Televisions1 Multimedia projector and screen1 formal boardroom table and 12 leather chairs1 small conference room table and 8 leather chairs1 small conference room table and 6 leather chairs1 reception deskApprox. 18 cubicle stationsApprox. 18 office tables + chairs on the 2nd floorApprox. 15 office tables + chairs on the 1st floorApprox. 30 break room chairs (orange)Approx. 6 rest/lounge area chairs D-1EXHIBIT EFORM OF LETTER OF CREDIT[On letterhead or L/C letterhead of Issuer]LETTER OF CREDITDate: , 20 (the “Beneficiary”) Attention: L/C. No.: Loan No.: Ladies and Gentlemen:We establish in favor of Beneficiary our irrevocable and unconditional Letter of Credit numbered as identified above (the “L/C”) for an aggregateamount of $ , expiring at :00 p.m. on or, if such day is not a Banking Day, then the next succeeding Banking Day (such date, asextended from time to time, the “Expiry Date”). “Banking Day” means a weekday except a weekday when commercial banks in are authorized orrequired to close.We authorize Beneficiary to draw on us (the “Issuer”) for the account of (the “Account Party”), under the terms and conditions of this L/C.Funds under this L/C are available by presenting the following documentation (the “Drawing Documentation”): (a) the original L/C and (b) a sightdraft substantially in the form of Attachment 1, with blanks filled in and bracketed items provided as appropriate. No other evidence of authority, certificate,or documentation is required.Drawing Documentation must be presented at Issuer’s office at on or before the Expiry Date by personal presentation, courier or messengerservice, or fax. Presentation by fax shall be effective upon electronic confirmation of transmission as evidenced by a printed report from the sender’s faxmachine. After any fax presentation, but not as a condition to its effectiveness, Beneficiary shall with reasonable promptness deliver the original DrawingDocumentation by any other means. Issuer will on request issue a receipt for Drawing Documentation.We agree, irrevocably, and irrespective of any claim by any other person, to honor drafts drawn under and in conformity with this L/C, within themaximum amount of this L/C, presented to us on or before the Expiry Date, provided we also receive (on or before the Expiry Date) any other DrawingDocumentation this L/C requires. E-1We shall pay this L/C only from our own funds by check or wire transfer, in compliance with the Drawing Documentation.If Beneficiary presents proper Drawing Documentation to us on or before the Expiry Date, then we shall pay under this L/C at or before the followingtime (the “Payment Deadline”): (a) if presentment is made at or before noon of any Banking Day, then the close of such Banking Day; and (b) otherwise, theclose of the next Banking Day. We waive any right to delay payment beyond the Payment Deadline. If we determine that Drawing Documentation is notproper, then we shall so advise Beneficiary in writing, specifying all grounds for our determination, within one Banking Day after the Payment Deadline.Partial drawings are permitted. This L/C shall, except to the extent reduced thereby, survive any partial drawings.We shall have no duty or right to inquire into the validity of or basis for any draw under this L/C or any Drawing Documentation. We waive anydefense based on fraud or any claim of fraud.The Expiry Date shall automatically be extended by one year (but never beyond (the “Outside Date”)) unless, on or before the date 90 daysbefore any Expiry Date, we have given Beneficiary notice that the Expiry Date shall not be so extended (a “Nonrenewal Notice”). We shall promptly uponrequest confirm any extension of the Expiry Date under the preceding sentence by issuing an amendment to this L/C, but such an amendment is not requiredfor the extension to be effective. We need not give any notice of the Outside Date.Beneficiary may from time to time without charge transfer this L/C, in whole but not in part, to any transferee (the “Transferee”). Issuer shall look solelyto Account Party for payment of any fee for any transfer of this L/C. Such payment is not a condition to any such transfer. Beneficiary or Transferee shallconsummate such transfer by delivering to Issuer the original of this L/C and a Transfer Notice substantially in the form of Attachment 2, purportedly signedby Beneficiary, and designating Transferee. Issuer shall promptly reissue or amend this L/C in favor of Transferee as Beneficiary. Upon any transfer, allreferences to Beneficiary shall automatically refer to Transferee, who may then exercise all rights of Beneficiary. Issuer expressly consents to any transfersmade from time to time in compliance with this paragraph.Any notice to Beneficiary shall be in writing and delivered by hand with receipt acknowledged or by overnight delivery service such as FedEx (withproof of delivery) at the above address, or such other address as Beneficiary may specify by written notice to Issuer. A copy of any such notice shall also bedelivered, as a condition to the effectiveness of such notice, to: (or such replacement as Beneficiary designates from time to time by writtennotice).No amendment that adversely affects Beneficiary shall be effective without Beneficiary’s written consent. E-2This L/C is subject to and incorporates by reference: (a) the International Standby Practices 98 (“ISP 98”); and (b) to the extent not inconsistent withISP 98, Article 5 of the Uniform Commercial Code of the State of New York.Very truly yours,[Issuer Signature] E-3ATTACHMENT 1 TO EXHIBIT EFORM OF SIGHT DRAFT[BENEFICIARY LETTERHEAD]TO:[Name and Address of Issuer]SIGHT DRAFTAT SIGHT, pay to the Order of , the sum of United States Dollars ($ ). Drawn under [Issuer] Letter of Credit No. dated .[Issuer is hereby directed to pay the proceeds of this Sight Draft solely to the following account: .][Name and signature block, with signature or purported signature of Beneficiary]Date: E-1-1ATTACHMENT 2 TO EXHIBIT EFORM OF TRANSFER NOTICE[BENEFICIARY LETTERHEAD]TO:[Name and Address of Issuer] (the “Issuer”)TRANSFER NOTICEBy signing below, the undersigned, Beneficiary (the “Beneficiary”) under Issuer’s Letter of Credit No. dated (the “L/C”), transfers theL/C to the following transferee (the “Transferee”):[Transferee Name and Address]The original L/C is enclosed. Beneficiary directs Issuer to reissue or amend the L/C in favor of Transferee as Beneficiary. Beneficiary represents and warrantsthat Beneficiary has not transferred, assigned, or encumbered the L/C or any interest in the L/C, which transfer, assignment, or encumbrance remains in effect.[Name and signature block, with signature or purported signature of Beneficiary]Date: E-2-1EXHIBIT FRULES AND REGULATIONSNOTHING IN THESE RULES AND REGULATIONS (“RULES AND REGULATIONS”) SHALL SUPPLANT ANY PROVISION OF THE LEASE. IN THEEVENT OF A CONFLICT OR INCONSISTENCY BETWEEN THESE RULES AND REGULATIONS AND THE LEASE, THE LEASE SHALL PREVAIL.1. No Tenant Party shall encumber or obstruct the common entrances, lobbies, elevators, sidewalks and stairways of the Building(s) or the Project or usethem for any purposes other than ingress or egress to and from the Building(s) or the Project.2. Except as specifically provided in the Lease, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of theoutside of the Premises or the Building(s) without Landlord’s prior written consent. Landlord shall have the right to remove, at Tenant’s sole cost andexpense and without notice, any sign installed or displayed in violation of this rule.3. If Landlord objects in writing to any curtains, blinds, shades, screens, hanging plants or other similar objects attached to or used in connection with anywindow or door of the Premises or placed on any windowsill, and (a) such window, door or windowsill is visible from the exterior of the Premises and (b) suchcurtain, blind, shade, screen, hanging plant or other object is not included in plans approved by Landlord, then Tenant shall promptly remove such curtains,blinds, shades, screens, hanging plants or other similar objects at its sole cost and expense.4. No deliveries shall be made that impede or interfere with other tenants in or the operation of the Project. Movement of furniture, office equipment or anyother large or bulky material(s) through the Common Area shall be restricted to such hours as Landlord may designate and shall be subject to reasonablerestrictions that Landlord may impose.5. Tenant shall not place a load upon any floor of the Premises that exceeds the load per square foot that (a) such floor was designed to carry or (b) isallowed by Applicable Laws. Fixtures and equipment that cause noises or vibrations that may be transmitted to the structure of the Building(s) to such adegree as to be objectionable to other tenants shall be placed and maintained by Tenant, at Tenant’s sole cost and expense, on vibration eliminators or otherdevices sufficient to eliminate such noises and vibrations to levels reasonably acceptable to Landlord and the affected tenants of the Project.6. Tenant shall not use any method of HVAC other than that approved in writing by Landlord or present at the Project and serving the Premises as of theExecution Date.7. Tenant shall not install any radio, television or other antennae; cell or other communications equipment; or other devices on the roof or exterior walls ofthe Premises except in accordance with the Lease. Tenant shall not interfere with radio, television or other digital or electronic communications at the Projector elsewhere. F-18. Canvassing, peddling, soliciting and distributing handbills or any other written material within, on or around the Project (other than within the Premises)are prohibited. Tenant shall cooperate with Landlord to prevent such activities by any Tenant Party.9. Tenant shall store all of its trash, garbage and Hazardous Materials in receptacles within its Premises or in receptacles designated by Landlord outside ofthe Premises. Tenant shall not place in any such receptacle any material that cannot be disposed of in the ordinary and customary manner of trash, garbageand Hazardous Materials disposal. Any Hazardous Materials transported through Common Area shall be held in secondary containment devices. Tenant shallbe responsible, at its sole cost and expense, for Tenant’s removal of its trash, garbage and Hazardous Materials. Tenant is encouraged to participate in thewaste removal and recycling program in place at the Project.10. The Premises shall not be used for lodging or for any improper, immoral or objectionable purpose. No cooking shall be done or permitted in thePremises; provided, however, that Tenant may use (a) equipment approved in accordance with the requirements of insurance policies that Landlord or Tenantis required to purchase and maintain pursuant to the Lease for brewing coffee, tea, hot chocolate and similar beverages, (b) microwave ovens for employees’use and (c) equipment shown on Tenant Improvement plans approved by Landlord; provided, further, that any such equipment and microwave ovens are usedin accordance with Applicable Laws.11. Tenant shall not, without Landlord’s prior written consent, use the name of the Project, if any, in connection with or in promoting or advertisingTenant’s business except as Tenant’s address.12. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any Governmental Authority.13. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which responsibility includes keeping doorslocked and other means of entry to the Premises closed.14. Tenant shall not modify any locks to the Premises without Landlord’s prior written consent, which consent Landlord shall not unreasonably withhold,condition or delay. Tenant shall furnish Landlord with copies of keys, pass cards or similar devices for locks to the Premises.15. Tenant shall cooperate and participate in all reasonable security programs affecting the Premises.16. Tenant shall not permit any animals in the Project, other than for service animals or for use in laboratory experiments.17. Bicycles shall not be taken into the Building(s) (including the elevators and stairways of the Building) except into areas designated by Landlord. F-218. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and nosweepings, rubbish, rags or other substances shall be deposited therein.19. Discharge of industrial sewage shall only be permitted if Tenant, at its sole expense, first obtains all necessary permits and licenses therefor from allapplicable Governmental Authorities.20. Smoking is prohibited inside the Buildings, except in designated outdoor areas of the Project (if any).21. The Project’s hours of operation are currently 24 hours a day seven days a week.22. Tenant shall comply with all orders, requirements and conditions now or hereafter imposed by Applicable Laws or Landlord (“Waste Regulations”)regarding the collection, sorting, separation and recycling of waste products, garbage, refuse and trash generated by Tenant (collectively, “Waste Products”),including (without limitation) the separation of Waste Products into receptacles reasonably approved by Landlord and the removal of such receptacles inaccordance with any collection schedules prescribed by Waste Regulations.23. Tenant, at Tenant’s sole cost and expense, shall cause the Premises to be exterminated on a monthly basis to Landlord’s reasonable satisfaction andshall cause all portions of the Premises used for the storage, preparation, service or consumption of food or beverages to be cleaned daily in a mannerreasonably satisfactory to Landlord, and to be treated against infestation by insects, rodents and other vermin and pests whenever there is evidence of anyinfestation. Tenant shall not permit any person to enter the Premises or the Project for the purpose of providing such extermination services, unless suchpersons have been approved by Landlord. If requested by Landlord, Tenant shall, at Tenant’s sole cost and expense, store any refuse generated in thePremises by the consumption of food or beverages in a cold box or similar facility.24. If Tenant desires to use any portion of the Common Area for a Tenant-related event, Tenant must notify Landlord in writing at least thirty (30) days priorto such event on the form attached as Attachment 1 to this Exhibit, which use shall be subject to Landlord’s prior written consent, not to be unreasonablywithheld, conditioned or delayed. Notwithstanding anything in this Lease or the completed and executed Attachment to the contrary, Tenant shall be solelyresponsible for setting up and taking down any equipment or other materials required for the event, and shall promptly pick up any litter and report anyproperty damage to Landlord related to the event. Any use of the Common Area pursuant to this Section shall be subject to the provisions of Article 28 of theLease.Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlordshall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any suchRules and Regulations against any or all of the tenants of the Project, including Tenant. These Rules and Regulations are in addition to, and shall not beconstrued to in any way modify or amend, in whole or in part, the terms covenants, agreements and conditions of the Lease. Landlord reserves the right tomake such other and reasonable F-3additional rules and regulations as, in its judgment, may from time to time be needed for safety and security, the care and cleanliness of the Project, or thepreservation of good order therein; provided, however, that Tenant shall not be obligated to adhere to such additional rules or regulations until Landlord hasprovided Tenant with written notice thereof. Tenant agrees to abide by these Rules and Regulations and any such additional rules and regulations issued oradopted by Landlord. Tenant shall be responsible for the observance of these Rules and Regulations by all Tenant Parties. F-4ATTACHMENT 1 TO EXHIBIT FREQUEST FOR USE OF COMMON AREAREQUEST FOR USE OF COMMON AREA Date of Request: Landlord/Owner: Tenant/Requestor: Property Location: Event Description: Proposed Plan for Security & Cleaning: Date of Event: Hours of Event: (to include set-up and take down): Location at Property (see attached map): Number of Attendees: Open to the Public? ☐ YES ☐ NOFood and/or Beverages? ☐ YES ☐ NOIf YES: • Will food be prepared on site? ☐ YES ☐ NO • Please describe: • Will alcohol be served? ☐ YES ☐ NO • Please describe: • Will attendees be charged for alcohol? ☐ YES ☐ NO F-1-1 • Is alcohol license or permit required? ☐ YES ☐ NO • Does caterer have alcohol license or permit: ☐ YES ☐ NO ☐ N/A Other Amenities (tent, booths, band, food trucks, bounce house, etc.): Other Event Details or Special Circumstances: The undersigned certifies that the foregoing is true, accurate and complete and he/she is duly authorized to sign and submit this request on behalf of theTenant/Requestor named above.PROTAGONIST THERAPEUTICS, INC.,a Delaware corporation By: Name: Title: Date: F-1-2EXHIBIT GAPPROVED VENDOR LISTNone. G-1EXHIBIT HTENANT’S PROPERTYNone. H-1EXHIBIT IFORM OF ESTOPPEL CERTIFICATE To:BMR-Pacific Research Center LP17190 Bernardo Center DriveSan Diego, California 92128Attention: Legal DepartmentBioMed Realty, L.P.17190 Bernardo Center DriveSan Diego, California 92128 Re:First and second floors (the “Premises”) at 7707 Gateway Boulevard, Newark, California (the “Property”)The undersigned tenant (“Tenant”) hereby certifies to you as follows:1. Tenant is a tenant at the Property under a lease (the “Lease”) for the Premises dated as of [ ], 20[ ]. The Lease has not been cancelled, modified,assigned, extended or amended [except as follows: [ ]], and there are no other agreements, written or oral, affecting or relating to Tenant’s lease ofthe Premises or any other space at the Property. The lease term expires on [ ], 20[ ].2. Tenant took possession of the Premises, currently consisting of [ ] square feet, on [ ], 20[ ], and commenced to pay rent on [ ],20[ ]. Tenant has full possession of the Premises, has not assigned the Lease or sublet any part of the Premises, and does not hold the Premises under anassignment or sublease[, except as follows: [ ]].3. All base rent, rent escalations and additional rent under the Lease have been paid through [ ], 20[ ]. There is no prepaid rent[, except $[ ]][, andthe amount of security deposit is $[ ] [in cash][OR][in the form of a letter of credit]]. Tenant currently has no right to any future rent abatement under theLease.4. Base rent is currently payable in the amount of $[ ] per month.5. Tenant is currently paying estimated payments of additional rent of $[ ] per month on account of real estate taxes, insurance, management fees andCommon Area maintenance expenses.6. All work to be performed for Tenant under the Lease has been performed as required under the Lease and has been accepted by Tenant[, except[ ]], and all allowances to be paid to Tenant, including allowances for tenant improvements, moving expenses or other items, have been paid.7. The Lease is in full force and effect, free from default to Tenant’s knowledge and free from any event that could become a default under the Lease toTenant’s knowledge, and to Tenant’s knowledge, Tenant has no claims against the landlord or offsets or defenses against rent, and there are no disputes withthe landlord. Tenant has received no notice of prior sale, transfer, assignment, hypothecation or pledge of the Lease or of the rents payable thereunder[,except [ ]]. I-18. Tenant has no rights or options to purchase the Property.9. To Tenant’s knowledge, no hazardous wastes have been generated, treated, stored or disposed of by or on behalf of Tenant in, on or around the Premisesor the Project in violation of any environmental laws.10. The undersigned has executed this Estoppel Certificate with the knowledge and understanding that [INSERT NAME OF LANDLORD, PURCHASEROR LENDER, AS APPROPRIATE] or its assignee is [acquiring the Property/making a loan secured by the Property] in reliance on this certificate and that theundersigned shall be bound by this certificate. The statements contained herein may be relied upon by [INSERT NAME OF PURCHASER OR LENDER, ASAPPROPRIATE], BMR-Pacific Research Center LP, BioMed Realty, L.P., BRE-Edison Parent L.P., and any [other] mortgagee of the Property and theirrespective successors and assigns.Any capitalized terms not defined herein shall have the respective meanings given in the Lease.Dated this [ ] day of [ ], 20[ ].PROTAGONIST THERAPEUTICS, INC.,a Delaware corporation By: Name: Title: I-2EXHIBIT JLANDLORD WORK AREA J-1Exhibit 21.1SUBSIDIARIES OF PROTAGONIST THERAPEUTICS, INC. Subsidiary Jurisdiction of Formation/OrganizationProtagonist Pty Limited AustraliaExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-213120) of Protagonist Therapeutics, Inc. of ourreport dated March 7, 2017 relating to the consolidated financial statements, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLPSan Jose, CAMarch 7, 2017Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Dinesh V. Patel, certify that: 1.I have reviewed this Annual Report on Form 10-K of Protagonist 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we 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)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 c)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(s) 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 are reasonablylikely 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 internal controlover financial reporting. /s/ Dinesh V. Patel, Ph.D.Date: March 7, 2017 Dinesh V. Patel, Ph.D. President, Chief Executive OfficerExhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Thomas P. O’Neil, certify that: 1.I have reviewed this Annual Report on Form 10-K of Protagonist 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we 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)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 c)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(s) 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 are reasonablylikely 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 internal controlover financial reporting. /s/ Thomas P. O’NeilDate: March 7, 2017 Thomas P. O’Neil Chief Financial OfficerExhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 ofChapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Dinesh V. Patel, Chief Executive Officer of Protagonist Therapeutics, Inc. (the“Company”), and Thomas P. O’Neil, Chief Financial Officer of the Company, each hereby certify that, to the best of his knowledge:1. The Company’s Annual Report on Form 10-K for the period ended December 31, 2016 (the “Annual Report”), to which this Certification is attached asExhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Dinesh V. Patel, Ph.D.Date: March 7, 2017 Dinesh V. Patel, Ph.D. President, Chief Executive Officer /s/ Thomas P. O’NeilDate: March 7, 2017 Thomas P. O’Neil Chief Financial OfficerThis certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to beincorporated by reference into any filing of Protagonist Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.

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