Retrophin, Inc.
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549____________________________________FORM 10-K____________________________________ þþANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2018 ¨¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934Commission File Number: 001-36257RETROPHIN, INC.(Exact Name of Registrant as specified in its Charter)Delaware27-4842691(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 3721 Valley Centre Drive, Suite 200, San Diego CA92130(Address of Principal Executive Offices)(Zip code)760-260-8600(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of each className of exchange on which registeredCommon Stock, par value $0.0001 per shareThe Nasdaq Global MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes ¨ NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes þ NoIndicate 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. þ Yes ¨ NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act).Large Accelerated FilerþAccelerated Filer¨Non-Accelerated Filer¨Smaller Reporting Company¨ Emerging growth Company¨If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ NoState the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold,or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. $912,685,763.The number of shares of outstanding common stock, par value $0.0001 per share, of the Registrant as of February 25, 2019 was 41,412,835.DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the registrant’s Annual Meeting of Stockholders to be held May 8, 2019, to be filed within120 days after the conclusion of the registrant's fiscal year ended December 31, 2018, are incorporated by reference into Part III of this Annual Report on Form 10-K.FORM 10-K REPORT INDEX Page PART I Item 1.Business5Item 1A.Risk Factors21Item 1B.Unresolved Staff Comments41Item 2.Properties41Item 3.Legal Proceedings41Item 4.Mine Safety Disclosures41PART II Item 5.Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities42Item 6.Selected Financial Data43Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations43Item 7A.Quantitative and Qualitative Disclosures About Market Risk52Item 8.Financial Statements and Supplementary Data52Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure52Item 9A.Controls and Procedures52Item 9B.Other Information55PART III Item 10.Directors, Executive Officers, and Corporate Governance of the Registrant56Item 11.Executive Compensation56Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters56Item 13.Certain Relationships and Related Transactions56Item 14.Principal Accountant Fees and Services56PART IV Item 15.Exhibits and Financial Statement Schedules57Item 16.Form 10-K Summary593Table of ContentsCAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSCertain information contained in this Annual Report on Form 10-K of Retrophin, Inc., a Delaware corporation (the “Company”) include forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. The statements herein which are not historical reflect our current expectations and projections about the Company’sfuture results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to the Company and management and issubject to its interpretation of what is believed to be significant factors affecting the businesses, including many assumptions regarding future events. Such forward-lookingstatements include statements regarding, among other things:•our ability to produce, sustain and expand sales of our products;•our ability to develop, acquire and/or introduce new products;•our projected future sales, profitability and other financial metrics;•our future financing plans;•our anticipated needs for working capital;•the anticipated trends in our industry;•acquisitions of other companies or assets that we might undertake in the future;•our operations in the United States and abroad, and the domestic and foreign regulatory, economic and political conditions; and•competition existing today or that will likely arise in the future.Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “should,”“expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actualresults, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations. Actual events orresults may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” andmatters described in this Annual Report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this AnnualReport will in fact occur. Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there isno undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. The specific discussions in this Annual Report about the Company include financial projections and future estimates and expectations about the Company’s business. Theprojections, estimates and expectations are presented in this Annual Report only as a guide about future possibilities and do not represent actual amounts or assured events. All theprojections and estimates are based exclusively on the Company management’s own assessment of the business, the industry in which it works and the economy at large and otheroperational factors, including capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly from theprojections. Potential investors should not make an investment decision based solely on the Company’s projections, estimates or expectations.4Table of ContentsPART I In this Annual Report on Form 10-K, unless the context requires otherwise, the terms “we”, “our”, “us”, “Retrophin” and the “Company” refer to Retrophin, Inc., a Delawarecorporation, as well as our direct and indirect subsidiaries.We own or have rights to various trademarks used in our business, including those referenced in the subsection of Item 1 below titled “Trademarks”. Our logos and trademarks arethe property of Retrophin, Inc. All other brand names or trademarks appearing in this report are the property of their respective holders.ITEM 1. BUSINESSThose statements in the following discussion that are not historical in nature should be considered forward-looking statements that are inherently uncertain. Actual results and thetiming of the events may differ materially from those contained in these forward looking statements due to a number of factors, including those discussed in the “CautionaryStatement Regarding Forward-Looking Statements” and “Risk Factors” set forth elsewhere in this Annual Report.OverviewWe are a biopharmaceutical company headquartered in San Diego, California, focused on identifying, developing and delivering life-changing therapies to people living with rarediseases. Our approach centers on our pipeline with multiple late clinical-stage programs targeting rare diseases with significant unmet medical needs. Our research anddevelopment efforts are supported by revenues from our commercialized products, Chenodal®, Cholbam® and Thiola®. In addition we regularly evaluate and, where appropriate,act on opportunities to expand our product pipeline through licenses and acquisitions of products in areas that will serve patients with serious or rare diseases and that we believeoffer attractive growth characteristics.We currently have the following product candidates in clinical development:Fosmetpantotenate (RE-024)Fosmetpantotenate, also known as RE-024, is a novel small molecule being evaluated in a Phase 3 clinical study as a potential treatment for pantothenate kinase-associatedneurodegeneration (“PKAN”). PKAN is a genetic neurodegenerative disorder that is typically diagnosed in the first decade of life. Symptoms of PKAN include dystonia, dysarthria,rigidity, retinal degeneration, and severe digestive problems.Sparsentan (RE-021)Sparsentan, also known as RE-021, is an investigational product candidate with a dual mechanism of action, a potent angiotensin receptor blocker (“ARB”) and selective endothelinreceptor antagonist (“ERA”), with in vitro selectivity toward endothelin receptor type A. We have secured a license to sparsentan from Ligand Pharmaceuticals, Inc. and Bristol-Myers Squibb Company ("BMS") (who referred to it as DARA). Sparsentan is currently being evaluated in two pivotal Phase 3 clinical studies in the following indications:•Focal segmental glomerulosclerosis ("FSGS") is a rare kidney disease characterized by proteinuria where the glomeruli become progressively scarred. FSGS is aleading cause of end-stage renal disease.•Immunoglobulin A nephropathy ("IgAN") is an immune-complex-mediated glomerulonephritis characterized by hematuria, proteinuria, and variable rates ofprogressive renal failure. IgAN is the most common primary glomerular disease.CNSA-001We have entered into a joint development agreement with Censa Pharmaceuticals Inc. ("Censa"), a privately held biotechnology company focused on developing therapies fororphan metabolic diseases, to evaluate CNSA-001 for the treatment of phenylketonuria (PKU). CNSA-001 is an orally bioavailable proprietary form of sepiapterin, a naturalprecursor of tetrahydrobiopterin (BH4) that is converted by an endogenous enzymatic pathway to BH4. CNSA-001 is currently being evaluated in a Phase 2 proof-of-concept studyin patients with PKU.In addition, we also have the following programs in discovery or development:NGLY1 Deficiency Discovery EffortsN-glycanase deficiency, or NGLY1 deficiency, is an extremely rare genetic disorder believed to be caused by a deficiency in an enzyme called N-glycanase-1, which is encoded bythe gene NGLY1. In September 2017, we entered into a three-way Cooperative Research and Development Agreement ("CRADA") with the National Institutes of Health’s NationalCenter for Advancing Translational Sciences (NCATS) and patient advocacy foundation NGLY1.org to collaborate on research efforts aimed at the identification of potential smallmolecule therapeutics for NGLY1 deficiency.5Table of ContentsLiquid Ursodeoxycholic AcidLiquid ursodeoxycholic acid ("L-UDCA") is a liquid formulation of ursodeoxycholic acid being developed for the treatment of a rare liver disease called primary biliary cholangitis("PBC"). We obtained rights to L-UDCA in 2016 with the intention of making L-UDCA commercially available to the subset of PBC patients who have difficulty swallowing. There areno liquid formulations of ursodeoxycholic acid currently approved by the U.S. Food and Drug Administration (FDA).We currently sell the following three products:•Chenodal® (chenodeoxycholic acid) is approved in the United States for the treatment of patients suffering from gallstones in whom surgery poses an unacceptablehealth risk due to disease or advanced age. Chenodal® has also been the standard of care for cerebrotendinous xanthomatosis (“CTX”) patients for more than threedecades and we are currently pursuing adding this indication to the label.•Cholbam® (cholic acid) is approved in the United States for the treatment of bile acid synthesis disorders due to single enzyme defects and is further indicated foradjunctive treatment of patients with certain peroxisomal disorders.•Thiola® (tiopronin) is approved in the United States for the prevention of cystine (kidney) stone formation in patients with severe homozygous cystinuria.Our StrategyOur goal is to become a preeminent, global and fully-integrated biopharmaceutical company within the rare disease community. In order to achieve our goal, we intend to:•Focus on developing products to treat rare diseases characterized by severe unmet medical needs. We believe that our research, development, andcommercialization capabilities in rare disease represent distinct competitive advantages. We leverage our development capabilities in rare disease to focus on advancingtherapeutic candidates with life-changing potential. Given these capabilities, the well-established regulatory model and the ability to demonstrate clinical effects in smallclinical studies, we believe that we can successfully bring new therapies to patients living with severe unmet medical needs.•Develop a sustainable pipeline by employing disciplined decision criteria in the evaluation of potential in-licensing candidates. We seek to build asustainable product pipeline by employing multiple therapeutic approaches and by developing or acquiring orphan drug candidates. We seek to augment our internallydeveloped pipeline projects by selectively and strategically acquiring pipeline assets that will add value to the portfolio. We intend to mitigate risk by employing rigorousdecision criteria, favoring drug candidates that have undergone at least some clinical study. Our decision to acquire rights to a drug candidate also depends on thescientific merits of the available clinical data; the identifiable orphan patient population; the economic terms of any proposed acquisition of rights; the projected amount ofcapital required to develop the drug candidate; and the economic potential of the drug candidate, should it be commercialized. We believe this strategy minimizes ourclinical development risk and allows us to accelerate the development and potential commercialization of current and future drug candidates.•Evaluate the commercialization strategies on a product-by-product basis to maximize the value of each. As we move our drug candidates throughdevelopment toward regulatory approval, we will evaluate several options for each drug candidate’s commercialization strategy. These options include utilizing orexpanding our own internal sales force; entering into joint marketing partnerships with other pharmaceutical or biotechnology companies, whereby we jointly sell andmarket the product; and out-licensing our products, whereby other pharmaceutical or biotechnology companies sell and market our product and pay us a royalty on sales.Our decision will be made separately for each product and will be based on a number of factors including capital necessary to execute on each option, size of the marketand terms of potential offers from other pharmaceutical and biotechnology companies.6Table of ContentsOur Product Candidates and Products on the Market The following table summarizes the status of our product candidates, preclinical programs and products on the market, each of which is described in further detail below.*CNSA-001 is being developed in a strategic collaboration with Censa Pharmaceuticals.**Activities underway with the intention of making a liquid formulation commercially available in the United States.Product Candidates:FosmetpantotenateWe are developing fosmetpantotenate, a novel small molecule, as a potential treatment for PKAN. PKAN is a genetic neurodegenerative disorder that is typically diagnosed in thefirst decade of life. Symptoms of PKAN include dystonia, dysarthria, rigidity, retinal degeneration, and severe digestive problems. PKAN is estimated to affect up to 5,000 patientsworldwide. There are currently no viable treatment options for patients with PKAN. Fosmetpantotenate is a phosphopantothenate replacement therapy that aims to restore levels ofthis key substrate in PKAN patients. Certain international health regulators have approved the initiation of dosing fosmetpantotenate in PKAN patients under physician-initiatedstudies in accordance with local regulations in their respective countries.In 2015 and 2016 we filed a U.S. Investigational New Drug application ("IND"), completed the Phase I clinical trials and obtained both orphan drug and fast track designation in theUnited States. Additionally, we received orphan drug designation in the European Union and reached an agreement with the FDA under the Special Protocol Assessment (SPA)process for a Phase 3 clinical trial for PKAN.In the fourth quarter of 2018, the pivotal Phase 3 FORT Study of fosmetpantotenate in PKAN completed patient enrollment. The FORT Study is designed to be registration-enabling in the U.S. and Europe, and we expect top-line data to become available in the third quarter of 2019.SparsentanSparsentan is an investigational product candidate with a dual mechanism of action, a potent ARB and selective ERA, with in vitro selectivity toward endothelin receptor type A. Wehave secured a license to sparsentan from Ligand Pharmaceuticals, Inc. and BMS (who referred to it as DARA). Sparsentan is currently being evaluated in two pivotal Phase 3clinical studies in the following indications:7Table of Contents•FSGS, a leading cause of end-stage renal disease and nephrotic syndrome (“NS”). There are currently no FDA approved pharmacologic treatments for FSGS and off-label treatments are limited to ACE/ARBs, steroids, and immunosuppressant agents, which are effective in only a subset of patients. Every year approximately 5,400patients are diagnosed with FSGS and we estimate that there are up to 40,000 FSGS patients in the United States with approximately half of them being candidates forsparsentan. In 2015 and 2016 we received orphan drug designation in the United States and European Union and generated positive data from our Phase 2 DUET studyof sparsentan for the treatment of FSGS. In the second quarter of 2018, we announced the initiation of the Phase 3 DUPLEX Study of sparsentan in FSGS, andenrollment continues. This pivotal DUPLEX Study is designed to include an interim analysis of modified partial remission of proteinuria. We expect that successfulachievement of this endpoint will serve as the basis for submission of a New Drug Application (NDA) for sparsentan for the treatment of FSGS under the Subpart Haccelerated approval pathway in the United States and Conditional Marketing Authorization ("CMA") consideration in Europe. The confirmatory endpoint of the study willcompare changes in slope of estimated glomerular filtration rate, or eGFR. Top-line data from the interim analysis are expected to become available in the second half of2020.•IgAN is characterized by hematuria, proteinuria, and variable rates of progressive renal failure. With an estimated prevalence of more than 100,000 people in the UnitedStates and greater numbers in Europe and Asia, IgAN is the most common primary glomerular disease. Most patients are diagnosed between the ages of 16 and 35,with up to 40% progressing to end stage renal disease within 15 years. There are currently no FDA approved treatments for IgAN. The current standard of care is renin-angiotensin-aldosterone system (RAAS) blockade with immunosuppression also being commonly used for patients with significant proteinuria or rapidly progressiveglomerulonephritis. In the fourth quarter of 2018, we announced that the first patient had been dosed in the PROTECT Study, a global, pivotal Phase 3 clinical trialevaluating the long-term nephroprotective potential of sparsentan for the treatment of IgAN. This PROTECT Study is a global, randomized, multicenter, double-blind,parallel-arm, active-controlled Phase 3 clinical trial evaluating the safety and efficacy of sparsentan in approximately 280 patients with IgAN aged 18 years or older. Theprimary efficacy endpoint in the PROTECT Study is the change in proteinuria (urine protein-to-creatinine ratio) from baseline after 36 weeks of treatment. We expect thatsuccessful achievement of this endpoint will serve as the basis for submission of an NDA for sparsentan for the treatment of IgAN under the Subpart H acceleratedapproval pathway in the U.S. and CMA consideration in Europe. Secondary efficacy endpoints include change in eGFR from baseline to four weeks post-cessation ofrandomized treatment, as well as the rate of change in eGFR over 52-week and 104-week periods following the first six weeks of randomized treatment. Top-line datafrom the primary endpoint are expected to become available in the first half of 2022.CNSA-001We are a party to a joint development agreement with Censa, a privately held biotechnology company focused on developing therapies for orphan metabolic diseases, to evaluateCNSA-001 for the treatment of PKU. CNSA-001 is an orally available, natural precursor of tetrahydrobiopterin (BH4) with the potential to provide improved phenylalanine (Phe)reduction in patients with PKU when compared to BH4.PKU is a rare, genetic metabolic condition in which the body cannot breakdown Phe due to a missing or defective phenylalanine hydroxylase (PAH) enzyme. High Phe levels canlead to developmental and physical growth delay, executive function impairment, seizures, and microcephaly caused by toxic Phe accumulation in the brain. PKU is typicallydiagnosed at birth.Under the terms of the agreement, we are providing funding for the development of CNSA-001 in PKU. Censa is responsible for the development program, which is beingconducted under the oversight of a joint steering committee. As part of the agreement, we owe certain milestone payments upon achievement of specified milestones and we havethe exclusive option to acquire Censa upon conclusion of a specified option period, pending clinical proof of concept of CNSA-001 in PKU.Censa is currently conducting a Phase 2 proof-of-concept study evaluating CNSA-001 in patients with PKU and we expect top-line data to become available to us during the secondquarter of 2019.NGLY1 Deficiency Discovery EffortsNGLY1 deficiency, is an extremely rare genetic disorder believed to be caused by a deficiency in an enzyme called N-glycanase-1, which is encoded by the gene NGLY1. Thecondition is characterized by symptoms such as developmental delays, seizures, complex hyperkinetic movement disorders, diminished reflexes and an inability to produce tears.There are no approved therapeutic options for NGLY1 deficiency, and current therapeutic strategies are limited to symptom management.In September 2017, we entered into a three-way CRADA with the National Institutes of Health’s National Center for Advancing Translational Sciences (NCATS) and patientadvocacy foundation NGLY1.org to collaborate on research efforts aimed at the identification of potential small molecule therapeutics for NGLY1 deficiency.Liquid Ursodeoxycholic AcidL-UDCA is a liquid formulation of ursodeoxycholic acid being developed for the treatment of a rare liver disease called PBC. We obtained rights to L-UDCA in 2016 with theintention of making L-UDCA commercially available to the subset of PBC patients who have difficulty swallowing. There are no liquid formulations of ursodeoxycholic acid currentlyapproved by the FDA.8Table of ContentsProducts on the Market:Chenodal (chenodiol tablets)Chenodal is a synthetic oral form of chenodeoxycholic acid, a naturally occurring primary bile acid synthesized from cholesterol in the liver, indicated for the treatment of radiolucentstones in well-opacifying gallbladders in patients in whom selective surgery would be undertaken except for the presence of increased surgical risk due to systemic disease or age.Chenodal administration is known to reduce biliary cholesterol and the dissolution of radiolucent gallstones through suppression of hepatic synthesis of cholesterol, cholic acid anddeoxycholic acid in the bile pool. Chenodal was first approved by the FDA in 1983 for the management of gallstones but its marketing was later discontinued due to lack ofcommercial success. In 2009, Nexgen Pharma Inc.'s Abbreviated New Drug Application ("ANDA") for Chenodal was approved by the FDA for the treatment of gallstones.Chenodal is manufactured under this ANDA. In 2010, Chenodal was granted orphan drug designation for the treatment of CTX, a rare autosomal recessive lipid storage disease.We acquired Chenodal in March 2014.While Chenodal is not labeled for CTX, it has been used as the standard of care for over three decades. We are working to obtain FDA approval of Chenodal for the treatment ofCTX. The prevalence of CTX is estimated in the literature to be as high as 1 in 70,000 in the overall population. Pathogenesis of CTX involves deficiency of the enzyme 27-hydroxylase (encoded by the gene CYP27A1), a rate-limiting enzyme in the synthesis of primary bile acids, including chenodeoxycholic acid ("CDCA"), from cholesterol. Thedisruption of primary bile acid synthesis in CTX leads to toxic accumulation of cholesterol and cholestanol in most tissues. Most patients present with intractable diarrhea, prematurecataracts, tendon xanthomas, atherosclerosis, and cardiovascular disease in childhood and adolescence. Neurological manifestations of the disease, including dementia andcognitive and cerebellar deficiencies, emerge during late adolescence and adulthood. Oral administration of CDCA has been shown to normalize primary bile acid synthesis inpatients with CTX.Cholbam (cholic acid capsules)The FDA approved Cholbam (cholic acid capsules) in March 2015, the first FDA approved treatment for pediatric and adult patients with bile acid synthesis disorders due to singleenzyme defects, and for adjunctive treatment of patients with peroxisomal disorders (including Zellweger spectrum disorders). The effectiveness of Cholbam has beendemonstrated in clinical trials for bile acid synthesis disorders and the adjunctive treatment of peroxisomal disorders. An estimated 200 to 300 patients are current candidates fortherapy.Kolbam, the branded name of Cholbam in Europe, is indicated in Europe for the treatment of certain inborn errors of primary bile acid synthesis, encompassing select singleenzyme defects, in infants from one month of age for continuous lifelong treatment through adulthood.Thiola (tiopronin tablets)Thiola is approved by the FDA for the treatment of cystinuria, a rare genetic cystine transport disorder that causes high cystine levels in the urine and the formation of recurringkidney stones. The resulting long-term damage can cause loss of kidney function in addition to substantial pain and loss of productivity associated with renal colic and stone passage.The prevalence of cystinuria in the United States is estimated to be 10,000 to 12,000, indicating that there may be as many as 4,000 to 5,000 affected individuals with cystinuria inthe United States that would be candidates for Thiola. An NDA has been filed for a new, more patient-friendly, formulation of Thiola and the FDA has assigned a Prescription DrugUser Fee Act ("PDUFA") target action date of June 30, 2019.CompetitionThe pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological change. Many of our competitors are larger than ourcompany and have substantially greater financial, marketing and technical resources than we have.The development and commercialization of new products to treat orphan diseases is highly competitive, and we expect considerable competition from major pharmaceutical,biotechnology and specialty pharmaceutical companies. As a result, there are, and will likely continue to be, extensive research and substantial financial resources invested in thediscovery and development of new orphan drug products.Our competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities. The speed with which we candevelop products, complete pre-clinical testing, clinical trials, approval processes, and supply commercial quantities to market are expected to be important competitive factors. Weexpect that competition among products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price, reimbursement, patentposition, and regulatory exclusivity.ChenodalThere are other non-approved chenodeoxycholic acid products available outside of the United States. Furthermore, Chenodal is subject to immediate competition fromcompounded and generic entrants, as the ANDA for this drug has no remaining patent or nonpatent exclusivity.CholbamThere are currently no FDA approved treatments in the United States that compete with Cholbam.ThiolaD-penicillamine agents, including Cuprimine® and Depen® are FDA approved for the treatment of cystinuria, as well as Wilson’s Disease. Additional generic versions of D-penicillamine may become FDA-approved and enter the market.9Table of ContentsCaptopril is not FDA approved for the treatment of cystinuria but has been prescribed for patients with cystinuria.In 2016, Imprimis Pharmaceuticals, Inc., a specialty pharmaceutical company, announced plans to introduce a compounded form of tiopronin, the active ingredient in Thiola, incombination with potassium citrate. Compounded therapies are not subjected to the same level of safety and efficacy evaluation and may not offer the same therapeutic outcomefor patients. There is no clinical data to support the compatibility of fixed dosing of tiopronin with potassium citrate. Fixed-dose combinations of therapies containing potassium aregenerally avoided due to the potential for fluctuations in serum potassium, which may cause serious adverse outcomes including cardiac events.Revive Therapeutics is developing bucillamine, a dithiol derivative of tiopronin for the treatment of cystinuria. The FDA has granted orphan drug designation for the use ofbucillamine for the treatment of cystinuria.Furthermore, Thiola is subject to immediate competition from compounded and generic entrants, as the NDA for this drug has no remaining patent or nonpatent exclusivity.FosmetpantotenateBased on industry reports, Apo Pharma, CoA Therapeutics, Spoonbill Foundation together with Oregon Health & Science University, and TM3 Therapeutics may have programs inpre-clinical or clinical development for the treatment of PKAN.SparsentanThere are currently no pharmacological treatments approved by the FDA for FSGS or IgAN in Europe or the United States. For FSGS the current standard of care includessteroids, ACE/ARBs, calcineurin inhibitors, dialysis, and renal transplant. For IgAN, the current standard of care is renin-angiotensin-aldosterone system (RAAS) blockade withimmunosuppression also being commonly used in patients with significant proteinuria or rapidly progressive glomerulonephritis.Based on industry reports, Aurinia Pharmaceuticals, Complexia Inc., Dimerix Bioscience, ChemoCentryx, BMS, Pfizer, and Reata Pharmaceuticals may have programs in clinicaldevelopment for the treatment of FSGS.Based on industry reports, Apellis Pharmaceuticals, Calliditas Therapeutics, Merck, Novartis, Omeros Corporation, and Reata Pharmaceuticals may have programs in clinicaldevelopment for the treatment of IgAN.In addition there are several other pre-clinical programs that may enter the clinic for the treatment of IgAN.CNSA-001We have the option to purchase Censa, which owns CNSA-001. The current competitive landscape for CNSA-001 includes:•Two FDA- approved medications for PKU which are marketed by BioMarin Pharmaceuticals, sapropterin dihydrochloride, known as Kuvan® and pegylated recombinantphenylalanine ammonia lyase, known as PALYNZIQ™.•Various preclinical programs which include gene-therapy projects for PKU.Liquid Ursodeoxycholic AcidAlso known as ursodiol or UDCA, ursodeoxycholic acid is a naturally occurring hydrophilic bile acid derived from cholesterol, which is indicated for the treatment of PBC andcurrently prescribed only in solid forms. Introducing a liquid formulation of ursodeoxycholic acid would provide healthcare professionals with a dosing alternative for patients whohave difficulty swallowing tablets or capsules, and may facilitate increased compliance. Currently the only liquid form of UDCA is from compounding pharmacies who make it at aphysician's request for individual prescriptions.Our significant recent business development activities include:Exclusive option to purchase CensaOn December 16, 2017, we entered into a Future Acquisition Right and Joint Development Agreement with Censa, which became effective on January 4, 2018. Pursuant to theagreement, we agreed to fund certain development activities of Censa’s CNSA-001 program, in an aggregate amount expected to be approximately $17 million through proof ofconcept, and have the right, but not the obligation, to acquire Censa (the “Option”) on the terms and subject to the conditions set forth in a separate Agreement and Plan of Merger(the “Merger Agreement”). In exchange for the Option, in January 2018, we paid Censa $10 million, $9 million of which was distributed to Censa’s equityholders, and paid Censa anadditional $5 million upon Censa’s completion of a specified development milestone set forth in the Option Agreement, all of which was distributed to Censa’s equityholders.If we exercise the Option, pursuant to the terms of the Merger Agreement, we will acquire Censa for $65 million in upfront consideration, subject to certain adjustments, paid as acombination of 20% in cash and 80% in shares of our common stock, valued at a fixed price of $21.40 per share; provided, however, that Censa may elect on behalf of itsequityholders to receive the upfront consideration in 100% cash if the average price per share of our common stock for the ten trading days ending on the date we provide a noticeof interest to exercise the Option is less than $19.26. In addition to the upfront consideration, if we exercise the Option and acquire Censa, we would be required to make furthercash payments to Censa’s equityholders of up to an aggregate of $25 million if the CNSA-001 program achieves specified development and commercial milestones.10Table of ContentsLicenses and RoyaltiesLigand License AgreementIn 2012, we entered into a license agreement with Ligand Pharmaceuticals, Inc. ("Ligand"), granting us a worldwide license for the development, manufacture andcommercialization of sparsentan, which we are developing for the treatment of FSGS and IgAN. Under the license agreement, Ligand granted us a sublicense under certain of itspatents and other intellectual property in connection with the development and commercialization of sparsentan. Under the license agreement, Ligand is obligated to transfer to uscertain information, records, regulatory filings, materials and inventory controlled by Ligand and relating to or useful for developing sparsentan. We must use commerciallyreasonable efforts to develop and commercialize sparsentan in specified major market countries and other countries in which we believe it is commercially reasonable to developand commercialize such products.As consideration for the license, we are required to make payments upon the achievement of certain milestones, totaling up to $114.1 million. Should we commercialize sparsentanor any products containing any of the licensed compounds, we will be obligated to pay Ligand an escalating annual royalty between 15% and 17% of net sales of all such products.Through 2018, we have made milestone payments to Ligand of $7.2 million under the terms of the license agreement.Under the terms of the license agreement, BMS has a right of first negotiation and Ligand has a right of second negotiation with respect to any license arrangement for a licensedcompound except to the extent such rights may be waived.The license agreement will continue until neither party has any further payment obligations under the agreement and is expected to continue for approximately 10 to 20 years fromthe effective date. Ligand may terminate the license agreement due to (i) our insolvency, (ii) our material uncured breach of the agreement, (iii) our failure to use commerciallyreasonable efforts to develop and commercialize sparsentan as described above or (iv) certain other conditions. We may terminate the license agreement due to a material uncuredbreach of the agreement by Ligand.Thiola License AgreementIn 2014, we entered into a license agreement with Mission Pharmacal Company ("Mission"), pursuant to which we obtained an exclusive, royalty-bearing license to market, sell andcommercialize Thiola (Tiopronin) in the United States and Canada, and a non-exclusive license to use know-how relating to Thiola to the extent necessary to market Thiola. Wepaid Mission an up-front license fee of $3.0 million and through May 28, 2024 will pay guaranteed minimum royalties during each calendar year the greater of $2.0 million or 20% ofour net sales of Thiola in the United States and Canada.Amendments to the original license agreement are as follows: In October 2015, the license agreement was amended to allow for us to secure enough active pharmaceuticalingredient ("API") to ensure an adequate level of safety stock to prevent an interruption in the supply of Thiola and to prepare for a reformulation development project. In March2016, the license agreement was amended to, among other things, include a new formulation development project for tiopronin tablets. In November 2017, the license agreementwas amended to extend the license term, at a minimum, through May 2029. In November 2018, the license agreement was amended to extend the definition of territory beyond theUnited States and Canada.Intellectual PropertyThe proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important to our business. We have sought patentprotection in the United States and certain other jurisdictions for sparsentan and fosmetpantotenate, where available and when appropriate. Our policy is to pursue, maintain anddefend patent rights, whether developed internally or licensed from third parties, and to protect the technology, inventions and improvements that are commercially important to thedevelopment of our business. We also rely on trade secrets relating to our proprietary technology that may be important to the development of our business.Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for our current and future product candidates and themethods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using,selling, offering to sell, or importing our products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. Wecannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we besure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs andprocesses.FosmetpantotenateOur patent portfolio covering compounds for the treatment of PKAN is comprised of five Retrophin-owned patent families. The first of these patent families includes patents andpatent applications directed to fosmetpantotenate and structural analogs thereof, pharmaceutical compositions containing fosmetpantotenate (RE-024) or analogs thereof, andmethods of using fosmetpantotenate or analogs thereof in the treatment of PKAN. As of December 31, 2018, this patent family included three U.S. patents (U.S. PatentNo. 8,673,883, issued March 18, 2014, which we refer to herein as the ‘883 patent, U.S. Patent No. 9,181,286, issued November 10, 2015, and U.S. Patent No. 9,629,862, issuedApril 25, 2017), and one pending U.S. patent application (Application Serial No. 16/204,692, filed November 29, 2018). In addition, as of December 31, 2018 this patent familyincluded two granted European patents (European Patent Nos. EP2841438 and EP3112372, which we refer to herein as the European ‘438 patent and the European ‘372 patent,respectively), a granted Chinese patent, a granted Japanese patent, a granted Hong Kong patent, a granted11Table of ContentsRussian patent, and corresponding foreign patent applications pending in Australia, Brazil, Canada, China, Europe, Hong Kong, India, Japan, Korea, Mexico, and Russia. Weexpect the U.S. and foreign patents in this patent family to expire in April 2033.Our second PKAN patent family is directed to a chemical genus that encompasses structural analogs of fosmetpantotenate, but not fosmetpantotenate itself. As of December 31,2018, this patent family was comprised of a granted U.S. patent (U.S. Patent No. 9,896,464, issued February 20, 2018), a pending U.S. patent application (Application Serial No.15/863,683, filed January 5, 2018) and a granted European patent (European Patent No. EP3060570, issued September 19, 2018). We expect any U.S. and European patentsgranted from this patent family to expire in October 2034.Our third PKAN patent family is directed to another chemical genus that encompasses structural analogs of fosmetpantotenate, but not fosmetpantotenate itself. As of December31, 2018, this patent family was comprised of pending patent applications in the U.S., Australia, Canada, China, Europe, India, Japan, Korea, Mexico and New Zealand.Our fourth PKAN patent family also is directed to a chemical genus that encompasses structural analogs of fosmetpantotenate, but not fosmetpantotenate itself. As of December 31,2018, this patent family was comprised of an international patent application filed in 2017.Our fifth PKAN patent family is directed to a pharmaceutical formulation of fosmetpantotenate. As of December 31, 2018, this patent family was comprised of an international patentapplication filed in 2018.It is possible, assuming that fosmetpantotenate achieves regulatory approval and depending upon the date of any such approval, that the term of the ‘883 patent may be extendedunder the provisions of the Hatch-Waxman Act. Patent term extension also may be available in certain foreign jurisdictions upon regulatory approval. Likewise, it is possible,assuming that fosmetpantotenate achieves regulatory approval in Europe and depending upon the date of any such approval, that the term of the European ‘438 patent or the termof the European ‘372 patent may be extended in various European countries under the provisions governing Supplementary Protection Certificates (SPCs). Should wecommercialize fosmetpantotenate, we may be obligated to pay royalties of up to 5% of net sales of all such products.SparsentanOur patent portfolio for sparsentan is comprised of three distinct patent families, two of which are exclusively licensed from Ligand. One of the licensed patent families is owned byBMS, which exclusively licensed it to Ligand (the “BMS patent family”), and the other is owned by Ligand (the “Ligand patent family”). The third and fourth patent families are ownedby Retrophin (the "Retrophin patent family").The BMS patent family is directed to sparsentan and structural analogs thereof, and to pharmaceutical compositions containing sparsentan or a structural analog thereof. As ofDecember 31, 2018, this patent family included three U.S. patents (U.S. Patent Nos. 6,638,937, which we refer to herein as the ‘937 patent; 6,835,741; and 6,852,745), of whichone (U.S. Patent No. 6,638,937) claims sparsentan and pharmaceutical compositions that contain sparsentan. In addition, as of December 31, 2018, this patent family included agranted European patent and a granted Chinese patent. With the exception of the ‘937 patent, which the U.S. Patent and Trade Office ("USPTO") has determined is entitled to 175days of patent term adjustment, we expect all U.S. and foreign patents in this patent family to expire in July 2019. In view of the USPTO determination that the ‘937 patent is entitledto 175 days of patent term adjustment, we expect the ‘937 patent to expire in December 2019.The Ligand patent family is directed to methods of using sparsentan in the treatment of various diseases, including glomerulosclerosis and IgAN. As of December 31, 2018, thispatent family included two U.S. patents (U.S. Patent No. No. 9,662,312, which we refer to herein as the ‘312 patent, and U.S. Patent No. 9,993,461, which we refer to herein asthe ‘461 patent), a pending U.S. application (Application Serial No. 15/938,956, filed March 28, 2018), a European patent (European Patent No. EP2732818, which we refer toherein as the European ‘818 patent), a pending European application, and a granted Hong Kong patent. The ‘312 patent and the European ‘818 patent claim the use of sparsentanfor treating glomerulosclerosis. The ‘461 patent claims both the use of sparsentan for treating glomerulosclerosis and the use of sparsentan for treating IgAN. We expect the U.S.and foreign patents in this patent family to expire in March 2030.The first Retrophin patent family consists of an international patent application (i.e., a PCT application) filed in 2017, and our second Retrophin patent family consists of a provisionalpatent application filed in 2018.It is possible, assuming that sparsentan achieves regulatory approval and depending upon the date of any such approval, that the term of either the ‘312 patent or the ‘461 patentmay be extended under the provisions of the Hatch-Waxman Act. Patent term extension also may be available in certain foreign jurisdictions upon regulatory approval. Likewise, it ispossible, assuming that sparsentan achieves regulatory approval in Europe and depending upon the date of any such approval, that the term of the European ‘818 patent may beextended in various European countries under the provisions governing Supplementary Protection Certificates (SPCs).ThiolaOur patent portfolio for Thiola is comprised of a patent family which is exclusively licensed from Mission Pharmacal (the “Mission patent family”). The Mission patent family is directedto a new formulation of Thiola. As of December 31, 2018, this patent family included a U.S. patent application filed in 2018.12Table of ContentsRegulatory ExclusivityIf we obtain marketing approval for sparsentan, fosmetpantotenate, CNSA-001 or other drug candidates in the United States or in certain jurisdictions outside of the United States,we may be eligible for regulatory exclusivity for the approved drug. For example, in the United States, an FDA approved drug product may be eligible to receive five years of newchemical entity exclusivity or, for drugs granted an orphan designation by the FDA, seven years of orphan drug exclusivity. In Europe a new drug product approved by the EMA mayreceive eight years of data exclusivity and up to 11 years of marketing exclusivity or, in the case of orphan drugs, ten years of data exclusivity. There can be no assurance that wewill qualify for any such regulatory exclusivity, or that any such exclusivity will prevent competitors from seeking approval solely on the basis of their own studies. See “GovernmentRegulation” below.ChenodalChenodal received orphan drug designation in the United States for the treatment of CTX in 2010. Consequently, if Chenodal is the first chenodeoxycholic acid product to gain FDAapproval for the treatment of CTX, we expect it will have 7 years of marketing exclusivity in the United States for that indication. Currently Chenodal does not have regulatoryexclusivity in the United States.Cholbam (Kolbam)Cholbam received orphan drug designation in the United States for the treatment for pediatric and adult patients with bile acid synthesis disorders due to single enzyme defects andfor patients with peroxisomal disorders, and therefore is expected to have marketing exclusivity in the U.S. for these indications until March 2022.Kolbam, the branded name of Cholbam in Europe, received marketing authorization in November 2015 from the EMA for the treatment of inborn errors of primary bile acidsynthesis, encompassing select single enzyme defects. We expect Kolbam to have marketing exclusivity in Europe for these indications until September 2024.ThiolaThiola does not have regulatory exclusivity in the United States.TrademarksOur trademark portfolio includes both Retrophin-owned and Retrophin-licensed trademarks and is comprised of various U.S. and foreign registered trademarks and pendingtrademark applications relating to our company name, our commercial products (Thiola, Chenodal and Cholbam/Kolbam), and two of our product candidates (i.e. sparsentan andL-UDCA).More specifically, as of December 31, 2018, our trademark portfolio included registered U.S. and foreign trademarks for the mark “RETROPHIN”, a registered U.S. trademark forthe Retrophin logo, one registered U.S. trademark and one registered Canadian trademark for the mark “CHENODAL”, one registered U.S. trademark directed to the Chenodallogo, one registered U.S. trademark for the mark “MANCHESTER PHARMACEUTICALS”, one U.S. trademark application for the mark “KEEP IT BELOW THE LINE”, registeredU.S. and foreign trademarks for the mark “CHOLBAM”, a registered European Community trademark for the mark “KOLBAM”, a registered U.S. trademark for the mark “TOTALCARE HUB”, a registered U.S. trademark for the Total Care Hub logo, a registered U.S. trademark for a leaves logo, U.S. trademark applications and foreign registeredtrademarks related to sparsentan, and U.S. trademark applications relating to L-UDCA. In addition, under our license agreement with Mission we have an exclusive license to useMission’s trademarks related to Thiola, including three registered U.S. trademarks and one registered Canadian trademark for the mark “THIOLA”, and several U.S. trademarkapplications.Trade SecretsIn addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. We seek to protect our proprietary data and processes, in part, byconfidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors, and partners. These agreements are designed toprotect our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of ourpremises and physical and electronic security of our information technology systems. Trade secrets and know-how can be difficult to protect. Consequently, we anticipate that tradesecrets and know-how will, over time, be disseminated within the industry through independent development, the publication of journal articles, and the movement of personnelskilled in the art from academic to industry scientific positions.ManufacturingNexgen Pharma manufactures Chenodal, New Zealand Pharma manufactures the active pharmaceutical ingredient for Cholbam, Patheon Inc. formulates and packages Cholbam,and Mission manufactures Thiola.We intend to continue to use our financial resources to accelerate development of our drug candidates rather than establishing our own manufacturing facilities. We intend to meetour pre-clinical and clinical trial manufacturing requirements by establishing relationships with third-party manufacturers and other service providers to perform these services forus. Should any of our drug candidates obtain marketing approval, we anticipate establishing relationships with third-party manufacturers and other service providers in connection withthe commercial production of our products. We have some flexibility in securing other manufacturers to produce13Table of Contentsour drug candidates; however, our alternatives may be limited due to proprietary technologies or methods used in the manufacture of some of our drug candidates.Sales, Marketing and DistributionDuring fiscal 2018, we continued to utilize our specialty sales force to market our products. In order to commercialize our clinical drug candidates if and when they are approved forsale in the United States or elsewhere, we will need to increase our marketing, sales and distribution capabilities.CommercializationThrough deep understanding of patient and healthcare provider needs, we believe we are able to:•serve patients living with rare disease that have limited treatment options;•drive optimum performance of our marketed products;•educate and train healthcare providers about our products and the diseases for which they are approved to treat;•support access to and reimbursement coverage for our products in the U.S. without significant restrictions; and•minimize the number of patients who discontinue treatment or have low compliance with our products by providing patients with support services and disease education,to the extent and in the manner permitted under applicable laws, to help them maximize the benefits of treatment.Our U.S. commercial initiatives are designed to support patients living with rare diseases and clinicians treating these patients. We believe that it is possible to commercialize ourproducts in the U.S. with a relatively small specialty sales force. The primary call points for Thiola include urologists and nephrologists. The primary call points for Cholbam aregastroenterologists, hepatologists, and metabolic specialists. We do not promote Chenodal using our sales force.Our sales force is differentiated by its high level of experience, averaging more than 15 years in pharmaceutical sales including over five years of experience in rare disease. Ourcommercial management and operations team has an average of more than 15 years of pharmaceutical experience focused on specialty and rare disease.Our small marketing team, supported by third-party agencies with rare disease experience, drives our commercialization and disease awareness efforts in the U.S. and countrieswhere our products may be approved or available through named patient sales. Specifically, we implement a variety of marketing programs to educate physicians, including direct-to-physician contact by sales representatives, peer-to-peer educational programs, and participation in targeted medical convention programs.We distribute our products through one direct to patient pharmacy, Eversana (formerly Dohmen Life Science Services), who also provides our comprehensive patient supportservices (i.e., the Total Care Hub). This patient support program (for all U.S. commercial products) includes a case-managed approach to patient education, insurance verificationand reimbursement support, co-pay and other financial assistance for eligible patients, monitoring and support of adherence, and 24/7 access to pharmacist counseling.Outside the U.S., including in the EU, we plan to continue to partner with local distributors and certain field-based personnel as necessary to conduct permitted commercial activities.Our near-term efforts are focused on securing pricing and reimbursement approval for Kolbam.Medical AffairsWe have a medical affairs team in the U.S. which supports independent medical education programs and investigator-initiated studies by providing education and financial grants ina number of medical and disease-related areas. The responsibilities of medical affairs personnel also include providing education through the dissemination of medical informationand publications, providing support in connection with our post-approval clinical commitments, and assisting in organizing scientific and medical advisory boards to obtain input fromexperts and practitioners on medical topics relevant to our products and diseases.Government RegulationRegulation by government authorities in the United States and foreign countries is a significant factor in the development, manufacture and marketing of our proposed products andin our ongoing research and product development activities. All of our products will require regulatory approval by government agencies prior to commercialization. In particular,human therapeutic products are subject to rigorous preclinical studies and clinical trials and other approval procedures of the FDA and similar regulatory authorities in foreigncountries. Various federal and state statutes and regulations also govern or influence testing, manufacturing, safety, labeling, storage and record-keeping related to such productsand their marketing. The process of obtaining these approvals and the subsequent compliance with appropriate federal and state statutes and regulations require the expenditureof substantial time and financial resources. FDA Drug Approval ProcessIn the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, and other federal and state statutes andregulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical14Table of Contentsproducts. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pendingnew drug applications, or NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penaltiesand criminal prosecution.We cannot market a drug product candidate in the United States until the drug has received FDA approval. The steps required before a drug may be marketed in the United Statesgenerally include the following:•completion of extensive pre-clinical laboratory tests, animal studies, and formulation studies in accordance with the FDA’s GLP regulations;•submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;•performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practices ("GCP") requirements to establish the safety and efficacy ofthe drug for each proposed indication;•submission to the FDA of an NDA after completion of all pivotal clinical trials;•satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the active pharmaceutical ingredient, or API, and finished drugproduct are produced and tested to assess compliance with current Good Manufacturing Practices ("cGMPs"); and•FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty ofthe product or disease.Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy ofthe product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing aresubmitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls and a proposed clinical trialprotocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questionedthe IND within this 30-day period, the clinical trial proposed in the IND may begin. If the FDA raises concerns or questions about the conduct of the trial, such as whether humanresearch subjects will be exposed to an unreasonable health risk, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials canproceed.Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must beconducted in compliance with federal regulations, including GCP requirements, as well as under protocols detailing the objectives of the trial, the parameters to be used inmonitoring safety and the effectiveness criteria to be evaluated. Each protocol and subsequent protocol amendments must be submitted to the FDA as part of the IND.The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not beingconducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients inclinical trials must also be submitted to an institutional review board, or IRB, for approval at each site at which the clinical trial will be conducted. An IRB may also require the clinicaltrial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the druginto healthy human subjects or patients, the drug is tested to assess pharmacological actions, side effects associated with increasing doses and, if possible, early evidence oneffectiveness. Phase 2 usually involves trials in a limited patient population to determine metabolism, pharmacokinetics, the effectiveness of the drug for a particular indication,dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safetyprofile in Phase 2 evaluations, Phase 3 clinical trials, also called pivotal trials, are undertaken to obtain the additional information about clinical efficacy and safety in a larger numberof patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate informationfor the labeling of the drug. In most cases the FDA requires two adequate and well controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 clinicaltrial with other confirmatory evidence may be sufficient in rare instances where the study is a large multicenter trial demonstrating internal consistency and a statistically verypersuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in asecond trial would be practically or ethically impossible. A sponsor may choose to pursue a Special Protocol Assessment, or SPA, agreement with FDA for the design of a Phase 3trial. A SPA agreement is intended to provide assurance that if the agreed upon clinical trial protocols are followed and the clinical trial endpoints are achieved, the data may serveas the primary basis for an efficacy claim in support of an NDA. An SPA agreement is not binding on the FDA if previously unrecognized public health concerns arise during theperformance of the clinical trial, if other new scientific concerns regarding product candidate safety or efficacy arise or if the sponsoring company fails to comply with the agreedupon clinical trial protocols.After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin inthe United States. The NDA must include the results of all preclinical, clinical and other testing and a15Table of Contentscompilation of data relating to the product’s pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission ofmost NDAs is additionally subject to a substantial application user fee, and the sponsor of an approved NDA is also subject to an annual program user fee. These fees are typicallyincreased annually.The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficientlycomplete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in thereview of NDAs. Most such applications for standard review drug products are reviewed within 10 months of filing; most applications for priority review drugs are reviewed withineight months of filing. Priority review can be applied to drugs to treat serious conditions that the FDA determines offer significant improvement in safety or effectiveness. The reviewprocess for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended toclarify information already provided in the submission.The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee—typically a panel thatincludes clinicians and other experts—for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by therecommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites toassure compliance with GCPs. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unlesscompliance with cGMPs is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines thedeficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies havebeen addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or sixmonths depending on the type of information included.An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may requirerisk evaluation and mitigation strategies ("REMS") to ensure that the benefits of the drug outweigh the potential risks. REMS can include a medication guide, a communication planfor healthcare professionals and elements to assure safe use, such as special training and certification requirements for individuals who prescribe or dispense the drug,requirements that patients enroll in a registry and other measures that the FDA deems necessary to assure the safe use of the drug. The requirement for REMS can materiallyaffect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety orefficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission andFDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that inthe original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs. Such supplements are typically reviewedwithin 10 months of receipt.Orphan DrugsUnder the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition—generally a disease or condition that affects fewerthan 200,000 individuals in the U.S. Orphan drug designation must be requested before submitting an NDA. After the FDA confers orphan drug status, the generic identity of thedrug and its potential orphan indication are disclosed publicly by the FDA. Orphan drug designation in and of itself does not convey any advantage in, or shorten the duration of, theregulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular indication with FDA orphan drugdesignation is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that indication. During the seven-year exclusivity period, the FDA may not approveany other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drugexclusivity. Orphan drug exclusivity does not prevent FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.Prior to FDA approval, orphan designation provides incentives for sponsors including tax credits for clinical research expenses, the opportunity to obtain government grant fundingto support clinical research, and an exemption from FDA user fees.Fast Track DesignationFast track is a process designed by the FDA to facilitate the development of drugs to treat serious conditions through expediting their review. The purpose is to get important newdrugs to patients earlier. Fast Track addresses a broad range of serious conditions. Determining whether a condition is serious is a matter of judgment, but generally is based onwhether the drug will have an impact on such factors as survival, day-to-day functioning, or the likelihood that the condition, if left untreated, will progress from a less severecondition to a more serious one.A drug that receives Fast Track designation is eligible for some or all of the following:•more frequent meetings with FDA to discuss the drug's development plan and ensure collection of appropriate data needed to support drug approval;•more frequent written communication from FDA about such things as the design of the proposed clinical trials and use of biomarkers;•eligibility for Accelerated Approval and Priority Review, if relevant criteria are met; and16Table of Contents•rolling Review, which means that a drug company can submit completed sections of its Biologic License Application (BLA) or NDA for review by FDA, rather than waitinguntil every section is completed before the entire application can be reviewed. BLA or NDA review usually does not begin until the drug company has submitted the entireapplication to the FDA.Once a drug receives Fast Track designation, early and frequent communication between the FDA and a drug company is encouraged throughout the entire drug development andreview process. The frequency of communication assures that questions and issues are resolved quickly, often leading to earlier drug approval and access by patients.Accelerated ApprovalUnder the FDA’s Subpart H accelerated approval regulations, FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit topatients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier thanirreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, orprevalence of the condition and the availability or lack of alternative treatments.In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels,functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug candidate approved on this basis is subject to rigorouspost-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct requiredpost-approval studies, or confirm a clinical benefit during post-marketing studies, will allow FDA to withdraw the drug from the market on an expedited basis. All promotionalmaterials for drug candidates approved under accelerated regulations are subject to prior review by FDA. The Hatch-Waxman Amendments: Orange Book ListingIn seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, eachof the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as theOrange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an ANDA. An ANDA provides for marketing of a drugproduct that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeuticallyequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests toprove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substitutedby pharmacists under prescriptions written for the original listed drug.The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that:(i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is soughtafter patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifyingthat its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If theapplicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDAapplicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDAhas been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. Thefiling of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.Post-Approval RequirementsOnce an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion ofdrugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activitiesinvolving the internet and social media. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4testing, REMS, surveillance to monitor the effects of an approved product, or restrictions on the distribution or use of the product. In addition, quality-control, drug manufacture,packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register theirestablishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agencyinspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production andquality-control to maintain compliance with cGMPs. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency,or failure to comply with regulatory requirements, may result in, among other things:•restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;17Table of Contents•fines, warning letters or holds on post-approval clinical trials;•refusal of the FDA to approve pending applications or supplements to approved applications, 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.Pricing and ReimbursementA portion of our end-user demand for our drugs comes from patients covered under Medicaid, Medicare and other federal and state government-related programs such asTRICARE and the Department of Veterans Affairs, or the VA. As required by Federal regulations, we will provide rebates and discounts in connection with these programs.Our commercial success depends in significant part on the extent to which coverage and adequate reimbursement for these products will be available from third-party payers,including government health administration authorities, private health insurers and other organizations. Third-party payers determine which medications they will cover and establishreimbursement levels. Even if a third-party payer covers a particular product, the resulting reimbursement payment rates may not be adequate or may require co-payments thatpatients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payers toreimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate tocover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to product acceptance.Government authorities and other third-party payers are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amountof reimbursement for particular medications. Increasingly, third-party payers are requiring that drug companies provide them with predetermined discounts from list prices as acondition of coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in competitive classes, and are challenging the prices charged formedical products. Third party payers also are carefully evaluating the medical necessity and cost-effectiveness of medical products and services, in addition to their safety andefficacy, which may require us to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products. Further, nouniform policy requirement for coverage and reimbursement for drug products exists among third-party payers in the United States. Therefore, coverage and reimbursement fordrug products can differ significantly from payer to payer. As a result, the coverage determination process is often a time-consuming and costly process that will require us toprovide scientific and clinical support for the use of our products to each payer separately, with no assurance that coverage and adequate reimbursement will be applied consistentlyor obtained in the first instance.In addition, it is possible that future legislation in the United States and other jurisdictions could be enacted which could potentially impact the coverage and reimbursement rates forour products and also could further impact the levels of discounts and rebates paid to federal and state government entities. Any legislation that impacts these areas could impact, ina significant way, our ability to generate revenues from sales of products that, if successfully developed, we bring to market.There have been a number of enacted or proposed legislative and regulatory changes affecting the healthcare system and pharmaceutical industry that could affect our commercialsuccess. For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and EducationReconciliation Act of 2010, (collectively, the “PPACA”) a law intended to, among other things, broaden access to health insurance, reduce or constrain the growth of healthcarespending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and feeson pharmaceutical and medical device manufacturers and impose additional health policy reforms. Specifically, by way of example, the PPACA revised the definition of “averagemanufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. PPACA also increased the mandated Medicaid rebate from 15.1%to 23.1% of the average manufacturer price, expanded the rebate to Medicaid managed care utilization and increased the types of entities eligible for the federal 340B drugdiscount program. Some of the provisions of the PPACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the PPACA,as well as recent efforts by the Trump administration to repeal or replace certain aspects of the PPACA. Since January 2017, President Trump has signed two Executive Ordersand other directives designed to delay the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated bythe PPACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the PPACA. While Congress has not passed comprehensiverepeal legislation, two bills affecting the implementation of certain taxes under the PPACA have been signed into law. The Tax Cuts and Jobs Act of 2017 (“ Tax Act”), includes aprovision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying healthcoverage for all or part of a year that is commonly referred to as the “individual mandate”. On January 22, 2018, President Trump signed a continuing resolution on appropriationsfor fiscal year 2018 that delayed the implementation of certain PPACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insuranceplans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The BipartisanBudget Act of 2018, or the BBA, among other things, amended the PPACA, effective January 1,2019, to increase the discount that is owed by pharmaceutical manufacturers whoparticipate in Medicare Part D from 50 percent to 70 percent, and close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In July 2018, theCenters for Medicare & Medicaid Services (“CMS”) published a final rule permitting further collections and payments to and from certain PPACA-qualified health plans and healthinsurance issuers under the PPACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this riskadjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed byCongress as part of the Tax Act. The Texas U.S. District18Table of ContentsCourt Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision. Congress also could considersubsequent legislation to repeal or repeal and replace other elements of the PPACA.In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, in August 2011, the President signed into law the BudgetControl Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The JointSelect Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automaticreduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect beginning onApril 1, 2013 and, due to subsequent legislative amendments, including the BBA, will stay in effect through 2027 unless additional Congressional action is taken. Additionally, inJanuary 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals andimaging centers.Moreover, the Drug Supply Chain Security Act imposes additional obligations on manufacturers of pharmaceutical products related to product tracking and tracing. Legislative andregulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.There has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, there have been several recent U.S.Congressional inquiries and numerous proposed and enacted legislation at both the state and federal levels designed to, among other things, bring more transparency to drugpricing, reduce the cost of prescription drugs under Medicare, expedite generic competition, review the relationship between pricing and manufacturer patient programs, institutedrug re-importation, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget proposal for fiscal year 2019contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permitMedicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing forgeneric drugs for low-income patients. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that containsadditional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price oftheir products and reduce the out of pocket costs of drug products paid by consumers. The HHS, has already started the process of soliciting feedback on some of these measuresand, at the same, is immediately implementing others under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans theoption to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, HHS through CMS proposed a new rule that would require direct-to-consumertelevision advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement theWholesale Acquisition Cost, or list price, of that drug or biological product. On January 31, 2019, the HHS Office of Inspector General proposed modifications to federal Anti-Kickback Statute safe harbors which, among other things, will affect rebates paid by manufacturers to Medicare Part D plans, the purpose of which is to further reduce the cost ofdrug products to consumers. While some of these and other proposed measures may require authorization through additional legislation to become effective, Congress and theTrump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures areincreasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from othercountries and bulk purchasing.We expect that the PPACA, as well as other federal and state healthcare reform measures that have been and may be adopted in the future, may result in more rigorous coveragecriteria and in additional downward pressure on the price that we receive for any of our products, and could seriously harm our future revenues. In addition, it is possible that futurelegislation in the United States and other jurisdictions could be enacted which could potentially impact the reimbursement rates for the products we are developing and may developin the future and also could further impact the levels of discounts and rebates paid to federal and state government entities. Any legislation that impacts these areas could impact, ina significant way, our ability to generate revenues from sales of products that, if successfully developed, we bring to market.Health Care Regulatory LawsIn addition to FDA marketing restrictions and regulation of pharmaceutical products, several other types of state and federal laws have been applied to restrict and regulate certainbusiness practices in the pharmaceutical industry in recent years. These laws include, without limitation, anti-kickback statutes and false claims laws, data privacy and security laws,and transparency laws regarding payments or other items of value provided to healthcare providers.The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce; or in returnfor; purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financedhealthcare programs. This statute has been interpreted broadly to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers,and formulary managers, among others, on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities fromprosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration that may induce prescribing, purchases, orrecommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Failure to meet all of the requirements of a particular applicable statutoryexception or regulatory safe harbor does not make the conduct per se illegal under the anti-kickback statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of anarrangement involving remuneration is to induce referrals of federal healthcare covered business, the federal anti-kickback statute has been violated. Additionally, the19Table of ContentsPPACA amended the federal anti-kickback statute to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent toviolate it in order to have committed a violation. In addition, the PPACA codified case law that a claim including items or services resulting from a violation of the federal anti-kickbackstatute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.Federal false claims laws, including the civil False Claims Act, prohibit any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to thefederal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. This includes claims made to programs where the federalgovernment reimburses, such as Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule.The False Claims Act contains qui tam provisions, which allow a private individual, or relator, to bring a civil action on behalf of the federal government alleging that the defendantsubmitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of suits brought by private individuals has increaseddramatically. For example, pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services,which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that thecustomers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate federal false claims laws.Also, many states have similar fraud and abuse statutes or regulations, including state anti-kickback and false claims laws, that apply to items and services reimbursed underMedicaid and other state programs, or, in several states, apply regardless of the payer.The U.S. Foreign Corrupt Practices Act, and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments togovernment officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in parts of the world that haveexperienced governmental corruption to some degree and in certain circumstances, strict compliance with antibribery laws may conflict with local customs and practices or mayrequire us to interact with doctors and hospitals, some of which may be state controlled, in a manner that is different than in the United States. We cannot assure you that ourinternal control policies and procedures will protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations,could disrupt our business and result in criminal or civil penalties or remedial measures, any of which could have a material adverse effect on our business, financial condition andresults of operations and could cause the market value of our common stock to decline.In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by theHealth Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, imposes specified requirements relating to theprivacy, security and transmission of individually identifiable health information. Among other things, HITECH, through its implementing regulations, makes certain of HIPAA’s privacyand security standards directly applicable to business associates, defined as a person or organization, other than a member of a covered entity’s workforce, that creates, receives,maintains or transmits protected health information for or on behalf of a covered entity for a function or activity regulated by HIPAA.Additionally, the federal Physician Payments Sunshine Act within the PPACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biologicals andmedical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to annually report informationrelated to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalfof, physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. We implementedcompliance with the Sunshine Act starting with reporting year 2014 and continue to report as required.Further, certain states require implementation of commercial compliance programs and marketing codes, compliance with the pharmaceutical industry’s voluntary complianceguidelines, and compliance with the applicable compliance guidance promulgated by the federal government. Other various state level requirements include restricting payments orthe provision of other items of value that may be made to healthcare providers and other potential referral sources; restricting various marketing practices; requiring prescriptiondrug companies to report expenses relating to the marketing and promotion of drug products; requiring the posting of information relating to clinical studies and their outcomes;requiring the registration of sales representatives; requiring the reporting of certain information related to drug pricing; and requiring drug manufacturers to track and reportinformation related to payments, gifts, compensation, and other items of value to physicians and other healthcare providers. Additionally, states that have not implemented thesetypes of regulations are considering similar proposals. Compliance with these laws is difficult and time consuming, and companies that do not comply with these state laws face civilpenalties.If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to significant penalties,including imprisonment, criminal fines, civil monetary penalties, administrative penalties, disgorgement, exclusion from participation in federal healthcare programs, contractualdamages, injunctions, recall or seizure of products, total or partial suspension of production, reputational harm, administrative burdens, additional oversight and reporting obligationsif we become subject to a corporate integrity agreement or similar agreement to resolve allegation of non-compliance with these laws, diminished profits and future earnings, andthe curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.Foreign RegulationIn addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products.Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trialsand approval of foreign countries or economic areas, such as the European Union, before we may market products in those countries or areas. The approval process andrequirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than thatrequired for FDA approval.20Table of ContentsOther Laws and Regulatory ProcessesWe are subject to a variety of financial disclosure and securities trading regulations as a public company in the United States, including laws relating to the oversight activities of theSecurities and Exchange Commission (“SEC”), and Nasdaq rules under which our stock is listed. In addition, the Financial Accounting Standards Board (“FASB”), the SEC, andother bodies that have jurisdiction over the form and content of our accounts, our financial statements and other public disclosures are constantly considering and interpretingproposals and existing pronouncements designed to ensure that companies best display relevant and transparent information relating to their respective businesses.Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and recommendations relating to safeworking conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import and export and use and disposal of hazardous or potentiallyhazardous substances used in connection with our research work are or may be applicable to our activities. Certain agreements entered into by us involving exclusive license rightsor acquisitions may be subject to national antitrust regulatory control, the effect of which cannot be predicted. The extent of government regulation which might result from futurelegislation or administrative action, cannot accurately be predicted.EmployeesAs of January 31, 2019, we had 214 full-time employees.Available InformationWe were incorporated in the state of Delaware in February 2011. Our website address is www.retrophin.com. We post links on our website to the following filings as soon asreasonably practicable after they are electronically filed with or furnished to the SEC: annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,proxy statements, and any amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings areavailable through our website free of charge. Our filings may also be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site atwww.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.ITEM 1A. RISK FACTORSOur business, as well as an investment in our common stock, is highly speculative in nature and involves a high degree of risk. Our securities should be purchased only by personswho can afford to lose their entire investment. Carefully consider the risks and uncertainties described below together with all of the other information included herein, including thefinancial statements and related notes, before deciding to invest in our common stock. If any of the following risks actually occur, they could adversely affect our business, prospects,financial condition and results of operations. In such event(s), the market price of our common stock could decline and result in a loss of part or all of your investment. Accordingly,prospective investors should carefully consider, along with other matters referred to herein, the following risk factors in evaluating our business before purchasing any shares of ourcommon stock.Risks Related to the Development of our Product CandidatesOur clinical trials may fail to demonstrate the safety and efficacy of our product candidates which could prevent or significantly delay their regulatory approval.Before obtaining regulatory approval for the sale of any of our product candidates, we must subject these product candidates to extensive preclinical and clinical testing todemonstrate their safety and efficacy for humans. Clinical trials are expensive, time-consuming and may take years to complete.We may experience numerous unforeseen events during, or as a result of, preclinical or nonclinical testing and the clinical trial process that could delay or prevent our ability toobtain regulatory approval or commercialize our product candidates, including:•our preclinical or nonclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additionalpreclinical testing or clinical trials or we may abandon projects that we expect to be promising;•regulators may require us to conduct studies of the long-term effects associated with the use of our product candidates;•regulators or institutional review boards may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;•the FDA or any non-United States regulatory authority may impose conditions on us regarding the scope or design of our clinical trials or may require us to resubmit ourclinical trial protocols to institutional review boards for re-inspection due to changes in the regulatory environment;•the number of patients required for our clinical trials may be larger than we anticipate or participants may drop out of our clinical trials at a higher rate than we anticipate;21Table of Contents•our third-party contractors or clinical investigators may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a timely manner;•we might have to suspend or terminate one or more of our clinical trials if we, regulators or institutional review boards determine that the participants are being exposedto unacceptable health risks;•regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatoryrequirements;•the cost of our clinical trials may be greater than we anticipate;•the supply or quality of our product candidates or other materials necessary to conduct our clinical trials may be insufficient or inadequate or we may not be able to reachagreements on acceptable terms with prospective clinical research organizations; and•the effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpectedcharacteristics.These risks and uncertainties impact all of our clinical programs. We will only obtain regulatory approval to commercialize a product candidate if we can demonstrate to thesatisfaction of the FDA, and in the case of foreign commercialization, to the applicable foreign regulatory authorities, in well-designed and conducted clinical trials, that our productcandidates are safe and effective and otherwise meet the appropriate standards required for approval for a particular indication.Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether any preclinical tests or clinical trials will be initiated asplanned, will need to be restructured or will be completed on schedule, if at all. Significant preclinical or clinical trial delays also could shorten the patent protection period duringwhich we may have the exclusive right to commercialize our product candidates. Such delays could allow our competitors to bring products to market before we do and impair ourability to commercialize our products or product candidates.If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully completeour clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:•be delayed in obtaining, or may not be able to obtain, marketing approval for one or more of our product candidates;•obtain approval for indications that are not as broad as intended or entirely different than those indications for which we sought approval; and•have the product removed from the market after obtaining marketing approval.Our product candidates are intended to treat PKAN, FSGS and IgAN, each of which is a rare disease. Given that these development candidates are still undergoing requiredtesting, we may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible patients willing and able to participate in the clinical trialsrequired by the FDA or foreign regulatory agencies. In addition, as other companies and researchers may be concurrently developing therapies for the same or similar indicationsthat we are focused on, we could face competition for a limited number of patients, investigators and clinical trial sites willing to participate in clinical trials. Our inability to enroll asufficient number of patients for any of our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and initial results from a clinical trial do notnecessarily predict final results.Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and initial results from a clinical trial do not necessarily predict finalresults. For example, there can be no assurance that the favorable responses we have seen with the physician-initiated treatment of fosmetpantotenate in PKAN patients outsidethe United States will translate to positive data in the Phase 3 clinical trial of fosmetpantotenate or that the positive results from the DUET study of sparsentan in FSGS will berepeated in the Phase 3 clinical trial. Similarly, there can be no assurance that our clinical experience with sparsentan in FSGS will translate to favorable data in IgAN, which patientpopulation has not previously been treated with sparsentan prior to the Phase 3 trial currently being conducted. We cannot assure that any current or future clinical trials offosmetpantotenate, sparsentan and/or CNSA-001 will ultimately be successful.Before obtaining regulatory approval to conduct clinical trials of our product candidates, we must conduct extensive preclinical tests to demonstrate the safety of our productcandidates in animals. Preclinical testing is expensive, difficult to design and implement, and can take many years to complete. In addition, during the clinical development process,additional nonclinical toxicology studies are routinely conducted concurrently with the clinical development of a product candidate. If any of our product candidates show unexpectedfindings in concurrent toxicology studies, we could experience potentially significant delays in, or be required to abandon, development of that product candidate. A failure of one ormore of our nonclinical studies can occur at any stage of testing.Communications and/or feedback from the FDA related to our current or planned future clinical trials does not guarantee any particular outcome from regulatoryreview for such clinical trials.Communications and/or feedback from the FDA related to our current or future clinical trials does not guarantee any particular outcome from regulatory review for such clinicaltrials. For example, although we have obtained a Special Protocol Assessment ("SPA") agreement from the FDA22Table of Contentsfor the Phase 3 clinical trial of fosmetpantotenate for the treatment of PKAN, this agreement does not guarantee any particular outcome from regulatory review. The SPA isintended to provide assurance that if the agreed upon clinical trial protocols are followed and the clinical trial endpoints are achieved, the data may serve as the primary basis for anefficacy claim in support of an NDA. However, a SPA is not a guarantee of an approval of a product candidate or any permissible claims about the product candidate. In particular, aSPA agreement is not binding on the FDA if previously unrecognized public health concerns arise during the performance of the clinical trial, if other new scientific concernsregarding product candidate safety or efficacy arise or if the sponsoring company fails to comply with the agreed upon clinical trial protocols. Moreover, a SPA does not address allof the variables and details that may go into planning for or conducting a clinical trial, and changes in the protocol for a clinical trial can invalidate a SPA or require that the FDAagree in writing to the modified protocol. In addition, while a SPA addresses the requirements for submission of an NDA, the results of the related clinical trial may not support FDAapproval. There can be no assurance that the Phase 3 clinical trial for fosmetpantotenate will demonstrate that fosmetpantotenate is safe and effective for treating PKAN or that thedata will support an application for approval by the FDA. In the third quarter of 2019, we plan to un-blind the data from our ongoing pivotal Phase 3 trial of fosmetpantontenate. Ifthe results of this trial are not positive, or are not viewed sufficiently favorably, the market price of our common stock could decline significantly. In addition, following the initial 24week study period, patients in this trial are eligible to participate in an open label extension. Even if the initial un-blinded results from the trial are viewed positively, it is possible thatnegative consequences of the treatment could be observed in the future, which could adversely impact the regulatory and commercial prospects of fosmetpantontenate and ourbusiness may suffer.In addition, in 2018, we initiated the following Phase 3 clinical trials of sparsentan: 1) a single Phase 3 clinical trial designed to serve as the basis for an NDA and MAA filing forsparsentan for the treatment of FSGS (the “DUPLEX Study”), and 2) a single Phase 3 clinical trial designed to serve as the basis for an NDA and MAA filing for sparsentan for thetreatment of IgAN (the “PROTECT Study”). We are conducting the DUPLEX Study and the PROTECT Study under the Subpart H pathway for potential accelerated approval inthe US, and in the EU we plan to pursue potential Conditional Marketing Authorization, in both jurisdictions based on change in proteinuria. Recognition of change in proteinuria asa surrogate endpoint in kidney disease is a relatively new regulatory development, and, as the field continues to evolve, new learnings may impact regulatory viewpoints. Weexpect that the FDA’s and EMA’s determination as to whether the sufficiency of the data supports an accelerated approval in either jurisdiction will be made during the applicationreview process. There can be no assurance that even if we achieve statistical significance on the interim or primary endpoints for the DUPLEX Study and/or the PROTECT Study,as applicable, that the FDA or EMA will deem that sufficient to grant accelerated approval or Conditional Marketing Authorization.Although we received feedback from the FDA at an End of Phase 2 meeting for the sparsentan FSGS program during which the FDA communicated that it was open to acceptinga substantial treatment effect on proteinuria in the DUPLEX Study as a basis for accelerated approval pursuant to Subpart H of the FDA regulations and although we subsequentlygained alignment that our statistical modeling supported initiating a Phase 3 trial that proceeds on the Subpart H pathway, there can be no guarantee that the data generated fromthe study will be sufficient to serve as the basis for an NDA filing, including an NDA under Subpart H for accelerated approval. In addition, our statistical modeling that supportsproceeding with the Duplex Study on the Subpart H pathway is based on data from other FSGS studies. To the extent that the model population is not representative of the DuplexStudy population, the FDA may not agree that the new results continue to support a Subpart H pathway. Furthermore, even if sparsentan is granted accelerated approval forFSGS, there can be no assurance that the post-marketing confirmatory data will support full approval of sparsentan as a treatment for FSGS.Also, although we have reached agreement with the FDA regarding the initiation of the PROTECT Study and the trial began in December 2018, we continue to have regulatoryinteractions regarding certain details of the study. There can be no assurance that the study will proceed as planned and there can be no guarantee that the data generated fromthe study will be sufficient to serve as the basis for an NDA filing, including an NDA under Subpart H for accelerated approval or support Conditional Marketing Authorization in theEU. Furthermore, even if sparsentan is granted accelerated approval for IgAN, there can be no assurance that the post-marketing confirmatory data will support full approval ofsparsentan as a treatment for IgAN.In addition, because both the DUPLEX Study and PROTECT Study are evaluating the same compound for the treatment of chronic kidney diseases and utilizing similar endpoints,the risk of success or failure for the two studies may, depending on the outcomes of the studies, end up being correlated.Even if we receive regulatory approval for any product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, whichmay result in significant additional expense.Any regulatory approvals that we receive for any product candidates may be subject to significant limitations on the approved indicated uses for which the product may be marketedor to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety andefficacy of the product candidate.In addition, if the FDA or a comparable foreign regulatory authority approves any product candidates, those products will be subject to extensive and ongoing regulatoryrequirements, including for the manufacturing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export, recordkeeping, conduct ofpotential post-marketing studies and post-market submission requirements. These requirements include submissions of safety and other post-marketing information and reports,registration, as well as continued compliance with current good manufacturing practices and good clinical practices, for any clinical trials that we conduct post-approval. Laterdiscovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, undesirable side effects caused by the product, problemsencountered by our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, either before or after product approval, may result in,among other things:•restrictions on the marketing, manufacturing, or distribution of the product;23Table of Contents•requirements to include additional warnings on the label;•requirements to create or enhance a medication guide outlining the risks to patients;•withdrawal of the product from the market;•voluntary or mandatory product recalls;•requirements to change the way the product is administered or for us to conduct additional clinical trials;•fines, warning or untitled letters or holds on clinical trials;•refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation ofproduct license approvals;•product seizure or detention, or refusal to permit the import or export of products;•injunctions or the imposition of civil or criminal penalties; and•harm to our reputation.For example, we have certain post-marketing requirements and commitments associated with Cholbam. Further, we face risks relating to the post marketing obligations andcommercial acceptance of Cholbam, which was approved by the FDA on March 17, 2015. If the regulatory approval for Chenodal, Cholbam and/or Thiola are withdrawn for anyreason, it would have a material adverse impact on our sales and profitability.The independent clinical investigators and contract research organizations that we rely upon to conduct our clinical trials may not be diligent, careful or timely,and may make mistakes, in the conduct of our trials.We depend on independent clinical investigators and contract research organizations (“CROs”) to conduct our clinical trials under agreements with us. The CROs play a significantrole in the conduct of our clinical trials. Failure of the CROs to meet their obligations could adversely affect clinical development of our product candidates. The independent clinicalinvestigators are not our employees and we cannot control the timing or amount of resources they devote to our studies. If their performance is substandard, it could delay orprevent approval of our FDA applications. Moreover, these independent investigators and CROs may also have relationships with other commercial entities, some of which maycompete with us. If independent investigators and CROs allocate their resources to assist our competitors at our expense, it could harm our competitive position.We have limited control over the development activities of Censa’s CNSA-001 program and our investment in Censa’s CNSA-001 program may be adverselyaffected.We have entered into a joint development agreement with Censa to evaluate CNSA-001 for the treatment of PKU. Under this agreement, we have agreed to fund certaindevelopment activities of Censa’s CNSA-001 program, in an aggregate amount expected to be approximately $17 million through proof of concept. However, we have limitedcontrol over the development activities of Censa’s CNSA-001 program and face the risk that the development program for CNSA-001 will not be successful, that Censa does notconduct the development activities in a timely manner, or that the development program for CNSA-001 may cost more than expected to reach proof of concept. If any of theseissues arise, our investment in Censa’s CNSA-001 program may be adversely affected and our business may suffer.Risks Related to the Commercialization of Our ProductsThe commercial success of Chenodal, Cholbam and Thiola depends on them being considered to be effective drugs with advantages over other therapies.The commercial success of our products Chenodal, Cholbam and Thiola depends on them being considered to be effective drugs with advantages over other therapies. A numberof factors, as discussed in greater detail below, may adversely impact the degree of acceptance of these products, including their efficacy, safety, price and benefits over competingtherapies, as well as the coverage and reimbursement policies of third-party payers, such as government and private insurance plans.If unexpected adverse events are reported in connection with the use of any of these products, physician and patient acceptance of the product could deteriorate and thecommercial success of such product could be adversely affected. We are required to report to the FDA events associated with our products relating to death or injury. Adverseevents could result in additional regulatory controls, such as a requirement for costly post-approval clinical studies or revisions to our approved labeling which could limit theindications or patient population for a product or could even lead to the withdrawal of a product from the market.A number of recent regulatory and legislative initiatives have been introduced to encourage generic competition for pharmaceutical products, and if a genericversion of any of our products enters the market, sales of that product would be negatively impacted.Chenodal and Thiola are subject to immediate competition from compounded and generic entrants, as the ANDA and NDA for these drug products have no remaining patent ornonpatent exclusivity. There have been a number of recent regulatory and legislative initiatives designed to encourage generic competition for pharmaceutical products, includingexpedited review procedures for generic manufacturers and incentives designed to spur generic competition of branded drugs. Also, the FDA and the U.S. Federal TradeCommission have been focused on brand companies’ denial of drug supply to potential generic competitors for testing, and the U.S. Congress has been considering a legislativelydefined private right of action24Table of Contentsunder which generic companies could bring suit against companies who refuse access to product for bioequivalence testing. We cannot currently predict the specific outcome orimpact on our business of such regulatory actions or legislation. In October 2018, we were named as a defendant in a lawsuit brought by a purported generic company seeking toacquire samples of Thiola in order to conduct bioequivalence studies.Under the Hatch-Waxman Amendments of the Federal Food, Drug, and Cosmetic Act (the “FDC Act”), a pharmaceutical manufacturer may file an ANDA, seeking approval of ageneric copy of an approved innovator product or an NDA under Section 505(b)(2) that relies on the FDA’s prior findings of safety and effectiveness in approving the innovatorproduct. A Section 505(b)(2) NDA may be for a new or improved version of the original innovator product. The Hatch-Waxman Amendments also provide for certain periods ofregulatory exclusivity, which preclude FDA approval (or in some circumstances, FDA acceptance) of an ANDA or Section 505(b)(2) NDA. In addition, the FDC Act provides, subjectto certain exceptions, a period during which an FDA-approved drug may be afforded orphan drug exclusivity. In addition to the benefits of regulatory exclusivity, an innovator NDAholder 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 “Orange Book.” If there are patents listed in the Orange Book, a generic or Section 505(b)(2)applicant that seeks to market its product before expiration of the patents must include in the ANDA what is known as a “Paragraph IV certification,” challenging the validity orenforceability of, or claiming non-infringement of, the listed patent or patents. Notice of the certification must be given to the innovator, too, and if within 45 days of receiving noticethe innovator sues to enforce its patents, approval of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.If a generic version of Chenodal, Thiola or any of our products is approved, sales of that product would be negatively impacted, which would have a material adverse impact on oursales and profitability.Changes in reimbursement practices of third-party payers could affect the demand for our products and the prices at which they are sold.The business and financial condition of healthcare-related businesses will continue to be affected by efforts of governments and third-party payers to contain or reduce the cost ofhealthcare through various means. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changesregarding the healthcare system that could prevent or delay marketing approval for fosmetpantotenate, sparsentan, CNSA-001 and L-UDCA, or any other product candidate thatwe develop, restrict or regulate post-approval activities and affect our ability to profitably sell fosmetpantotenate, sparsentan, CNSA-001 and L-UDCA or any other productcandidate for which we obtain marketing approval.Our products are sold to patients whose healthcare costs are met by third-party payers, such as government programs, private insurance plans and managed-care programs.These third-party payers are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products and services. Levelsof reimbursement, if any, may be decreased in the future, and future healthcare reform legislation, regulations or changes to reimbursement policies of third party payers mayotherwise adversely affect the demand for and price levels of our products, which could have a material adverse effect on our sales and profitability.Economic, social, and congressional pressure may result in individuals and government entities increasingly seeking to achieve cost savings through mechanisms that limit coverageor payment for our products. For example, state Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization foruse of drugs. Managed care organizations continue to seek price discounts and, in some cases, to impose restrictions on the coverage of particular drugs. Government efforts toreduce Medicaid expenses may lead to increased use of managed care organizations by Medicaid programs. This may result in managed care organizations influencing prescriptiondecisions for a larger segment of the population and a corresponding constraint on prices and reimbursement for our products.We are dependent on third parties to manufacture and distribute our pharmaceutical products who may not fulfill their obligations.We have no manufacturing capabilities and rely on third party manufacturers who are sole source suppliers for manufacturing of Chenodal, Cholbam and Thiola. The facilities usedby our third party manufacturers must be approved by the FDA, or in the case of Kolbam in the European Union, the European Medicines Agency. Our dependence on third partiesfor the manufacture of our products may harm our profit margin on the sale of products and our ability to deliver products on a timely and competitive basis. If our third partymanufacturers are unable to manufacture to specifications or in compliance with applicable regulatory requirements, our ability to commercialize our products will be adverselyimpacted and could affect our ability to gain market acceptance for our products and negatively impact our revenues.We currently have no in-house distribution channels for Chenodal, Cholbam or Thiola and we are dependent on a third-party distributor, Dohmen Life Sciences Services, anEversana Company, to distribute such products. We rely on this distributor for all of our proceeds from sales of Chenodal, Cholbam and Thiola in the United States. Theoutsourcing of our distribution function is complex, and we may experience difficulties that could reduce, delay or stop shipments of such products. If we encounter such distributionproblems, and we are unable to quickly enter into a similar agreement with another distributor on substantially similar terms, distribution of Chenodal, Cholbam and/or Thiola couldbecome disrupted, resulting in lost revenues, provider dissatisfaction, and/or patient dissatisfaction.25Table of ContentsGovernments outside the United States tend to impose strict price controls and reimbursement approval policies, which may adversely affect our prospects forgenerating revenue.In some countries, particularly European Union countries, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations withgovernmental authorities can take considerable time (6 to 12 months or longer) after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval insome countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidate to other available therapies. If reimbursement of ourproducts is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our prospects for generating revenue outside of the United States, if any, could beadversely affected and our business may suffer.If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generateproduct revenue outside of the United States.We may not be able to rely on orphan drug exclusivity for Cholbam/Kolbam or any of our products.Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. We have obtainedorphan designation for Cholbam/Kolbam in the United States and the European Union. Generally, if a product with an orphan drug designation subsequently receives the firstmarketing approval for the indication for which it has such designation, that product is entitled to a period of marketing exclusivity, which precludes the applicable regulatory authorityfrom approving another marketing application for the same drug for the same indication for that time period. The applicable period is seven years in the United States and ten yearsin Europe. Even though we have been awarded orphan drug exclusivity for Cholbam in the United States, we may not be able to maintain it. For example, if a competitive productthat contains the same active moiety and treats the same disease as our product is shown to be clinically superior to our product, any orphan drug exclusivity we have obtained willnot block the approval of such competitive product and we may effectively lose orphan drug exclusivity. Similarly, if a competitive product that contains the same active moiety andtreats the same disease as our product candidate is approved for orphan drug exclusivity before our product candidate, we may not be able to obtain approval for our productcandidate until the expiration of the competitive product’s orphan drug exclusivity unless our product candidate is shown to be clinically superior to the competitive product.Risks Related to our Products and Product CandidatesOur products may not achieve or maintain expected levels of market acceptance or commercial success.The success of our products is dependent upon achieving and maintaining market acceptance. Commercializing products is time consuming, expensive and unpredictable. Therecan be no assurance that we will be able to, either by ourselves or in collaboration with our partners or through our licensees, successfully commercialize new products or currentproducts or gain market acceptance for such products. New product candidates that appear promising in development may fail to reach the market or may have only limited or nocommercial success.Further, the discovery of significant problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products could have anadverse effect on sales of the affected products. Accordingly, new data about our products, or products similar to our products, could negatively impact demand for our productsdue to real or perceived side effects or uncertainty regarding efficacy and, in some cases, could result in product withdrawal.Our current products and any products that we bring to the market, including fosmetpantotenate, sparsentan, CNSA-001 and L-UDCA, if they receive marketing approval, may notgain market acceptance by physicians, patients, third-party payers, and others in the medical community. If these products do not achieve an adequate level of acceptance, we maynot generate significant product revenue and we may not become profitable. The degree of market acceptance of our current products and product candidates, if approved forcommercial sale, will depend on a number of factors, including:•the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;•the efficacy and potential advantages over alternative treatments;•the pricing of our product candidates;•relative convenience and ease of administration;•the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;•the strength of marketing and distribution support and timing of market introduction of competitive products;•publicity concerning our products or competing products and treatments; and•sufficient third-party insurance coverage and reimbursement.Even if a potential or current product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acceptance of the product will not be known until after it islaunched. Our efforts to educate patients, the medical community, and third-party payers on the benefits of our product may require significant resources and may never besuccessful. Such efforts to educate the marketplace may require more resources than are required by the conventional marketing technologies employed by our competitors.26Table of ContentsIf the market opportunities for our products and product candidates are smaller than we believe they are, our revenues may be adversely affected and ourbusiness may suffer.Certain of the diseases that our current and future product candidates are being developed to address, such as PKAN, PKU, FSGS and IgAN, are relatively rare. Our projections ofboth the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our productcandidates, may not be accurate.Currently, most reported estimates of the prevalence of PKAN and FSGS are based on studies of small subsets of the population of specific geographic areas, which are thenextrapolated to estimate the prevalence of the diseases in the broader world population. As new studies are performed the estimated prevalence of these diseases may change.There can be no assurance that the prevalence of PKAN and FSGS in the study populations accurately reflect the prevalence of these diseases in the broader world population. Ifour estimates of the prevalence of PKAN, PKU, FSGS, or IgAN or of the number of patients who may benefit from treatment with fosmetpantotenate, sparsentan, and CNSA-001prove to be incorrect, the market opportunities for our product candidates may be smaller than we believe they are, our prospects for generating revenue may be adverselyaffected and our business may suffer.Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval or commercialization.Undesirable side effects caused by our product candidates could interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or otherregulatory authorities for any or all targeted indications, and in turn prevent us from commercializing our product candidates and generating revenues from their sale.In addition, if any of our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product:•regulatory authorities may require the addition of restrictive labeling statements;•regulatory authorities may withdraw their approval of the product; and•we may be required to change the way the product is administered or conduct additional clinical trials.Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses ofcommercializing the product candidate, which in turn could delay or prevent us from generating significant revenues from its sale or adversely affect our reputation.We do not currently have patent protection for certain of our products and product candidates. If we are unable to obtain and maintain protection for theintellectual property relating to our technology and products, the value of our technology and products will be adversely affected.Our success will depend in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering, or incorporatedinto, our technology and products. The patent situation in the field of biotechnology and pharmaceuticals generally is highly uncertain and involves complex legal, technical, scientificand factual questions. We may not be able to obtain additional issued patents relating to our technology or products. Even if issued, patents issued to us or our licensors may bechallenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to stop competitors from marketing similar products or reduce the term ofpatent protection we may have for our products. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value ofour intellectual property or narrow the scope of our patent protection. Fosmetpantotenate is covered by our U.S. Patent No. 8,673,883, which was granted in 2014 and expires in2033. In addition, our U.S. Patent No. 9,181,286, which was granted on November 10, 2015 and expires in 2033, covers the use of fosmetpantotenate for the treatment of PKAN,and our U.S. Patent No. 9,629,862, which was granted on April 25, 2017 and also expires in 2033, covers pharmaceutical compositions that contain fosmetpantotenate. Sparsentanis covered by U.S. Patent No. 6,638,937, which expires in 2019 and to which we have an exclusive license. In addition, U.S. Patent No. 9,662,312, to which we also have anexclusive license and which was granted on May 30, 2017 and expires in 2030, covers the use of sparsentan for treating glomerulosclerosis, including FSGS. And U.S. PatentNo.9,993,461, to which we also have an exclusive license and which was granted on June 12, 2018 and expires in 2030, covers the use of sparsentan for treating IgA nephropathyas well as glomerulosclerosis, including FSGS.For products we develop based on a new chemical entity not previously approved by the FDA, we expect that in addition to the protection afforded by our patent filings that we willbe able to obtain either five years regulatory exclusivity via the provisions of the FDC Act and possibly seven years regulatory exclusivity via the orphan drug provisions of the FDCAct. In addition, we may be able to obtain up to five years patent term extension (to compensate for regulatory approval delay) for a patent covering such a product.The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:•we or our licensors were the first to make the inventions covered by each of our pending patent applications;•we or our licensors were the first to file patent applications for these inventions;•others will not independently develop similar or alternative technologies or duplicate any of our technologies;•any patents issued to us or our licensors that provide a basis for commercially viable products will provide us with any competitive advantages or will not be challenged bythird parties;27Table of Contents•we will develop additional proprietary technologies that are patentable;•we will file patent applications for new proprietary technologies promptly or at all;•the claims we make in our patents will be upheld by patent offices in the United States and elsewhere;•our patents will not expire prior to or shortly after commencing commercialization of a product; and•the patents of others will not have a negative effect on our ability to do business.We have negotiated a license agreement with Ligand Pharmaceuticals for the rights to sparsentan which we are initially developing for the treatment of FSGS and IgAN. Thislicense subjects us to various commercialization, reporting and other obligations. If we were to default on our obligations, we could lose our rights to sparsentan. We have obtaineda U.S. and European patent covering the use of sparsentan for treating glomerulosclerosis, including FSGS, and a second U.S. patent covering both the use of sparsentan fortreating IgAN and the use of sparsentan for treating glomerulosclerosis, including FSGS. However, we cannot be certain that we will be able to obtain patent protection for variousother potential indications for sparsentan, or whether, if granted, we would be able to enforce such patents.Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States and many other jurisdictions are typicallynot published until 18 months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind the actual discoveries, neitherwe nor our licensors can be certain that we or they were the first to make the inventions claimed in our or their issued patents or pending patent applications, or that we or theywere the first to file for protection of the inventions set forth in these patent applications. If a third party has also filed a United States patent application prior to the effective date ofthe relevant provisions of the America Invents Act (i.e. before March 16, 2013) covering our product candidates or a similar invention, we may have to participate in an adversarialproceeding, known as an interference, declared by the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial and it ispossible that our efforts could be unsuccessful, resulting in a loss of our United States patent position.We cannot assure you that third parties will not assert patent or other intellectual property infringement claims against us with respect to technologies used in our products. If patentinfringement suits were brought against us, we may be unable to commercialize some of our products which could severely harm our business. Litigation proceedings, even if notsuccessful, could result in substantial costs and harm our business.We expect to rely on orphan drug status to develop and commercialize certain of our product candidates, but our orphan drug designations may not confermarketing exclusivity or other expected commercial benefits.We expect to rely on orphan drug exclusivity for fosmetpantotenate and sparsentan and potential future product candidates that we may develop. Orphan drug status currentlyconfers seven years of marketing exclusivity in the United States under the FDC Act, and up to ten years of marketing exclusivity in Europe for a particular product in a specifiedindication. The FDA and EMA have granted orphan designation for Chenodal, fosmetpantotenate and sparsentan for the treatment of CTX, PKAN and FSGS, respectively. Whilewe have been granted these orphan designations, we will not be able to rely on these designations to exclude other companies from manufacturing or selling these molecules forthe same indication beyond these time frames. Furthermore, any marketing exclusivity in Europe can be reduced from ten years to six years if the initial designation criteria havesignificantly changed since the market authorization of the orphan product.For any product candidate for which we have been granted orphan drug designation in a particular indication, it is possible that another company also holding orphan drugdesignation for the same product candidate will receive marketing approval for the same indication before we do. If that were to happen, our applications for that indication may notbe approved until the competing company's period of exclusivity expires. Even if we are the first to obtain marketing authorization for an orphan drug indication in the United States,there are circumstances under which a competing product may be approved for the same indication during the seven-year period of marketing exclusivity, such as if the laterproduct is shown to be clinically superior to our orphan product, or if the later product is deemed a different product than ours. Further, the seven-year marketing exclusivity wouldnot prevent competitors from obtaining approval of the same product candidate as ours for indications other than those in which we have been granted orphan drug designation, orfor the use of other types of products in the same indications as our orphan product.Any drugs we develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, therebyharming our business.In March 2010, President Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the"PPACA"), a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse,add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.The PPACA revised the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. The PPACA alsoincreased the mandated Medicaid rebate from 15.1% to 23.1% of the average manufacturer price, expanded the rebate to Medicaid managed care utilization and increased thetypes of entities eligible for the federal 340B drug discount program. Further, the law imposes a significant annual fee on companies that manufacture or import certain brandedprescription drug products. There have been judicial, Congressional, and political challenges to certain aspects of the PPACA, as well as recent efforts by the Trump administrationto repeal or replace certain aspects of the PPACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay theimplementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA. Concurrently, Congress hasconsidered legislation that would repeal or repeal and replace all or part of the PPACA. While Congress has not passed comprehensive repeal legislation, two bills affecting theimplementation of certain taxes under the PPACA have been signed into law. The Tax Act of 2017 includes a28Table of Contentsprovision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying healthcoverage for all or part of a year that is commonly referred to as the “individual mandate”. On January 22, 2018, President Trump signed a continuing resolution on appropriationsfor fiscal year 2018 that delayed the implementation of certain PPACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insuranceplans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The BipartisanBudget Act of 2018 ("BBA"), among other things, amends the PPACA, effective January 1, 2019, to increase the discount that is owed by pharmaceutical manufacturers whoparticipate in Medicare Part D from 50 percent to 70 percent, and closes the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. In July 2018, theCenters for Medicare and Medicaid Services ("CMS") published a final rule permitting further collections and payments to and from certain PPACA qualified health plans and healthinsurance issuers under the PPACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this riskadjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed byCongress as part of the Tax Act of 2017. While the Texas U.S. District Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have noimmediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the PPACA will impact the PPACA andour business.In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, in August 2011, the President signed into law the BudgetControl Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The JointSelect Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automaticreduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect beginning onApril 1, 2013 and, due to subsequent legislative amendments, including the BBA, will stay in effect through 2027 unless additional Congressional action is taken. Additionally, inJanuary 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals andimaging centers.If we are unable to obtain coverage and adequate reimbursement from governments or third-party payers for any products that we may develop or if we are unable to obtainacceptable prices for those products, our prospects for generating revenue and achieving profitability will suffer.Our prospects for generating revenue and achieving profitability will depend heavily upon the availability of coverage and adequate reimbursement for the use of our approvedproduct candidates from governmental and other third-party payers, both in the United States and in other markets. Reimbursement by a third-party payer may depend upon anumber of factors, including the third-party payer’s determination that use of a product is:•a covered benefit under its health plan;•safe, effective and medically necessary;•appropriate for the specific patient;•cost-effective; and•neither experimental nor investigational.Obtaining reimbursement approval for a product from each government or other third-party payer is a time consuming and costly process that could require us to providesupporting scientific, clinical and cost effectiveness data for the use of our products to each payer. We may not be able to provide data sufficient to gain acceptance with respect toreimbursement or we might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to such payers’ satisfaction. Such studiesmight require us to commit a significant amount of management time and financial and other resources. Even when a payer determines that a product is eligible for reimbursement,the payer may impose coverage limitations that preclude payment for some uses that are approved by the FDA or non-United States regulatory authorities. Also prior authorizationfor a product may be required. In addition, there is a risk that full reimbursement may not be available for high-priced products. Moreover, eligibility for coverage does not imply thatany product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, may also not besufficient to cover our costs and may not be made permanent.A primary trend in the United States healthcare industry and elsewhere is toward cost containment. We expect the changes made by PPACA, other legislation impacting theMedicare program and the 340B program, and the increasing emphasis on managed care to continue to put pressure on pharmaceutical product pricing. As these concernscontinue to grow over the need for tighter oversight, there remains the possibility that the Heath Resources and Services Administration or another agency under the HHS willpropose regulations or that Congress will explore changes to the 340B program through legislation. For example, a bill was introduced in 2018 that would require hospitals to reporttheir low-income utilization of the program. Further, the Centers for Medicare & Medicaid Services issued a final rule that would revise the Medicare hospital outpatient prospectivepayment system for calendar year 2019, including a new reimbursement methodology for drugs purchased under the 340B program for Medicare patients at the hospital settingand recently announced the same change for physician-based practices under 340B in 2019. In addition, HHS has set January 1, 2019, as the effective date of the final rule settingforth the calculation of the ceiling price and application of civil monetary penalties. Pursuant to the final rule, after January 1, 2019, manufacturers must calculate 340B programceiling prices on a quarterly basis. Moreover, manufacturers could be subject to a $5,000 penalty for each instance where they knowingly and intentionally overcharge a coveredentity under the 340B program.Further, there has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices, including several recent U.S. congressionalinquiries and proposed federal and enacted state legislation designed to, among other things, increase drug pricing transparency, expedite generic competition, review relationshipsbetween pricing and manufacturer patient assistance programs, and reform29Table of Contentsgovernment program drug reimbursement methodologies. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price controlmeasures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate theprice of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients.Further, the current administration released a "Blueprint" to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturercompetition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocketcosts of drug products paid by consumers. The HHS has already started the process of soliciting feedback on some of these measures and, at the same time, is immediatelyimplementing others under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy forPart B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs andbiological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drugor biological product. On January 31, 2019, the HHS Office of Inspector General proposed modifications to the Federal Anti-Kickback Statute discount safe harbor .for the purposeof reducing the cost of drug products to consumers which, among other things, if finalized, will affect discounts paid by manufacturers to Medicare Part D plans,, Medicaid managedcare organizations and pharmacy benefit managers working with these organizations. Although a number of these, and other potential proposals, may require authorization throughadditional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures tocontrol drug costs. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing,including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in somecases, designed to encourage importation from other countries and bulk purchasing.Any reduction in reimbursement from Medicare, Medicaid or other government-funded programs may result in a similar reduction in payments from private payors. Theimplementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.Additionally, we are currently unable to predict what additional legislation or regulation, if any, relating to the healthcare industry may be enacted in the future or what effect recentlyenacted federal legislation or any such additional legislation or regulation would have on our business.We face potential product liability exposure far in excess of our limited insurance coverage.The use of any of our potential products in clinical trials, and the sale of any approved products, may expose us to liability claims. These claims might be made directly by consumers,health care providers, pharmaceutical companies or others selling our products. We have obtained limited product liability insurance coverage for our clinical trials in the amount of$10 million per occurrence and $10 million in the aggregate. However, our insurance may not reimburse us or may not be sufficient to reimburse us for any expenses or losses wemay suffer. Moreover, insurance coverage is becoming increasingly expensive, and we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amountsto protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for productcandidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. On occasion, juries haveawarded large judgments in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us woulddecrease our cash reserves and could cause our stock price to fall.We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do. Ouroperating results will suffer if we fail to compete effectively.Several of our competitors have substantially greater financial, research and development, distribution, manufacturing and marketing experience and resources than we do andrepresent substantial long-term competition for us. Other companies may succeed in developing and marketing products that are more effective and/or less costly than any productsthat may be developed and marketed by us, or that are commercially accepted before any of our products. Factors affecting competition in the pharmaceutical and drug industriesvary, depending on the extent to which a competitor is able to achieve a competitive advantage based on its proprietary technology and ability to market and sell drugs. The industryin which we compete is characterized by extensive research and development efforts and rapid technological progress. Although we believe that our orphan drug status forCholbam and proprietary position with respect to fosmetpantotenate and sparsentan may give us a competitive advantage, new developments are expected to continue and therecan be no assurance that discoveries by others will not render such potential products noncompetitive. Furthermore, competitors could enter the market with generic versions of ourproducts.Our competitive position also depends on our ability to enter into strategic alliances with one or more large pharmaceutical and contract manufacturing companies, attract and retainqualified personnel, develop effective proprietary products, implement development and marketing plans, obtain patent protection, secure adequate capital resources andsuccessfully sell and market our approved products. There can be no assurance that we will be able to successfully achieve all of the foregoing objectives.Use of third parties to manufacture and distribute our products and product candidates may increase the risk that we will not have sufficient quantities of ourproduct and product candidates or such quantities at an acceptable cost, and clinical development and commercialization of our product and productcandidates could be delayed, prevented or impaired.We do not own or operate manufacturing facilities for clinical or commercial production of our products. We have limited personnel with experience in drug manufacturing and welack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. We outsource all manufacturing and packaging of ourpreclinical, clinical, and commercial products to third parties. The manufacture of30Table of Contentspharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls.Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up initial production and in maintaining required quality control. Theseproblems include difficulties with production costs and yields and quality control, including stability of the product candidate.We do not currently have any agreements with third-party manufacturers for the long-term commercial supply of any of our development stage product candidates. We may beunable to enter into agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms. Even if we enter into these agreements, themanufacturers of each product candidate will be single source suppliers to us for a significant period of time. Reliance on third-party manufacturers entails risks to which we may notbe subject if we manufactured our product candidates or products ourselves, including:•reliance on the third party for regulatory compliance and quality assurance;•limitations on supply availability resulting from capacity and scheduling constraints of the third parties;•impact on our reputation in the marketplace if manufacturers of our products fail to meet the demands of our customers;•the possible breach of the manufacturing agreement by the third party because of factors beyond our control; and•the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.The failure of any of our contract manufacturers to maintain high manufacturing standards could result in injury or death of clinical trial participants or patients using our products.Such failure could also result in product liability claims, product recalls, product seizures or withdrawals, delays or failures in testing or delivery, cost overruns or other problems thatcould seriously harm our business or profitability.Our contract manufacturers will be required to adhere to FDA regulations setting forth cGMP. These regulations cover all aspects of the manufacturing, testing, quality control andrecordkeeping relating to our product candidates and any products that we may commercialize. Our manufacturers may not be able to comply with cGMP regulations or similarregulatory requirements outside the United States. Our manufacturers are subject to unannounced inspections by the FDA, state regulators and similar regulators outside theUnited States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines,injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation,seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect regulatory approval andsupplies of our product candidates.Our product and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number ofmanufacturers that operate under cGMP regulations and that are both capable of manufacturing for us and willing to do so. If the third parties that we engage to manufactureproducts for our developmental or commercial products should cease to continue to do so for any reason, we likely would experience interruptions in cash flows and/or delays inadvancing our clinical trials while we identify and qualify replacement suppliers, and we may be unable to obtain replacement supplies on terms that are favorable to us. Laterrelocation to another manufacturer will also require notification, review and other regulatory approvals from the FDA and other regulators and will subject our production to furthercost and instability in the availability of our product candidates. In addition, if we are not able to obtain adequate supplies of our product candidates, or the drug substances used tomanufacture them, it will be more difficult for us to sell our products and to develop our product candidates. This could greatly reduce our competitiveness.Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to developproduct candidates and commercialize any products that obtain regulatory approval on a timely and competitive basis.Materials necessary to manufacture our products and product candidates may not be available on commercially reasonable terms, or at all, which may delay thedevelopment and commercialization of our products and product candidates.We rely on the manufacturers of our products and product candidates to purchase from third-party suppliers the materials necessary to produce the compounds for our preclinicaland clinical studies and rely on these other manufacturers for commercial distribution if we obtain marketing approval for any of our product candidates. Suppliers may not sell thesematerials to our manufacturers at the time we need them or on commercially reasonable terms and all such prices are susceptible to fluctuations in price and availability due totransportation costs, government regulations, price controls, and changes in economic climate or other foreseen circumstances. We do not have any control over the process ortiming of the acquisition of these materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these materials. If ourmanufacturers are unable to obtain these materials for our preclinical and clinical studies, product testing and potential regulatory approval of our product candidates would bedelayed, significantly impacting our ability to develop our product candidates. If our manufacturers or we are unable to purchase these materials after regulatory approval has beenobtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would materially affect ourability to generate revenues from the sale of our product candidates.31Table of ContentsRisks Related to Our BusinessOur limited operating history makes it difficult to evaluate our future prospects, and our profitability in the future is uncertain.We face the problems, expenses, difficulties, complications and delays, many of which are beyond our control, associated with any business in its early stages and have a limitedoperating history on which an evaluation of our prospects can be made. Such prospects should be considered in light of the risks, expenses and difficulties frequently encountered inthe establishment of a business in a new industry, characterized by a number of market entrants and intense competition, and in the shift from development to commercialization ofnew products based on innovative technologies.We have experienced significant growth over the past three years in the number of our employees and the scope of our operations. We have added sales and marketing,compliance and legal functions in addition to expansion of all functions to support a commercial organization. To manage our anticipated future growth, we must continue toimplement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limitedresources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operationsmay lead to significant costs and may divert our management and business development resources. Any inability on the part of our management to manage growth could delay theexecution of our business plans or disrupt our operations.Factors that may inhibit our efforts to commercialize our products without strategic partners or licensees include:•our inability to recruit and retain adequate numbers of effective sales and marketing personnel;•the inability of sales personnel to obtain access to or educate adequate numbers of physicians to prescribe our products;•the lack of complementary products to be offered by our sales personnel, which may put us at a competitive disadvantage against companies with broader product lines;•unforeseen costs associated with expanding our own sales and marketing team for new products or with entering into a partnering agreement with an independent salesand marketing organization; and•efforts by our competitors to commercialize competitive products.Moreover, though we generate revenues from product sales arrangements, we may incur significant operating losses over the next several years. Our ability to achieve profitableoperations in the future will depend in large part upon successful in-licensing of products approved by the FDA, selling and manufacturing these products, completing developmentof our products, obtaining regulatory approvals for these products, and bringing these products to market. The likelihood of the long-term success of our company must beconsidered in light of the expenses, difficulties and delays frequently encountered in the development and commercialization of new drug products, competitive factors in themarketplace, as well as the regulatory environment in which we operate.In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.We will likely experience fluctuations in operating results and could incur substantial losses.We expect that our operating results will vary significantly from quarter-to-quarter and year-to-year as a result of investments in research and development, specifically our clinicaland preclinical development activities. We have not completed development of any drugs and we anticipate that our expenses will increase substantially as we:•continue our ongoing clinical development of fosmetpantotenate for the treatment of PKAN;•continue the open label portion of DUET and conduct the planned Phase 3 trials of sparsentan indications;•continue funding the clinical development of CNSA-001 for PKU;•complete requirements necessary for an NDA filing of L-UDCA and;•assuming FDA approval, the commercial launch of the next generation of Thiola;•continue the research and development of additional product candidates;•expand our sales and marketing infrastructure to commercialize our current products and any new products for which we may obtain regulatory approval; and•expand operational, financial, and management information systems and personnel, including personnel to support product development efforts and our obligations as apublic company.To attain and sustain profitability, we must succeed in developing and commercializing drugs with significant market potential. This will require us to be successful in a range ofchallenging activities, including the discovery of product candidates, successful completion of preclinical testing and clinical trials of our product candidates, obtaining regulatoryapproval for these product candidates and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We are only in the preliminary stagesof these activities. We may not be successful enough in these activities to generate revenues that are substantial enough to achieve profitability. Even if we do achieve profitability,we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become or remain profitable could depress the market price of our common stockand could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the market price of our common stock mayalso cause a loss of a part or all of your investment.32Table of ContentsNegative publicity regarding any of our products could impair our ability to market any such product and may require us to spend time and money to addressthese issues.If any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to consumers and/or subject to FDA enforcement action,our ability to successfully market and sell our products could be impaired. Because of our dependence on patient and physician perceptions, any adverse publicity associated withillness or other adverse effects resulting from the use or misuse of our products or any similar products distributed by other companies could limit the commercial potential of ourproducts and expose us to potential liabilities.We may not have sufficient insurance to cover our liability in any current or future litigation claims either due to coverage limits or as a result of insurance carriersseeking to deny coverage of such claims.We face a variety of litigation-related liability risks. Our certificate of incorporation, bylaws, other applicable agreements, and/or Delaware law require us to indemnify (and advanceexpenses to) our current and past directors and officers and employees from reasonable expenses related to the defense of any action arising from their service to us, includingcircumstances under which indemnification is otherwise discretionary. While our directors and officers are included in a director and officer liability insurance policy, which covers allour directors and officers in some circumstances, our insurance coverage does not cover all of our indemnification obligations and may not be adequate to cover any indemnificationor other claims against us. In addition, the underwriters of our present coverage may seek to avoid coverage in certain circumstances based upon the terms of the respectivepolicies. If we incur liabilities that exceed our coverage under our directors and officers insurance policy or incur liabilities not covered by our insurance, we would have to self-fundany indemnification amounts owed to our directors and officers and employees in which case our results of operations and financial condition could be materially adversely affected. Further, if D&O insurance becomes prohibitively expensive to maintain in the future, we may be unable to renew such insurance on economic terms or unable renew suchinsurance at all. The lack of D&O insurance may make it difficult for us to retain and attract talented and skilled directors and officers to serve our company, which could adverselyaffect our businessWe may need substantial funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product developmentprograms or commercialization efforts.We expect our general and research and development expenses to increase in connection with our ongoing and planned activities, particularly as we conduct Phase 3 clinical trialsof fosmetpantotenate and sparsentan, continue funding the clinical development of CNSA-001 and potentially acquire Censa, complete requirements for filings of L-UDCA, andconduct any other later-stage clinical trials of our product candidates. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incursignificant commercialization expenses for product sales and marketing, securing commercial quantities of product from our manufacturers, and product distribution. We currentlyhave no additional commitments or arrangements for any additional financing to fund the research and development and commercial launch of our product candidates.Management believes our ability to continue our operations depends on our ability to sustain and grow revenue, results of operations and our ability to access capital markets whennecessary to accomplish our strategic objectives. Management believes that we may incur losses in the immediate future. We expect that our operating results will vary significantlyfrom quarter-to-quarter and year-to-year as a result of investments in research and development, specifically our clinical and preclinical development activities. We expect to financeour cash needs from cash on hand and results of operations, and depending on results of operations we may either need additional equity or debt financing, or need to enter intostrategic alliances on products in development to continue our operations until we can achieve sustained profitability and positive cash flows from operating activities. Additional fundsmay not be available to us when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required toreduce or eliminate research development programs or commercial efforts.Our future capital requirements will depend on many factors, including:•the progress and results of our pre-clinical and clinical studies of fosmetpantotenate, sparsentan, CNSA-001 and other drug candidates;•the costs, timing and outcome of regulatory review of our product candidates;•the number and development requirements of other product candidates that we pursue;•the costs of commercialization activities, including product marketing, sales and distribution;•the emergence of competing technologies and other adverse market developments;•the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property related claims;•debt service obligations on the 2019 Notes and 2025 Notes;•the extent to which we acquire or invest in businesses, products and technologies, including the extent to which we exercise our option to acquire Censa; and•our ability to establish collaborations and obtain milestone, royalty or other payments from any such collaborators.The market price for shares of our common stock may be volatile and purchasers of our common stock could incur substantial losses.The price of our stock is likely to be volatile. The stock market in general, and the market for biotechnology companies in particular, have experienced extreme volatility that hasoften been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced by many factors, including:33Table of Contents•results of clinical trials of our product candidates or those of our competitors;•our entry into or the loss of a significant collaboration;•regulatory or legal developments in the United States and other countries, including changes in the health care payment systems;•our ability to obtain and maintain marketing approvals from the FDA or similar regulatory authorities outside the United States;•variations in our financial results or those of companies that are perceived to be similar to us;•changes in the structure of healthcare payment systems;•market conditions in the pharmaceutical and biotechnology sectors and issuance of new or changed securities analysts’ reports or recommendations;•general economic, industry and market conditions;•results of clinical trials conducted by others on drugs that would compete with our product candidates;•developments or disputes concerning patents or other proprietary rights;•public concern over our product candidates or any products approved in the future;•litigation;•communications from government officials regarding health care costs or pharmaceutical pricing;•future sales or anticipated sales of our common stock by us or our stockholders; and•the other factors described in this “Risk Factors” section.In addition, the stock markets, and in particular, the Nasdaq Global Market, have experienced extreme price and volume fluctuations that have affected and continue to affect themarket prices of equity securities of many pharmaceutical companies. The realization of any of the above risks or any of a broad range of other risks, including those described inthese “Risk Factors” could have a dramatic and material adverse impact on the market price of our common stock.We may be unable to successfully integrate new products or businesses we may acquire.We intend to expand our product pipeline by pursuing acquisition of pharmaceutical products. If an acquisition is consummated, including the extent to which we exercise our optionto acquire Censa, the integration of the acquired business, product or other assets into our company may also be complex and time- consuming and, if such businesses, productsand assets are not successfully integrated, we may not achieve the anticipated benefits, cost-savings or growth opportunities. Potential difficulties that may be encountered in theintegration process include the following:•integrating personnel, operations and systems, while maintaining focus on producing and delivering consistent, high quality products;•coordinating geographically dispersed organizations;•distracting employees from operations;•retaining existing customers and attracting new customers; and•managing inefficiencies associated with integrating the operations of the Company.Furthermore, these acquisitions and other arrangements, even if successfully integrated, may fail to further our business strategy as anticipated, expose us to increased competitionor challenges with respect to our products or geographic markets, and expose us to additional liabilities associated with an acquired business, product, technology or other asset orarrangement. Any one of these challenges or risks could impair our ability to realize any benefit from our acquisitions or arrangements after we have expended resources on them.If we are unable to maintain an effective and specialized sales force, we will not be able to commercialize our products successfully.In order to successfully commercialize our products, we have built a specialized sales force. Factors that may hinder our ability to successfully market and commercially distribute ourproducts include:•inability of sales personnel to obtain access to or convince adequate numbers of physicians to prescribe our products;•inability to recruit, retain and effectively manage adequate numbers of effective sales personnel;•lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies that have more extensive productlines; and•unforeseen delays, costs and expenses associated with maintaining our sales organization.If we are unable to maintain our sales force for our products, we may not be able to generate sufficient product revenue.34Table of ContentsWe will need to continue to expend significant time and resources to train our sales forces to be credible, persuasive and compliant in discussing our products with the specialiststreating the patients indicated under the product’s label. In addition, if we are unable to effectively train our sales force and equip them with effective marketing materials our abilityto successfully commercialize our products could be diminished, which would have a material adverse effect on our business, results of operations and financial condition.Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.Our business exposes us to potential liability risks inherent in the research, development, manufacturing and marketing of pharmaceutical products. If any of our product candidatesin clinical trials or commercialized products harm people we may be subject to costly and damaging product liability claims. We have clinical trial insurance and commercial productliability coverage. However, this insurance may not be adequate to cover all claims. We may be exposed to product liability claims and product recalls, including those which mayarise from misuse or malfunction of, or design flaws in, such products, whether or not such problems directly relate to the products and services we have provided. If we cannotsuccessfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome,liability claims may result in:•decreased demand for any product candidates or products that we may develop;•damage to our reputation;•regulatory investigations that could require costly recalls or product modifications;•withdrawal of clinical trial participants;•costs to defend the related litigation;•substantial monetary awards to trial participants or patients, including awards that substantially exceed our product liability insurance, which we would then be required topay from other sources, if available, and would damage our ability to obtain liability insurance at reasonable costs, or at all, in the future;•loss of revenue;•the diversion of management’s attention from managing our business; and•the inability to commercialize any products that we may develop.A successful product liability claim or a series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease ouravailable cash and adversely affect our business.We are involved in certain litigation matters, any of which could result in substantial costs, divert management's attention and otherwise have a material adverseeffect on our business, operating results or financial condition.We are involved in certain litigation matters, including those described in Note 11 of the Consolidated Financial Statements included in this report. Although we intend to vigorouslydefend our interests in each matter, there is no guarantee that we will be successful and we may have to pay damages awards or otherwise may enter into settlementarrangements in connection with such matters. Any such payments or settlement arrangements could have material adverse effects on our business, operating results or financialcondition. Even if we are successful in defending our interests in each matter, litigation with respect to such matters could result in substantial costs and significant adverse impact onour reputation and divert management's attention and resources, which could have a material adverse effect on our business, operating results or financial condition.We are subject to significant ongoing regulatory obligations and oversight, which may result in significant additional expense and may limit our commercialsuccess.We are subject to significant ongoing regulatory obligations, such as safety reporting requirements and additional post-marketing obligations, including regulatory oversight of thepromotion and marketing of our products. In addition, the manufacture, quality control, labeling, packaging, safety surveillance, adverse event reporting, storage and recordkeepingfor our products are subject to extensive and ongoing regulatory requirements. If we become aware of previously unknown problems with any of our products, a regulatory agencymay impose restrictions on our products, our contract manufacturers or us. If we, our products and product candidates, or the manufacturing facilities for our products and productcandidates fail to comply with applicable regulatory requirements, a regulatory agency, including the FDA, may send enforcement letters, mandate labeling changes, suspend orwithdraw regulatory approval, suspend any ongoing clinical trials, refuse to approve pending applications or supplements filed by us, suspend or impose restrictions onmanufacturing operations, request a recall of, seize or detain a product, seek criminal prosecution or an injunction, or impose civil or criminal penalties or monetary fines. In suchinstances, we could experience a significant drop in the sales of the affected products, our product revenues and reputation in the marketplace may suffer, and we could becomethe target of lawsuits.We are also subject to regulation by national, regional, state and local agencies, including but not limited to the FDA, CMS, Department of Justice, the Federal Trade Commission,the HHS Office of Inspector General and other regulatory bodies. The FDC Act, Social Security Act, Public Health Service Act and other federal and state statutes and regulationsgovern to varying degrees the research, development, manufacturing and commercial activities relating to prescription pharmaceutical products, including preclinical testing, clinicalresearch, approval, production, labeling,35Table of Contentssale, distribution, post-market surveillance, advertising, dissemination of information, promotion, marketing, and pricing to government purchasers and government health careprograms. Our manufacturing partners are subject to many of the same requirements.Companies may not promote drugs for “off-label” uses-that is, uses that are not described in the product’s labeling and that differ from those approved by the FDA or otherapplicable regulatory agencies. However, a company may share truthful and not misleading information that is otherwise consistent with the product’s labeling. A company that isfound to have improperly promoted off-label uses may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition,management’s attention could be diverted from our business operations and our reputation could be damaged.The federal health care program Anti-Kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or inreturn for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid or other federallyfinanced healthcare programs. This statute has been interpreted broadly to apply to arrangements that pharmaceutical companies have with prescribers, purchasers and formularymanagers, among others. Further, the PPACA, among other things, amends the intent requirement of the federal anti-kickback statute so that a person or entity no longer needs tohave actual knowledge of this statute or specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services resultingfrom a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Although there are a number of statutoryexceptions and regulatory safe harbors under the federal anti-kickback statute protecting certain common manufacturer business arrangements and activities from prosecution, theexceptions and safe harbors are drawn narrowly and an arrangement must meet all of the conditions specified in order to be fully protected from scrutiny under the federal anti-kickback statute. We seek to comply with the exceptions and safe harbors whenever possible, but our practices, such as our patient assistance programs and prompt pay discountswith certain customers, may not in all cases meet all of the criteria for protection from anti-kickback liability and may be subject to scrutiny.The federal false claims laws, including the federal False Claims Act, prohibit any person or entity from knowingly presenting, or causing to be presented, a false claim for paymentto the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Additionally, the civil monetary penalties statute imposespenalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the personknows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Many pharmaceutical and other health care companies have beeninvestigated and have reached substantial financial settlements with the federal government under the federal False Claims Act for a variety of alleged marketing activities, includingproviding free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees, grants, free travel, and otherbenefits to physicians to induce them to prescribe the company’s products; and inflating prices reported to private price publication services, which may be used by states to set drugpayment rates under government health care programs. Companies have been prosecuted for causing false claims to be submitted because of the marketing of their products forunapproved uses. Pharmaceutical and other health care companies have also been prosecuted on other legal theories of Medicare and Medicaid fraud.Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. It is not clearwhether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on themarketing approvals of any Retrophin products, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or preventmarketing approval, as well as subject Retrophin to more stringent product labeling and post-marketing testing and other requirements.We also could become subject to government investigations and related subpoenas. Such subpoenas are often associated with previously filed qui tam actions, or lawsuits filedunder seal under the federal False Claims Act. Qui tam actions are brought by private plaintiffs suing on behalf of the federal government for alleged violations of the federal FalseClaims Act. The time and expense associated with responding to such subpoenas, and any related qui tam or other actions, may be extensive, and we cannot predict the results ofour review of the responsive documents and underlying facts or the results of such actions. Responding to government investigations, defending any claims raised, and any resultingfines, restitution, damages and penalties, settlement payments or administrative actions, as well as any related actions brought by stockholders or other third parties, could have amaterial impact on our reputation, business and financial condition and divert the attention of our management from operating our business.The number and complexity of both federal and state laws continues to increase, and additional governmental resources are being added to enforce these laws and to prosecutecompanies and individuals who are believed to be violating them. In particular, the PPACA includes a number of provisions aimed at strengthening the government’s ability to pursueanti-kickback and false claims cases against pharmaceutical manufacturers and other healthcare entities, including substantially increased funding for healthcare fraud enforcementactivities, enhanced investigative powers, amendments to the federal False Claims Act that make it easier for the government and whistleblowers to pursue cases for allegedkickback and false claim violations and, for payments made on or after August 1, 2013, public reporting of payments by pharmaceutical manufacturers to physicians and teachinghospitals nationwide. We anticipate that government scrutiny of pharmaceutical sales and marketing practices will continue for the foreseeable future and subject us to the risk offurther government investigations and enforcement actions. Responding to a government investigation or enforcement action would be expensive and time-consuming, and couldhave a material adverse effect on our business, financial condition, results of operations and growth prospects.The U.S. Foreign Corrupt Practices Act, and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments togovernment officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in parts of the world that haveexperienced governmental corruption to some degree and in certain circumstances, strict compliance with antibribery laws may conflict with local customs and practices or mayrequire us to interact with doctors and hospitals, some of which may be state controlled, in a manner that is different than in the United States. We cannot assure that our internalcontrol policies and36Table of Contentsprocedures will protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our businessand result in criminal or civil penalties or remedial measures, any of which could have a material adverse effect on our business, financial condition and results of operations andcould cause the market value of our common stock to decline.The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), created new federal criminal statutes that prohibit, among other actions, knowingly and willfullyexecuting, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers, and 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 healthcare benefits, items or services.Like the federal anti-kickback statute, the PPACA amended the intent standard for certain healthcare fraud provisions under HIPAA such that a person or entity no longer needs tohave actual knowledge of the statute or specific intent to violate it in order to have committed a violation.Additionally, the federal Physician Payments Sunshine Act within the PPACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biologicals andmedical supplies to report annually information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities orindividuals at the request of, or designated on behalf of, physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians andtheir immediate family members. Moreover, the Drug Supply Chain Security Act imposes new obligations on manufacturers of pharmaceutical products related to product trackingand tracing. We are not sure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations will be changed, or what theimpact of such changes on our business, if any, may be.Also, many states have similar fraud and abuse statutes or regulations, including state anti-kickback and false claims laws, that apply to items and services reimbursed underMedicaid and other state programs, or, in several states, apply regardless of the payer. Further, certain states require implementation of commercial compliance programs andmarketing codes, compliance with the pharmaceutical industry’s voluntary compliance guidelines, and compliance with the applicable compliance guidance promulgated by thefederal government. Other various state level requirements include restricting payments or the provision of other items of value that may be made to healthcare providers and otherpotential referral sources; restricting various marketing practices; requiring prescription drug companies to report expenses relating to the marketing and promotion of drugproducts; requiring the posting of information relating to clinical studies and their outcomes; requiring the registration of sales representatives; requiring the reporting of certaininformation related to drug pricing; and requiring drug manufacturers to track and report information related to payments, gifts, compensation, and other items of value to physiciansand other healthcare providers.In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by theHealth Information Technology for Economic and Clinical Health Act ("HITECH"), and their respective implementing regulations, imposes specified requirements relating to theprivacy, security and transmission of individually identifiable health information. Among other things, HITECH, through its implementing regulations, makes certain of HIPAA’s privacyand security standards directly applicable to business associates, defined as a person or organization, other than a member of a covered entity’s workforce, that creates, receives,maintains or transmits protected health information for or on behalf of a covered entity for a function or activity regulated by HIPAA. International data protection laws also imposestrict obligations on the ability to process health related and other personal information of citizens of member states, including in relation to collection, analysis and transfer. The EUGeneral Data Protection Regulation was officially adopted in April 2016 and has been in effect since May 2018. The EU General Data Protection Regulation introduced new dataprotection requirements in the European Union, as well as substantial fines for breaches of the data protection rules. The EU General Data Protection Regulation will increase ourresponsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new EU dataprotection rules. Additionally, California recently enacted legislation known as the California Consumer Privacy Act (the “CCPA”), which creates new individual privacy rights forconsumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. When itgoes into effect on January 1, 2020, the CCPA will require covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out ofcertain sales of personal information, and allow for a new cause of action for data breaches. Legislators have stated that amendments will be proposed to the CCPA before it goesinto effect, but it remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted. As currently written, the CCPA will likely impact (possiblysignificantly) our business activities and exemplifies the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal dataand protected health information.If we or any of our partners fail to comply with applicable regulatory requirements, we or they could be subject to a range of regulatory actions that could affect our or our partners'ability to commercialize our products and could harm or prevent sales of the affected products, or could substantially increase the costs and expenses of commercializing andmarketing our products. Any threatened or actual government enforcement action could also generate adverse publicity and require that we devote substantial resources that couldotherwise be used in other aspects of our business. Compliance with applicable federal and state laws is difficult and time consuming, and companies that violate them may facesubstantial penalties. The potential sanctions include criminal fines, civil monetary penalties, administrative penalties, disgorgement, exclusion from participation in federal health careprograms, individual imprisonment, injunctions, recall or seizure of products, total or partial suspension of production, reputational harm, administrative burdens, additional oversightand reporting obligations if we become subject to a corporate integrity agreement or similar agreement to resolve allegation of non-compliance with these laws, diminished profitsand future earnings, and the curtailment or restructuring of our operations, and other sanctions. Because of the breadth of these laws, it is possible that some of our businessactivities could be subject to challenge under one or more of these laws. Such a challenge, irrespective of the underlying merits of the challenge or the ultimate outcome of thematter, could have a material adverse effect on our business, financial condition, results of operations and growth prospects.If we are not able to obtain and maintain required regulatory approvals, we will not be able to commercialize our products, and our ability to generate revenue willbe materially impaired.37Table of ContentsOur product candidates, once approved, and the activities associated with their manufacture, marketing, distribution, and sales are subject to extensive regulation by the FDA andother regulatory agencies in the United States and by comparable authorities in other countries. Failure to adhere to regulations set out by these bodies for one or more of ourcommercial products could prevent us from commercializing the product candidate in the jurisdiction of the regulatory authority. We have only limited experience in meeting theregulatory requirements incumbent on the sale of drugs in the United States and elsewhere, and expect to rely on third-parties to assist us in these processes. If these third partiesfail to adequately adhere to the regulations governing drug distribution and promotion we may be unable to sell our products, which could have a material effect on our ability togenerate revenue.Our product candidates and the activities associated with their development and commercialization, including testing, manufacture, safety, efficacy, recordkeeping, labeling, storage,approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparableauthorities in other countries. Failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate in the jurisdiction of theregulatory authority. We have only limited experience in filing and prosecuting the applications necessary to obtain regulatory approvals and expect to rely on third-party contractresearch organizations to assist us in this process.Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each therapeutic indication to establish theproduct candidate’s safety and efficacy. Securing FDA approval also requires the submission of information about the product manufacturing process to, and successful inspectionof manufacturing facilities by, the FDA. Our future products may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects,toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.Our product candidates may fail to obtain regulatory approval for many reasons, including:•our failure to demonstrate to the satisfaction of the FDA or comparable regulatory authorities that a product candidate is safe and effective for a particular indication;•the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable regulatory authorities for approval;•our inability to demonstrate that a product candidate’s benefits outweigh its risks;•our inability to demonstrate that the product candidate presents an advantage over existing therapies;•the FDA’s or comparable regulatory authorities’ disagreement with the manner in which we interpret the data from preclinical studies or clinical trials;•failure of the third-party manufacturers with which we contract for clinical or commercial supplies to satisfactorily complete an FDA pre-approval inspection of the facility orfacilities at which the product is manufactured to assess compliance with the FDA’s cGMP regulations to assure that the facilities, methods and controls are adequate topreserve the drug’s identity, strength, quality and purity; and•a change in the approval policies or regulations of the FDA or comparable regulatory authorities or a change in the laws governing the approval process.The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, includingthe type, complexity and novelty of the product candidates involved. Changes in regulatory approval policies during the development period, changes in or the enactment ofadditional statutes or regulations, or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. The FDAand non-United States regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficientfor approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit orprevent regulatory approval of a product candidate. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post approval commitments that renderthe approved product not commercially viable. Any FDA or other regulatory approval of our product candidates, once obtained, may be withdrawn, including for failure to complywith regulatory requirements or if clinical or manufacturing problems follow initial marketing.Our internal computer systems, or those of our CROs or other contractors and vendors who host our applications or consultants, may fail or suffer securitybreaches, which could result in a material disruption of our product development programs.Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors or vendors who host our applications and those ofour consultants are vulnerable to damage or disruption from computer viruses, software bugs, unauthorized access including cyber-attack, natural disasters, terrorism, war, andtelecommunication, equipment and electrical failures. While we have not, to our knowledge, experienced any significant system failure, accident or security breach to date, if such anevent were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data from completed orongoing clinical trials for any of our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure or theft of confidential or proprietaryinformation, we could incur liability, the further development of our product candidates could be delayed, our competitive position could be compromised, or our business reputationcould be harmed.Comprehensive tax reform could adversely affect our business and financial condition.38Table of ContentsOn December 22, 2017, President Trump signed into law the Tax Act of 2017 that significantly revises the Internal Revenue Code of 1986, as amended. The Tax Act of 2017,among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitationof the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current yeartaxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination ofU.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time,and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act of 2017 isuncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the Tax Act of 2017. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors withrespect to the Tax Act of 2017 and the potential tax consequences of investing in or holding our common stock.Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.Our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount oftax that will become payable in each of such places. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including passageof the Tax Act of 2017, changes in the mix of our profitability from state to state, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptableagreements with tax authorities, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantlydifferent from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.Our ability to use net operating losses to offset future taxable income may be subject to limitations.As of December 31, 2018, we had federal net operating loss, or NOL, carryforwards of $36.5 million. Our federal NOL carryforwards generated in tax years ending on or prior toDecember 31, 2017, are only permitted to be carried forward for 20 years under applicable U.S. tax law. Under the Tax Act of 2017, our federal NOLs generated in tax yearsending after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal NOLs generated in tax years beginning after December 31, 2017, islimited. It is uncertain if and to what extent various states will conform to the Tax Act of 2017. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, asamended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in itsequity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change U.S. tax attributes (such as research tax credits)to offset its post-change income or taxes may be limited. It is possible that we have experienced an ownership change limitation in the past. In addition, we may experienceownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control.As a result, our pre-2018 NOL carryforwards may expire prior to being used, and our NOL carryforwards generated in 2018 and thereafter will be subject to a percentagelimitation. In addition, it is possible that we have in the past undergone, and in the future may undergo, additional ownership changes that could limit our ability to use all of our pre-change NOLs and other pre-change tax attributes (such as research tax credits) to offset our post-change income or taxes. Similar provisions of state tax law may also apply to limitour use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which couldaccelerate or permanently increase state taxes owed. As a result, we may be unable to use all or a material portion of our NOLs and other tax attributes, which would harm ourfuture operating results by effectively increasing our future tax obligations.We are dependent on information technology systems, infrastructure and data, which exposes us to data security risks.We are dependent upon our own or third-party information technology systems, infrastructure and data, including mobile technologies, to operate our business. The multitude andcomplexity of our computer systems may make them vulnerable to service interruption or destruction, disruption of data integrity, malicious intrusion, or random attacks. Likewise,data privacy or security incidents or breaches by employees or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information ofour employees, patients, customers or other business partners may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency,sophistication and intensity. Cyber-attacks could include the deployment of harmful malware, denial-of-service, social engineering and other means to affect service reliability andthreaten data confidentiality, integrity and availability. Our business partners face similar risks and any security breach of their systems could adversely affect our security posture. Asecurity breach or privacy violation 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 and foreign law equivalents, subject us to mandatory correctiveaction, require us to verify the correctness of database contents and otherwise subject us to litigation or other liability under laws and regulations that protect personal data, any ofwhich could disrupt our business and/or result in increased costs or loss of revenue. Moreover, the prevalent use of mobile devices that access confidential information increasesthe risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have invested, and continue toinvest, in the protection of our data and information technology infrastructure, there can be no assurance that our efforts will prevent service interruptions, or identify breaches in oursystems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business orreputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and otherrelated breaches.39Table of ContentsRisks Related to our Indebtedness and InvestmentsOur indebtedness could adversely affect our financial condition.As of December 31, 2018, we had approximately $298.6 million of total debt outstanding, classified as short and long term. As a result of our indebtedness, a portion of our cashflow will be required to pay interest and principal on the 2019 Notes and 2025 Notes if the notes are not converted to shares of common stock prior to maturity. We may notgenerate sufficient cash flow from operations or have future borrowings available to enable us to repay our indebtedness or to fund other liquidity needs.Our indebtedness pursuant to the 2019 Notes and 2025 Notes could have important consequences. For example, it could:•make it more difficult for us to satisfy our obligations with respect to any other debt we may incur in the future;•increase our vulnerability to general adverse economic and industry conditions;•require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness and related interest, thereby reducing the availability of ourcash flow to fund working capital, capital expenditures and other general corporate purposes;•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;•increase our cost of borrowing;•place us at a competitive disadvantage compared to our competitors that may have less debt; and•limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes.We expect to use cash flow from operations and outside financings to meet our current and future financial obligations, including funding our operations, debt service and capitalexpenditures. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which wecannot control. Our business may not generate sufficient cash flow from operations in the future, which could result in our being unable to repay indebtedness, or to fund otherliquidity needs. If we do not generate sufficient cash from operations, we may be forced to reduce or delay our business activities and capital expenditures, sell assets, obtainadditional debt or equity capital or restructure or refinance all or a portion of our debt, including the 2019 Notes and 2025 Notes, on or before maturity. We cannot make anyassurances that we will be able to accomplish any of these alternatives on terms acceptable to us, or at all. In addition, the terms of existing or future indebtedness may limit ourability to pursue any of these alternatives.We may be unable to raise the funds necessary to repurchase the 2019 Notes and 2025 Notes for cash following a fundamental change, or to pay any cashamounts due upon conversion, and our future indebtedness may limit our ability to repurchase the 2019 Notes and 2025 Notes or pay cash upon theirconversion.Noteholders may require us to repurchase their 2025 Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the 2025 Notesto be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, upon conversion, we will satisfy part or all of ourconversion obligation in cash unless we elect to settle conversions solely in shares of our common stock.Further, the indenture governing the 2019 Notes contains a similar definition of fundamental change, and noteholders of the 2019 Notes will likely have the right to require us torepurchase their 2019 Notes for cash upon the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the 2019 Notes to berepurchased, plus accrued and unpaid interest, if any.We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2025 Notes and/or the 2019 Notes or pay the cash amountsdue upon conversion of the 2025 Notes. In addition, applicable law, regulatory authorities and the agreements governing our future indebtedness may restrict our ability torepurchase the 2025 Notes and/or the 2019 Notes or pay the cash amounts due upon conversion of the 2025 Notes. Our failure to repurchase the 2025 Notes and/or the 2019Notes or to pay the cash amounts due upon conversion of the 2025 Notes when required will constitute a default under the base and supplemental indentures that will govern the2025 Notes, which we refer to collectively as the “indenture,” and/or a default under the indenture governing the 2019 Notes. A default under the indenture and/or the indenturegoverning the 2019 Notes or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that otherindebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness, the 2019 Notes and the 2025 Notes.A default under the 2025 Notes may have a material adverse effect on our financial condition.If an event of default under the 2025 Notes occurs, the principal amount of the 2025 Notes, plus accrued and unpaid interest (including additional interest, if any) may be declaredimmediately due and payable, subject to certain conditions set forth in the indenture governing such notes. Events of default include, but are not limited to:•failure to pay (for more than 30 days) interest when due;•failure to pay principal when due;•failure to deliver shares of common stock upon conversion of a 2025 Notes;40Table of Contents•failure to provide notice of a fundamental change;•acceleration on our other indebtedness in excess of $10 million (other than indebtedness that is non-recourse to us); or•certain types of bankruptcy or insolvency involving us.Accordingly, the occurrence of a default under the 2025 Notes, unless cured or waived, may have a material adverse effect on our results of operations.Provisions of the 2019 Notes and 2025 Notes could discourage an acquisition of us by a third party.Certain provisions of the 2019 Notes and 2025 Notes could make it more difficult or more expensive for or prevent a third party to acquire us. Upon the occurrence of certaintransactions constituting a fundamental change, holders of the 2019 Notes and 2025 Notes will have the right, at their option, to require us to repurchase all of their 2019 Notes and2025 Notes or any portion of the principal amount of such Notes in integral multiples of $1,000. We may also be required to increase the conversion rate for conversions inconnection with certain fundamental changes.Conversion of the Notes may dilute the ownership interest of existing stockholders, including holders who had previously converted their 2019 Notes and 2025Notes.To the extent we issue shares of common stock upon conversion of the 2019 Notes and 2025 Notes, the conversion of some or all of the 2019 Notes and 2025 Notes will dilute theownership interests of existing stockholders. Any sales in the public market of shares of the common stock issuable upon such conversion could adversely affect prevailing marketprices of shares of our common stock. In addition, the existence of the 2019 Notes and 2025 Notes may encourage short selling by market participants because the conversion ofthe 2019 Notes and 2025 Notes could depress the price of shares of our common stock.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESWe lease the following locations to conduct our business:LocationAddressLease ExpirationSquare FeetSan Diego, California (corporate headquarters)3721/3661 Valley Centre DriveSuites 200, 225, 250 & 275July 31, 202445,446We believe these facilities are adequate to conduct our business.ITEM 3. LEGAL PROCEEDINGSThe information required by this Item is incorporated herein by reference to Note 11 of the Consolidated Financial Statements included in this report.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.41Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIESMarket InformationOur common stock is listed for quotation on the Nasdaq Global Market under the trading symbol “RTRX” and is part of the Nasdaq Biotechnology Index (Nasdaq: NBI).As of February 25, 2019, the last reported sale price of our Common Stock as reported by the Nasdaq was $21.39. As of February 25, 2019, we had approximately 192 holders of record 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 make under the Securities Act of1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation by reference language in such filing.Our common stock is traded on the Nasdaq Global Market and is a component of both the Nasdaq Composite Index and the Nasdaq Biotechnology Index. The total return for ourcommon stock and for each index assumes the reinvestment of dividends, although dividends have never been declared on our common stock, and is based on the returns of thecomponent companies weighted according to their capitalizations as of the end of each monthly period. The Nasdaq-Composite tracks the aggregate price performance of equitysecurities of companies traded on the Nasdaq National Market. The Nasdaq Biotechnology Index contains securities and tracks the aggregate price performance of equity securitiesof Nasdaq-listed companies classified according to the Industry Classification Benchmark as either Biotechnology or Pharmaceuticals which also meet other eligibility criteria. Thecomparisons shown in the graph are based upon historical data and we caution that the stock price performance shown in the graph is not indicative of, nor intended to forecast,the potential future performance of our stock.42Table of ContentsDividendsSince inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock.Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividendsin the future. Payment of dividends in the future will depend upon our earnings, capital requirements and other factors which our Board of Directors may deem relevant.ITEM 6. SELECTED FINANCIAL DATAThe following table presents selected historical financial data of the Company for the periods indicated. The selected historical financial information is derived from the auditedConsolidated Financial Statements of the Company referred to under Item 8 of this Annual Report on Form 10-K, and previously published historical financial statements. Thefollowing selected financial data should be read in conjunction with Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, and theCompany’s Consolidated Financial Statements, including the notes thereto, included elsewhere herein. Selected historical financial data (in thousands, except share and per share amounts): For the year ended December 31,Consolidated Statement of Operations:2018 2017 2016 2015 2014Net product sales$164,246 $154,937 $133,591 $99,892 $28,203Total operating expenses244,286 208,728 191,805 150,640 108,011Operating loss(80,040) (53,791) (58,214) (50,748) (79,808)Total other income (expenses), net(21,827) (4,572) 632 156,215 (33,590)Income (Loss) before benefit (provision) for income taxes(101,867) (58,363) (57,582) 105,467 (113,398)Income tax benefit (provision)(811) (1,368) 9,679 11,770 2,460Net income (loss)$(102,678) $(59,731) $(47,903) $117,237 $(110,938)Per Share Data: Net Income (loss) per common share, basic$(2.54) $(1.54) $(1.29) $3.49 $(4.43)Net Income (loss) per common share, diluted$(2.54) $(1.54) $(1.29) $3.17 $(4.43)Weighted average common shares outstanding, basic40,433,171 38,769,816 36,997,865 33,560,249 25,057,509Weighted average common shares outstanding, diluted40,433,171 38,769,816 38,288,012 37,581,439 25,057,509 As of December 31,Balance Sheet data:2018 2017 2016 2015 2014Cash, cash equivalents and marketable securities$471,541 $300,630 $255,873 $229,604 $27,760Working capital (deficit)391,057 240,139 249,090 214,951 (70,205)Total assets709,160 520,346 525,282 512,264 134,973Long-term debt195,091 45,077 44,422 43,766 42,790Total stockholders’ equity (deficit)$318,253 $293,134 $307,767 $299,971 $(37,251)Note: Cash dividends were not paid during the above periods.ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS The following discussion should be read in conjunction with our audited Consolidated Financial Statements, including the notes thereto.OverviewWe are a biopharmaceutical company headquartered in San Diego, California, focused on identifying, developing and delivering life-changing therapies to people living with rarediseases.Research and Development Programs:FosmetpantotenateWe are evaluating fosmetpantotenate, a novel small molecule, in a Phase 3 clinical study as a potential treatment for PKAN. PKAN is a genetic neurodegenerative disorder that istypically diagnosed in the first decade of life. Symptoms of PKAN include dystonia, dysarthria, rigidity, retinal degeneration, and severe digestive problems. PKAN is estimated toaffect up to 5,000 patients worldwide. There are currently no viable treatment options for patients with PKAN. Fosmetpantotenate is a phosphopantothenate replacement therapythat aims to restore levels of this key substrate43Table of Contentsin PKAN patients. Certain international health regulators have approved the initiation of dosing fosmetpantotenate in PKAN patients under physician-initiated studies in accordancewith local regulations in their respective countries.In 2015 and 2016 we filed an IND, completed the Phase I clinical trial and obtained both orphan drug and fast track designation in the United States. Additionally, we receivedorphan drug designation in the European Union and reached an agreement with the FDA under the SPA process for a Phase 3 clinical trial for PKAN.In the fourth quarter of 2018, the pivotal Phase 3 FORT study of fosmetpantotenate in PKAN completed patient enrollment. The FORT Study is designed to be registration-enablingin the U.S. and Europe, and we expect top-line data to become available in the third quarter of 2019.SparsentanSparsentan is an investigational product candidate with a dual mechanism of action, a potent ARB and a selective ERA, with in vitro selectivity toward endothelin receptor type A.We have secured a license to sparsentan from Ligand and BMS (who referred to it as DARA). Sparsentan is currently being evaluated in two pivotal Phase 3 clinical studies in thefollowing indications:•FSGS, a leading cause of end-stage renal disease and NS. There are currently no FDA approved pharmacologic treatments for FSGS and off-label treatments arelimited to ACE/ARBs, steroids, and immunosuppressant agents, which are effective in only a subset of patients. Every year approximately 5,400 patients are diagnosedwith FSGS and we estimate that there are up to 40,000 FSGS patients in the United States with approximately half of them being candidates for sparsentan. In 2015 and2016 we received orphan drug designation in the United States and European Union and generated positive data from our Phase 2 DUET study in FSGS. In the secondquarter of 2018, we announced the initiation of the Phase 3 DUPLEX study of sparsentan in FSGS, and enrollment continues. This pivotal DUPLEX Study is designed toinclude an interim analysis of modified partial remission of proteinuria. We expect that successful achievement of this endpoint will serve as the basis for Subpart Haccelerated submission of sparsentan in the United States and CMA consideration in Europe. The confirmatory endpoint of the study will compare changes in slope ofestimated glomerular filtration rate, or eGFR. Top-line data from the interim analysis are expected to become available in the second half of 2020.•IgAN is characterized by hematuria, proteinuria, and variable rates of progressive renal failure. With an estimated prevalence of more than 100,000 people in the UnitedStates and greater numbers in Europe and Asia, IgAN is the most common primary glomerular disease. Most patients are diagnosed between the ages of 16 and 35,with up to 40% progressing to end stage renal disease within 15 years. There are currently no FDA approved treatments for IgAN. The current standard of care is renin-angiotensin-aldosterone system (RAAS) blockade with immunosuppression also being commonly used for patients with significant proteinuria or rapidly progressiveglomerulonephritis. In the fourth quarter of 2018, we announced that the first patient had been dosed in the PROTECT Study, a global, pivotal Phase 3 clinical trialevaluating the long-term nephroprotective potential of sparsentan for the treatment of IgAN. This PROTECT Study is a global, randomized, multicenter, double-blind,parallel-arm, active-controlled Phase 3 clinical trial evaluating the safety and efficacy of sparsentan in approximately 280 patients with IgAN aged 18 years or older. Theprimary efficacy endpoint in the PROTECT Study is the change in proteinuria (urine protein-to-creatinine ratio) from baseline after 36 weeks of treatment. We expect thatsuccessful achievement of this endpoint will serve as the basis for submission of an NDA for sparsentan for the treatment of IgAN under the Subpart H acceleratedsubmission pathway in the U.S. and CMA consideration in Europe. Secondary efficacy endpoints include change in eGFR from baseline to four weeks post-cessation ofrandomized treatment, as well as the rate of change in eGFR over 52-week and 104-week periods following the first six weeks of randomized treatment. Top-line datafrom the primary endpoint are expected to become available in the first half of 2022.CNSA-001Effective in the first quarter of 2018, we entered into a Future Acquisition Right and Joint Development Agreement with Censa. Pursuant to the agreement, we agreed to fundcertain development activities of Censa’s CNSA-001 program, in an aggregate amount expected to be approximately $17 million through proof of concept, and has the right, but notthe obligation, to acquire Censa (the “Option”) on the terms and subject to the conditions set forth in a separate Agreement and Plan of Merger (the “Merger Agreement”). Inexchange for the Option, we paid Censa $10 million, and an additional $5 million upon Censa’s completion of a specified development milestone set forth in the Option Agreement.If we exercise the Option, pursuant to the terms of the Merger Agreement, we will acquire Censa for $65 million in upfront consideration, subject to certain adjustments, paid as acombination of 20% in cash and 80% in shares of our common stock, valued at a fixed price of $21.40 per share; provided, however, that Censa may elect on behalf of itsequityholders to receive the upfront consideration in 100% cash if the average price per share of our common stock for the ten trading days ending on the date we provide a noticeof interest to exercise the Option is less than $19.26. In addition to the upfront consideration, if we exercise the Option and acquire Censa, we would be required to make furthercash payments to Censa’s equityholders of up to an aggregate of $25 million if the CNSA-001 program achieves specified development and commercial milestones.Censa, a privately held biotechnology company focused on developing therapies for the orphan metabolic diseases, is developing CNSA-001 for the treatment of phenylketonuria(PKU). CNSA-001 is an orally bioavailable form of a natural precursor of BH4 with the potential to provide improved Phe reduction in patients with PKU when compared to BH4.Preclinical research has suggested CNSA-001 may provide improved bioavailability, plasma stability and tissue exposure, leading to higher intracellular BH4 levels and subsequentgreater Phe reduction when compared to the current standard of care in PKU. In pre-clinical models, CNSA-001 has also shown an ability to cross the blood-brain barrier which, ifsupported by clinical data, may lead to broader utility in additional indications such as primary BH4 deficiency (PBD) and Segawa syndrome.44Table of ContentsPKU is a rare, genetic metabolic condition in which the body cannot breakdown Phe due to a missing or defective phenylalanine hydroxylase (PAH) enzyme. High Phe levels canlead to developmental and physical growth delay, executive function impairment, seizures, and microcephaly caused by toxic Phe accumulation in the brain. PKU is typicallydiagnosed at birth.Censa is currently conducting a Phase 2 proof-of-concept study evaluating CNSA-001 in patients with PKU, and we expect top-line data to become available to us during thesecond quarter of 2019.NGLY1 Deficiency Discovery EffortsN-glycanase deficiency, or NGLY1 deficiency, is an extremely rare genetic disorder believed to be caused by a deficiency in an enzyme called N-glycanase-1, which is encoded bythe gene NGLY1. The condition is characterized by symptoms such as developmental delays, seizures, complex hyperkinetic movement disorders, diminished reflexes and aninability to produce tears. There are no approved therapeutic options for NGLY1 deficiency, and current therapeutic strategies are limited to symptom management.In September 2017, we entered a three-way CRADA with the National Institutes of Health’s National Center for Advancing Translational Sciences (NCATS) and patient advocacyfoundation NGLY1.org to collaborate on research efforts aimed at the identification of potential small molecule therapeutics for NGLY1 deficiency.Liquid Ursodeoxycholic AcidL-UDCA is a liquid formulation of ursodeoxycholic acid being developed for the treatment of a rare liver disease called PBC. We obtained L-UDCA in 2016 with the intention ofmaking L-UDCA commercially available to the subset of PBC patients who have difficulty swallowing. There are no liquid formulations of ursodeoxycholic acid currently approved bythe FDA.We currently sell the following three products:Chenodal (chenodiol tablets)Chenodal is a synthetic oral form of chenodeoxycholic acid, a naturally occurring primary bile acid synthesized from cholesterol in the liver, indicated for the treatment of radiolucentstones in well-opacifying gallbladders in patients in whom selective surgery would be undertaken except for the presence of increased surgical risk due to systemic disease or age.Chenodal administration is known to reduce biliary cholesterol and the dissolution of radiolucent gallstones through suppression of hepatic synthesis of cholesterol, cholic acid anddeoxycholic acid in the bile pool. Chenodal was first approved by the FDA in 1983 for the management of gallstones but its marketing was later discontinued due to lack ofcommercial success. In 2009, Nexgen Pharma Inc.'s ANDA for Chenodal was approved by the FDA for the treatment of gallstones. Chenodal is manufactured under this ANDA. In2010, Chenodal was granted orphan drug designation for the treatment of CTX, a rare autosomal recessive lipid storage disease. We acquired Chenodal in March 2014.While Chenodal is not labeled for CTX, it has been used as the standard of care for over three decades. We are working to obtain FDA approval of Chenodal for the treatment ofCTX. The prevalence of CTX is estimated in the literature to be as high as 1 in 70,000 in the overall population. Pathogenesis of CTX involves deficiency of the enzyme 27-hydroxylase (encoded by the gene CYP27A1), a rate-limiting enzyme in the synthesis of primary bile acids, including CDCA, from cholesterol. The disruption of primary bile acidsynthesis in CTX leads to toxic accumulation of cholesterol and cholestanol in most tissues. Most patients present with intractable diarrhea, premature cataracts, tendon xanthomas,atherosclerosis, and cardiovascular disease in childhood and adolescence. Neurological manifestations of the disease, including dementia and cognitive and cerebellar deficiencies,emerge during late adolescence and adulthood. Oral administration of CDCA has been shown to normalize primary bile acid synthesis in patients with CTX.Cholbam (cholic acid capsules)The FDA approved Cholbam (cholic acid capsules) in March 2015, the first FDA approved treatment for pediatric and adult patients with bile acid synthesis disorders due to singleenzyme defects, and for adjunctive treatment of patients with peroxisomal disorders (including Zellweger spectrum disorders). The effectiveness of Cholbam has beendemonstrated in clinical trials for bile acid synthesis disorders and the adjunctive treatment of peroxisomal disorders. An estimated 200 to 300 patients are current candidates fortherapy.Thiola (tiopronin tablets)Thiola is approved by the FDA for the treatment of cystinuria, a rare genetic cystine transport disorder that causes high cystine levels in the urine and the formation of recurringkidney stones. The resulting long-term damage can cause loss of kidney function in addition to substantial pain and loss of productivity associated with renal colic and stone passage.The prevalence of cystinuria in the United States is estimated to be 10,000 to 12,000, indicating that there may be as many as 4,000 to 5,000 affected individuals with cystinuria inthe United States that would be candidates for Thiola. We are currently developing a new, more patient-friendly, formulation which has a PDUFA target action date of June 30,2019.Financial OverviewResearch and Development CostsResearch and development costs include expenses related to sparsentan, fosmetpantotenate, CNSA-001 and our other pipeline programs. We expense all research anddevelopment costs as they are incurred. Our research and development costs are comprised of salaries and bonuses, benefits, non-45Table of Contentscash share-based compensation, license fees, milestones under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and developdrug materials and delivery methods, and associated overhead expenses and facilities costs. We charge direct internal and external program costs to the respective developmentprograms. We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase ourpharmaceutical development capabilities. These consist of internal shared resources related to the development and maintenance of systems and processes applicable to all of ourprograms.We record expenses in connection with our clinical trials under contracts with contract research organizations (CROs) that support conducting and managing clinical trials. Thefinancial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels. Generally, these agreements set forth activities that drivethe recording of expenses such as start-up, initiation activities, enrollment, treatment of patients, or the completion of other clinical trial activities.Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patientenrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. Ifthe amounts we are obligated to pay under our clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to beperformed), we adjust our accruals accordingly on a prospective basis. Revisions to our contractual payment obligations are charged to expense in the period in which the facts thatgive rise to the revision become reasonably certain.We currently have three Phase 3 clinical trials in process that are in varying stages of activity, with ongoing non-clinical support studies. As such, clinical trial expenses will varydepending on the all the factors set forth above and may fluctuate significantly from quarter to quarter.At any point in time, we typically have various early stage research and drug discovery projects. Our internal resources, employees and infrastructure are not directly tied to any oneresearch or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding costs incurred for these early stageresearch and drug discovery programs on a project-specific basis.We routinely engage vendors and service providers for scientific research, clinical trial, regulatory compliance, manufacturing and other consulting services. We also make grants toresearch and non-profit organizations to conduct research which may lead to new intellectual properties that we may subsequently license under separately negotiated licenseagreements. Such grants may be funded in lump sums or installments.The following table summarizes our research and development expenses during the years ended December 31, 2018, 2017 and 2016. The internal costs include personnel, facilitycosts, and discovery and research related activities associated with our pipeline. The external program costs reflect external costs attributable to our clinical development candidatesand preclinical candidates selected for further development. Such expenses primarily include third-party contract costs relating to clinical trial activities, nonclinical studies andmanufacturing. For the Year Ended December 31, (in thousands) 2018 2017 2016External service provider costs: Fosmetpantotenate$21,330 $16,571 $12,625Sparsentan39,826 20,237 21,064Censa16,831 — —Other product candidates242 331 1,407General16,258 15,827 10,958Total external service provider costs:94,487 52,966 46,054Internal personnel costs:29,270 25,202 24,768Total research and development$123,757 $78,168 $70,822 We expect our research and development expenses to increase during fiscal 2019 as we focus on clinical trials for our key product candidates, advance our discovery researchprojects into the preclinical stage and continue our early stage research. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval iscostly and time consuming.Most of our product development programs are in clinical trials which are highly uncertain and may not result in approved products. Completion dates and completion costs can varysignificantly for each product candidate and are difficult to project. Given the uncertainty associated with clinical trial enrollments and the risks inherent in the development process,we are unable to determine the duration and completion costs of current or future clinical trials of our product candidates, or if and to what extent we will generate revenues, if any,from the commercialization and sale of any of our product candidates.Selling, General and AdministrativeSelling, general and administrative expenses consist of salaries and bonuses, benefits, non-cash share-based compensation, legal and other professional fees, rent, depreciationand amortization, travel, insurance, business development, sales and marketing programs, and other operating expenses.Other Income/Expenses46Table of ContentsOther income/expenses consists of interest income and expense, finance expense, loss on the extinguishment of debt, change in fair value of derivative instruments andmiscellaneous other income/expenses.License AgreementsLigand License AgreementIn 2012, we entered into a license agreement with Ligand, granting us a worldwide license for the development, manufacture and commercialization of sparsentan, which we aredeveloping in connection with the treatment of FSGS. Under the license agreement, Ligand granted us a sublicense under certain of its patents and other intellectual property inconnection with the development and commercialization of sparsentan. Under the license agreement, Ligand is obligated to transfer to us certain information, records, regulatoryfilings, materials and inventory controlled by Ligand and relating to or useful for developing sparsentan. We must use commercially reasonable efforts to develop and commercializesparsentan in specified major market countries and other countries in which we believe it is commercially reasonable to develop and commercialize such products.As consideration for the license, we are required to make payments upon the achievement of certain milestones, totaling up to $114.1 million. Should we commercialize sparsentanor any products containing any of the licensed compounds, we will be obligated to pay Ligand an escalating annual royalty between 15% and 17% of net sales of all such products.Through 2018, we made milestone payments to Ligand of $7.2 million under the license agreement.Under the terms of the license agreement, BMS has a right of first negotiation and Ligand has a right of second negotiation with respect to any license arrangement for a licensedcompound, except to the extent such rights may be waived.The license agreement will continue until neither party has any further payment obligations under the agreement and is expected to continue for approximately 10 to 20 years fromthe effective date. Ligand may terminate the license agreement due to (i) our insolvency, (ii) our material uncured breach of the agreement, (iii) our failure to use commerciallyreasonable efforts to develop and commercialize sparsentan as described above or (iv) certain other conditions. We may terminate the license agreement due to a material uncuredbreach of the agreement by Ligand.Thiola License AgreementIn 2014, we entered into a license agreement with Mission, pursuant to which we obtained an exclusive, royalty-bearing license to market, sell and commercialize Thiola (tiopronin)in the United States and Canada, and a non-exclusive license to use know-how relating to Thiola to the extent necessary to market Thiola. We paid Mission an up-front license feeof $3.0 million and will pay guaranteed minimum royalties during each calendar year the greater of $2.0 million or 20% of our net sales of Thiola in the United States and Canada.In October 2015, the license agreement was amended to allow for us to secure enough API to ensure an adequate level of safety stock to prevent an interruption in the supply ofThiola and to prepare for a reformulation development project.In March 2016, the license agreement was amended to, among other things, include a new formulation development project for tiopronin tablets.In November 2017, we amended the license agreement to extend the term through May of 2029.In November 2018, the license agreement was amended to extend the territorial rights beyond the United States and Canada. As consideration for the expanded territory we paidan up-front fee of $0.3 million and will pay guaranteed minimum royalties equaling the greater of $0.1 million or 20% of our Thiola net sales generated from outside of the UnitedStates during each calendar year.See Note 9 to Consolidated Financial Statements for further discussion.Results of OperationsNet Product SalesThe following table provides information regarding net product sales (in thousands): Year Ended December 31, Year Ended December 31, 2018 2017 Change 2017 2016 ChangeThiola$89,176 $82,311 $6,865 $82,311 $71,199 $11,112Bile acid products75,070 72,626 2,444 72,626 62,392 10,234Total net product revenues$164,246 $154,937 $9,309 $154,937 $133,591 $21,346Net product sales for the years ended December 31, 2018, 2017 and 2016 were $164.2 million, $154.9 million and $133.6 million, respectively, and consisted of sales of Thiola,Chenodal and Cholbam ("Bile acid products"), less allowances for government and commercial rebates and patient assistance programs.The increase in net product sales for the year ended December 31, 2018 as compared to the same period in 2017, is due to increased patient counts for all products.The increase in net product sales for the year ended December 31, 2017 as compared to the same period in 2016, is due to increased patient counts for all products.We use a direct-to-patient distributor. Under this distribution model, we record revenues when customers take control of the product (at delivery).47Table of ContentsOperating ExpensesThe following table provides information regarding operating expenses (in thousands): Year Ended December 31, Year Ended December 31, 2018 2017 Change 2017 2016 ChangeCost of goods sold$5,527 $3,605 $1,922 $3,605 $4,554 $(949)Research and development123,757 78,168 45,589 78,168 70,822 7,346Selling, general and administrative103,654 101,333 2,321 101,333 91,941 9,392Change in fair value of contingent consideration11,590 19,389 (7,799) 19,389 18,383 1,006Restructuring(242) 3,608 (3,850) 3,608 893 2,715Legal fee settlement— 2,625 (2,625) 2,625 5,212 (2,587) $244,286 $208,728 $35,558 $208,728 $191,805 $16,9232018 versus 2017 resultsOperating expenses for the year ended December 31, 2018, were $244.3 million compared to $208.7 million for the year ended December 31, 2017, an increase of $35.6 million.Cost of goods sold increased by $1.9 million due primarily to higher inventory reserves.Research and development costs increased by $45.6 million due to ongoing clinical trials for sparsentan, fosmetpantotenate and CNSA-001, and non-clinical studies to support theclinical trials.Selling, general and administrative expenses increased by $2.3 million, which reflects additional marketing initiatives to support our commercial portfolio and corporate initiatives.The following table provides the change in the fair value of contingent consideration of $7.8 million, which was due to changes in revenue forecasts, discount factors and timing ofpayments (in thousands): Year Ended December 31, 2018 2017 ChangeChenodal$6,556 $13,446 $(6,890)Cholbam4,034 11,643 (7,609)L-UDCA1,000 (5,700) 6,700 $11,590 $19,389 $(7,799)Restructuring expense decreased $3.9 million as we completed the consolidation of our research and development function to San Diego in 2017.Legal fee settlement expense of $2.6 million in 2017 relates to amounts we advanced for legal fees to our former Chief Executive Officer in defense of litigation for his actions whileholding that title. See Note 11 to the Consolidated Financial Statements for further discussion.2017 versus 2016 resultsOur operating expenses for the year ended December 31, 2017 were $208.7 million compared to $191.8 million for the year ended December 31, 2016, an increase of $16.9million.Cost of goods sold decreased by $0.9 million due to higher inventory reserves and a one-time termination fee from a distribution partner in 2016, partially offset by increasedproduct sales.Research and development costs increased by $7.3 million due to costs associated with clinical trial activity for fosmetpantotenate and sparsentan, and non-clinical studies to supportthe clinical trials.Selling, general and administrative expenses increased by $9.4 million due to increases in professional fees of $3.3 million, selling and marketing expenses of $3.4 million, intangibleasset amortization of $1.3 million, and compensation expense of $2.0 million, offset by miscellaneous decreases of $0.6 million.48Table of ContentsThe following table provides the change in the fair value of contingent consideration of $1.0 million, which was due to changes in revenue forecasts, discount factors and timing ofpayments (in thousands): Year Ended December 31, 2017 2016 ChangeChenodal $13,446 $15,743 $(2,297)Cholbam 11,643 4,940 6,703L-UDCA (5,700) (2,300) (3,400) $19,389 $18,383 $1,006Restructuring expense increased $2.7 million due to the consolidation of our research and development function to San Diego in 2017.Legal fee settlement expense of $2.6 million relates to amounts we advanced for legal fees to our former Chief Executive Officer in defense of litigation for his actions while holdingthat title. See Note 11 to the Consolidated Financial Statements for further discussion.Other Income/ExpensesThe following table provides information regarding other income (expenses) (in thousands): Year Ended December 31, Year Ended December 31, 2018 2017 Change 2017 2016 ChangeOther income (expense), net$(474) $1,107 $(1,581) $1,107 $(264) $1,371Interest income5,499 3,234 2,265 3,234 3,975 (741)Interest expense(9,810) (4,422) (5,388) (4,422) (4,734) 312Loss on extinguishment of debt(17,042) — (17,042) — — —Change in fair value of derivative instruments— (4,491) 4,491 (4,491) 1,655 (6,146) $(21,827) $(4,572) $(17,255) $(4,572) $632 $(5,204)Other expense for the year ended December 31, 2018 was $21.8 million compared to other expense of $4.6 million for the year ended December 31, 2017, which represents anincrease of $17.3 million. The change was primarily attributable to the loss on the partial extinguishment of our 4.5% senior convertible notes due in 2019 and the increase ininterest expense related to the 2.50% senior convertible notes due 2025, offset by a loss on the change in fair value of derivative instruments from 2017.Other expense for the year ended December 31, 2017 was $4.6 million compared to other income of $0.6 million for the year ended December 31, 2016, which represents avariance of $5.2 million. The change was primarily attributable to the change in fair value of derivative instruments, driven by changes in our stock price.Income Tax Benefit (Provision):We follow ASC 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included inthe financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basis of assetsand liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extentmanagement concludes it is more likely than not that the asset will not be realized.The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC740, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities,based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that hasa greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on incometaxes, accounting in interim periods and requires increased disclosures. Our policy is to record estimated interest and penalty related to the underpayment of income taxes orunrecognized tax benefits as a component of its income tax provision.Tax expense for fiscal 2018 of $0.8 million decreased from the fiscal 2017 tax expense of $1.4 million primarily due to the impacts from the Tax Act of 2017.Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements, except for operating leases.Liquidity and Capital ResourcesWe believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations in the near term. Managementbelieves that our operating results will vary from quarter to quarter and year to year depending upon various factors including revenues, general and administrative expenses, andresearch and development expenses.49Table of ContentsFor the years ended December 31, 2018 and 2017, we had the following financial performance (in thousands): December 31, 2018 December 31, 2017Revenue$164,246 $154,937Net loss(102,678) (59,731)Cash & cash equivalents102,873 99,394Short term investments368,668 201,236Accumulated deficit(270,017) (177,655)Stockholders' equity318,253 293,134Working capital$391,057 $240,139Working capital ratio4.74 3.80BorrowingsConvertible Senior Notes Due 2025On September 10, 2018, we completed a registered underwritten public offering of $276 million aggregate principal amount of 2.50% Convertible Senior Notes due 2025 ("2025Notes"), and entered into a base indenture and supplemental indenture agreement ("2025 Indenture") with respect to the 2025 Notes. The 2025 Notes will mature on September15, 2025 ("Maturity Date”), unless earlier repurchased, redeemed, or converted. The 2025 Notes are senior unsecured obligations of ours and bear interest at an annual rate of2.50%, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2019.The net proceeds from the issuance of the 2025 Notes were approximately $267.2 million, after deducting commissions and the offering expenses payable by us. A portion of thenet proceeds from the 2025 Notes were used by us to repurchase $23.4 million aggregate principal amount of its then-outstanding 4.5% senior convertible notes due in 2019 inprivately-negotiated transactions.The initial conversion rate for the 2025 Notes is 25.7739 shares of our common stock per $1,000 principal amount of 2025 Notes, which represents an initial conversion price ofapproximately $38.80 per share. If a “make-whole fundamental change” (as defined in the 2025 Indenture) occurs, then we will, in certain circumstances, increase the conversionrate for a specified period of time.The 2025 Notes will be redeemable, in whole or in part, at our option at any time, and from time to time, on or after September 15, 2022 and, in the case of any partial redemption,on or before the 40th scheduled trading day before the Maturity Date, at a cash redemption price equal to the principal amount of the 2025 Notes to be redeemed, plus accruedand unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price oneach of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemptionnotice. If a fundamental change (as defined in the 2025 Indenture) occurs, then, subject to certain exceptions, holders may require us to repurchase their 2025 Notes at a cashrepurchase price equal to the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchasedate.The effective interest rate on the liability components of the 2025 Notes for the period from the date of issuance was 7.7%.Convertible Senior Notes Due 2019On May 29, 2014, we entered into a Note Purchase Agreement relating to a private placement by us of $46.0 million aggregate principal senior convertible notes due in 2019 (the“2019 Notes”) which are convertible into shares of our common stock at an initial conversion price of $17.41 per share. The conversion price is subject to customary anti-dilutionprotection. The 2019 Notes bear interest at a rate of 4.5% per annum, payable semiannually in arrears on May 15 and November 15 of each year. The 2019 Notes mature on May30, 2019 unless earlier converted or repurchased in accordance with their terms, and there are no contractual payments due prior to that date. If the debt holders convert we wouldbe required to issue 1,297,530 shares of common stock assuming that we had not undergone a fundamental change.In September 2018, we used part of the net proceeds from the issuance of the 2025 Notes discussed above to repurchase $23.4 million aggregate principal value of the 2019Notes in privately-negotiated transactions for approximately $40.2 million in cash. The partial repurchase of the 2019 Notes resulted in a $17.0 million loss on early extinguishmentof debt, reflected in the Consolidated Statement of Operations and Comprehensive Income (Loss). At December 31, 2018, approximately $22.6 million of principal remainedoutstanding on the 2019 Notes.Interest ExpenseTotal interest expense recognized for the years ended December 31, 2018, 2017 and 2016 was $9.8 million, $4.4 million, and $4.7 million, respectively.License Agreement ObligationsSee discussion above under the header "License Agreements".Funding RequirementsWe believe that our available cash and short-term investments as of the date of this filing will be sufficient to fund our anticipated level of operations for the near term. This belief isbased on many factors; however, some factors are beyond our control. Factors affecting our financing requirements include, but are not limited to:50Table of Contents•revenue growth of our marketed products;•the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;•the timing of, and costs involved in, seeking and obtaining marketing approvals for our products, and in maintaining quality systems standards for our products;•our ability to manufacture sufficient quantities of our products to meet expected demand;•the costs of preparing, filing, prosecuting, maintaining and enforcing any patent claims and other intellectual property rights, litigation costs and the results of litigation;•our ability to enter into collaboration, licensing or distribution arrangements and the terms and timing of these arrangements;•the potential need to expand our business, resulting in additional payroll and other overhead expenses;•the potential acquisition or in-licensing of other products or technologies; and•the emergence of competing products or other adverse market developments.Future capital requirements will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies.Cash FlowsThe following table summarizes our cash flows for the periods set forth below (in thousands): Twelve Months Ended December 31, 2018 2017 2016Net cash provided by (used in) operating activities$(24,958) $7,403 $(3,441)Net cash provided by (used in) investing activities(203,291) 45,602 10,370Net cash provided by (used in) financing activities231,863 5,445 (3,849)Net increase in cash3,614 58,450 3,080Effect of exchange rate changes on cash(135) (58) 117Cash & cash equivalents, beginning of period99,394 41,002 37,805Cash & cash equivalents, end of period$102,873 $99,394 $41,002Management considers marketable securities to be available to fund current operations, and they are classified as available for sale and included within current assets in ourConsolidated Balance Sheets. Therefore, cash on-hand includes marketable securities and was $471.5 million as of December 31, 2018.Cash Flows from Operating ActivitiesOperating activities used $25.0 million of cash during the year ended December 31, 2018 compared to $7.4 million of cash provided for the year ended December 31, 2017. Afterexcluding non-cash adjustments, the variance is primarily due to changes in operating accounts, payments related to the change in fair value of contingent consideration, andincreased research and development expenses.Operating activities provided $7.4 million of cash during the year ended December 31, 2017 compared to $3.4 million of cash used for the year ended December 31, 2016. Afterexcluding non-cash adjustments, the variance is primarily due to increased product sales exceeding increased operating expenses.Cash Flows from Investing ActivitiesCash used by investing activities for the year ended December 31, 2018 was $203.3 million compared to $45.6 million of cash provided for the year ended December 31, 2017. Thevariance of $248.9 million was primarily driven by the proceeds from the issuance of the 2025 Notes being invested in marketable securities, offset by higher maturities formarketable securities in 2018 and proceeds from the final note receivable payment of $47.5 million in 2017.Cash provided by investing activities for the year ended December 31, 2017 was $45.6 million compared to $10.4 million of cash provided for the year ended December 31, 2016.The variance of $35.2 million is primarily due to proceeds from the maturity of the note receivable being retained in cash in 2017 versus being used to purchase marketablesecurities in 2016.Cash Flows from Financing ActivitiesFor the year ended December 31, 2018, cash provided by financing activities was $231.9 million compared to cash provided of $5.4 million during the year ended December 31,2017. The variance is primarily due to net proceeds received from the issuance of the 2025 Notes offset by the repurchase of the 2019 Notes.51Table of ContentsFor the year ended December 31, 2017, cash provided by financing activities was $5.4 million compared to cash used of $3.8 million during the year ended December 31, 2016.The variance is primarily due to lower contingent consideration payments in 2017, as well as an $8.0 million payment in 2016 for a sales related milestone for Cholbam achieved inthe third quarter of that year.Contractual CommitmentsThe following table summarizes our principal contractual commitments, excluding open orders that support normal operations, as of December 31, 2018 (in thousands): Total Less than 1 year 1-3 years 3-5 years More than 5 yearsOperating lease$14,025 $2,343 $4,899 $5,198 $1,585Note payable, including contractual interest367,351 32,014 18,000 18,000 299,337Sales support services2,221 416 833 833 139Product supply contracts7,710 4,365 2,355 990 —Purchase order commitments261 261 — — — $391,568 $39,399 $26,087 $25,021 $301,061Critical Accounting Policies and EstimatesSee Note 2 to the Consolidated Financial Statements for discussion.Recently Issued Accounting PronouncementsSee Note 2 to the Consolidated Financial Statements for discussion.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKOur primary exposure to market risk is related to changes in interest rates. As of December 31, 2018, we had cash equivalents and marketable securities of approximately $471.5million, consisting of money market funds, U.S. government agency debt, corporate debt and commercial paper. This exposure to market risk is interest rate sensitivity, which isaffected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term marketable securities. Our marketable securities are subject tointerest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, a onepercent change in interest rates would have approximately a $2.4 million impact on our investments. We carry our investments based on publicly available information.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe Consolidated Financial Statements and supplementary data of Retrophin, Inc. required by this Item are described in Item 15 of this Annual Report on Form 10-K and arepresented beginning on page F-1.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURENot applicable.ITEM 9A. CONTROLS AND PROCEDURESWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed,summarized and reported within the timelines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, includingour Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controlsand procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving thedesired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the year covered by this report. Based on theforegoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.52Table of ContentsManagement’s Report on Internal Control Over Financial ReportingInternal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by ourboard of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on thefinancial statements.Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financialreporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control overfinancial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not beprevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process.Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequateinternal control over financial reporting for the company.Management has used the framework set forth in the report entitled Internal Control-Integrated Framework (2013 framework) published by the Committee of SponsoringOrganizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our ChiefExecutive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2018. BDO USA, LLP, our independentregistered public accounting firm, has issued an attestation report on our internal control over financial reporting as of December 31, 2018, which is included herein.Changes in Internal Control Over Financial ReportingThere have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are reasonably likelyto materially affect, our internal control over financial reporting. 53Table of ContentsReport of Independent Registered Public Accounting FirmShareholders and Board of DirectorsRetrophin, Inc.San Diego, CaliforniaOpinion on Internal Control over Financial ReportingWe have audited Retrophin, Inc. and its subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 31, 2018, based on criteria established in InternalControl - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of theCompany and subsidiaries as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity (deficit),and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report dated February 26, 2019 expressed an unqualifiedopinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on theCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respectto the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understandingof internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal controlbased on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policiesand procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate./s/BDO USA, LLPSan Diego, CaliforniaFebruary 26, 201954Table of ContentsITEM 9B. OTHER INFORMATIONExecutive CompensationOn February 25, 2019, the Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) approved the following 2018 performance-basedbonuses for our executive officers pursuant to the 2018 Executive Officer Annual Bonus Plan.•Laura Clague, our Chief Financial Officer, was granted a performance-based bonus equal to $185,150;•Neil McFarlane, our Chief Operating Officer, was granted a performance-based bonus equal to $228,436;•Noah Rosenberg, our Chief Medical Officer, was granted a performance-based bonus equal to $97,750 (pro-rated amount for partial year of service);•William Rote, our SVP, Research & Development, was granted a performance-based bonus equal to $194,258; and•Elizabeth Reed, our SVP, General Counsel and Corporate Secretary, was granted a performance-based bonus equal to $161,000.Additionally, on February 25, 2019, the Compensation Committee approved the following annual base salary increases for our executive officers:•Laura Clague had her annual base salary increased to $422,625;•Neil McFarlane had his annual base salary increased to $511,498;•Noah Rosenberg had his annual base salary increased to $433,500;•William Rote had his annual base salary increased to $434,969; and•Elizabeth Reed had her annual base salary increased to $400,000.Eric Dube, our President and Chief Executive Officer, joined the Company in 2019 and therefore was not eligible for a 2018 cash bonus or a 2019 annual base salary increase.2019 Executive Officer Annual Bonus PlanOn February 25, 2019, the Compensation Committee approved the adoption of the 2019 Retrophin, Inc. Executive Officer Annual Bonus Plan (the “Bonus Plan”). Each participantin the Bonus Plan has been assigned a target bonus percentage of such participant’s current base salary for 2019. Pursuant to the terms of the Bonus Plan, the target bonuspercentage is set at 60% of base salary for our Chief Executive Officer and 50% of base salary for our other executive officers.The amount payable to our Chief Executive Officer under the Bonus Plan will be based entirely on the determination by the Compensation Committee or the Board of theachievement by the Company of corporate performance goals. The amounts payable to each other executive officer participant under the Bonus Plan will be apportioned to 75%based on the determination by the Compensation Committee or the Board of the achievement by the Company of corporate performance goals and 25% based on thedetermination of the individual performance of the respective executive officer. Depending on actual corporate performance during 2019, the Compensation Committee or theBoard may, in their sole discretion, determine a corporate goal achievement percentage under the Bonus Plan within a range between 0% and 150%.The corporate performance goals under the Bonus Plan for 2019 relate to (i) total revenues, (ii) business development objectives, (iii) CMC/manufacturing objectives for ourdevelopment and commercial stage programs,(iv) progress of the sparsentan Phase 3 FSGS clinical trial, (v) progress of the sparsentan Phase 3 IGA nephropathy trial, (vi)progress of the fosmetpantotenate program, (vii) commercial objectives, and (viii) objectives related to the investment community.The foregoing description of the terms of the Bonus Plan is qualified in its entirety by reference to the Bonus Plan, a copy of which is attached hereto as Exhibit 10.32 and isincorporated herein by reference.55Table of ContentsPART IIIItem 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEInformation required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with theSecurities and Exchange Commission within 120 days of December 31, 2018. Such information is incorporated herein by reference.Item 11. EXECUTIVE COMPENSATIONInformation required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with theSecurities and Exchange Commission within 120 days of December 31, 2018. Such information is incorporated herein by reference.Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERSInformation required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with theSecurities and Exchange Commission within 120 days of December 31, 2018. Such information is incorporated herein by reference.Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEInformation required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with theSecurities and Exchange Commission within 120 days of December 31, 2018. Such information is incorporated herein by reference.Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICESInformation required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A with theSecurities and Exchange Commission within 120 days of December 31, 2018. Such information is incorporated herein by reference.56Table of ContentsPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) The financial statements at page F-1 are incorporated by reference to a part of this Annual Report on Form 10-K. Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.(b) Exhibits: The exhibits to this report are listed in the exhibit index below.Exhibit No. Description 2.1 Asset Purchase Agreement, dated May 22, 2015, by and between Retrophin, Inc. and Sanofi (incorporated by reference to Exhibit 2.1 to the Company's Current report on Form 8-Kfiled with the SEC on May 27, 2015).3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Company’s General Form for Registration of Securities on Form 10-12G, filed with the SEC on October 28, 2010).3.2 Certificate of Amendment of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SECon June 11, 2015).3.3 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2015).4.1 Form of Note Purchase Agreement for principal senior convertible notes with an interest rate of 4.50% due 2019 (“2019 Notes”), dated May 29, 2014, by and among the Companyand the investors identified therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 4, 2014).4.2 Form of Indenture for 2019 Notes, dated May 30, 2014 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 4,2014).4.3 Form of Note for 2019 Notes, dated May 30, 2014 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on May 29, 2014).4.4 Base Indenture, dated September 10, 2018, between the Company and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’sCurrent Report on Form 8-K, filed with the SEC on September 10, 2018).4.5 First Supplemental Indenture, dated September 10, 2018, between the Company and U.S. Bank National Association, as Trustee (including the form of 2.50% Convertible SeniorNote due 2025) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the SEC on September 10, 2018).10.1 Trademark License and Supply Agreement, dated May 29, 2014, by and between Retrophin, Inc. and Mission Pharmacal Company (incorporated by reference to Exhibit 10.1 to theCompany’s Current Report on Form 8-K, filed with the SEC on June 4, 2014).10.2 First Amendment to Trademark License and Supply Agreement, effective as of July 28, 2014, by and between Mission Pharmacal Company and Retrophin, Inc. (incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 29, 2014).10.3 International Rights Purchase Agreement, dated as of March 26, 2014, by and between Manchester Pharmaceuticals LLC and Retrophin Therapeutics International, LLC(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 31, 2014).10.4+ Sublicense Agreement, dated February 16, 2012, by and among Ligand Pharmaceuticals Incorporated, a Delaware corporation, Pharmacopeia, Inc., a Delaware limited liabilitycompany, and Retrophin, LLC, a Delaware limited liability company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC onDecember 19, 2012).10.5† Employment Agreement, dated March 2, 2015, by and between Retrophin, Inc. and Laura M. Clague (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report onForm 10-K, filed with the SEC on March 11, 2015).10.6 Retrophin, Inc. 2014 Incentive Compensation Plan as amended (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed with the SEC onFebruary 9, 2015).10.7+ Amendment No. 4 to Sublicense Agreement dated as of September 17, 2015, between Retrophin, Inc. and Ligand Pharmaceuticals Incorporated (incorporated by reference to Exhibit10.1 to the Company’s Quarterly Report on Form 10-Q/A, filed with the SEC on December 22, 2015).10.10 Addendum to Trademark License and Supply Agreement, dated October 19, 2015, by and between to Company and Mission Pharmacal (incorporated by reference to Exhibit 10.2 tothe Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 6, 2015).10.11 Asset Purchase Agreement dated as of January 9, 2015, between Retrophin, Inc. and Turing Pharmaceuticals AG (incorporated by reference to Exhibit 10.1 to the Company’sQuarterly Report on Form 10-Q, filed with the SEC on May 11, 2015).10.12 Asset Purchase Agreement dated as of February 12, 2015, among Retrophin, Inc., Manchester Pharmaceuticals LLC and Turing Pharmaceuticals AG (incorporated by reference toExhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2015).10.13+ Amendment No. 3 to Sublicense Agreement dated as of February 27, 2015, between Retrophin, Inc. and Ligand Pharmaceuticals Incorporated (incorporated by reference to Exhibit10.5 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2015).10.14+ Asset Purchase Agreement dated January 10, 2015 by and between Retrophin, Inc. and Asklepion Pharmaceuticals, LLC (incorporated by reference to Exhibit 10.6 to theCompany’s Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2015).57Table of Contents10.15† Employment Agreement, dated August 15, 2016, by and between Retrophin, Inc. and Neil McFarlane (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Reporton Form 10-Q, filed with the SEC on November 4, 2016).10.16+ Amendment One to the Third Amendment to Trademark License and Supply Agreement, dated September 12, 2016, by and between the Company and Mission PharmacalCompany (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 4, 2016).10.17+ Amendment Two to the Third Amendment to Trademark License and Supply Agreement, dated November 3, 2017, by and between the Company and Mission Pharmacal Company.10.18+ Third Amendment to Trademark License and Supply Agreement dated as of March 17, 2016, between Retrophin Inc. and Mission Pharmacal. (incorporated by reference to Exhibit10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 5, 2016).10.19 Fourth Amendment to Trademark License and Supply Agreement dated as of November 28, 2018, between Retrophin Inc. and Mission Pharmacal.10.20+ Asset Purchase Agreement dated as of June 9, 2016 between Retrophin, Inc. and Asklepion Pharmaceuticals, LLC (incorporated by reference to Exhibit 10.1 to the Company’sQuarterly Report on Form 10-Q, filed with the SEC on August 4, 2016).10.21 Retrophin, Inc. 2015 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.1 to the Company's current report on Form 8-K, filed with the SEC on May 18,2017).10.22† Amendment to Employment Agreement, entered into as of April 11, 2017 and modifies the Employment Agreement dated March 2, 2015, by and between Retrophin, Inc. and LauraM. Clague (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 5, 2017).10.23† Amendment to Employment Agreement, entered into as of April 11, 2017 and modifies the Employment Agreement dated August 15, 2016, by and between Retrophin, Inc. and NeilMcFarlane (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 5, 2017).10.24 Retrophin, Inc. 2017 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.2 to the Company's current report on Form 8-K, filed with the SEC on May 18, 2017)10.25 Form of Stock Option Grant Notice, Option Agreement and Notice of Exercise for Inducement Grant Outside of 2015 Equity Incentive Plan (incorporated by reference to Exhibit99.3 to the Company's current report on Form S-8, filed with the SEC on June 8, 2017).10.26 Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement for Inducement Grant Outside of 2015 Equity Incentive Plan(incorporated by reference toExhibit 99.4 to the Company's current report on Form S-8, filed with the SEC on June 8, 2017).10.27 Retrophin, Inc. 2018 Equity Incentive Plan, Form of Stock Option Grant Notice, Option Agreement and Exercise Notice, Form of Restricted Stock Unit Award Agreement for usethereunder. (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 10, 2018)10.28 Form of Indemnity Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 1, 2018)10.29 Amendment No. 5 to Sublicense Agreement dated as of March 20, 2018, between the Company and Ligand Pharmaceuticals Incorporated (incorporated by reference to Exhibit 10.2to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 1, 2018)10.3 Employment Agreement, dated February 13, 2017, and Amendment to Employment Agreement, dated April 11, 2017, by and between the Company and William Rote (incorporatedby reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 1, 2018)10.31 Employment Agreement, dated February 6, 2017, and Amendment to Employment Agreement, dated April 11, 2017, by and between the Company and Elizabeth E. Reed(incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 1, 2018)10.32† 2019 Retrophin, Inc. Executive Officer Annual Bonus Plan.10.33† Retirement Agreement, dated January 4, 2019, by and between the Company and Stephan Aselage.10.34† Employment Agreement, dated January 4, 2019, by and between the Company and Eric M. Dube.10.35† Employment Agreement, dated July 26, 2018, by and between the Company and Noah Rosenberg, M.D.21.1 List of subsidiaries of the Company.23.1 Consent of BDO USA, LLP.24.1 Power of Attorney (see signature page hereto).31.1 Chief Executive Officer's Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2 Chief Financial Officer's Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1 Chief Executive Officer’s Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002.32.2 Chief Financial Officer’s Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002.101.INS XBRL Instance Document.101.SCH XBRL Taxonomy Extension Schema Document.101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.101.DEF XBRL Taxonomy Extension Definition Linkbase Document.101.LAB XBRL Taxonomy Extension Label Linkbase Document.101.PRE Taxonomy Extension Presentation Linkbase Document.58Table of Contents+ We have received confidential treatment of certain portions of this agreement, which have been omitted and filed separately with the SEC pursuant to Rule 406 under the Securities Act of1933, as amended, or Rule 24b-2 of the Securities Exchange Act of 1934, as amended.† Indicates management contract or compensatory plan.ITEM 16. FORM 10-K SUMMARYNone.59Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.Date: February 26, 2019RETROPHIN, INC. By:/s/ Eric M. Dube Name: Eric M. Dube Title: Chief Executive Officer By:/s/ Laura Clague Name: Laura Clague Title: Chief Financial OfficerPOWER OF ATTORNEYKnow all persons by these presents, that each person whose signature appears below constitutes and appoints Eric Dube and Laura Clague, and each of them, as his attorneys-in-fact and agents, each with power of substitution in any and all capacities, to sign any amendments to this annual report on Form 10-K, and to file the same with exhibits thereto, andother documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that the attorney-in-fact or his substitute or substitutesmay do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacitiesand on the dates indicated:Signature Title Date /s/ Eric M. Dube Chief Executive Officer and Director (Principal Executive Officer) February 26, 2019Eric M. Dube /s/ Laura Clague Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) February 26, 2019Laura Clague /s/ Stephen Aselage Director Stephen Aselage February 26, 2019 /s/ Roy D. Baynes Director Roy D. Baynes February 26, 2019 /s/ Timothy Coughlin Director Timothy Coughlin February 26, 2019 /s/ John Kozarich Director John Kozarich February 26, 2019 /s/ Gary Lyons Director Gary Lyons February 26, 2019 /s/ Jeffrey A. Meckler Director Jeffrey A. Meckler February 26, 2019 /s/ John A. Orwin Director John A. Orwin February 26, 2019 /s/ Ron Squarer Director Ron Squarer February 26, 201960Table of ContentsRETROPHIN, INC. AND SUBSIDIARIESINDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting FirmF-2Financial Statements Consolidated Balance Sheets at December 31, 2018 and 2017F-3Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016F-4Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2018, 2017 and 2016F-5Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016F-6Notes to Consolidated Financial StatementsF-8F-1Table of ContentsReport of Independent Registered Public Accounting FirmShareholders and Board of DirectorsRetrophin, Inc.San Diego, CaliforniaOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Retrophin, Inc (the “Company”) and subsidiaries as of December 31, 2018 and 2017, the related consolidatedstatements of operations and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2018, andthe related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of the Company and subsidiaries at December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the periodended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control overfinancial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizationsof the Treadway Commission (“COSO”) and our report dated February 26, 2019 expressed an unqualified opinion thereon.Change in Accounting Method Related to Derivative Financial Instruments, WarrantsAs discussed in Note 2 to the consolidated financial statements, the Company has changed its method for accounting for certain financial instruments with down round features in2018 due to the adoption of ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I)Accounting for Certain Financial Instruments with Down Round Features.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financialstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required tobe independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of material misstatement, whether due to error or fraud.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performingprocedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ BDO USA, LLPWe have served as the Company's auditor since 2014.New York, New YorkFebruary 26, 2019F-2Table of ContentsRETROPHIN, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts) December 31, 2018 December 31, 2017Assets Current assets: Cash and cash equivalents$102,873 $99,394Marketable securities368,668 201,236Accounts receivable, net14,490 13,872Inventory, net5,619 5,351Prepaid expenses and other current assets2,312 3,112Prepaid taxes1,716 2,842Total current assets495,678 325,807Property and equipment, net3,146 3,230Other assets7,709 5,556Investment-equity15,000—Intangible assets, net186,691 184,817Goodwill936 936Total assets$709,160 $520,346Liabilities and Stockholders' Equity Current liabilities: Accounts payable$6,954 $18,938Accrued expenses49,695 36,018Guaranteed minimum royalty, short term2,100 2,000Other current liabilities4,065 3,902Business combination-related contingent consideration19,350 9,100Convertible debt22,457—Derivative financial instruments, warrants— 15,710Total current liabilities104,621 85,668Convertible debt195,091 45,077Other noncurrent liabilities4,496 2,472Guaranteed minimum royalty, long term13,049 13,095Business combination-related contingent consideration, less current portion73,650 80,900Total liabilities390,907 227,212Stockholders' Equity: Preferred stock $0.0001 par value; 20,000,000 shares authorized; 0 issued and outstanding as of December 31, 2018 and 2017,respectively— —Common stock $0.0001 par value; 100,000,000 shares authorized; 41,389,524 and 39,373,745 issued and outstanding as of December31, 2018 and 2017, respectively4 4Additional paid-in capital589,795 471,800Accumulated deficit(270,017) (177,655)Accumulated other comprehensive loss(1,529) (1,015)Total stockholders' equity318,253 293,134Total liabilities and stockholders' equity$709,160 $520,346The accompanying notes are an integral part of these consolidated financial statements.F-3Table of ContentsRETROPHIN, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(In thousands, except share and per share amounts) Years Ended December 31, 2018 2017 2016Net product sales$164,246 $154,937 $133,591Operating expenses: Cost of goods sold5,527 3,605 4,554Research and development123,757 78,168 70,822Selling, general and administrative103,654 101,333 91,941Change in fair value of contingent consideration11,590 19,389 18,383Restructuring(242) 3,608 893Legal fee settlement— 2,625 5,212Total operating expenses244,286 208,728 191,805Operating loss(80,040) (53,791) (58,214)Other Income (expense), net: Other income (expense), net(474) 1,107 (264)Interest income5,4993,2343,975Interest expense(9,810) (4,422) (4,734)Loss on extinguishment of debt(17,042) — —Change in fair value of derivative instruments— (4,491) 1,655Total other income (expense), net(21,827) (4,572) 632Loss before benefit (provision) for income taxes(101,867) (58,363) (57,582) Income tax benefit (provision)(811) (1,368) 9,679 Net loss$(102,678) $(59,731) $(47,903)Net loss per common share: Basic$(2.54) $(1.54) $(1.29)Diluted$(2.54) $(1.54) $(1.29)Weighted average common shares outstanding: Basic40,433,171 38,769,816 36,997,865Diluted40,433,171 38,769,816 38,288,012 Comprehensive loss: Net loss$(102,678) $(59,731) $(47,903)Foreign currency translation gain (loss)39 (339) 93Unrealized gain (loss) on marketable securities(553) (186) 99Comprehensive loss$(103,192) $(60,256) $(47,711)The accompanying notes are an integral part of these consolidated financial statements.F-4Table of ContentsRETROPHIN, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)(In thousands, except share amounts) Common Stock Additional Paid inCapital Accumulated OtherComprehensiveIncome (Loss) AccumulatedDeficit TotalStockholders'Equity (Deficit) Shares Amount BALANCE - DECEMBER 31, 201536,465,853 $4 $365,802 $(682) $(65,153) $299,971Share based compensation— — 29,102 — — 29,102Legal fee settlement-short swing profit recovery— — 2,025 — — 2,025Exercise of warrants and reclassification of derivative liability898,633 — 20,720 — — 20,720Unrealized gain/(loss) on marketable securities— — — 99 — 99Foreign currency translation adjustments— — 3 93 — 96Issuance of common shares under the equity incentive plan542,183 — 4,016 — — 4,016Tax shortfall from stock option exercises— — (359) — — (359)Net loss— — — — (47,903) (47,903)BALANCE - DECEMBER 31, 201637,906,669 4 421,309 (490) (113,056) 307,767Adoption of ASU 2016-16 required de-recognition ofintra-company deferred tax assets— — — — (4,868) (4,868)Share based compensation— — 26,645 — — 26,645Exercise of warrants and reclassification of derivativeliability607,481 — 14,866 — — 14,866Unrealized gain/(loss) on marketable securities— — — (186) — (186)Foreign currency translation adjustments— — (339) — (339)Issuance of common shares under the equity incentiveplan and proceeds from exercise.819,573 — 8,087 — — 8,087ESPP stock purchase and expense40,022 — 893 — — 893Net loss— — — — (59,731) (59,731)BALANCE - DECEMBER 31, 201739,373,745 4 471,800 (1,015) (177,655) $293,134Adoption of ASU 2017-11 - reclassification of derivativeliability of warrants with down round provisions— — 5,394 — 10,316 15,710Share based compensation— — 19,494 — — 19,494Exercise of warrants1,036,054 — 5,305 — — 5,305Unrealized gain/(loss) on marketable securities— — — (553) — (553)Foreign currency translation adjustments— — — 39 — 39Issuance of common shares under the equity incentiveplan and proceeds from exercise.892,713 — 10,588 — — 10,588ESPP stock purchase and expense87,012 — 2,269 — — 2,269Convertible debt issue— — 74,945 — — 74,945Net loss— — — — (102,678) (102,678)BALANCE - DECEMBER 31, 201841,389,524 $4 $589,795 $(1,529) $(270,017) $318,253The accompanying notes are an integral part of these consolidated financial statementsF-5Table of ContentsRETROPHIN, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) For the year ended December 31, 2018 2017 2016Cash Flows from Operating Activities: Net loss$(102,678) $(59,731) $(47,903)Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization18,668 17,804 16,135Deferred income tax— (6,425) (22,661)Settlement expense— 2,625 5,212Loss on extinguishment of debt17,042 — —Loss on allowance for inventory2,457 609 262Accretion on notes receivable— (651) (1,927)Accretion on contingent consideration1,357 1,723 1,976Amortization of debt discount and deferred financing costs3,398 656 656Amortization of premiums on investments382 1,338 1,097Share based compensation19,774 26,874 29,102Legal accrual reversal— — (2,967)Change in estimated fair value of contingent consideration11,590 19,389 18,383Payments from change in fair value of contingent consideration(8,085) (3,949) (4,416)Change in estimated fair value of liability classified warrants— 4,491 (1,655)Foreign currency transaction gain464 (1,081) —Other operating activities(396) (83) 54Changes in operating assets and liabilities, net of business acquisitions: Accounts receivable152 4,945 (6,090)Inventory(2,773) (1,706) (568)Prepaid expenses and other current assets(1,358) (2,702) (2,447)Prepaid income taxes1,126 621 4,644Accounts payable(2,708) 2,060 (2,916)Accrued expenses and other current liabilities16,630 596 12,588Net cash provided by (used in) operating activities(24,958) 7,403 (3,441)Cash Flows from Investing Activities: Purchase of fixed assets(727) (887) (1,428)Purchase of intangible assets(18,974) (13,122) (10,496)Investment - Equity(15,000) — —Proceeds from the sale/maturity of marketable securities162,755 114,526 159,520Purchase of marketable securities(331,345) (102,415) (184,111)Proceeds from the maturity of notes receivable— 47,500 47,500Cash paid upon acquisition, net of cash acquired— — (615)Net cash provided by (used in) investing activities(203,291) 45,602 10,370Cash Flows from Financing Activities: Payment of acquisition-related contingent consideration(9,721) (4,099) (10,511)Payment of other liability(1,000) (852) (1,000)Payment of guaranteed minimum royalty(2,000) (2,000) (2,000)Proceeds from exercise of warrants5,305 3,645 6,005Proceeds from exercise of stock options10,588 8,087 4,016Proceeds from issuance of 2025 convertible senior notes276,000 — —Repurchase of 2019 convertible senior notes including premium(40,203) — —Payment of debt issuance and financing costs(8,820) — —Other financing activities1,714 664 (359)Net cash provided by (used in) financing activities231,863 5,445 (3,849)Effect of exchange rate changes on cash(135) (58) 117Net increase in cash and cash equivalents3,479 58,392 3,197Cash and cash equivalents, beginning of year99,394 41,002 37,805Cash and cash equivalents, end of year$102,873 $99,394 $41,002Supplemental Disclosure of Cash Flow Information: Cash paid for interest$1,880 $2,070 $2,070Cash paid for income taxes$218 $7,172 $7,933Non-cash Investing and financing activities: Short swing profit judgment offset with settlement expense accrual$— $— $2,025Reclassification of derivative liability to equity due to exercise of warrants$— $11,221 $14,715F-6Table of ContentsAccrued royalty in excess of minimum payable to the sellers of Thiola$14,572 $13,247 $11,206Term extension of current Thiola agreement$— $5,885 $—Present value of contingent consideration payable upon acquisition related to L-UDCA$— $— $25,000Adoption of ASU 2017-11 - reclassification of derivative liability of warrants with down round provisions$15,710 $— $—The accompanying notes are an integral part of these consolidated financial statements.F-7Table of ContentsRETROPHIN, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1. DESCRIPTION OF BUSINESSOrganization and Description of BusinessRetrophin, Inc. (“we”, “our”, “us”, “Retrophin” and the “Company”) refers to Retrophin, Inc., a Delaware corporation, as well as our direct and indirect subsidiaries. Retrophin is afully integrated biopharmaceutical company headquartered in San Diego, California focused on identifying, developing and delivering life-changing therapies to people with rarediseases. We regularly evaluate and, where appropriate, act on opportunities to expand our product pipeline through licenses and acquisitions of products in areas that will servepatients with serious or rare diseases and that we believe offer attractive growth characteristics.The Company is developing the following pipeline products:The Company is developing fosmetpantotenate (RE-024), a novel small molecule, as a potential treatment for PKAN. PKAN is a genetic neurodegenerative disorder that is typicallydiagnosed in the first decade of life.Sparsentan, also known as RE-021, is an investigational product candidate with a dual mechanism of action, a potent angiotensin receptor blocker (“ARB”) and selective endothelinreceptor antagonist (“ERA”), with in vitro selectivity toward endothelin receptor type A. Sparsentan is currently being evaluated in two pivotal Phase 3 clinical studies in the followingindications:•Focal segmental glomerulosclerosis ("FSGS") is a rare kidney disease characterized by proteinuria where the glomeruli become progressively scarred. FSGS is aleading cause of end-stage renal disease.•Immunoglobulin A nephropathy ("IgAN") is an immune-complex-mediated glomerulonephritis characterized by hematuria, proteinuria, and variable rates ofprogressive renal failure. IgAN is the most common primary glomerular disease.The Company is a party to a joint development agreement with Censa Pharmaceuticals Inc., a privately held biotechnology company focused on developing therapies for orphanmetabolic diseases, to evaluate sepiapterin ("CNSA-001") for the treatment of phenylketonuria (PKU).In September 2017, the Company entered a three-way Cooperative Research and Development Agreement ("CRADA") with the National Institutes of Health’s National Center forAdvancing Translational Sciences (NCATS) and patient advocacy foundation NGLY1.org to collaborate on research efforts aimed at the identification of potential small moleculetherapeutics for NGLY1 deficiency.Liquid ursodeoxycholic acid ("L-UDCA") is a liquid formulation of ursodeoxycholic acid being developed for the treatment of a rare liver disease called primary biliary cholangitis("PBC"). The Company obtained the rights to L-UDCA in 2016 with the intention of making L-UDCA commercially available to the subset of PBC patients who have difficultyswallowing.The Company sells the following three products:•Chenodal (chenodiol tablets) is approved in the United States for the treatment of patients suffering from gallstones in whom surgery poses an unacceptable health riskdue to disease or advanced age. Chenodal has been the standard of care for cerebrotendinous xanthomatosis ("CTX") patients for more than three decades and theCompany is currently pursuing adding this indication to the label.•Cholbam (cholic acid capsules) is approved in the United States for the treatment of bile acid synthesis disorders due to single enzyme defects and is further indicated foradjunctive treatment of patients with peroxisomal disorders.•Thiola (tiopronin tablets) is approved in the United States for the prevention of cystine (kidney) stone formation in patients with severe homozygous cystinuria.NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESA summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows:Principles of ConsolidationThe consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiaries in conformity with accounting principles generally accepted inthe United States ("U.S. GAAP"). All intercompany accounts and transactions have been eliminated in consolidation.F-8Table of ContentsUse of EstimatesIn preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Due toinherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Companyevaluates its estimates and assumptions. These estimates and assumptions include revenue recognition, valuing equity securities in share-based payments, estimating expenses ofcontracted research organizations, estimating fair value of equity instruments recorded as derivative liabilities, estimating the fair value of net assets acquired in businesscombinations, estimating the useful lives of depreciable and amortizable assets, goodwill impairment, estimating the fair value of contingent consideration, estimating of valuationallowances and uncertain tax positions, and estimates associated with the assessment of impairment for long lived assets.Revenue RecognitionProduct sales for the years ended December 31, 2018, 2017 and 2016 consisted of sales of Chenodal, Cholbam and Thiola. Effective January 1, 2018, the Company adoptedAccounting Standards Codification (" ASC"), Topic 606, Revenue from Contracts with Customers, using the full retrospective transition method. This standard applies to allcontracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. UnderTopic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects toreceive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entityperforms the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocatethe transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only appliesthe five-step model to contracts when it is probable that the entity will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to thecustomer.Revenue from product sales is recorded at delivery, net of applicable provisions for rebates under government (including medicaid) programs, commercial rebates, prompt paydiscounts, and other sales-related deductions. We review our estimates of rebates and other applicable provisions each period and record any necessary adjustments in the currentperiod.See Note 3 for further discussion.Research and Development CostsResearch and development includes expenses related to sparsentan, fosmetpantotenate and our other pipeline programs. We expense all research and development costs as theyare incurred. Our research and development costs are comprised of salaries and bonuses, benefits, non-cash share-based compensation, license fees, milestones under licenseagreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices, and associated overhead expensesand facilities costs. We charge direct internal and external program costs to the respective development programs. We also incur indirect costs that are not allocated to specificprograms because such costs benefit multiple development programs and allow us to increase our pharmaceutical development capabilities. These consist of internal sharedresources related to the development and maintenance of systems and processes applicable to all of our programs.Clinical Trial ExpensesWe record expenses in connection with our clinical trials under contracts with contract research organizations (CROs) that support conducting and managing clinical trials. Thefinancial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels. Generally, these agreements set forth activities that drivethe recording of expenses such as start-up and initiation activities, enrollment and treatment of patients, or the completion of other clinical trial activities.Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patientenrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. Ifthe amounts we are obligated to pay under our clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to beperformed), we adjust our accruals accordingly on a prospective basis. Revisions to our contractual payment obligations are charged to expense in the period in which the facts thatgive rise to the revision become reasonably certain.We currently have three Phase 3 clinical trials in process that are in varying stages of activity, with ongoing non-clinical support trials. As such, clinical trial expenses will varydepending on the all the factors set forth above and may fluctuate significantly from quarter to quarter.Employee Stock-Based CompensationThe Company recognizes all employee share-based compensation as a cost in the financial statements. Equity-classified awards principally related to stock options, restricted stockunits (“RSUs”) and performance stock units ("PSUs"), are measured at the grant date fair value of the award. The Company determines grant date fair value of stock optionawards using the Black-Scholes option-pricing model. The fair value of RSUs and PSUs are determined using the closing price of the Company’s common stock on the grant date.For service based vesting grants, expense is recognized over the requisite service period based on the number of options or shares expected to ultimately vest. For PSUs, expenseis recognized over the implicit service period, assuming vesting is probable. No expense is recognized for PSUs if it is not probable the vesting criteria will be satisfied. Forfeituresare accounted for as they occur.F-9Table of Contents Initial Vesting TermStock Options3 to 4 yearsRestricted Stock Units2 to 4 yearsEarnings (Loss) Per ShareWe calculate our basic earnings per share by dividing net income by the weighted average number of shares outstanding during the period. The diluted earnings per sharecomputation includes the effect, if any, of shares that would be issuable upon the exercise of outstanding stock options, derivative liability, convertible debt and RSUs, reduced by thenumber of shares which are assumed to be purchased by the Company from the resulting proceeds at the average market price during the year, when such amounts are dilutive tothe earnings per share calculation.Cash and Cash EquivalentsWe consider all highly liquid marketable securities with an original maturity of three months or less to be cash equivalents. Due to the short-term maturity of such investments, thecarrying amounts are a reasonable estimate of fair value.Marketable SecuritiesThe Company accounts for marketable securities held as “available-for-sale” in accordance with ASC 320, “Investments Debt and Equity Securities” (“ASC 320”). The Companyclassifies these investments as current assets and carries them at fair value. Unrealized gains and losses are recorded as a separate component of stockholders’ equity asaccumulated other comprehensive loss. Realized gains or losses on marketable security transactions are reported in the Consolidated Statements of Operations andComprehensive Income (Loss). Marketable securities are maintained at one financial institution and are governed by the Company’s investment policy as approved by theCompany's Board of Directors.Trade and Notes ReceivableTrade Receivables, NetTrade accounts receivable are recorded net of allowances for prompt payment and doubtful accounts. Estimates for allowances for doubtful accounts are determined based onexisting contractual obligations, historical payment patterns and individual customer circumstances. The allowance for doubtful accounts was zero and $0.2 million at December 31,2018 and 2017, respectively. For the years ended December 31, 2018, 2017 and 2016, bad debt expense recorded in the Statement of Operations and Comprehensive Income(Loss) was approximately zero, $0.2 million and $0.2 million, respectively.Notes ReceivableNotes receivable arose from the sale of a pediatric priority review voucher (the "PRV"). On July 2, 2015, the Company sold and transferred the PRV to Sanofi for $245.0 million.$150.0 million was received upon closing, and $47.5 million was due on each of the first and second anniversaries of the closing. In accordance with U.S. GAAP, the Companyrecorded the future short term and long term notes receivable at their present value of $46.2 million and $44.9 million, respectively, at the date of the sale using a discount rate of2.8%. The accretion on the notes receivables totaled $0.7 million and $1.9 million for 2017 and 2016, respectively, and is recorded in interest expense, net, in the ConsolidatedStatements of Operations and Comprehensive Income (Loss). The first and second annual payments were received on July 1, 2016 and June 30, 2017 in accordance with theterms of the sale agreement. As of December 31, 2018, there are no outstanding notes receivable.Inventory and Related ReservesInventory, which is recorded at the lower of cost or net realizable value, includes materials, labor, and other direct and indirect costs and are valued using the first-in, first-outmethod. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizablevalue, and writes down such inventory as appropriate. In addition, the Company's products are subject to strict quality control and monitoring which the Company’s manufacturersperform throughout their manufacturing process. The Company does not directly manufacture any product. The Company has single suppliers for products Chenodal and Thiola,and prospectively arranges for manufacture from contract service providers for its product Cholbam. The inventory reserve was $1.8 million and $0.7 million at December 31, 2018and 2017, respectively.Inventory, net of reserve, consisted of the following at December 31, 2018 and 2017 (in thousands): December 31, 2018 December 31, 2017Raw material$4,689 $3,435Finished goods930 1,916Total inventory$5,619 $5,351Segment InformationThe Company currently operates in one business segment focused on the development and commercialization of innovative therapies for people with serious and life threateningrare diseases and medical conditions. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chiefoperating decision maker who comprehensively manages the entire business. The Company does not operate any separate lines of business or separate business entities withrespect to its products. Accordingly, the Company doesF-10Table of Contentsnot accumulate discrete financial information with respect to separate products, other than revenues, and does not have separately reportable segments.Property and Equipment, netProperty and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the related estimated useful lives aspresented in the table below. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expense as incurred. Property and equipmentpurchased for specific research and development projects with no alternative use is expensed as incurred.The major classifications of property and equipment, including their respective expected useful lives, consists of the following:Computers and equipment3 yearsFurniture and fixtures7 yearsLeasehold improvementsShorter of length of lease or life of the asset Intangible Assets, NetOur intangible assets consist of licenses, purchased technology and acquired in-process research and development (IPR&D). Intangible assets with definite lives are amortized on astraight-line basis over their estimated useful lives and are reviewed periodically for impairment.Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. Duringthe period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment. If and when development is complete, which generally occurs whenregulatory approval to market a product is obtained, the associated assets are deemed finite-lived and are amortized over a period that best reflects the economic benefits providedby these assets.GoodwillGoodwill represents the excess of purchase price over fair value of net assets acquired in a business combination and is not amortized. Goodwill is subject to impairment testing atleast annually or when a triggering event occurs that could indicate a potential impairment. The Company has one segment and one reporting unit and as such reviews goodwill forimpairment at the consolidated level.For the years ended December 31, 2018, 2017 and 2016 there were no impairments to goodwill.Impairment of Long-Lived AssetsOur long-lived assets are primarily comprised of intangible assets and property and equipment. We evaluate our finite-lived intangible assets, other than goodwill and property andequipment, for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable. If these circumstancesexist, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to begenerated by the use and eventual disposition of the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount bywhich the carrying amount of the assets exceeds the fair value of the assets.In addition, indefinite-lived intangible assets, comprised of IPR&D, are reviewed for impairment annually and whenever events or changes in circumstances indicate that it is morelikely than not that the asset is impaired by comparing the fair value to the carrying value of the asset. To determine the fair value of the asset, the Company used the multi-periodexcess earnings method of the income approach. The more significant assumptions inherent in the application of this method include: the amount and timing of projected futurecash flows (including revenue, cost of sales, research and development costs, and sales and marketing expenses), and the discount rate selected to measure the risks inherent inthe future cash flows.There were no impairments related to intangible assets in the years ended December 31, 2018, 2017 and 2016.Contingent ConsiderationWe record contingent consideration resulting from a business combination at its fair value on the acquisition date. On a quarterly basis, we revalue these obligations and recordincreases or decreases from their fair value as an adjustment to the consolidated statement of operations. Changes to contingent consideration obligations can result from changesto discount rates, accretion of the liability due to the passage of time, changes in revenue forecasts and changes in our estimates of the likelihood or timing of achieving commercialmilestones.Income TaxesThe Company follows ASC 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have beenincluded in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basisof assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance tothe extent management concludes it is more likely than not that the asset will not be realized.The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxauthorities, based on the technical merits of the position. The tax benefits recognized inF-11Table of Contentsthe financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimatesettlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increaseddisclosures. The Company’s policy is to record estimated interest and penalty related to the underpayment of income taxes or unrecognized tax benefits as a component of itsincome tax provision.Reclassifications Certain reclassifications have been made to the prior year financial statements in order to conform to the current year’s presentation.PatentsThe Company expenses external costs, such as filing fees and associated attorney fees, incurred to obtain issued patents and patent applications pending. The Company alsoexpenses costs associated with maintaining and defending patents subsequent to their issuance in the period incurred. Derivative Financial Instruments, WarrantsThe Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. However, since 2013, the Company has issued five tranchesof common stock purchase warrants to secure financing, remediate covenant violations and provide consideration for amendments with respect to a credit facility extinguished in2015.Historically, the Company accounted for these instruments, which did not have fixed settlement provisions, as derivative instruments in accordance with FASB ASC 815-40,Derivative and Hedging - Contracts in Entity’s Own Equity. This was due to an anti-dilution provision for the warrants that provided for a reduction to the exercise price if theCompany issued equity or equity linked instruments in the future at an effective price per share less than the exercise price then in effect for the warrant ("down round provision").As such, the warrants were re-measured at each balance sheet date based on estimated fair value. Changes in estimated fair value were recorded as non-cash adjustments withinother income (expenses), net, in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).As of January 1, 2018, the Company early adopted ASU 2017-11, which revised the guidance for instruments with down round provisions. As such the Company treats outstandingwarrants as free-standing equity linked instruments that will be recorded to equity in the Consolidated Balance Sheet.The fair value of the derivative liability balance as of December 31, 2017 of $15.7 million was reclassified by means of a cumulative-effect adjustment to equity as of January 1,2018.Recently Adopted Accounting PronouncementsIn May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Under the new standard, revenue is recognized at the time a good or service istransferred to a customer for the amount of consideration for which the entity expects to be entitled for that specific good or service. Entities may use a full retrospective approach orreport the cumulative effect as of the date of adoption. The Company adopted the new standard on January 1, 2018 using the full retrospective approach and there was no impacton timing or recognition of revenue. See Note 3 for further discussion.In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The new guidance changes theaccounting for income tax effects of intra-entity transfers of assets other than inventory. Under the new guidance, the selling (transferring) entity is required to recognize a currenttax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or deferred tax liability, as well as therelated deferred tax benefit or expense, upon receipt of the asset. As of January 1, 2017, the Company reversed the balance of $4.9 million in its prepaid tax asset account as acharge to retained earnings.In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging(Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instrumentswith down round features. The amendments require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, forpurposes of determining liability or equity classification. See Note 15 for further discussion.In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new guidance dictates that, whensubstantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, it should be treatedas an acquisition or disposal of an asset. The guidance was adopted as of January 1, 2018.Recently Issued Accounting PronouncementsFrom time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact ofrecently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and alease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern ofexpense recognition in the income statement. Subsequently, the FASB issued ASUF-12Table of ContentsNo. 2018-10, Codification Improvements to Topic 842, ASU No. 2018-11, Targeted Improvements, and ASU No. 2018-20, Narrow-Scope Improvements for Lessors, to clarify andamend the guidance in ASU No. 2016-02. The ASUs are effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We will adoptthe ASUs on January 1, 2019 on a modified retrospective basis through a cumulative adjustment to our beginning accumulated deficit balance. Prior comparative periods will not berestated under this method, and we will adopt all available practical expedients, as applicable. The Company has finished its search for leases and reviewed the related contacts anddetermined its impact to the consolidated balance sheet is less than 5% of total assets and liabilities as of January 1, 2019. No material cumulative-effect adjustment to equity isexpected.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Topic326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance forcredit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for saledebt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather thanas a write-down. This ASU update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendmentsaffect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excludedfrom the scope that have the contractual right to receive cash. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within thosefiscal years. The Company is currently evaluating whether the adoption of the new standard will have a material effect on its consolidated financial statements and relateddisclosures.NOTE 3. REVENUE RECOGNITIONProduct Revenue, NetProduct sales for the years ended December 31, 2018, 2017 and 2016 consisted of sales of Chenodal, Cholbam and Thiola. Effective January 1, 2018, the Company adoptedAccounting Standards Codification (" ASC"), Topic 606, Revenue from Contracts with Customers, using the full retrospective transition method. This standard applies to allcontracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. UnderTopic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects toreceive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entityperforms the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocatethe transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only appliesthe five-step model to contracts when it is probable that the entity will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to thecustomer.The Company sells Chenodal and Cholbam (Kolbam), which are aggregated as bile acid products, and Thiola through direct-to-patient distributors. The Company sells its productsworldwide, with more than 95% of the revenue generated in North America.Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs upon delivery to the customer. The Company receivespayments from its product sales based on terms that generally are within 60 days of delivery of product to the patient.Deductions from RevenueRevenues from product sales are recorded at the net sales price, which includes provisions resulting from discounts, rebates and co-pay assistance that is offered to its customers,health care providers, payors and other indirect customers relating to the Company’s sales of its products. These provisions are based on the amounts earned or to be claimed onthe related sales and are classified as a reduction of accounts receivable (if the amount is payable to the customer) or as a current liability (if the amount is payable to a party otherthan a customer). Where appropriate, these reserves take into consideration the Company’s historical experience, current contractual and statutory requirements and specificknown market events and trends. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of thecontract. If actual results in the future vary from the Company’s provisions, the Company will adjust the provision, which would affect net product revenue and earnings in the periodsuch variances become known. Our historical experience is that such adjustments have been immaterial.Government Rebates: We calculate the rebates that we will be obligated to provide to government programs and deduct these estimated amounts from our gross product sales atthe time the revenues are recognized. Allowances for government rebates and discounts are established based on actual payer information, which is reasonably estimated at thetime of delivery, and the government-mandated discounts applicable to government-funded programs. Rebate discounts are included in other current liabilities in the accompanyingconsolidated balance sheets.Commercial Rebates: We calculate the rebates that we incur due to contracts with certain commercial payors and deduct these amounts from our gross product sales at the timethe revenues are recognized. Allowances for commercial rebates are established based on actual payer information, which is reasonably estimated at the time of delivery. Rebatediscounts are included in other current liabilities in the accompanying consolidated balance sheets.F-13Table of ContentsPrompt Pay Discounts: We offer discounts to certain customers for prompt payments. We accrue for the calculated prompt pay discount based on the gross amount of eachinvoice for those customers at the time of sale.Product Returns: Consistent with industry practice, we offer our customers a limited right to return product purchased directly from the Company, which is principally based uponthe product’s expiration date. Generally, shipments are only made upon a patient prescription thus returns are minimal.Co-pay Assistance: We offer a co-pay assistance program, which is intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an identification of claims and the cost per claim associated with product that hasbeen recognized as revenue.The following table summarizes net product revenues for the twelve months ended December 31, 2018, 2017 and 2016 (in thousands): Twelve Months Ended December 31, 2018 2017 2016Thiola89,176 82,311 71,199Bile acid products75,070 72,626 62,392Total net product revenue164,246 154,937 133,591NOTE 4. FUTURE ACQUISITION RIGHT AND JOINT DEVELOPMENT AGREEMENTCensa Pharmaceuticals Inc.In December 2017, the Company entered into a Future Acquisition Right and Joint Development Agreement (the “Option Agreement”) with Censa, which became effective inJanuary 2018. The Company has agreed to fund certain development activities of Censa’s CNSA-001 program, in an aggregate amount expected to be approximately $17 millionthrough proof of concept, and has the right, but not the obligation, to acquire Censa (the “Option”) on the terms and subject to the conditions set forth in a separate Agreement andPlan of Merger. In exchange for the Option, the Company paid $10 million, and an additional $5 million upon Censa’s completion of a specified development milestone set forth inthe Option Agreement.If the Company exercises the Option, the Company will acquire Censa for $65 million in upfront consideration, subject to certain adjustments, paid as a combination of 20% in cashand 80% in shares of the Company’s common stock, valued at a fixed price of $21.40 per share; provided, however, that Censa may elect on behalf of its equity holders to receivethe upfront consideration in 100% cash if the average price per share of the Company’s common stock for the ten trading days ending on the date the Company provides a noticeof interest to exercise the Option is less than $19.26. In addition, if the Company exercises the Option and acquires Censa, the Company would be required to make further cashpayments to Censa’s equity holders of up to an aggregate of $25 million if the CNSA-001 program achieves specified development and commercial milestones.The Company determined that Censa is a variable interest entity ("VIE") and concluded that the Company is not the primary beneficiary of the VIE. As such, the Company did notconsolidate Censa’s results into its consolidated financial statements. The Company will continue to monitor facts and circumstances for changes that could potentially result in theCompany becoming the primary beneficiary.Through December 31, 2018, the Company has paid Censa $10.0 million as an upfront payment, $16.8 million in development funding, and $5.0 million related to a developmentmilestone. The Company capitalized the upfront and milestone payments and expensed the development funding paid to research and development expense in the ConsolidatedStatement of Operations and Comprehensive Income (Loss). The Company is treating the upfront payment and milestone payment, both of which are compensation for the Option,as a cost-method investment with a total carrying value of $15.0 million as of December 31, 2018.NOTE 5. BUSINESS COMBINATION AND ASSET TRANSACTIONSAmendment to Trademark License and Supply AgreementIn November 2017, the Company amended their agreement with the manufacturer of Thiola to extend the term of the current exclusive U.S. and Canada licensing agreement byan additional five years, to 2029. The royalty rate and guaranteed minimum payment were also extended through the new agreement term. Upon execution of the amendment, theCompany capitalized an additional $5.9 million in intangible assets and recorded a guaranteed minimum liability for the same amount.In November 2018, the license agreement was amended to extend the territorial rights beyond the United States and Canada. As consideration for the expanded territory theCompany paid an up-front fee of $0.3 million and will pay guaranteed minimum royalties equaling the greater of $0.1 million or 20% of our Thiola net sales generated from outsideof the United States during each calendar year. Upon execution of the amendment, the Company capitalized an additional $1.0 million in intangible assets and recorded aguaranteed minimum liability of $0.7 million related to this amendment.F-14Table of ContentsAcquisition of Liquid Ursodeoxycholic Acid (L-UDCA)On June 20, 2016, the Company signed a definitive agreement to purchase the rights, titles, licenses and ownership of L-UDCA from Asklepion Pharmaceuticals, LLC ("Asklepion").The acquisition was accounted for under the acquisition method of accounting in accordance with Accounting Standard Codification ("ASC") 805. The fair value of assets acquiredand liabilities assumed was based upon an independent third-party valuation and the Company’s estimates. Critical estimates in valuing certain intangible assets include but are notlimited to future expected cash flows from acquired product rights for L-UDCA, licenses, trade names and developed technologies, present value and discount rates. Management’sestimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ fromestimates.The purchase included $25.5 million for an intangible asset with a definite life related to product rights in the U.S. The useful life related to the acquired product rights is expected tobe approximately 17 years once the NDA is approved by the FDA. Until approval, the asset is considered IPR&D with an indefinite life and is not amortized.The contingent consideration of $25.0 million (present value) recorded during the period ended June 30, 2016, is related to an agreement to pay an additional cash amount in theform of milestones and sales royalties through 2035. The accrued contingent consideration was recorded as a liability at acquisition-date fair value using the income approach withan assumed discount rate of 12.0% over the applicable term. The undiscounted amount the Company could pay as contingent consideration under the agreement is up to $70.3million.The purchase price allocation of $25.5 million as of the acquisition completion date of June 16, 2016 was as follows (in thousands):Cash paid upon consummation$500Present value of contingent consideration25,000Total purchase price$25,500Fair Value of Assets Acquired and Liabilities Assumed Acquired product rights: L-UDCA (intangible asset)$25,500Total purchase price$25,500Unaudited pro forma information for the transaction is not presented, because the effects of such transaction are considered immaterial to the Company.Divestiture of Assets:Sale of Assets to SanofiThe FDA granted Asklepion a Pediatric PRV, awarded to encourage development of new drugs and biologics for the prevention and treatment of rare pediatric diseases. APediatric PRV is transferable and provides the bearer with FDA priority review classification for a new drug application. The Pediatric PRV was transferred to the Company underthe terms of the asset purchase agreement between the Company and Asklepion dated January 12, 2015, pursuant to which the Company acquired Cholbam.On July 2, 2015, the Company sold and transferred the Pediatric PRV to Sanofi for $245.0 million. $150.0 million was received upon closing, and $47.5 million was due on each ofthe first and second anniversaries of the closing. In accordance with U.S. GAAP, the Company recorded the future short term and long term notes receivable at their present valueof $46.2 million and $44.9 million, respectively, at the date of the sale using a discount rate of 2.8%. The gain from the sale of the asset was approximately $140.0 million, net of$4.9 million in fees contractually due as part of the Cholbam acquisition. The first and second annual payments were received on July 1, 2016 and June 30, 2017 in accordance withthe terms of the sale agreement.NOTE 6. MARKETABLE SECURITIESThe Company's marketable securities as of December 31, 2018 and 2017 were comprised of available-for-sale marketable securities which are carried at fair value, with theunrealized gains and losses reported in accumulated other comprehensive income (loss). The amortized cost of debt securities in this category are adjusted for amortization ofpremiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income (loss). Realized gains and losses and declines in value judged to beother-than-temporary, if any, on available-for-sale securities are included in other income or expense. The cost of securities sold is based on the specific identification method.Interest and dividends on securities classified as available-for-sale are included in interest income. All available-for-sale securities are classified as current assets, even if the maturitywhen acquired by the Company is greater than one year due to the ability to liquidate within the next 12 months.F-15Table of ContentsMarketable securities consist of the following (in thousands): As of December 31, 2018 2017Marketable Securities: Commercial paper59,255 6,897Corporate debt securities299,413 164,297Securities of government sponsored entities10,000 30,042Total Marketable Securities:$368,668 $201,236The following is a summary of short-term marketable securities classified as available-for-sale as of December 31, 2018 (in thousands): Contractual Maturity(in years) Amortized Cost Unrealized Gains Unrealized Losses Aggregate EstimatedFair ValueMarketable Securities: Commercial paperLess than 1 $59,313 $— $(58) $59,255Corporate debt securitiesLess than 1 149,824 — (604) 149,220Total maturity less than 1 year 209,137 — (662) 208,475Corporate debt securities1 to 2 150,813 18 (638) 150,193Securities of government-sponsored entities1 to 2 9,997 4 (1) 10,000Total maturity 1 to 2 years 160,810 22 (639) 160,193Total available-for-sale securities $369,947 $22 $(1,301) $368,668The following is a summary of short-term marketable securities classified as available-for-sale as of December 31, 2017 (in thousands): ContractualMaturity (in years) Amortized Cost Unrealized Losses Aggregate EstimatedFair ValueMarketable Securities: Commercial paperLess than 1 $6,911 $(14) $6,897Corporate debt securitiesLess than 1 86,531 (198) 86,333Securities of government-sponsored entities 30,132 (90) 30,042Total maturity less than 1 year 123,574 (302) 123,272Corporate debt securities1 to 2 78,388 (424) 77,964Total maturity 1 to 2 years 78,388 (424) 77,964Total available-for-sale securities $201,962 $(726) $201,236During 2018 and 2017, the Company had no realized gains or losses on marketable securities. During 2016, the Company realized a gain of less than $0.1 million on marketablesecurities. The Company received proceeds from the sale or maturity of marketable securities of $162.8 million, $114.5 million and $159.5 million for 2018, 2017 and 2016,respectively.The primary objective of the Company’s investment portfolio is to enhance overall returns while preserving capital and liquidity. The Company’s investment policy limits interest-bearing security investments to certain types of instruments issued by institutions with primarily investment grade credit ratings and places restrictions on maturities andconcentration by asset class and issuer.The Company reviews the available-for-sale investments for other-than-temporary declines in fair value below cost basis each quarter and whenever events or changes incircumstances indicate that the cost basis of an asset may not be recoverable. This evaluation is based on a number of factors, including the length of time and the extent to whichthe fair value has been below the cost basis and adverse conditions related specifically to the security, including any changes to the credit rating of the security, and the intent to sell,or whether the Company will more likely than not be required to sell the security before recovery of its amortized cost basis. The assessment of whether a security is other-than-temporarily impaired could change in the future due to new developments or changes in assumptions related to any particular security. As of December 31, 2018 and 2017, theCompany believed the cost basis for available-for-sale investments were recoverable in all material respects. For both December 31, 2018 and 2017, any investments in anunrealized loss position for longer than 12 months were immaterial.NOTE 7. NOTES PAYABLEConvertible Senior Notes Due 2025On September 10, 2018, the Company completed its registered underwritten public offering of $276 million aggregate principal amount of 2.50% Convertible Senior Notes due2025 ("2025 Notes") and entered into a base indenture and supplemental indenture agreement ("2025 Indenture") withF-16Table of Contentsrespect to the 2025 Notes. The 2025 Notes will mature on September 15, 2025 ("Maturity Date”), unless earlier repurchased, redeemed, or converted. The 2025 Notes are seniorunsecured obligations of the Company and bear interest at an annual rate of 2.50%, payable semi-annually in arrears on March 15 and September 15 of each year, beginning onMarch 15, 2019.The composition of the Company’s 2025 Notes are as follows (in thousands): December 31, 2018 December 31, 20172.50% convertible senior notes due 2025$276,000 $—Unamortized debt discount(74,836) —Unamortized debt issuance costs(6,073) —Total 2025 Notes, net of unamortized debt discount and debt issuance costs$195,091 $—The net proceeds from the issuance of the 2025 Notes were approximately $267.2 million, after deducting commissions and the offering expenses payable by the Company. Aportion of the net proceeds from the 2025 Notes were used by the Company to repurchase $23.4 million aggregate principal amount of its 4.5% senior convertible notes due in2019 in privately-negotiated transactions.Holders may convert their 2025 Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending onDecember 31, 2018 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock for each of at least 20 trading days, whetheror not consecutive, during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130% ofthe conversion price on the applicable trading day; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (“measurement period”) ifthe trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price pershare of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on theCompany’s common stock; (4) if the Company calls the 2025 Notes for redemption; and (5) at any time from, and including, May 15, 2025 until the close of business on thescheduled trading day immediately before the Maturity Date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s commonstock, or a combination of cash and shares of the Company’s common stock, at the Company’s election, based on the applicable conversion rate.The initial conversion rate for the 2025 Notes is 25.7739 shares of the Company’s common stock per $1,000 principal amount of 2025 Notes, which represents an initial conversionprice of approximately $38.80 per share. If a “make-whole fundamental change” (as defined in the 2025 Indenture) occurs, then the company will, in certain circumstances,increase the conversion rate for a specified period of time.The 2025 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after September 15, 2022 and, in the case of any partialredemption, on or before the 40th scheduled trading day before the Maturity Date, at a cash redemption price equal to the principal amount of the 2025 Notes to be redeemed,plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130% ofthe conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Companysends the related redemption notice. If a fundamental change (as defined in the 2025 Indenture) occurs, then, subject to certain exceptions, holders may require the Company torepurchase their 2025 Notes at a cash repurchase price equal to the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, if any, to, butexcluding, the fundamental change repurchase date.As of December 31, 2018, the 2025 Notes had a market price of $897 per $1,000 or $247.7 million principal amount. In the event of conversion, holders would forgo all futureinterest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2025 Notes willbe paid pursuant to the terms of the 2025 Indenture. In the event that all of the 2025 Notes are converted, the Company would be required to repay the $276.0 million in principalvalue and any conversion premium in any combination of cash and shares of its common stock at the Company’s option. In addition, calling the 2025 Notes for redemption willconstitute a “make whole fundamental change.”The 2025 Notes are the Company’s general unsecured obligations that rank senior in right of payment to all of its indebtedness that is expressly subordinated in right of payment tothe 2025 Notes, and equal in right of payment to the Company’s unsecured indebtedness.The 2025 Notes are currently classified on the Company’s consolidated balance sheet at December 31, 2018 as long-term debt.Under ASC 470-20, Debt with Conversion and Other Options, an entity must separately account for the liability and equity components of convertible debt instruments (such as the2025 Notes) that may be settled entirely or partially in cash upon conversion, in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument isvalued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability componentwas $198.6 million. The equity component of $77.4 million, representing the conversion option, was determined by deducting the fair value of the liability component from the parvalue of the 2025 Notes and is recorded in additional paid-in capital on the consolidated balance sheet at the issuance date. That equity component is treated as a discount on theliability component of the 2025 Notes, which is amortized over the seven year term of the 2025 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The Company allocated the total transaction costs of approximately $8.8 million related to theissuance of the 2025 Notes to the liability and equity components of the 2025 Notes based on their relative values. Transaction costs attributable to the liability component areamortized to interest expense over theF-17Table of Contentsseven-year term of the 2025 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.The effective interest rate on the liability components of the 2025 Notes for the period from the date of issuance through December 31, 2018 was 7.7%. The following table setsforth total interest expense recognized related to the 2025 Notes (in thousands): Twelve Months Ended December 31, 2018 2017Contractual interest expense$2,108 $—Amortization of debt discount2,582 —Amortization of debt issuance costs273 —Total interest expense for the 2025 Notes$4,963 $—The 2025 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance orrepurchase of securities by the Company. The 2025 Indenture contains customary events of default with respect to the 2025 Notes, including that upon certain events ofdefault, 100% of the principal and accrued and unpaid interest on the 2025 Notes will automatically become due and payable.Convertible Senior Notes Due 2019On May 29, 2014, the Company entered into a Note Purchase Agreement relating to a private placement by the Company of $46 million aggregate principal senior convertiblenotes due 2019 (the “2019 Notes”) which are convertible into shares of the Company’s common stock at an initial conversion price of $17.41 per share. The conversion price issubject to customary anti-dilution protection. The 2019 Notes bear interest at a rate of 4.5% per annum, payable semiannually in arrears on May 15 and November 15 of each year,beginning on November 15, 2014. The 2019 Notes mature on May 30, 2019 unless earlier converted or repurchased in accordance with the terms. The aggregate carrying valueof the 2019 Notes on their issuance was $43 million, which was net of the $3 million debt discount.In September 2018, the Company used part of the net proceeds from the issuance of the 2025 Notes discussed above to repurchase $23.4 million aggregate principal value of the2019 Notes in privately-negotiated transactions for approximately $40.2 million in cash. The partial repurchase of the 2019 Notes resulted in a $17.0 million loss on earlyextinguishment of debt.As of December 31, 2018 the fair value of a share of common stock was $22.63, exceeding the initial conversion price per share of the 2019 Notes. If the debt holders were toconvert the Company would be required to issue 1,297,530 shares of common stock assuming that no fundamental change in the Company had occurred. The Company hasreserved sufficient shares of its common stock to satisfy the conversion requirements related to the 2019 Notes. As of December 31, 2018, the convert value exceeded the carryingvalue by approximately $6.8 million.In estimating the fair value of the Company’s convertible debt, the Company performed an analysis on the straight-debt portion and the conversion feature. To estimate the fairvalue of conversion feature, the Company used the Monte Carlo Simulation as of December 31, 2018. To estimate the fair value of straight-debt portion, excluding the conversionfeature, the Company discounted to present value the scheduled coupon payments and principal repayment, using an appropriate fair market yield. As of December 31, 2018 thefair value of the debt was estimated at $30.0 million using level 2 inputs.The net carrying amount of the Notes consists of the following (in thousands): December 31, 2018 2017Aggregate principle amount of Notes$22,590 $46,000Unamortized debt discount and debt issuance costs(133) (923) $22,457 $45,077Interest ExpenseTotal interest expense recognized for the years ended December 31, 2018, 2017 and 2016 was $9.8 million, $4.4 million and $4.7 million, respectively.NOTE 8. FAIR VALUE MEASUREMENTSThe Company accounts for financial instruments in accordance with ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 establishes a fair value hierarchythat prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identicalassets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 aredescribed below:Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;F-18Table of ContentsLevel 2 – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; andLevel 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.In estimating the fair value of the Company’s contingent consideration, the Company used the Monte Carlo Simulation model as of December 31, 2018, a probability-basedexpected method as of December 31, 2017 and the comparable uncontrolled transaction (“CUT”) method in 2016 for royalty payments based on projected revenues. Based on thefair value hierarchy, the Company classified contingent consideration within Level 3 because valuation inputs are based on projected revenues discounted to a present value.Financial instruments with carrying values approximating fair value include cash and cash equivalents, accounts receivable, notes receivable, deposits on lease agreements, andaccounts payable, due to their short term nature.The following table presents the Company’s asset and liabilities that are measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fairvalue hierarchy as of December 31, 2018 (in thousands): As of December, 2018 Fair Value Hierarchy at December 31, 2018 Total carrying andestimated fair value Quoted prices inactive markets(Level 1) Significant otherobservable inputs(Level 2) Significantunobservableinputs (Level 3)Asset: Cash and Cash Equivalents$102,873 $62,978 $39,895 $—Marketable securities, available-for-sale368,668 — 368,668 —Total$471,541 $62,978 $408,563 $—Liabilities: Business combination-related contingent consideration93,000 — — 93,000Total$93,000 $— $— $93,000The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis, classified under the appropriate level of thefair value hierarchy as of December 31, 2017 (in thousands): As of December, 2017 Fair Value Hierarchy at December 31, 2017 Total carrying andestimated fair value Quoted prices inactive markets(Level 1) Significant otherobservable inputs(Level 2) Significantunobservableinputs (Level 3)Asset: Cash and Cash Equivalents$99,394 $92,726 $6,668 $—Marketable securities, available-for-sale201,236 — 201,236 —Total$300,630 $92,726 $207,904 $—Liabilities: Derivative liability related to warrants$15,710 $— $— $15,710Business combination-related contingent consideration90,000 — — 90,000Total$105,710 $— $— $105,710The following table sets forth a summary of changes in the estimated fair value of the Company’s Level 3 derivative liability for the year ended December 31, 2017 (in thousands): Fair Value Measurements ofCommon Stock Warrants (Level 3) 2017Balance at January 1,$22,440Reclassification of derivative liability to equity upon exercise of warrants(11,221)Change in estimated fair value of liability classified warrants4,491Balance at December 31,$15,710F-19Table of ContentsThe following table sets forth a summary of changes in the estimated fair value of the Company's Level 3 business combination-related contingent consideration for the years endedDecember 31, 2018 and 2017 (in thousands): Fair Value Measurements of Acquisition-Related ContingentConsideration (Level 3) 2018 2017Balance at January 1,$90,000 $87,478Increase from revaluation of contingent consideration11,590 19,389Contractual Payments(6,373) (6,006)Contractual Payments accrued at December 31(2,171) (11,012)Foreign currency impact(46) 151Balance at December 31,$93,000 $90,000NOTE 9. INTANGIBLE ASSETSLigand License AgreementIn 2013, the Company entered into a $2.5 million agreement with Ligand for a worldwide sublicense to develop, manufacture and commercialize a drug technology compoundincluding sparsentan (the “Ligand License Agreement”). The cost of the Ligand License Agreement, which is presented net of amortization in the accompanying ConsolidatedBalance Sheet in intangible assets, net, is being amortized to research and development on a straight-line basis through September 30, 2023. As consideration for the license, weare required to make substantial payments upon the achievement of certain milestones, totaling up to $114.1 million. Through 2018, we have made milestone payments to Ligandof $7.2 million under the terms of the Ligand License Agreement. Should we commercialize sparsentan or any products containing related compounds, we will be obligated to pay toLigand an escalating annual royalty between 15% and 17% of net sales of all such products.In September 2015, the Ligand License Agreement was amended to facilitate sub-licensing in Asia-Pacific. As consideration for the amendment the Company paid $1.0 million.In March 2018, the Ligand License Agreement was amended to update certain development milestones set forth in the Sublicense Agreement to comport with the currentdevelopment timeline for sparsentan. As consideration, the Company paid Ligand $4.6 million, which replaced the amount that would have been due upon initiation of the firstPhase 3 trial for sparsentan.Manchester Pharmaceuticals LLCIn 2014, the Company acquired intangible assets with finite lives related to the Chenodal product rights, trade names, and customer relationships with the values of $67.8 million,$0.2 million, and $0.4 million, respectively. The useful lives related to the acquired product rights, trade names, and customer relationships are expected to be approximately 16, 1and, 10 years, respectively. Amortization of product rights, trade names and customer relationships are being recorded in selling, general and administrative expense over theirrespective lives.Thiola License AgreementThe Company entered into a license agreement with Mission Pharmacal in 2014, in which the Company obtained an exclusive, royalty-bearing license to market, sell andcommercialize Thiola (tiopronin) in the United States and Canada, and a non-exclusive license to use know-how relating to Thiola to the extent necessary to market Thiola. Theinitial term of the license is 10 years and will automatically renew thereafter for periods of one year.The Company paid Mission an up-front license fee of $3 million and will pay guaranteed minimum royalties during each calendar year the greater of $2 million or twenty percent(20%) of the Company’s net sales of Thiola through May 28, 2024.In November 2017, the Company amended its agreement with Mission to extend the term of the current exclusive U.S. and Canada licensing agreement by an additional five years,to 2029. The royalty rate and guaranteed minimum payment were also extended through the new agreement term. Upon execution of the amendment, the Company capitalized anadditional $5.9 million in intangible assets and recorded a guaranteed minimum liability for the same amount.In November 2018, the Company amended its agreement with Mission to extend the territorial rights beyond the United States and Canada. As consideration for the expandedterritory the Company paid an up-front fee of $0.3 million and will pay guaranteed minimum royalties equaling the greater of $0.1 million or 20% of our Thiola net sales generatedfrom outside of the United States during each calendar year. Upon execution of the amendment, the Company capitalized an additional $1.0 million in intangible assets andrecorded a guaranteed minimum liability of $0.7 million related to this amendment.The present value of guaranteed minimum royalties payable using a discount rate of ranging from approximately 7% to 11% based on the Company’s then borrowing rate is $15.2million and $15.1 million as of December 31, 2018 and 2017, respectively. As of December 31, 2018, the guaranteed minimum royalty current and long term liability wasapproximately $2.1 million and $13.1 million, respectively, and is recorded as guaranteed minimum royalty in the Consolidated Balance Sheet. As of December 31, 2017, theguaranteed minimum royalty current and long term liability was approximately $2.0 million and $13.1 million, respectively, and is recorded as guaranteed minimum royalty in theConsolidated Balance Sheet. The Company hasF-20Table of Contentscapitalized $70.0 million related to the Thiola intangible asset which consists of the up-front license fee, professional fees, present value of the guaranteed minimum royalties andany additional payments through 2018 in excess of minimum royalties.There are 10.4 years remaining in the term of the license agreement.Cholbam (Kolbam) Asset PurchaseOn March 31, 2015, the Company completed its acquisition from Asklepion of all worldwide rights, titles and ownership of Cholbam, including all related contracts, data assets,intellectual property, regulatory assets and the PRV. The Company capitalized $75.9 million and $7.3 million for the U.S. and international economic interest, respectively.L-UDCAOn June 20, 2016, the Company signed a definitive agreement to purchase the rights, titles, and ownership of L-UDCA from Asklepion. The purchase included $25.5 million for anintangible asset with a definite life related to product rights for the U.S. The useful life related to the acquired product rights is expected to be approximately 17 years once the NDAis approved by the FDA. Until approval, the asset is considered IPR&D with an indefinite life and is not amortized.Amortizable intangible assets as of December 31, 2018 (in thousands): Useful LifeGross CarryingAmount AccumulatedAmortization Net Book ValueChenodal Product Rights16$67,849 $(20,213) $47,636Thiola License1570,009 (14,523) 55,486Economic Interest - U.S. revenue Cholbam1075,900 (28,487) 47,413Economic Interest - International revenue Cholbam107,700 (2,890) 4,810Economic Interest - L-UDCA (acquired IPR&D)Indefinite25,500 —25,500Ligand License117,900 (2,397) 5,503Manchester Customer Relationships10403 (192) 211Manchester Trade Name1175 (175) —Internal use software5207 (75) 132Total $255,643 $(68,952) $186,691Amortizable intangible assets as of December 31, 2017 (in thousands): Useful LifeGross CarryingAmount AccumulatedAmortization Net Book ValueChenodal Product Rights16$67,849 $(15,976) $51,873Thiola License1054,471 (10,168) 44,303Economic Interest - U.S. revenue Cholbam1075,900 (20,903) 54,997Economic Interest - International revenue Cholbam108,058 (2,219) 5,839Economic Interest - L-UDCA (acquired IPR&D)Indefinite25,500 — 25,500Ligand License113,300 (1,420) 1,880Manchester Customer Relationships10403 (152) 251Manchester Trade Name1175 (175) —Internal use software5207 (33) 174Total $235,863 $(51,046) $184,817The following table summarizes amortization expense for the twelve months ended December 31, 2018, 2017 and 2016 (in thousands): 2018 2017 2016Research and development$976 $327 $328Selling, general and administrative17,052 17,004 15,665Total amortization expense$18,028 $17,331 $15,993F-21Table of ContentsAs of December 31, 2018, amortization expense (excluding infinite lived IPR&D) for the next five years is expected to be as follows (in thousands):2019$19,166202019,210202119,158202219,125202318,825Thereafter65,707Total$161,191NOTE 10. ACCRUED EXPENSES Accrued expenses consist of the following at December 31, 2018 and 2017 (in thousands): 2018 2017Compensation related costs$10,446 $7,749Research and development16,515 6,989Government rebate reserves8,464 5,883Selling, general and administrative2,990 3,896Royalty/contingent consideration6,805 6,429Restructuring expenses— 3,549Miscellaneous accrued expenses4,475 1,523Total accrued expenses$49,695 $36,018NOTE 11. COMMITMENTS AND CONTINGENCIESLeasesFacilities Base Rent Lease ExpirationCorporate Headquarters San Diego, CA $2.3 million July 2024In July 2016, the Company entered into an agreement to lease 23,107 square feet of office space, which commenced in December 2016, for a term of 7 years and 7 months.Under the terms of the lease, the Company will pay base annual rent (subject to an annual fixed percentage increase), plus property taxes, and other normal and necessaryexpenses, such as utilities, repairs, security and maintenance. Certain incentives were included in the lease, including approximately $1.5 million in tenant improvement allowancesand seven months of rent abatement. The Company has the right to extend the lease for five years.In July 2017, the Company amended the office lease to add an additional 22,339 square feet of office space in an adjacent building.Following is a schedule of the future minimum rental commitments for our operating lease as of December 31, 2018 (in thousands): Rental Payments2019 $2,3432020 2,4142021 2,4862022 2,5602023 2,637Thereafter 1,585 $14,025Legal ProceedingsIn August 2017, Martin Shkreli, the Company’s former Chief Executive Officer, was convicted on securities fraud charges following investigations by the U.S. Attorney for theEastern District of New York and the U.S Securities and Exchange Commission. The Company was not a target of these investigations and cooperated with them fully. Mr. Shkrelihas appealed his conviction to the United States Court of Appeals for the Second Circuit, and the appeal will likely not be decided until later in 2019. In connection with the trial andpending appeal proceedings, Mr. Shkreli sought advancement of his legal fees from the Company, and the Company has advanced a total of $5.4 million in legal fees, of which $3.8million has beenF-22Table of Contentsreimbursed by its directors’ and officers’ insurance carriers. Pending the outcome of Mr. Shkreli's appeal, the insurance carriers have reserved their rights to assert that certain ofthe advanced funds pertain to claims excluded from coverage under the relevant insurance policy and are therefore recoverable by the carriers. As a result, the final amount of thereimbursement from the insurance carriers is not currently estimable. In addition, a portion of these and the other legal fees the Company has advanced to Mr. Shkreli will besubject to reimbursement by Mr. Shkreli under Delaware law in the event it is ultimately determined that Mr. Shkreli is not entitled to be indemnified by the Company in theseproceedings.In August 2015, the Company filed a lawsuit in federal district court for the Southern District of New York against Mr. Shkreli, asserting that he breached his fiduciary duty of loyaltyduring his tenure as the Company’s Chief Executive Officer and a member of its Board of Directors. Mr. Shkreli served a demand for JAMS arbitration on Retrophin, claiming thatRetrophin had breached his December 2013 employment agreement. In response to Mr. Shkreli’s arbitration demand, the Company asserted counterclaims in the arbitration thatare substantially similar to the claims it previously asserted in the federal lawsuit against Mr. Shkreli. In October 2018, after the arbitration panel determined that Retrophin'scounterclaims were arbitrable, the Company voluntarily dismissed the federal action without prejudice. The Company does not expect the claims and counterclaims in the arbitrationto be heard by the arbitration panel before mid-2019. In connection with these proceedings, Mr. Shkreli sought advancement of his legal fees from the Company relating to hisdefense of the Company’s claims against him. The Company has advanced, and expects to continue to advance, certain of these legal fees to Mr. Shkreli.For the years ended December 31, 2018 and 2017, the Company recorded zero and $2.6 million in expenses and paid zero and $3.6 million related to advancements for Mr.Shkreli, respectively. The Company received zero and $2.6 million in reimbursement from its directors’ and officers’ insurance carriers during the year ended December 31, 2018and 2017, respectively. The reimbursement in 2017 is recorded as a liability on the Consolidated Balance Sheet pending the outcome of an appeal, if any.From time to time the Company is involved in legal proceedings arising in the ordinary course of business. On October 23, 2018, Spring Pharmaceuticals, LLC (Spring) filed alawsuit against the Company, Martin Shkreli, Mission Pharmacal Company and Alamo Pharma Services, Inc. in the United States District Court for the Eastern District ofPennsylvania alleging that the Company violated various federal and state antitrust and unfair competition laws by allegedly refusing to sell samples of the Thiola® brand drug sothat Spring can conduct the bioequivalence testing needed to submit an ANDA to the FDA for approval to market a generic version of the product. Spring is seeking injunctive reliefand damages. The Company intends to vigorously defend against Spring’s claims. On January 15, 2019, the Company filed a motion to dismiss the lawsuit, which is in the processof being briefed.The Company is not aware of any other proceedings or claims that could have, individually or in the aggregate, a material adverse effect on its results of operations or financialcondition.NOTE 12. STOCKHOLDERS’ EQUITY / DEFICITCommon StockThe Company is currently authorized to issue up to 100,000,000 shares of $0.0001 par value common stock. All issued shares of common stock are entitled to vote on a 1 share/1vote basis.Preferred Stock The Company is currently authorized to issue up to 20,000,000 shares of $0.0001 par value preferred stock, of which 1,000 shares are designated Class "A" Preferred shares,$0.001 par value. Class A Preferred Shares are not entitled to interest, have certain liquidation preferences, special voting rights and other provisions. No preferred stock has beenissued to date.2015 Equity Incentive PlanOn June 8, 2015, the Company's stockholders approved the 2015 Equity Incentive Plan (the "2015 Plan"). The 2015 Plan is intended as the successor to and continuation of theCompany’s 2014 Incentive Compensation Plan. Stockholders approved 1.4 million new shares to be issued under the 2015 Plan, in addition to 0.6 million unallocated sharesremaining available for issuance under the 2014 Incentive Compensation Plan that were added to the 2015 Plan.On May 18, 2016, the Company's stockholders approved an amendment to the 2015 Plan (the "Amended 2015 Plan"). The amendment provides for an additional 1.6 million newshares to be issued under the Amended 2015 Plan, in addition to 0.7 million unallocated shares remaining available for issuance. The amendment also includes a provision that onor after March 21, 2016, the number of shares available for issuance under the Amended 2015 Plan will be reduced by one share for each share subject to a stock option or stockappreciation right and by 2.0 shares for each share subject to any other type of stock award issued pursuant to the Amended 2015 Plan, and any such shares will return to theshare reserve at the same rates upon cancellation or other forfeiture of such awards or shares.On May 17, 2017, the Company's stockholders approved an amendment to the Amended 2015 Plan. The amendment provides for an additional 1.8 million new shares to be issuedunder the Amended 2015 Plan.2018 Equity Incentive PlanOn May 9, 2018, the Company's stockholders approved the 2018 Equity Incentive Plan (the "2018 Plan"). The 2018 Plan is intended as the successor to and continuation of theAmended 2015 Plan. Stockholders approved 1.8 million new shares to be issued under the 2018 Plan, in addition to 1.6 million unallocated shares remaining available for issuanceunder the Amended 2015 Plan that were added to the 2018 Plan.F-23Table of Contents2017 Employee Stock Purchase PlanThe 2017 Employee Stock Purchase Plan ("2017 ESPP") originated with 380,000 shares of common stock available for issuance. Beginning on January 1, 2018, and ending on(and including) January 1, 2026, the number of shares of common stock available for issuance under the 2017 ESPP shall increase by an amount equal to the lesser of (i) onepercent (1%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year and (ii) 300,000 shares of common stock.Substantially all employees are eligible to participate and, through payroll deductions, can purchase shares on established dates semi-annually. The purchase price per share soldpursuant to the 2017 ESPP will be the lower of (i) 85% of the fair market value of common stock on the first day of the offering period or (ii) 85% of the fair market value on thepurchase date. Each offering period will span up to six months. Purchases may be up to 15% of qualified compensation, with an annual limit of $25,000. The 2017 ESPP is intendedto qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.As of December 31, 2018, there were approximately 680,000 shares authorized and 552,966 shares reserved for future issuance under the 2017 ESPP.Stock OptionsThe fair values of stock option grants during the year ended December 31, 2018, 2017 and 2016 were calculated on the date of grant using the Black-Scholes option pricing model.Compensation expense is recognized over the period of service, generally the vesting period. During the year ended December 31, 2018, 1,349,250 stock options were granted bythe Company. The following weighted average assumptions were used in the Black-Scholes options pricing model to estimate the fair value of stock options for the specifiedreporting periods: Twelve Months Ended December 31, 2018 2017 2016Risk free rate2.80% 2.10% 1.20%Expected volatility68% 70% 68%Expected life (in years)6.2 6.1 5.8Expected dividend yield— — —The risk-free interest rate was based on rates established by the Federal Reserve. The Company’s expected volatility was based on analysis of the Company’s volatility, as well asthe volatilities of guideline companies. The expected life of the Company’s options was determined using the simplified method as a result of limited historical data regarding theCompany’s exercise activity. The dividend yield is based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeablefuture.The following table summarizes our stock option activity and related information for the years ended December 31, 2018: Weighted Average Shares UnderlyingOptions ExercisePrice RemainingContractualTerm (in years) AggregateIntrinsic Value(in thousands)Outstanding at December 31, 20177,153,668 $17.16 6.95 $39,010Granted1,349,250 25.56 — —Forfeited and expired(476,369) 24.50 — —Exercised(749,212) 14.13 — 9,325Outstanding at December 31, 20187,277,337 $18.55 6.94 $40,650The following table summarizes our stock options exercisable at December 31, 2018, 2017 and 2016: Weighted Average Shares UnderlyingOptions ExercisePrice RemainingContractualTerm (in years) AggregateIntrinsic Value(in thousands)20163,793,017 $14.94 6.82 $23,35820174,610,233 $15.97 5.85 $31,99120184,834,781 $16.81 5.98 $35,387The weighted average grant date fair value of options granted was $16.21, $11.77, and $10.09 during the years ended December 31, 2018, 2017 and 2016, respectively. Theaggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s commonstock of $22.63, $21.07 and $18.93 as of December 31, 2018, 2017 and 2016,F-24Table of Contentsrespectively. Unrecognized compensation cost associated with unvested stock options amounts to $30.0 million as of December 31, 2018, which will be expensed over a weightedaverage remaining vesting period of 2.7 years.Restricted Stock UnitsAs of December 31, 2018, there was approximately $7.9 million of unrecognized compensation cost related to restricted stock units ("RSUs") granted. This amount is expected tobe recognized over a weighted average period of 2.9 years.The following table summarizes our restricted stock unit activity for the year ended December 31, 2018: Number ofRSUs Weighted AverageGrant Date Fair ValueUnvested December 31, 201794,832 $20.19Granted395,311 25.40Vested(58,251) 20.08Forfeited/cancelled(31,466) 25.20Unvested December 31, 2018400,426 $24.95Performance-based Stock UnitsAs of December 31, 2018, there was approximately $1.6 million of unrecognized compensation cost related to performance-based stock units ("PSUs") granted. This amount isexpected to be recognized over a weighted average period of 1.3 years.The following table summarizes our performance-based stock unit activity for the year ended December 31, 2018: Number ofPSUs Weighted AverageGrant Date Fair ValueUnvested December 31, 2017250,500 $20.63Granted66,500 25.75Vested(85,250) 22.33Forfeited/cancelled(5,000) 18.46Unvested December 31, 2018226,750 $21.54Share Based CompensationTotal non-cash stock-based compensation expense consisted of the following for the years ended December 31, 2018, 2017 and 2016 (in thousands): Twelve Months Ended December 31, 2018 2017 2016Selling, general and administrative expenses$13,550 $17,924 $18,614Research and development expenses6,224 8,950 10,488Total$19,774 $26,874 $29,102Exercise of WarrantsDuring the twelve months ended December 31, 2018, 2017 and 2016, the Company issued the following shares of common stock upon the exercise of warrants for cash receivedby the Company: (in thousands except share amounts) Shares Issued Cash Received Derivative LiabilityReclassified as Equity Change in Fair Value Expense2016898,633 $6,005 $14,715 $2,9092017607,481 $3,645 $11,221 $3,03320181,036,054 $5,305 n/a n/aAs of December 31, 2018 there are no warrants for common shares outstanding. See Note 15 for further discussion.F-25Table of ContentsNOTE 13. EARNINGS (LOSS) PER SHAREBasic earnings (loss) per share (“EPS”) represents net income (loss) attributable to common shareholders divided by the weighted average number of common shares outstandingduring the measurement period. Diluted EPS represents net income attributable to common shareholders divided by the weighted average number of common shares outstandingduring the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period using the treasury stock method. Basic and diluted EPS is calculated as follows (net income amounts are stated in thousands): For the year ended December 31, 2018 2017 2016 Shares Net loss EPS Shares Net loss EPS Shares Net Income EPSBasic Earnings per Share40,433,171 $(102,678) $(2.54) 38,769,816 $(59,731) $(1.54) 36,997,865 $(47,903) $(1.29)Dilutive shares related to warrants— — — — 1,290,147 — Change in fair value of derivative instruments— — — — — (1,655) Dilutive Earnings per Share40,433,171 $(102,678) $(2.54) 38,769,816 $(59,731) $(1.54) 38,288,012 $(49,558) $(1.29)For the years ended December 31, 2018, 2017 and 2016, the following shares were excluded because they were anti-dilutive: For the year ended December 31, 2018 2017 2016Convertible Debt8,410,932 2,642,160 2,642,160Restricted Stock395,034 157,319 444,942Options7,210,576 7,080,998 6,286,584Warrants282,807 1,159,424 —Total Anti-Dilutive Shares16,299,349 11,039,901 9,373,686NOTE 14. INCOME TAXESFor financial reporting purposes, net income (loss) before income taxes includes the following components (in thousands): Year Ended December 31, 2018 2017 2016United States$(87,573) $(55,611) $(52,750)Foreign(14,294) (2,752) (4,832)Total$(101,867) $(58,363) $(57,582)The components of the provision (benefit) for income taxes, in the Consolidated Statement of Operations are as follows (in thousands): 2018 2017 2016Current Federal$698 $6,991 $13,137State113 802 (155) 811 7,793 12,982Deferred Federal— (7,965) (18,814)State— 1,540 (3,847) — (6,425) (22,661)Total tax provision (benefit)$811 $1,368 $(9,679)F-26Table of ContentsThe following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate expressed as a percentage of income (loss) before income taxes: 2018 2017 2016Statutory rate - federal(21.00)% (35.00)% (35.00)%State taxes, net of federal benefit(4.44)% (3.30)% (3.16)%Change in FV of derivative liability (warrants)— % 2.82 % 1.10 %Change in federal tax rate— % 23.29 % — %Convertible Debt21.77 % — % — %Loss on extinguishment of debt4.09 % — % — %Other permanent differences0.10 % 1.04 % 2.05 %Tax credits(11.86)% (5.79)% (1.58)%Return to provision adjustments and other true-ups1.42 % (3.48)% (1.15)%Other1.06 % 1.25 % 3.09 %Change in valuation allowance9.79 % 21.62 % 16.30 %Income tax provision (benefit)0.93 % 2.45 % (18.35)%The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows (in thousands): 2018 2017Deferred Tax Assets: Net operating loss$9,700 $1,099Research and development and other tax credits14,715 1,599Contingent consideration23,459 23,080Other accrued expenses3,710 2,603Stock based compensation16,761 15,695Other555 358 68,900 44,434Deferred Tax Liabilities: Intangible assets(14,288) (16,810)Convertible Debt(18,419) —Tax basis depreciation less than book depreciation— — (32,707) (16,810) Net deferred tax assets (liabilities) before valuation allowance36,194 27,624Valuation allowance(36,194) (27,624)Total deferred tax liability$— $—The Company has established a full valuation allowance against its U.S. federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets infuture periods. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences becomedeductible. Management considers the scheduled reversal of deferred liabilities and tax planning strategies in making this assessment and evaluates the recoverability of thedeferred tax assets as of each reporting date. At such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will bereduced accordingly and recorded as a tax benefit.The Company has recorded a valuation allowance of $36.2 million as of December 31, 2018 to reflect the estimated amount of deferred tax assets that may not be realized. TheCompany increased its valuation allowance by $8.6 million for the year ended December 31, 2018.At December 31, 2018, the Company had available unused U.S. federal and state net operating loss (“NOL”) carryforwards of $36.5 million and $33.1 million, respectively, all ofwhich are fully offset by a valuation allowance. The U.S. federal NOL carryforwards generated for tax years ending on or prior to December 31, 2017 and the state tax losscarryforwards will begin to expire in 2030 and 2022, respectively. In addition, at December 31, 2018, the Company had federal orphan drug tax credit carryforwards of $12.8 millionthat begin to expire in 2037 unless utilized, federal research and development tax credit carryforwards of $0.5 million that begin to expire in 2038 unless utilized and CaliforniaCompetes tax credit carryforwards of $2.0 million that begin to expire in 2022. The Company has international subsidiaries whose operations are not material for the year endedDecember 31, 2018.The Company accounts for uncertain tax benefits in accordance with the provisions of ASC 740-10 of the Accounting for Uncertainty in Income Taxes. As of December 31, 2018the Company had no unrecognized tax benefits.The Company does not anticipate that the amount of unrecognized tax benefits as of December 31, 2018 will change materially within the following 12 months.F-27Table of ContentsA reconciliation of the Company's unrecognized tax benefits for the years 2018 and 2017 is provided in the following table (in thousands): 2018 2017Balance as of January 1:$— $1,500Increase in current period positions— —Decrease in prior period positions— (1,500)Increase in prior period positions— —Balance as of December 31:$— $—The Company files income tax returns in the U.S. federal jurisdiction, various state and local, and foreign jurisdictions. The Company’s income tax returns are open to examinationby federal, state and foreign tax authorities, generally for the years ended December 31, 2015 and later.The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes or unrecognized tax benefits as a component of its income taxprovision. During the years ended 2018, 2017 and 2016, the Company did not recognize any interest or penalties in its Consolidated Statements of Operations and ComprehensiveIncome (Loss) and there were no accruals recorded for interest or penalties at December 31, 2018 and 2017.U.S. Tax ReformThe Tax Act of 2017 was enacted on December 22, 2017. The Tax Act of 2017 reduces the US federal corporate tax rate from 35% to 21%, as well as making several othersignificant changes to the tax law, effective January 1, 2018. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 118, Income Tax AccountingImplications of the Tax Cuts and Jobs Act (SAB 118), given the amount and complexity of the changes in tax law resulting from the Tax Act of 2017, the Company had not finalizedthe accounting for the income tax effects of the Tax Act of 2017 as of December 31, 2017.We completed our accounting for Tax Reform on December 22, 2018 and as of December 31, 2018, the Company's accounting for the following elements of the Tax Act of 2017were completed and there were no changes to the provisional amounts previously recorded.Revaluation of deferred tax assets and liabilitiesWe have remeasured our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% plus state and local tax.The Company recorded a decrease related to our deferred tax assets and liabilities of $13.0 million as a result of the tax rate decrease, with a corresponding adjustment to ourvaluation allowance for the year ended December 31, 2017.Valuation allowancesThe Company must assess whether its valuation allowance analyses for deferred tax assets are affected by various aspects of the Tax Act of 2017 (e.g., deemed repatriation ofdeferred foreign income, future GILTI inclusions, new categories of foreign tax credits). At December 31, 2017, the Company increased its valuation allowance by $12.0 million as aresult of the Tax Act of 2017 and its effects on the realizability of our deferred tax assets.NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTSSince 2013, the Company has issued 5 tranches of common stock purchase warrants to secure financing, remediate covenant violations related to a credit facility and provideconsideration for credit facility amendments.Historically, the Company accounted for these instruments, which do not have fixed settlement provisions, as derivative instruments in accordance with FASB ASC 815-40,Derivative and Hedging - Contracts in Entity’s Own Equity. This was due to an anti-dilution provision for the warrants that provides for a reduction to the exercise price if theCompany issues equity or equity linked instruments in the future at an effective price per share less than the exercise price then in effect for the warrant ("down round provision").As such, the warrants were re-measured at each balance sheet date based on estimated fair value. Changes in estimated fair value were recorded as non-cash adjustments withinother income (expenses), net, in the Company’sAs of January 1, 2018, the Company early adopted ASU 2017-11, which revised the guidance for instruments with down round provisions. As such the Company treats outstandingwarrants as free-standing equity linked instruments that will be recorded to equity in the Consolidated Balance Sheet.The fair value of the derivative liability balance as of December 31, 2017 of $15.7 million was reclassified by means of a cumulative-effect adjustment to equity as of January 1,2018.F-28Table of ContentsThe following table presents the Company’s derivative warrant issuances and balances outstanding during the years ended December 31, 2018 and 2017: Weighted Average Warrants Exercise Price Grant DateFair ValueOutstanding at December 31, 20161,766,905$7.23 $3.87Issued— — —Canceled— — —Exercised607,481 6.00 3.33Outstanding at December 31, 20171,159,424 $7.86 $4.15Issued— — —Canceled554 5.99 3.33Exercised1,158,870 7.88 4.15Outstanding at December 31, 2018— — —As of December 31, 2018 there are no outstanding warrants.NOTE 16. RETIREMENT PLANThe Company has a 401(k) defined contribution savings plan for the benefit of all eligible employees. Employer matching contributions were $0.9 million, $0.6 million, and $0.5million for the years ended December 31, 2018, 2017 and 2016, respectively.NOTE 17. RESTRUCTURINGOn March 7, 2017, the Company initiated a plan to consolidate its operations to its corporate headquarters in San Diego, California. The Company adjusted employee relatedseparation charges by $0.2 million in the current year as a result of this consolidation.The following table presents a reconciliation of the restructuring liability recorded within accrued expenses on the Company's Condensed Consolidated Balance Sheets (inthousands): Twelve Months Ended December 31, 2018 2017Liability, beginning of period$3,549 $893Restructuring expenses— 3,608Cash settlements(3,307) (897)Adjustments to previous estimates(242) (55)Liability, end of period$— $3,549NOTE 18. PROPERTY AND EQUIPMENTProperty, plant and equipment, net consisted of the following (in thousands): December 31, 2018 2017Computers and equipment$506 $436Furniture and fixtures1,150 945Leasehold improvements2,628 2,071Construction-in-progress— 363 4,284 3,815Less: Accumulated depreciation(1,138) (585)Total property and equipment, net$3,146 $3,230The construction-in-process balance consists of costs related to the Company’s leasehold improvements at its facilities in San Diego, California.Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $0.6 million, $0.5 million and $0.1 million, respectively.F-29Table of ContentsThe Company has not capitalized interest related to the property and equipment purchases.NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)The following table presents selected consolidated statements of operations data for each quarter for the fiscal years ended December 31, 2018 and 2017 (unaudited, inthousands, except for per share data): FourthQuarter ThirdQuarter Second Quarter FirstQuarter For the year ended December 31, 2018: Net product sales$43,771 $40,706 $41,337 $38,432Total operating expenses48,756 76,289 62,897 56,344Operating loss(4,985) (35,583) (21,560) (17,912)Total other income (expense), net(2,470) (18,518)1 (602) (237)Loss before provision for income taxes(7,455) (54,101) (22,162) (18,149)Income tax benefit (provision)— (415) (167) (229)Net income (loss)$(7,455) $(54,516) $(22,329) $(18,378)Net Loss per common share Basic$(0.18) $(1.34) $(0.56) $(0.46)Diluted$(0.18) $(1.34) $(0.56) $(0.46)For the year ended December 31, 2017: Net product sales$42,177 $40,340 $38,800 $33,620Total operating expenses57,354 50,948 52,398 48,028Operating loss(15,177) (10,608) (13,598) (14,408)Total other income (expense), net4,139 (8,409) (1,556) 1,254Income (loss) before provision for income taxes(11,038) (19,017) (15,154) (13,154)Income tax benefit (provision)(6,580) 1,223 1,925 2,064Net income (loss)$(17,618) $(17,794) $(13,229) $(11,090)Net income (loss) per common share Basic$(0.45) $(0.46) $(0.34) $(0.29)Diluted$(0.55) $(0.46) $(0.34) $(0.32)1 In September 2018, the Company executed a partial repurchase of the 2019 Notes that resulted in a $17.0 million loss on early extinguishment of debt. See Note 7 for furtherdiscussion.F-30Exhibit 10.19FOURTH AMENDMENT TO TRADEMARK LICENSE AND SUPPLY AGREEMENTThis Fourth Amendment to Trademark License and Supply Agreement (“Fourth Amendment”), made effective November 28, 2018 (the “Fourth Amendment EffectiveDate”), amends the Trademark License and Supply Agreement dated May 28, 2014 by and between Mission Pharmacal Company (“Mission”) and Retrophin, Inc. (together withits affiliates, “Retrophin”) (such agreement as previously amended by the amendments listed in Exhibit A, the “Agreement”).WHEREAS, Mission and Retrophin have mutually agreed to expand the “Territory” exclusively licensed to Retrophin under the Agreement to become worldwide, and have agreedto associated economic terms, and wish to set forth all of the foregoing terms in this Fourth Amendment.NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, it is agreed as follows:1.Terminology. All references in this Fourth Amendment to “Sections” and Articles are to articles and sections of the Agreement. All initially capitalized terms used and notdefined in this Fourth Amendment, but defined in the Agreement, have the meanings given in the Agreement. For clarity, all initially capitalized terms defined in this FourthAmendment, and used in an amended Section of the Agreement provided below, have the meanings in the Agreement that are given in this Fourth Amendment.2.License Fee for Expanded Territory. Within ten (10) days of the signing of this Amendment by the later-to-sign of Mission and Retrophin, Retrophin shall pay Missiona license fee equal to two hundred fifty thousand dollars ($250,000) by wire transfer of immediately available funds. Such license fee shall be non-refundable. Suchlicense fee is in respect of the expansion of the Territory under the Agreement to become worldwide.3.Amendments.a.Section 2.6 of the Agreement is deleted and replaced with the following:2.6 “Territory” means worldwide.b.Article 7 (including Sections 7.0 and 7.1) of the Agreement is deleted and replaced with the following:7.0 Trademark Royalty. Retrophin shall pay Mission a quarterly trademark royalty (“Trademark Royalty”) equal to twenty percent (20%) ofRetrophin’s Net Sales of the Product. The Trademark Royalty will be paid in accordance with the provisions of Section 11.2 below. For clarity, this applies to allNet Sales under this Agreement, including, after the Fourth Amendment Effective Date, Net Sales worldwide.7.1 Minimum U.S./Canada Royalty. If and only if the total sum of all Trademark Royalties paid during a calendar year with respect to Net Sales inthe United States and Canada is less than two million dollars ($2,000,000.00), then Retrophin shall pay Mission an additional royalty payment for the differencesuch that the total sum of all royalties paid during such calendar year with respect to Net Sales in the United States and Canada will be, at a minimum, twomillion dollars ($2,000,000.00), such amount to be prorated for calendar year 2014 and the last calendar year of this Agreement.7.2 Minimum ROW Royalty. This Section shall apply from and after the calendar year in which the Fourth Amendment Effective Date occurs. Ifand only if the total sum of all Trademark Royalties paid during a calendar year from and after the Fourth Amendment Effective Date with respect to Net Salesoutside the United States and Canada is less than one hundred thousand dollars ($100,000), then Retrophin shall pay Mission an additional royalty payment forthe difference such that the total sum of all royalties paid during such calendar year with respect to Net Sales outside the United States and Canada will be, at aminimum, one hundred thousand dollars ($100,000), such amount to be prorated for the calendar year in which the Fourth Amendment Effective Date occursand the last calendar year of this Agreement.4.Exclusive Supply. For the avoidance of doubt, all Product sold under the license of the Agreement must be supplied by Mission or its designated supplier.5.Agreement In Full Force and Effect. Except as set forth above, the Agreement shall remain in full force and effect.6.Entire Agreement. All noted Amendments to the Agreement, including this Amendment and the Agreement, together constitute the entire agreement of the partieshereto with respect to the topics addressed therein and supersedes any and all prior agreements,1whether oral or in writing between the parties hereto with respect to subject matter hereof. This Amendment may not be amended, modified or supplemented except bywritten agreement of the parties hereto. This Amendment may be executed in one or more counterparts, each of which shall be deemed and original, but all of whichtogether shall constitute one and the same instrument.IN WITNESS HEREOF, the undersigned have executed this Amendment on the day and year first above written.[SIGNATURE PAGE FOLLOWS]2RETROPHIN, INC. MISSION PHARMACAL COMPANYBy: /s/ Stephen Aselage ________ By: /s/ Thomas J. DooleyName: Stephen Aselage Name: Thomas J. DooleyTitle: Chief Executive Officer Title: Chief Financial Officer3Exhibit A to Fourth Amendment - Prior Amendments to Agreement1.First Amendment to Trademark License and Supply Agreement, dated July 28, 2014.2.Second Amendment to Trademark License and Supply Agreement, dated September 24, 2015.3.Third Amendment to Trademark License and Supply Agreement, dated March 17, 2016.a.Amendment One to the Third Amendment to Trademark License and Supply Agreement, dated September 12, 2016.b.Amendment Two to the Third Amendment to Trademark License and Supply Agreement, dated November 3, 2017.4Exhibit 10.322019 Retrophin, Inc.Executive Officer Annual Bonus PlanPlan ObjectiveThe purpose of the Retrophin, Inc. Executive Officer Bonus Plan (the “Plan”) is to provide incentives to and reward executive officersof Retrophin, Inc. (the “Company”) (each a “Participant,” as defined below) to achieve corporate performance goals and to worktogether to achieve outstanding results in all aspects of the Company’s business, thus benefiting themselves, Company shareholders andthe people who benefit from the Company’s services.Eligibility•All regular full-time executive officers of Retrophin are eligible to receive a bonus under this Plan (“Participant”).•Participants must be employed as a regular full-time employee by the Company prior to October 1 of the bonus plan year.•In order to be eligible to receive a bonus for a particular Bonus Plan Year (if any is earned), a Participant must be activelyemployed, and in good standing, as of the date the bonus checks are distributed for that year or as otherwise approved by theBoard.•Temporary executive officers and consultants (regardless of their roles or responsibilities) are not eligible to participate.•Participation in the “Retrophin, Inc. Executive Officer Bonus Plan” is approved on an annual basis. Criteria for participationmay be subject to change at the commencement of the Bonus Plan Year, and eligibility to participate in any Bonus Plan Yeardoes not guarantee eligibility to participate in any subsequent Bonus Plan Year.•Participants whose individual performance is deemed to not be meeting expectations by the Compensation Committee areineligible.Definitions •“Bonus Plan Year” means the twelve-month period beginning on each January 1 and ending on each December 31.•The “Board” means the Board of Directors of the Company.•The “Compensation Committee” means the Compensation Committee of the Board, as constituted from time to time.•The “Base Pay” is a Participant’s annual rate of base salary in effect as of December 31st of the applicable Bonus Plan Year.•The “Company Target Performance Measures” shall be determined at the sole discretion of the Compensation Committee or theBoard and shall be set forth in writing, and may include, but shall not be limited to, a combination of financial, research anddevelopment and/or operational goals.•The “Company Modifier” is determined at the sole discretion of the Compensation Committee or the Board and is designed toreflect performance against Company results. For illustration purposes only, if the Company performance significantly exceedsthe Company Target Performance Measures, the Company Modifier could exceed 100%, but in no case more than 150%.Similarly, if Company performance fails to meet the Company Target Performance Measures, the Company Modifier could beless than 100%. There is a minimum Corporate Performance required of 40% for any payment under the Plan to be considered.No Participant will have any entitlement to or earn a right to receive a bonus under this Plan until the date on which such bonusis paid. The Board and/or Compensation Committee reserve the right, at any time, regardless of corporate performance toapprove or not approve the payment of a Bonus during any Plan Year.1•The “Individual Modifier” is determined by the Participant’s relative performance during the Plan year, and will generally fallwithin 0%-125%, as per the Participant’s annual performance rating.•The “Target Bonus” means the percentage of Base Pay that would be awarded to a Participant upon the achievement of theCompany Target Performance Measures at a level of 100%.Bonus Award ComponentsUnless otherwise specified, the components of a Bonus Award Payment (described below) are as follows:•Company Modifier based on achievement of Company Performance Measures•Target Percentage based on Participant’s position (see below)•Participant’s Base Pay for the bonus year◦Number of credible eligible months of service for the Bonus Plan Year•Participant’s Individual Performance Modifier•Weighting of Company Performance Modifier based on level•Weighting of Individual Performance Modifier based on levelPositionTarget Bonus%Individual ModifierWeightingCompany ModifierWeightingChief Executive Officer60%N/A100%Other Executive Officers50%25%75%Bonus Award Payment CalculationThe Bonus Award Payment, if one is approved, is calculated as follows:[(Participant’s base pay x Bonus Target percentage x individualperformance modifier x individual performance weighting) xPlan year tenure]+[(Participant’s base pay x Bonus target percentage x companyperformance modifier x company performance weighting) xPlan year tenure]General•Bonus awards, if earned, will be paid between January 1 and March 15 of the calendar year after the close of the applicableBonus Plan Year.•In the event of a Participant’s leave of absence in excess of 30 days during the Bonus Plan Year, the bonus earned for that yearwill be prorated. The calculation will be based on the total number of whole or partial months actively at work divided by 12.•Executive officers hired after October 1 will not be eligible for a bonus award under this Plan until the following Bonus PlanYear.•Executive officers hired during the Bonus Plan Year on or before October 1 will be eligible to receive a prorated bonus basedon the number of whole or partial months actively at work.•Bonus awards are based on the Participant’s target percentage and Base Salary as of December 31st of the Bonus Plan Year.•Retrophin reserves the right to modify or terminate the Plan at any time without prior notice.•The Plan does not modify a Participant’s at-will employment status or create a contract of employment for a specific term.Receipt of a bonus award is not guaranteed, and this Plan is not a promise of future or continued employment.•The Plan does not modify a Participant’s Employment Agreement.•The Company will withhold all required taxes and make any other required deductions from payments made under the Plan.This Plan is intended to provide “short term deferrals”, as described in Treasury Regulation 1.409A-1(b)(4) under section 409Aof the Code or successor guidance thereto, and is intended not to be a “nonqualified deferred compensation plan”, as describedin Treasury Regulation 1-409A-1(a)(1)2under section 409A of the Code or successor guidance thereto. In the administration and interpretation of the Plan, suchintention is to govern.•It is intended that this Plan be exempt from regulation under the Employee Retirement Income Security Act of 1974, asamended, as a “payroll practice” and a “bonus program”, as described in U.S. Department of Labor Regulations 2510.3-1(b)and 2510.3-2(c), respectively.•Any bonuses paid under the Bonus Plan shall be subject to the provisions of any claw-back policy implemented by theCompany, including, without limitation, any claw-back policy adopted to comply with the requirements of the Dodd-Frank WallStreet Reform and Consumer Protection Act and any rules, regulations or interpretations thereunder.•This Plan shall be subject to and construed in accordance with the laws of the State of California without regard to conflicts oflaws.•The Compensation Committee possesses sole discretion and authority to construe and interpret the terms and provisions of thePlan and to resolve any issue arising out of, relating to, or resulting from its administration and operation. Any disagreement ordispute by any person claiming a benefit under the Plan regarding any aspect of the Plan or its administration must be promptlypresented in writing to the Compensation Committee for determination. Payments shall be made under the Plan only if theCompensation Committee determines in its sole discretion that the claimant is entitled to them. Any determinations theCompensation Committee makes in relation to the Plan will be final, conclusive, and binding on all persons, entities and partiesclaiming any interest under the Plan and will be entitled to the maximum possible deference allowed by law.•Except as explicitly provided by law, this Plan is provided at the Company's sole discretion, and the Company reserves thepower at any time and from time to time, to modify, amend or terminate (in whole or in part) any or all of the provisions of thePlan at any time, prospectively or retroactively, without prior notice or obligation. Any amendment to the Plan shall be adoptedby formal action of the Board.•The Plan will be operated as an unfunded arrangement, and nothing in this document will be construed to require the Companyto fund any awards or to establish a trust or purchase an insurance policy or other product for such purpose. The Company maymake such arrangements as it desires to provide for the payment of bonuses under the Plan.•Any payments made pursuant to the Plan shall not be counted as compensation for purposes of any other employee benefitplan, program or agreement sponsored, maintained or contributed to by the Company unless expressly provided for in suchemployee benefit plan, program, agreement, or arrangement.3Exhibit 10.33 Retrophin, Inc.3721 Valley Centre Drive, Suite 200San Diego, CA 92130January 4, 2019Stephen AselageRe: Retirement AgreementDear Steve:This letter agreement (the “Agreement”) sets forth our mutual understanding regarding your retirement as an employee of Retrophin, Inc., aDelaware corporation (the “Company”).1.Retirement. Effective as of the date of this Agreement (the “Retirement Date”), you hereby resign as the Company’sChief Executive Officer, and from all other offices and positions held by you at the Company or at any subsidiary of the Company (with theexception of your position as a member of the Company’s Board of Directors (the “Board”), as addressed in paragraph 2 below).2.Continued Board Service. Following the Retirement Date, you will continue serving as a member of the Board, to serve untilyour successor is duly elected and qualified.3.Transition Assistance. In order to assist with an orderly transition of your CEO duties, you agree to provide transition supportto the Company on an as-needed basis.4.Retirement Benefits.(a) Effective as of the Retirement Date, you will be entitled to receive the benefits set forth in Section 6.5(b)(i), Section 6.5(b)(ii) andSection 6.5(c)(i) of your employment agreement with the Company dated March 2, 2015, as amended on April 11, 2017 (the “EmploymentAgreement”).(b) Notwithstanding the terms set forth in Section 3.2 of the Employment Agreement, you will remain eligible to receive your annualincentive bonus payment for 2018, in an amount to be determined by the Board or the Compensation Committee of the Board in their solediscretion, which the Company anticipates paying on or before March 15, 2019.(c) In the event that your service as a member of the Board terminates prior to the 18-month anniversary of the Retirement Date, thevesting of all outstanding Stock Awards (as defined in the Employment Agreement) with time-based vesting that were held by you on theRetirement Date shall be accelerated such that the amount of shares vested under such time-based Stock Awards shall equal that number ofshares that would have been vested if you had continued to render continuous service to the Company for the 18 months immediately following theRetirement Date.(d) In the event that your service as a member of the Board terminates prior to the 18-month anniversary of the Retirement Date, alloutstanding Stock Awards with performance-based vesting held by you for which the relevant performance period ends within the 18-month periodfollowing the Retirement Date shall remain eligible for vesting during such 18-month period as though you had continued to render continuousservice to the Company throughout such period, and such Stock Awards with performance-based vesting shall vest (if applicable) based on actualperformance during such performance period. For the avoidance of doubt, you acknowledge and agree that, on the 18-month anniversary of theRetirement Date, all unvested Stock Awards with performance-based vesting then-held by you shall automatically expire and terminate.5.Release. As a condition to the benefits provided in this Agreement to which you would not otherwise be entitled, youagree, on the Retirement Date, to execute and return to the Company the General Release attached as Exhibit A to the EmploymentAgreement (the “Release”), and to allow the Release to become effective.6.General. This Agreement, including its exhibits, and the Employment Agreement constitute the complete, final and exclusiveembodiment of the entire agreement between you and the Company with regard to this subject matter. This Agreement may not be modified oramended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will be deemed to have beenentered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to beperformed entirely within California. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of abreach of this Agreement, or1rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder. This Agreement may beexecuted in counterparts which shall be deemed to be part of one original, and facsimile signatures and signatures transmitted by PDF shall beequivalent to original signatures. The terms of any payments or benefits to be provided pursuant to this Agreement will be construed to thegreatest extent possible so as to be exempt from or compliant with the provisions of Section 409A of the Internal Revenue Code and theregulations promulgated thereunder.[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]2If this Agreement is acceptable to you, please sign below and return the original to me.Sincerely,Retrophin, Inc. By:/s/ Gary Lyons Name:Gary Lyons Title:Chairman of the Board Accepted and Agreed: /s/ Stephen Aselage Stephen Aselage January 4, 2019 Date 3Exhibit 10.34 EMPLOYMENT AGREEMENTTHIS EMPLOYMENT AGREEMENT is effective as of the last date signed by the parties hereto (the “Effective Date”) and is entered into by andbetween Retrophin, Inc., a Delaware corporation (hereinafter the “Company”), and Eric Dube, Ph.D. (hereinafter “Executive”).R E C I T A L SWHEREAS, the Company and Executive wish to set forth in this Agreement the terms and conditions under which Executive will be employed by theCompany on and after the Effective Date hereof;NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth herein, agree as follows:1.NATURE OF EMPLOYMENT1.1. Effect of Agreement. This Agreement shall govern the terms of Executive’s employment with the Company on and after the Effective Dateuntil it is terminated by either the Company or Executive pursuant to the terms set forth in Article 6. Executive shall report directly to the Board ofDirectors of the Company.1.2. At-Will Employment. Executive shall continue to be employed on an at-will basis by the Company and therefore either Executive or theCompany may terminate the employment relationship and this Agreement at any time, with or without Cause (as defined herein) and with or withoutadvance notice, subject to the provisions of Article 6.1.3. Board of Directors. Executive shall serve on the Board of Directors of the Company for so long as Executive remains the Company’s ChiefExecutive Officer. Upon termination of Executive’s employment for any reason, or in the event Executive ceases to remain the Company’s ChiefExecutive Officer for any other reason, Executive shall immediately resign from the Board of Directors of the Company unless otherwise unanimouslyrequested by all the other members of the Board of Directors of the Company.2.EMPLOYMENT DUTIES2.1. Title/Responsibilities. Executive agrees to serve the Company in the position of President and Chief Executive Officer. Executive shall havethe powers and duties commensurate with such position.2.2. Full Time Attention. Executive shall devote his best efforts and his full business time and attention to the performance of the servicescustomarily incident to such office and to such other services as the Board of Directors may reasonably request.2.3. Other Activities. Except upon the prior written consent of the Board of Directors, Executive shall not during the period of employment engage,directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or that mightplace him in a competing position to that of the Company or any other corporation or entity that directly or indirectly controls, is controlled by, or isunder common control with the Company, provided that Executive may own less than two percent (2%) of the outstanding securities of any suchpublicly traded competing corporation.3.COMPENSATION3.1. Base Salary. Executive shall receive a Base Salary at an annual rate of $625,000, payable semi-monthly in equal installments in accordancewith the Company’s normal payroll practices. The Board of Directors or the Compensation Committee of the Board of Directors (the “CompensationCommittee”) shall provide Executive with annual performance reviews, and, thereafter, Executive shall be entitled to such increase in Base Salary asthe Compensation Committee may from time to time establish in its sole discretion.3.2. Incentive Bonus. In addition to any other bonus Executive shall be awarded by the Compensation Committee, Executive shall be eligible toreceive an annual incentive bonus as determined by the Compensation Committee based upon the achievement by the Company of annualcorporate goals established by the Board of Directors or the Compensation Committee and Executive’s individual performance during the applicableyear. Executive’s annual incentive bonus at target will be 60% of Executive’s Base Salary (the “Target Annual Bonus”). The CompensationCommittee in consultation with the independent members of the Board of Directors shall, in its sole discretion, determine whether the annualcorporate goals have been attained. Any annual incentive bonus shall be considered earned only if Executive is employed by the Company on thedate that the determination is made as to whether annual corporate goals have been met. This determination generally will be made within the firstquarter following the end of the Company’s fiscal year. Except as provided in Article 6 herein, no pro-rata bonus will be considered earned ifExecutive leaves the Company for any reason prior to the foregoing determination date. Any annual incentive bonus that is earned shall be paid nolater than the fifteenth day of the third month following the end of the Company’s fiscal year for which such bonus was earned.3.3. Equity.(a) Subject to approval by the Board of Directors or Compensation Committee, the Company will grant Executive the following equityawards (collectively, the “Initial Equity Awards”): (i) a stock option to purchase 400,000 shares of Company common stock (the “Option”), (ii) aperformance-based restricted stock unit award covering 50,000 shares of Company common stock, and (iii) a time-based restricted stock unit awardcovering 50,000 shares of Company common stock (the “Time-Based RSU”). The stock option is a non-qualified stock option, has a 10-year termand will vest over four years, with one-fourth vesting on the one-year anniversary of the grant date and the remaining three-fourths vesting over thefollowing three years in 36 equal monthly installments. The performance-based restricted stock unit award will vest upon the Company’sachievement of performance based milestones specified in the applicable equity award agreement; provided, however, that no portion of theperformance-based restricted stock unit award will vest prior to the one-year anniversary of the grant date, and provided further that theperformance-based restricted stock unit award will expire on May 9, 2023 to the extent the specified performance based milestones are not achievedby such date. The time-based restricted stock unit award will vest over four years, with one-fourth vesting on each anniversary of the grant date. Thevesting of each Initial Equity Award is subject to Executive’s continued employment through the applicable vesting dates, and is subject toaccelerated vesting in certain circumstances pursuant to Article 6 below. Each of the Initial Equity Awards is intended to be a material inducement toExecutive’s acceptance of the Company’s offer of employment with the Company, and will be granted outside the Company’s 2018 Equity IncentivePlan (the “2018 Plan”) but pursuant to the terms of the 2018 Plan as if such awards were granted under the 2018 Plan.(b) Subject to approval by the Compensation Committee, in consultation with the independent members of the Board of Directors,Executive will be eligible to receive additional Stock Awards on terms to be determined by the Compensation Committee at the time of any suchgrant. The determination whether to grant any additional Stock Award to Executive is in the sole discretion of the Compensation Committee, inconsultation with the independent members of the Board of Directors. For all purposes of this Agreement, “Stock Awards” shall mean any rightsgranted by the Company to Executive with respect to the common stock of the Company, including, without limitation, the Initial Equity Awards andother stock options, stock appreciation rights, restricted stock, stock bonuses and restricted stock units.3.4. Relocation. Executive’s primary office location shall be the Company’s office located in San Diego, California, and as a condition ofemployment, Executive shall relocate to the San Diego area. Executive shall be eligible for reimbursement of certain out-of-pocket expensesincurred as a result of Executive’s permanent relocation to the San Diego area in accordance with the Company’s Relocation Policy Guidelines(such reimbursed amounts, if any, the “Relocation Payments”). Should Executive’s employment terminate within 12 months after the Effective Datepursuant to a Voluntary Resignation (as set forth in Section 6.7 herein), Executive shall be required to repay to the Company 100% of any amountspreviously paid to him for the Relocation Payments, and hereby authorizes the Company to withhold any such amount from Executive’s finalpaycheck or other earned compensation. Should Executive’s employment terminate after 12 months but within 24 months after the Effective Datepursuant to a Voluntary Resignation (as set forth in Section 6.7 herein), Executive shall be required to repay to the Company 50% of any amountspreviously paid to him for the Relocation Payments, and hereby authorizes the Company to withhold any such amount from Executive’s finalpaycheck or other earned compensation.3.5. Inducement Advance. Executive shall receive a one-time cash inducement advance (the “Inducement Advance”) in the total amount of$100,000.00, subject to applicable withholding, which shall be deemed earned when Executive successfully completes two full years of employmentfrom the Effective Date. The Inducement Advance shall be paid within thirty days following the Effective Date. Should Executive’s employmentterminate within 12 months after the Effective Date pursuant to a Voluntary Resignation (as set forth in Section 6.7 herein), Executive shall berequired to repay to the Company 100% of any amounts actually received by him for the Inducement Advance, and hereby authorizes the Companyto withhold any such amount from Executive’s final paycheck or other earned compensation. Should Executive’s employment terminate after 12months but within 24 months after the Effective Date pursuant to a Voluntary Resignation (as set forth in Section 6.7 herein), Executive shall berequired to repay to the Company 50% of any amounts actually received by him for the Inducement Advance, and hereby authorizes the Company towithhold any such amount from Executive’s final paycheck or other earned compensation.3.6. Withholdings. All compensation and benefits payable to Executive under this Agreement shall be subject to all federal, state, local taxes andother withholdings and similar taxes and payments required by applicable law.4.EXPENSE ALLOWANCES AND FRINGE BENEFITS4.1. Vacation. Executive shall be eligible for all paid holidays recognized by the Company, and 20 days of paid vacation per annum, accrued at therate of 1.67 days per month. Vacation days for the first calendar year of employment may be prorated. The Company provides for rollover of vacationfrom year to year up to an allowable maximum. Executive shall also be eligible for personal days and sick days consistent with the Company’spolicy.4.2. Benefits. During Executive’s employment hereunder, the Company shall also provide Executive with the health insurance benefits it generallyprovides to its other senior management employees. As Executive becomes eligible in accordance with applicable criteria adopted by the Company,the Company shall provide Executive with the right to participate in and to receive benefit from life, accident, disability, medical, and savings plansand similar benefits made available generally to employees of the Company as such plans and benefits may be adopted by the Company. Withrespect to long-term disability insurance coverage, Executive will pay all premiums for such coverage with after-tax dollars, and the Company willreimburse Executive for the premium costs so paid by Executive, which reimbursement benefit shall be taxable income, subject to withholding. Theamount and extent of benefits to which Executive is entitled shall be governed by the specific benefit plan as it may be amended from time to time.4.3. Business Expense Reimbursement. During the term of this Agreement, Executive shall be entitled to receive proper reimbursement for allreasonable out-of-pocket expenses incurred by him (in accordance with the policies and procedures established by the Company for its seniorexecutive officers) in performing services hereunder. Executive agrees to furnish to the Company adequate records and other documentaryevidence of such expense for which Executive seeks reimbursement. Such expenses shall be reimbursed and accounted for under the policies andprocedures established by the Company, and such reimbursement shall be made promptly, but in no event later than December 31 of the calendaryear following the year in which such expenses were incurred by Executive.5.CONFIDENTIALITY5.1. Confidential Information. Executive represents and warrants that he has previously executed and delivered to the Company the Company’sstandard Confidentiality Agreement.5.2. Return of Property. All documents, records, apparatus, equipment and other physical property which is furnished to or obtained by Executivein the course of his employment with the Company shall be and remain the sole property of the Company. Executive agrees that, upon thetermination of his employment, he shall return all such property (whether or not it pertains to Confidential Information as defined in the ConfidentialityAgreement), and agrees not to make or retain copies, reproductions or summaries of any such property.5.3. No Use of Prior Confidential Information. Executive will not intentionally disclose to the Company or use on its behalf any confidentialinformation belonging to any of his former employers or any other third party.6.TERMINATION6.1. General. As set forth in Section 1.2 herein, Executive shall be employed on an at-will basis by the Company. Notwithstanding the foregoing,Executive’s employment and this Agreement may be terminated in one of six ways as set forth in this Article 6: (a) Executive’s Death (Section 6.2);(b) Executive’s Disability (Section 6.3); (c) Termination by the Company for Cause (Section 6.4); (d) Termination by the Company without Cause(Section 6.5); (e) Termination by Executive due to a Constructive Termination (Section 6.6); or (f) Voluntary Resignation (Section 6.7).6.2. By Death. Executive’s employment and this Agreement shall terminate automatically upon the death of Executive. In such event:(a) Stock Awards. The vesting of the Option and Time-Based RSU (to the extent then unvested) shall be accelerated (to the extentapplicable) so that the amount of shares vested under such Option and Time-Based RSU shall equal 1/48th of the total number of shares subject tothe Option and Time-Based RSU, respectively, multiplied by the number of full months that elapsed between the grant date and Executive’stermination of employment.(b) Bonus. The Company shall pay to Executive’s beneficiaries or his estate, as the case may be, a lump sum amount equal toExecutive’s Target Annual Bonus (as defined in Section 3.2) for the Company’s fiscal year in which Executive’s death occurs multiplied by a fraction,the numerator of which is the number of full months of employment by Executive in such fiscal year and the denominator of which is 12. Such amountshall be paid as soon as administratively practicable, but in no event later than March 15 following the year in which Executive’s death occurred.(c) Accrued Compensation. The Company shall pay to Executive’s beneficiaries or his estate, as the case may be, any accrued BaseSalary, any vested deferred compensation (other than pension plan or profit-sharing plan benefits that will be paid in accordance with the applicableplan), any benefits under any plans of the Company (other than pension and profit-sharing plans) in which Executive is a participant to the full extentof Executive’s rights under such plans, any accrued vacation pay and any appropriate business expenses incurred by Executive in connection withhis duties hereunder, all to the date of termination (collectively “Accrued Compensation”).(d) No Severance Compensation. The compensation and benefits set forth in Sections 6.2(a) through (c) herein shall be the onlycompensation and benefits provided by the Company in the event of Executive’s death and no other severance compensation or benefits shall beprovided.6.3. By Disability. If Executive is prevented from performing his duties hereunder by reason of any physical or mental incapacity that results inExecutive’s satisfaction of all requirements necessary to receive benefits under the Company’s long-term disability plan due to a total disability, then,to the extent permitted by law, the Company may terminate the employment of Executive and this Agreement at or after such time. In such event, andif Executive signs the General Release set forth as Exhibit A or such other form of release as the Company may require (the “Release”) on or withinthe time period set forth therein, but in no event later than forty-five (45) days after the termination date and allows such Release to become effective(the “Release Effective Date”), then:(a) Accrued Compensation. The Company shall pay to Executive all Accrued Compensation (as defined in Section 6.2(c) herein).(b) Base Salary Continuation. The Company shall continue to pay Executive’s Base Salary, less required withholdings, for a period of 18months (the “Disability Base Salary Payments”) following Executive’s separation from service; provided that the Disability Base Salary Paymentsshall be reduced by any insurance or other payments to Executive under policies and plans sponsored by the Company, even if premiums are paidby Executive. Subject to the provisions of Section 6.11, the Disability Base Salary Payments shall be paid in accordance with the Company’sstandard payroll practices; provided, however, that any amounts that would otherwise be scheduled to be paid prior to the Release Effective Dateshall instead accrue and be paid during the first payroll period following the Release Effective Date, and all other payments shall be made asoriginally scheduled.(c) Bonus. The Company shall pay to Executive a lump sum amount equal to Executive’s Target Annual Bonus (as defined in Section 3.2)for the Company’s then-current fiscal year multiplied by a fraction, the numerator of which is the number of full months of employment by Executive inthe current fiscal year and the denominator of which is 12. Such payment shall be made within ten (10) days following the Release Effective Date.(d) Stock Awards. The vesting of all outstanding Stock Awards held by Executive shall be accelerated such that the amount of sharesvested under such Stock Awards shall equal that number of shares that would have been vested if Executive had continued to render services to theCompany for 18 continuous months after the date of Executive's termination of employment.(e) Health Insurance Benefits. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by theCompany’s current group health insurance policies, Executive will be eligible to continue Executive’s group health insurance benefits at Executive’sown expense. If Executive timely elects continued coverage under COBRA, the Company shall pay Executive’s COBRA premiums, and anyapplicable Company COBRA premiums, necessary to continue Executive’s then-current coverage for a period of 18 months after the date ofExecutive’s termination of employment; provided, however, that any such payments will cease if Executive voluntarily enrolls in a health insuranceplan offered by another employer or entity during the period in which the Company is paying such premiums. Executive agrees to immediately notifythe Company in writing of any such enrollment.Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing benefit without potentiallyincurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall inlieu thereof provide to Executive a taxable monthly amount to continue his group health insurance coverage in effect on the date of separation from service(which amount shall be based on the premium for the first month of COBRA coverage), which payments shall be made regardless of whether Executive electsCOBRA continuation coverage and shall commence in the month following the month in which Executive incurs a separation from service and shall end onthe earlier of (x) the date on which Executive voluntarily enrolls in a health insurance plan offered by another employer or entity during the period in which theCompany is paying such amounts and (y) 18 months after the date of Executive’s separation from service.(f) Disability Plans. Nothing in this Section 6.3 shall affect Executive’s rights under any disability plan in which Executive is a participant.6.4. Termination by the Company for Cause.(a) No Liability. The Company may terminate Executive’s employment and this Agreement for Cause (as defined below) without liability atany time. In such event, the Company shall pay Executive all Accrued Compensation (as defined in Section 6.2(c) herein), but no othercompensation or reimbursement of any kind, including without limitation, any severance compensation or benefits shall be paid, and thereafter theCompany’s obligations hereunder shall terminate. For clarity, the foregoing sentence shall not have any impact on any awards or other benefits thatare vested as of the date of such termination.(b) Definition of “Cause.” For purposes of this Agreement, “Cause” shall mean one or more of the following:(i) Executive’s intentional commission of an act, or intentional failure to act, that materially injures the business of the Company;provided, however, that in no event shall any business judgment made in good faith by Executive and within Executive’s defined scope of authorityconstitute a basis for termination for Cause under this Agreement;(ii) Executive’s intentional refusal or intentional failure to act in accordance with any lawful and proper direction or order of theBoard of Directors;(iii) Executive’s material breach of Executive’s fiduciary, statutory, contractual, or common law duties to the Company (includingany material breach of this Agreement, the Confidentiality Agreement, or the Company’s written policies);(iv) Executive’s conviction of, or plea of guilty or nolo contendere to, any felony or any crime involving dishonesty; or(v) Executive’s participation in any fraud or other act of willful misconduct against the Company;provided, however, that in the event that any of the foregoing events is reasonably capable of being cured, the Company shall provide written notice toExecutive describing the nature of such event and Executive shall thereafter have ten (10) business days to cure such event.6.5. Termination by the Company without Cause.(a) The Company’s Right. The Company may terminate Executive’s employment and this Agreement without Cause (as defined inSection 6.4(b) herein) at any time by giving thirty (30) days advance written notice to Executive.(b) Severance Benefits. If the Company terminates Executive’s employment without Cause, and if Executive signs the Release on orwithin the time period set forth therein (but in no event later than forty-five (45) days after the termination date) and allows such Release to becomeeffective, then:(i) Accrued Compensation. The Company shall pay to Executive all Accrued Compensation (as defined in Section 6.2(c)herein).(ii) Cash Compensation Amount Payments. The Company shall pay Executive an amount equal to (A) Executive’s annual BaseSalary plus Executive’s Target Annual Bonus (as defined in Section 3.2 herein) multiplied by (B) 1.5 (the “Cash Compensation Amount”). Subject tothe provisions of Section 6.11, the Cash Compensation Amount will be paid in equal installments on the Company’s standard payroll dates over aperiod of 18 months following Executive’s separation from service; provided, however, that any amounts that would otherwise be scheduled to bepaid prior to the Release Effective Date shall instead accrue and be paid during the first payroll period following the Release Effective Date, and allother payments shall be made as originally scheduled.(iii) Stock Awards. The vesting of all outstanding Stock Awards held by Executive shall be accelerated such that the amount ofshares vested under such Stock Awards shall equal that number of shares that would have been vested if Executive had continued to renderservices to the Company for 18 continuous months after the date of Executive's termination of employment.(iv) Health Insurance Benefits. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and bythe Company’s current group health insurance policies, Executive will be eligible to continue Executive’s group health insurance benefits atExecutive’s own expense. If Executive timely elects continued coverageunder COBRA, the Company shall pay Executive’s COBRA premiums, and any applicable Company COBRA premiums, necessary to continueExecutive’s then-current coverage for a period of 18 months after the date of Executive’s termination of employment; provided, however, that anysuch payments will cease if Executive voluntarily enrolls in a health insurance plan offered by another employer or entity during the period in whichthe Company is paying such premiums. Executive agrees to immediately notify the Company in writing of any such enrollment.Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing benefit without potentiallyincurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall inlieu thereof provide to Executive a taxable monthly amount to continue his group health insurance coverage in effect on the date of separation from service(which amount shall be based on the premium for the first month of COBRA coverage), which payments shall be made regardless of whether Executive electsCOBRA continuation coverage and shall commence in the month following the month in which Executive incurs a separation from service and shall end onthe earlier of (x) the date on which Executive voluntarily enrolls in a health insurance plan offered by another employer or entity during the period in which theCompany is paying such amounts and (y) 18 months after the date of Executive’s separation from service.6.6. Termination by Executive due to a Constructive Termination.(a) Executive’s Right. Executive may resign his employment and terminate this Agreement at any time as a result of a ConstructiveTermination (as defined in Section 6.6(c) herein).(b) Severance Benefits. If Executive resigns his employment and terminates this Agreement as a result of a Constructive Termination,and if Executive signs the Release on or within the time period set forth therein (but in no event later than forty-five (45) days after the terminationdate) and allows such Release to become effective, then Executive shall receive all of the severance benefits set forth in Section 6.5(b) herein.(c) Definition of “Constructive Termination.” For purposes of this Agreement, “Constructive Termination” shall mean a resignation ofemployment and termination of this Agreement by Executive for one or more of the following reasons:(i) Assignment to, or withdrawal from, Executive of any duties or responsibilities that results in a material diminution in suchExecutive’s authority, duties or responsibilities as in effect immediately prior to such change;(ii) A material diminution in the authority, duties or responsibilities of the supervisor to whom Executive is required to report,including a requirement that Executive report to a corporate officer or employee instead of reporting directly to the Board of Directors;(iii) A material reduction by the Company of Executive’s annual Base Salary;(iv) A relocation of Executive or the Company’s principal executive offices if Executive’s principal office is at such offices, to alocation more than forty (40) miles from the location at which Executive is then performing his duties, except for an opportunity to relocate which isaccepted by Executive in writing; or(v) A material breach by the Company of any provision of this Agreement or any other enforceable written agreement betweenExecutive and the Company;provided however, that Executive must first provide the Company with written notice specifying the condition giving rise to a Constructive Termination withinninety (90) days following the initial existence of such condition; and Executive’s notice must specify that Executive intends to terminate his employment noearlier than thirty (30) days after providing such notice, and the Company must be given an opportunity to cure such condition within thirty (30) days followingits receipt of such notice and avoid paying benefits.6.7. Voluntary Resignation. Executive may resign his employment and terminate this Agreement at any time for any reason other than due to aConstructive Termination (as defined in Section 6.6(c) herein). In such event the Company shall pay Executive all Accrued Compensation (asdefined in Section 6.2(c) herein), but no other compensation or reimbursement of any kind, including without limitation, any severance compensationor benefits shall be paid, and thereafter the Company’s obligations hereunder shall terminate.6.8. Change in Control.(a) Severance Benefits. If (i) within three (3) months prior to, or on or within twelve (12) months after, the consummation of a Change inControl (as defined in Section 6.8(b) herein), (1) the Company terminates Executive’s employment and this Agreement without Cause pursuant toSection 6.5 herein or (2) Executive resigns his employment and terminates this Agreement as a result of a Constructive Termination pursuant toSection 6.6 herein, and (ii) in either event (1) or (2), Executive signs the Release on or within the time period set forth therein, but in no event laterthan forty-five (45) days after the termination date and allows such Release to become effective, then Executive shall receive the following severance benefitsin lieu of any severance benefits set forth in Section 6.5(b) or Section 6.6(b) herein:(i) Accrued Compensation. The Company shall pay to Executive all Accrued Compensation (as defined in Section 6.2(c)herein).(ii) CIC Cash Compensation Amount Payment. The Company shall pay Executive an amount equal to (A) Executive’s annualBase Salary plus Executive’s Target Annual Bonus (as defined in Section 3.2 herein) multiplied by (B) 2.0 (collectively, the “CIC Cash CompensationAmount”). The CIC Cash Compensation Amount will be paid in one lump sum within ten (10) days following the Release Effective Date.(iii) Stock Awards. The vesting of all outstanding Stock Awards held by Executive shall be accelerated in full, effective as of theRelease Effective Date.(iv) Health Insurance Benefits. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and bythe Company’s current group health insurance policies, Executive will be eligible to continue Executive’s group health insurance benefits atExecutive’s own expense. If Executive timely elects continued coverage under COBRA, the Company shall pay Executive’s COBRA premiums, andany applicable Company COBRA premiums, necessary to continue Executive’s then-current coverage for a period of 24 months after the date ofExecutive’s termination of employment; provided, however, that any such payments will cease if Executive voluntarily enrolls in a health insuranceplan offered by another employer or entity during the period in which the Company is paying such premiums. Executive agrees to immediately notifythe Company in writing of any such enrollment.Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing benefit without potentiallyincurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall inlieu thereof provide to Executive a taxable monthly amount to continue his group health insurance coverage in effect on the date of separation from service(which amount shall be based on the premium for the first month of COBRA coverage), which payments shall be made regardless of whether Executive electsCOBRA continuation coverage and shall commence in the month following the month in which Executive incurs a separation from service and shall end onthe earlier of (x) the date on which Executive voluntarily enrolls in a health insurance plan offered by another employer or entity during the period in which theCompany is paying such amounts and (y) 24 months after the date of Executive’s separation from service.(b) For purposes of this Agreement, a “Change in Control” shall have occurred if at any time following the Effective Date, any of thefollowing events shall occur:(i) The Company is merged, or consolidated, or reorganized into or with another corporation or other legal person, and as aresult of such merger, consolidation or reorganization less than 50% of the combined voting power of the then-outstanding securities of suchcorporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediatelyprior to such transaction;(ii) The Company sells all or substantially all of its assets or any other corporation or other legal person and thereafter, less than50% of the combined voting power of the then-outstanding voting securities of the acquiring or consolidated entity are held in the aggregate by theholders of voting securities of the Company immediately prior to such sale;(iii) There is a report filed after the date of this Agreement on Schedule 13D or Schedule 14D-1 (or any successor schedule, formor report), each as promulgated pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) disclosing that any person (as the term“person” is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term beneficial owner isdefined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) representing 50% or more of the combinedvoting power of the then-outstanding voting securities of the Company; or(iv) During any period of two (2) consecutive years following the Effective Date, individuals who at the beginning of any suchperiod constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election to the nomination forelection by the Company’s shareholders of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of such period.6.9. Mitigation. Except as otherwise specifically provided herein, Executive shall not be required to mitigate the amount of any payment providedunder this Agreement by seeking other employment or self-employment, nor shall the amount of any payment provided for under this Agreement bereduced by any compensation earned by Executive as a result of employment by another employer or through self-employment or by retirementbenefits after the date of Executive’s termination of employment from the Company, except as provided herein.6.10. Coordination. If upon termination of employment, Executive becomes entitled to rights under other plans, contracts or arrangements enteredinto by the Company, this Agreement shall be coordinated with such other arrangements so that Executive’s rights under this Agreement are notreduced, and that any payments under this Agreement offset the same types of payments otherwise provided under such other arrangements, but donot otherwise reduce any payments or benefits under such other arrangements to which Executive becomes entitled.6.11. Application of Section 409A. Notwithstanding anything to the contrary herein, the following provisions apply to the extent severance benefitsprovided herein are subject to Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect(collectively “Section 409A”). Severance benefits shall not commence until Executive has a “separation from service” for purposes of Section 409A. IfExecutive is a “specified employee” within the meaning of 409A(a)(2)(B)(i) of the Code, any installment payments of Disability Base Salary Paymentspursuant to Section 6.3(b) or Cash Compensation Amounts pursuant to Section 6.5(b) or 6.6(b) that are triggered by a separation from service shallbe accelerated to the minimum extent necessary so that (a) the lesser of (y) the total cash severance payment amount, or (z) six (6) months of suchinstallment payments are paid no later than March 15 of the calendar year following such termination, and (b) all amounts paid pursuant to theforegoing clause (a) will constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations and thus will be payablepursuant to the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations. It is intended that if Executive is a “specifiedemployee” within the meaning of Section 409A(a)(2)(B)(i) of the Code at the time of such separation from service the foregoing provision shall resultin compliance with the requirements of Section 409A(a)(2)(B)(i) of the Code because payments to Executive will either be payable pursuant to the“short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations or will not be paid until at least 6 months after separationfrom service. The severance benefits are intended to qualify for an exemption from application of Section 409A or comply with its requirements to theextent necessary to avoid adverse personal tax consequences under Section 409A, and any ambiguities herein shall be interpreted accordingly.6.12. Parachute Payments.(a) If any payment or benefit (including payments or benefits pursuant to this Agreement) that Executive would receive in connection witha Change in Control or otherwise (“Payment”) would (1) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (2)but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to theReduced Amount. The "Reduced Amount" shall be either (x) the largest portion of the Payment that would result in no portion of the Payment beingsubject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account allapplicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate),results in Executive's receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may besubject to the Excise Tax. If a reduction in payments or benefits constituting "parachute payments" is necessary so that the Payment equals theReduced Amount, Executive shall have no rights to any additional payments and/or benefits, and reduction shall occur in the manner that results inthe greatest economic benefit for Executive. If more than one method of reduction will result in the same economic benefit, the items so reduced willbe reduced pro rata.(b) In the event it is subsequently determined by the Internal Revenue Service that some portion of the Reduced Amount as determinedpursuant to clause (x) in the preceding paragraph is subject to the Excise Tax, Executive agrees to promptly return to the Company a sufficientamount of the Payment so that no portion of the Reduced Amount is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount isdetermined pursuant to clause (y) in the preceding paragraph, Executive will have no obligation to return any portion of the Payment pursuant to thepreceding sentence.(c) The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to theeffective date of the event described in Section 280G(b)(2)(A)(i) of the Code will perform the foregoing calculations. If the independent registeredpublic accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting such Change inControl or similar transaction, the Company will appoint a nationally recognized independent registered public accounting firm to make thedeterminations required hereunder. The Company will bear all expenses with respect to the determinations by such independent registered publicaccounting firm required to be made hereunder. Any good faith determinations of the independent registered public accounting firm madehereunder will be final, binding and conclusive upon the Company and you.7.GENERAL PROVISIONS7.1. Governing Law. The validity, interpretation, construction and performance of this Agreement and the rights of the parties thereunder shall beinterpreted and enforced under California law without reference to principles of conflicts of laws.7.2. Assignment; Successors; Binding Agreement.(a) No Assignment. Executive may not assign, pledge or encumber his interest in this Agreement or any part thereof.(b) Assumption by Successor. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidationor otherwise) to all or substantially all of the business and/or assets of the Company, by operation of law or by agreement in form and substancereasonably satisfactory to Executive, to assume and agree to perform this Agreement in the same manner and to the same extent that the Companywould be required to perform it if no such succession had taken place.(c) Binding Agreement. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives,executors, administrators, successors, heirs, distributee, devisees and legatees. If Executive should die while any amount is at such time payable toExecutive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement toExecutive’s devisee, legates or other designee or, if there be no such designee, to his estate.7.3. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shallbe deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressedto the respective addresses set forth below or to such other address as either party may have furnished to the other in writing in accordanceherewith, except that notice of change of address shall be effective only upon receipt.To the Company:Retrophin, Inc.3721 Valley Centre Drive, Suite 200San Diego, CA 92130To Executive:________7.4. Modification; Waiver; Entire Agreement. This Agreement constitutes the complete, final and exclusive embodiment of the entire agreementbetween Executive and the Company with regard to this subject matter. It is entered into without reliance on any promise or representation, written ororal, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. No provisions of thisAgreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive andsuch officer as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breachby the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiverof similar or dissimilar provisions or conditions at the same or any prior or subsequent time.7.5. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisionof this Agreement, which shall remain in full force and effect.7.6. Controlling Document. Except to the extent described in Section 6.10, in case of conflict between any of the terms and conditions of thisAgreement and any document herein referred to, the terms and conditions of this Agreement shall control.7.7. Executive Acknowledgment. Executive acknowledges (a) that he has consulted with or has had the opportunity to consult with independentcounsel of his own choice concerning this Agreement, and has been advised to do so by the Company, and (b) that he has read and understandsthe Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment.7.8. Dispute Resolution. To ensure the rapid and economical resolution of disputes that may arise in connection with Executive’s employment,Executive and the Company agree that any and all disputes, claims, or causes of action,in law or equity, arising from or relating to the enforcement, breach, performance, execution, or interpretation of this Agreement, Executive’semployment, or the termination of that employment, shall be resolved, to the fullest extent permitted by law pursuant to the Federal Arbitration Act, 9U.S.C. §1-16, by final, binding and confidential arbitration in San Diego, California conducted before a single arbitrator by Judicial Arbitration andMediation Services, Inc. (“JAMS”) or its successor, under the then applicable JAMS rules; provided, however, that in no event shall the Arbitrator beempowered to hear or determine any class or collective claim of any type. The JAMS rules can be found online at www.jamsadr.com. By agreeing tothis arbitration procedure, both Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or byadministrative proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to awardsuch relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings andconclusions and a statement of the award. The Company shall pay all of JAMS’ arbitration fees. Nothing in this letter agreement shall prevent eitherExecutive or the Company from obtaining injunctive relief in court if necessary to prevent irreparable harm pending the conclusion of any arbitration.The parties agree that the arbitrator shall award reasonable attorneys’ fees, costs, and all other related expenses to the prevailing party in any actionbrought hereunder, and the arbitrator shall have discretion to determine the prevailing party in an arbitration where multiple claims may be at issue.7.9. Remedies.(a) Injunctive Relief. The parties agree that the services to be rendered by Executive hereunder are of a unique nature and that in theevent of any breach or threatened breach of any of the covenants contained herein, the damage or imminent damage to the value and the goodwillof the Company’s business will be irreparable and extremely difficult to estimate, making any remedy at law or in damages inadequate. Accordingly,the parties agree that the Company shall be entitled to injunctive relief against Executive in the event of any breach or threatened breach of any suchprovisions by Executive, in addition to any other relief (including damage) available to the Company under this Agreement or under law.(b) Exclusive. Both parties agree that the remedy specified in Section 7.9(a) above is not exclusive of any other remedy for the breach byExecutive of the terms hereof.7.10. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the sameAgreement.Executed by the parties as follows:EXECUTIVE RETROPHIN, INC. By:/s/ Eric Dube, PhD By:/s/ Gary Lyons Date:January 4, 2019 Date:January 4, 2019 EXHIBIT AGENERAL RELEASE[To be signed on or after employment termination date]Pursuant to the terms of the Employment Agreement between Retrophin, Inc. (the “Company”) and _______ (“Executive”) dated January __, 2019 (the“Agreement”), the parties hereby enter into the following General Release (the “Release”):1. Accrued Salary and Vacation. Executive understands that, on the last date of Executive’s employment with the Company, the Company will payExecutive any accrued salary and accrued and unused vacation to which Executive is entitled by law, regardless of whether Executive signs thisRelease.2. General Release. Executive hereby generally and completely releases the Company and its directors, officers, employees, shareholders,partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively the “ReleasedParties”) of and from any and all claims, liabilities and obligations, both known and unknown, arising out of or in any way related to events, acts,conduct, or omissions occurring at any time prior to or at the time that Executive signs this Release.3. Scope of Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to Executive’semployment with the Company or the termination of that employment; (2) all claims related to Executive’s compensation or benefits from theCompany, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, orany other ownership or equity interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the impliedcovenant of good faith and fair dealing (including claims based on or arising under the Agreement); (4) all tort claims, including claims for fraud,defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims fordiscrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federalAmericans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal Family and MedicalLeave Act, the California Labor Code (as amended), the California Family Rights Act, and the California Fair Employment and Housing Act (asamended).4. ADEA Waiver. Executive acknowledges that Executive is knowingly and voluntarily waiving and releasing any rights Executive may have underthe ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to whichExecutive is already entitled. If Executive is age 40 or older upon execution of this Release, Executive further acknowledges that Executive has beenadvised by this writing that, (1) Executive’s waiver and release do not apply to any rights or claims that may arise after the date Executive signs thisRelease; (2) Executive should consult with an attorney prior to signing this Release (although Executive may choose voluntarily not to do so); (3)Executive has twenty-one (21) days to consider this Release (although Executive may choose voluntarily to sign it earlier); (4) Executive has seven(7) days following the date Executive signs this Release to revoke it by providing written notice of revocation to the Company’s General Counsel;and (5) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after thedate Executive signs it provided that Executive does not revoke it. If Executive is under 40 years of age upon execution of this Release, the Releasewill be effective upon signing and not revocable.5. Waiver of Unknown Claims. EXECUTIVE UNDERSTANDS THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN ANDUNKNOWN CLAIMS. Executive acknowledges that Executive has read and understands Section 1542 of the California Civil Code which reads asfollows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executingthe release, which if known by him or her must have materially affected his or her settlement with the debtor.” Executive hereby expressly waives andrelinquishes all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to Executive’srespective release of claims herein, including but not limited to Executive’s release of unknown and unsuspected claims.6. Excluded Claims. Executive understands that notwithstanding the foregoing, the following are not included in the Released Claims (the“Excluded Claims”): (i) any rights or claims for indemnification Executive may have pursuant to any written indemnification agreement to which he isa party, the charter, bylaws, or operating agreements of any of the Released Parties, or under applicable law; or (ii) any rights which are notwaivable as a matter of law. In addition, Executive understands that nothing in this release prevents Executive from filing, cooperating with, orparticipating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, or any similar government agency,except that Executive acknowledges and agrees that Executive shall not recover any monetary benefits in connection with any such claim, charge orproceeding with regard to any claim released herein. Executive hereby represents and warrants that, other than the Excluded Claims, Executive isnot aware of any claims he has or might have against any of the Released Parties that are not included in the Released Claims.7. Executive Representations. Executive hereby represents that Executive has been paid all compensation owed and for all hours worked;Executive has received all the leave and leave benefits and protections for which Executive is eligible, pursuant to the Family and Medical LeaveAct, the California Family Rights Act, or otherwise; and Executive has not suffered any on-the-job injury for which Executive has not already filed aworkers’ compensation claim.8. Nondisparagement. Executive agrees not to disparage the Company, its parent, or its or their officers, directors, employees, shareholders,affiliates and agents, in any manner likely to be harmful to its or their business, business reputation, or personal reputation (although Executive mayrespond accurately and fully to any question, inquiry or request for information as required by legal process).9. Cooperation. Executive agrees not to voluntarily (except in response to legal compulsion) assist any third party in bringing or pursuing anyproposed or pending litigation, arbitration, administrative claim or other formal proceeding against the other party, or against the Company’s parentor subsidiary entities, affiliates, officers, directors, employees or agents. Executive further agrees to reasonably cooperate with the other party, byvoluntarily (without legal compulsion) providing accurate and complete information, in connection with such other party’s actual or contemplateddefense, prosecution, or investigation of any claims or demands by or against third parties, or other matters, arising from events, acts, or failures toact that occurred during the period of Executive’s employment by the Company.10. No Admission of Liability. The parties agree that this Release, and performance of the acts required by it, does not constitute an admission ofliability, culpability, negligence or wrongdoing on the part of anyone, and will not be construed for any purpose as an admission of liability,culpability, negligence or wrongdoing by any party and/or by any party’s current, former or future parents, subsidiaries, related entities,predecessors, successors, officers, directors, shareholders, agents, employees and assigns. The parties specifically acknowledge and agree thatthis Release is a compromise of disputed claims and that the Company denies any liability for any matter released herein.EXECUTIVE RETROPHIN, INC. By: By: Date: Date: Exhibit 10.35EMPLOYMENT AGREEMENTTHIS EMPLOYMENT AGREEMENT is effective as of the last date signed by the parties hereto (the “Effective Date”) and is entered intoby and between Retrophin, Inc., a Delaware corporation (hereinafter the “Company”), and Noah Rosenberg, M.D. (hereinafter “Executive”).R E C I T A L SWHEREAS, The Company and Executive wish to set forth in this Agreement the terms and conditions under which Executive will beemployed by the Company on and after the Effective Date hereof;NOW, THEREFORE, the Company and Executive, in consideration of the mutual promises set forth herein, agree as follows:Article 1NATURE OF EMPLOYMENT1.1 Effect of Agreement. This Agreement shall govern the terms of Executive’s employment with the Company on and after theEffective Date until it is terminated by either the Company or Executive pursuant to the terms set forth in Article 6. Executive shall report directlyto the Chief Executive Officer of the Company (the “CEO”).1.2 At-Will Employment. Executive shall continue to be employed on an at-will basis by the Company and therefore either Executive orthe Company may terminate the employment relationship and this Agreement at any time, with or without Cause (as defined herein) and with orwithout advance notice, subject to the provisions of Article 6.Article 2EMPLOYMENT DUTIES2.1 Title/Responsibilities. Executive agrees to serve the Company in the position of Chief Medical Officer. Executive shall have thepowers and duties commensurate with such position.2.2 Full Time Attention. Executive shall devote his best efforts and his full business time and attention to the performance of theservices customarily incident to such office and to such other services as the CEO or Board of Directors may reasonably request.2.3 Other Activities. Except upon the prior written consent of the CEO, Executive shall not during the period of employment engage,directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or thatmight place him in a competing position to that of the Company or any other corporation or entity that directly or indirectly controls, is controlledby, or is under common control with the Company, provided that Executive may own less than two percent (2%) of the outstanding securities ofany such publicly traded competing corporation.Article 3COMPENSATION3.1 Base Salary. Executive shall receive a Base Salary at an annual rate of $425,000, payable semi-monthly in equal installments inaccordance with the Company’s normal payroll practices. The CEO shall provide Executive with annual performance reviews, and, thereafter,Executive shall be entitled to such increase in Base Salary as the Compensation Committee of the Board of Directors (the “CompensationCommittee”) may from time to time establish in its sole discretion.13.2 Incentive Bonus. In addition to any other bonus Executive shall be awarded by the Compensation Committee, Executive shall beeligible to receive an annual incentive bonus as determined by the Compensation Committee and CEO based upon the achievement by theCompany of annual corporate goals established by the Board of Directors or the Compensation Committee and Executive’s individual performanceduring the applicable year. Executive’s annual incentive bonus at target will be 50% of Executive’s Base Salary (the “Target Annual Bonus”). TheCompensation Committee in consultation with the independent members of the Board of Directors shall, in its sole discretion, determine whetherthe annual corporate goals have been attained. Any annual incentive bonus shall be considered earned only if Executive is employed by theCompany on the date that the determination is made as to whether annual corporate goals have been met. This determination generally will bemade within the first quarter following the end of the Company’s fiscal year. Except as provided in Article 6 herein, no pro-rata bonus will beconsidered earned if Executive leaves the Company for any reason prior to the foregoing determination date. Any annual incentive bonus that isearned shall be paid no later than the fifteenth day of the third month following the end of the Company’s fiscal year for which such bonus wasearned.3.3 Equity.(a) Subject to approval by the Board of Directors or Compensation Committee, the Company will grant Executive the followingequity awards (collectively, the “Initial Equity Awards”): (i) a stock option to purchase 65,000 shares of Company common stock, (ii) aperformance-based restricted stock unit award covering 10,000 shares of Company common stock, and (iii) a time-based restricted stock unitaward covering 10,000 shares of Company common stock. The stock option is a non-qualified stock option, has a 10-year term and will vest overfour years, with one-fourth vesting on the one-year anniversary of the grant date and the remaining three-fourths vesting over the following threeyears in 36 equal monthly installments. The performance-based restricted stock unit award will vest upon the Company’s achievement ofregulatory and clinical development milestones specified in the applicable equity award agreement; provided, however, that no portion of theperformance-based restricted stock unit award will vest prior to the one-year anniversary of the grant date, and provided further that the grant willexpire on May 10, 2022 to the extent the specified clinical and regulatory milestones are not achieved by such date. The time-based restrictedstock unit award will vest over four years, with one-fourth vesting on each anniversary of the grant date. The vesting of each Initial Equity Award issubject to Executive’s continued employment through the applicable vesting dates, and is subject to accelerated vesting in certain circumstancespursuant to Article 6 below. Each of the Initial Equity Awards is intended to be a material inducement to Executive’s acceptance of the Company’soffer of employment with the Company, and will be granted outside the Company’s 2018 Equity Incentive Plan (the “2018 Plan”) but pursuant to theterms of the 2018 Plan as if such awards were granted under the 2018 Plan.(b) Subject to approval by the Compensation Committee, in consultation with the independent members of the Board ofDirectors, Executive will be eligible to receive additional Stock Awards on terms to be determined by the Compensation Committee at the time ofany such grant. The determination whether to grant any additional Stock Award to Executive is in the sole discretion of the CompensationCommittee, in consultation with the independent members of the Board of Directors. For all purposes of this Agreement, “Stock Awards” shallmean any rights granted by the Company to Executive with respect to the common stock of the Company, including, without limitation, the InitialEquity Awards and other stock options, stock appreciation rights, restricted stock, stock bonuses and restricted stock units.3.4 Inducement Advance. Executive shall receive a one-time cash inducement advance (the “Inducement Advance”) in the totalamount of $100,000.00, subject to applicable withholding, which shall be deemed earned when Executive successfully completes two full years ofemployment from the Effective Date. The Inducement Advance shall be paid within thirty days following the Effective Date. Should Executive’semployment terminate within 12 months after the Effective Date either pursuant to a Voluntary Resignation (as set forth in Section 6.7 herein) orpursuant to a Termination by the Company for Cause (as set forth in Section 6.4 herein), Executive shall be required to repay to the Company100% of any amounts previously paid to him for the Inducement Advance, and hereby authorizes the Company to withhold any such amount fromExecutive’s final paycheck or other earned compensation. Should Executive’s employment terminate between 13 to 24 months after the EffectiveDate either pursuant to a Voluntary Resignation (as set forth in Section 6.7 herein) or pursuant to a Termination by the Company for Cause (as setforth in Section 6.4 herein), Executive shall be required to repay to the Company 50% of any amounts previously paid to him for the InducementAdvance, and hereby authorizes the Company to withhold any such amount from Executive’s final paycheck or other earned compensation.Should Executive’s employment terminate at any time pursuant to Sections 6.2, 6.3, 6.5, and 6.6 as set forth herein, Executive shall not berequired to repay any portion of the Inducement Advance previously paid to him.23.5 Relocation. Executive’s primary office location shall be the Company’s office located in San Diego, California, and as a condition ofemployment, Executive shall relocate to the San Diego area. Executive shall be eligible for reimbursement of certain out-of-pocket expensesincurred as a result of Executive’s permanent relocation to the San Diego area in accordance with the Company’s Relocation Policy Guidelines(such reimbursed amounts, if any, the “Relocation Payments”). Should Executive’s employment terminate within 12 months after the EffectiveDate either pursuant to a Voluntary Resignation (as set forth in Section 6.7 herein) or pursuant to a Termination by the Company for Cause (as setforth in Section 6.4 herein), Executive shall be required to repay to the Company 100% of any amounts previously paid to him for the RelocationPayments, and hereby authorizes the Company to withhold any such amount from Executive’s final paycheck or other earned compensation.Should Executive’s employment terminate between 13 to 24 months after the Effective Date either pursuant to a Voluntary Resignation (as setforth in Section 6.7 herein) or pursuant to a Termination by the Company for Cause (as set forth in Section 6.4 herein), Executive shall be requiredto repay to the Company 50% of any amounts previously paid to him for the Relocation Payments, and hereby authorizes the Company to withholdany such amount from Executive’s final paycheck or other earned compensation. Should Executive’s employment terminate at any time pursuantto Sections 6.2, 6.3, 6.5, and 6.6 as set forth herein, Executive shall not be required to repay any portion of the Relocation Payments previouslypaid to him.3.6 Withholdings. All compensation and benefits payable to Executive under this Agreement shall be subject to all federal, state, localtaxes and other withholdings and similar taxes and payments required by applicable law.Article 4EXPENSE ALLOWANCES AND FRINGE BENEFITS4.1 Vacation. Executive shall be eligible for all paid holidays recognized by the Company, and 20 days of paid vacation per annum,accrued at the rate of 1.67 days per month. Vacation days for the first calendar year of employment may be prorated. The Company provides forrollover of vacation from year to year up to an allowable maximum. Executive shall also be eligible for personal days and sick days consistent withthe Company’s policy.4.2 Benefits. During Executive’s employment hereunder, the Company shall also provide Executive with the health insurance benefits itgenerally provides to its other senior management employees. As Executive becomes eligible in accordance with applicable criteria adopted by theCompany, the Company shall provide Executive with the right to participate in and to receive benefit from life, accident, disability, medical, andsavings plans and similar benefits made available generally to employees of the Company as such plans and benefits may be adopted by theCompany. With respect to long-term disability insurance coverage, Executive will pay all premiums for such coverage with after-tax dollars, andthe Company will reimburse Executive for the premium costs so paid by Executive, which reimbursement benefit shall be taxable income, subjectto withholding. The amount and extent of benefits to which Executive is entitled shall be governed by the specific benefit plan as it may beamended from time to time.4.3 Business Expense Reimbursement. During the term of this Agreement, Executive shall be entitled to receive properreimbursement for all reasonable out-of-pocket expenses incurred by him (in accordance with the policies and procedures established by theCompany for its senior executive officers) in performing services hereunder. Executive agrees to furnish to the Company adequate records andother documentary evidence of such expense for which Executive seeks reimbursement. Such expenses shall be reimbursed and accounted forunder the policies and procedures established by the Company, and such reimbursement shall be made promptly, but in no event later thanDecember 31 of the calendar year following the year in which such expenses were incurred by Executive.Article 5CONFIDENTIALITY5.1 Confidential Information. Executive represents and warrants that he has previously executed and delivered to the Company theCompany’s standard Confidentiality Agreement.5.2 Return of Property. All documents, records, apparatus, equipment and other physical property which is furnished to or obtained byExecutive in the course of his employment with the Company shall be and remain the sole property of the Company. Executive agrees that, uponthe termination of his employment, he shall return all such3property (whether or not it pertains to Confidential Information as defined in the Confidentiality Agreement), and agrees not to make or retaincopies, reproductions or summaries of any such property.5.3 No Use of Prior Confidential Information. Executive will not intentionally disclose to the Company or use on its behalf anyconfidential information belonging to any of his former employers or any other third party.Article 6TERMINATION6.1 General. As set forth in Section 1.2 herein, Executive shall be employed on an at-will basis by the Company. Notwithstanding theforegoing, Executive’s employment and this Agreement may be terminated in one of six ways as set forth in this Article 6: (a) Executive’s Death(Section 6.2); (b) Executive’s Disability (Section 6.3); (c) Termination by the Company for Cause (Section 6.4); (d) Termination by the Companywithout Cause (Section 6.5); (e) Termination by Executive due to a Constructive Termination (Section 6.6); or (f) Voluntary Resignation (Section6.7).6.2 By Death. Executive’s employment and this Agreement shall terminate automatically upon the death of Executive. In such event:(a) Bonus. The Company shall pay to Executive’s beneficiaries or his estate, as the case may be, a lump sum amount equal toExecutive’s Target Annual Bonus (as defined in Section 3.2) for the Company’s fiscal year in which Executive’s death occurs multiplied by afraction, the numerator of which is the number of full months of employment by Executive in such fiscal year and the denominator of which is 12.Such amount shall be paid as soon as administratively practicable, but in no event later than March 15 following the year in which Executive’sdeath occurred.(b) Accrued Compensation. The Company shall pay to Executive’s beneficiaries or his estate, as the case may be, anyaccrued Base Salary, any vested deferred compensation (other than pension plan or profit-sharing plan benefits that will be paid in accordance withthe applicable plan), any benefits under any plans of the Company (other than pension and profit-sharing plans) in which Executive is a participantto the full extent of Executive’s rights under such plans, any accrued vacation pay and any appropriate business expenses incurred by Executivein connection with his duties hereunder, all to the date of termination (collectively “Accrued Compensation”).(c) No Severance Compensation. The compensation and benefits set forth in Sections 6.2(a) and (b) herein shall be the onlycompensation and benefits provided by the Company in the event of Executive’s death and no other severance compensation or benefits shall beprovided.6.3 By Disability. If Executive is prevented from performing his duties hereunder by reason of any physical or mental incapacity thatresults in Executive’s satisfaction of all requirements necessary to receive benefits under the Company’s long-term disability plan due to a totaldisability, then, to the extent permitted by law, the Company may terminate the employment of Executive and this Agreement at or after suchtime. In such event, and if Executive signs the General Release set forth as Exhibit A or such other form of release as the Company may require(the “Release”) on or within the time period set forth therein, but in no event later than forty-five (45) days after the termination date and allowssuch Release to become effective (the “Release Effective Date”), then:(a) Accrued Compensation. The Company shall pay to Executive all Accrued Compensation (as defined in Section 6.2(b)herein).(b) Base Salary Continuation. The Company shall continue to pay Executive’s Base Salary, less required withholdings, for aperiod of 12 months (the “Disability Base Salary Payments”) following Executive’s separation from service; provided that the Disability BaseSalary Payments shall be reduced by any insurance or other payments to Executive under policies and plans sponsored by the Company, even ifpremiums are paid by Executive. Subject to the provisions of Section 6.11, the Disability Base Salary Payments shall be paid in accordance withthe Company’s standard payroll practices; provided, however, that any amounts that would otherwise be scheduled to be paid prior to the ReleaseEffective Date shall instead accrue and be paid during the first payroll period following the Release Effective Date, and all other payments shall bemade as originally scheduled.(c) Bonus. The Company shall pay to Executive a lump sum amount equal to Executive’s Target4Annual Bonus (as defined in Section 3.2) for the Company’s then-current fiscal year multiplied by a fraction, the numerator of which is the numberof full months of employment by Executive in the current fiscal year and the denominator of which is 12. Such payment shall be made within ten(10) days following the Release Effective Date.(d) Stock Awards. The vesting of all outstanding Stock Awards held by Executive shall be accelerated such that the amount ofshares vested under such Stock Awards shall equal that number of shares that would have been vested if Executive had continued to renderservices to the Company for 12 continuous months after the date of Executive's termination of employment.(e) Health Insurance Benefits. To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and bythe Company’s current group health insurance policies, Executive will be eligible to continue Executive’s group health insurance benefits atExecutive’s own expense. If Executive timely elects continued coverage under COBRA, the Company shall pay Executive’s COBRA premiums,and any applicable Company COBRA premiums, necessary to continue Executive’s then-current coverage for a period of 12 months after the dateof Executive’s termination of employment; provided, however, that any such payments will cease if Executive voluntarily enrolls in a healthinsurance plan offered by another employer or entity during the period in which the Company is paying such premiums. Executive agrees toimmediately notify the Company in writing of any such enrollment.Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing benefit withoutpotentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act),the Company shall in lieu thereof provide to Executive a taxable monthly amount to continue his group health insurance coverage in effect on thedate of separation from service (which amount shall be based on the premium for the first month of COBRA coverage), which payments shall bemade regardless of whether Executive elects COBRA continuation coverage and shall commence in the month following the month in whichExecutive incurs a separation from service and shall end on the earlier of (x) the date on which Executive voluntarily enrolls in a health insuranceplan offered by another employer or entity during the period in which the Company is paying such amounts and (y) 12 months after the date ofExecutive’s separation from service.(f) Disability Plans. Nothing in this Section 6.3 shall affect Executive’s rights under any disability plan in which Executive is aparticipant.6.4 Termination by the Company for Cause.(a) No Liability. The Company may terminate Executive’s employment and this Agreement for Cause (as defined below)without liability at any time. In such event, the Company shall pay Executive all Accrued Compensation (as defined in Section 6.2(b) herein), butno other compensation or reimbursement of any kind, including without limitation, any severance compensation or benefits shall be paid, andthereafter the Company’s obligations hereunder shall terminate.(b) Definition of “Cause.” For purposes of this Agreement, “Cause” shall mean one or more of the following:(i) Executive’s intentional commission of an act, or intentional failure to act, that materially injures the business of theCompany; provided, however, that in no event shall any business judgment made in good faith by Executive and within Executive’s defined scopeof authority constitute a basis for termination for Cause under this Agreement;(ii) Executive’s intentional refusal or intentional failure to act in accordance with any lawful and proper direction or orderof the Board of Directors or the CEO;(iii) Executive’s material breach of Executive’s fiduciary, statutory, contractual, or common law duties to the Company(including any material breach of this Agreement, the Confidentiality Agreement, or the Company’s written policies);(iv) Executive’s indictment for or conviction of any felony or any crime involving dishonesty; or(v) Executive’s participation in any fraud or other act of willful misconduct against the Company;5provided, however, that in the event that any of the foregoing events is reasonably capable of being cured, the Company shall provide writtennotice to Executive describing the nature of such event and Executive shall thereafter have ten (10) business days to cure such event.6.5 Termination by the Company without Cause.(a) The Company’s Right. The Company may terminate Executive’s employment and this Agreement without Cause (asdefined in Section 6.4(b) herein) at any time by giving thirty (30) days advance written notice to Executive.(b) Severance Benefits. If the Company terminates Executive’s employment without Cause, and if Executive signs theRelease on or within the time period set forth therein (but in no event later than forty-five (45) days after the termination date) and allows suchRelease to become effective, then:(i) Accrued Compensation. The Company shall pay to Executive all Accrued Compensation (as defined in Section6.2(b) herein).(ii) Cash Compensation Amount Payments. The Company shall pay Executive an amount equal to (A) Executive’sannual Base Salary plus Executive’s Target Annual Bonus (as defined in Section 3.2 herein) multiplied by (B) 1.0 (the “Cash CompensationAmount”). Subject to the provisions of Section 6.11, the Cash Compensation Amount will be paid in equal installments on the Company’s standardpayroll dates over a period of 12 months following Executive’s separation from service; provided, however, that any amounts that would otherwisebe scheduled to be paid prior to the Release Effective Date shall instead accrue and be paid during the first payroll period following the ReleaseEffective Date, and all other payments shall be made as originally scheduled.(iii) Stock Awards. The vesting of all outstanding Stock Awards held by Executive shall be accelerated such that theamount of shares vested under such Stock Awards shall equal that number of shares that would have been vested if Executive had continued torender services to the Company for 12 continuous months after the date of Executive's termination of employment.(iv) Health Insurance Benefits. To the extent provided by the federal COBRA law or, if applicable, state insurancelaws, and by the Company’s current group health insurance policies, Executive will be eligible to continue Executive’s group health insurancebenefits at Executive’s own expense. If Executive timely elects continued coverage under COBRA, the Company shall pay Executive’s COBRApremiums, and any applicable Company COBRA premiums, necessary to continue Executive’s then-current coverage for a period of 12 monthsafter the date of Executive’s termination of employment; provided, however, that any such payments will cease if Executive voluntarily enrolls in ahealth insurance plan offered by another employer or entity during the period in which the Company is paying such premiums. Executive agrees toimmediately notify the Company in writing of any such enrollment.Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing benefit withoutpotentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act),the Company shall in lieu thereof provide to Executive a taxable monthly amount to continue his group health insurance coverage in effect on thedate of separation from service (which amount shall be based on the premium for the first month of COBRA coverage), which payments shall bemade regardless of whether Executive elects COBRA continuation coverage and shall commence in the month following the month in whichExecutive incurs a separation from service and shall end on the earlier of (x) the date on which Executive voluntarily enrolls in a health insuranceplan offered by another employer or entity during the period in which the Company is paying such amounts and (y) 12 months after the date ofExecutive’s separation from service.6.6 Termination by Executive due to a Constructive Termination.(a) Executive’s Right. Executive may resign his employment and terminate this Agreement at any time as a result of aConstructive Termination (as defined in Section 6.6(c) herein).(b) Severance Benefits. If Executive resigns his employment and terminates this Agreement as a result of a ConstructiveTermination, and if Executive signs the Release on or within the time period set forth therein (but in no event later than forty-five (45) days after thetermination date) and allows such Release to become effective, then Executive shall receive all of the severance benefits set forth in Section6.5(b) herein.6(c) Definition of “Constructive Termination.” For purposes of this Agreement, “Constructive Termination” shall mean aresignation of employment and termination of this Agreement by Executive for one or more of the following reasons:(i) Assignment to, or withdrawal from, Executive of any duties or responsibilities that results in a material diminution insuch Executive’s authority, duties or responsibilities as in effect immediately prior to such change;(ii) A material diminution in the authority, duties or responsibilities of the supervisor to whom Executive is required toreport;(iii) A material reduction by the Company of Executive’s annual Base Salary;(iv) A relocation of Executive or the Company’s principal executive offices if Executive’s principal office is at suchoffices, to a location more than forty (40) miles from the location at which Executive is then performing his duties, except for an opportunity torelocate which is accepted by Executive in writing; or(v) A material breach by the Company of any provision of this Agreement or any other enforceable written agreementbetween Executive and the Company;provided however, that Executive must first provide the Company with written notice specifying the condition giving rise to a ConstructiveTermination within ninety (90) days following the initial existence of such condition; and Executive’s notice must specify that Executive intends toterminate his employment no earlier than thirty (30) days after providing such notice, and the Company must be given an opportunity to cure suchcondition within thirty (30) days following its receipt of such notice and avoid paying benefits.6.7 Voluntary Resignation. Executive may resign his employment and terminate this Agreement at any time for any reason other thandue to a Constructive Termination (as defined in Section 6.6(c) herein). In such event the Company shall pay Executive all Accrued Compensation(as defined in Section 6.2(b) herein), but no other compensation or reimbursement of any kind, including without limitation, any severancecompensation or benefits shall be paid, and thereafter the Company’s obligations hereunder shall terminate.6.8 Change in Control.(a) Severance Benefits. If (i) within three (3) months prior to, or on or within twelve (12) months after, the consummation of aChange in Control (as defined in Section 6.8(b) herein), (1) the Company terminates Executive’s employment and this Agreement without Causepursuant to Section 6.5 herein or (2) Executive resigns his employment and terminates this Agreement as a result of a Constructive Terminationpursuant to Section 6.6 herein, and (ii) in either event (1) or (2), Executive signs the Release on or within the time period set forth therein, but in noevent later than forty-five (45) days after the termination date and allows such Release to become effective, then Executive shall receive thefollowing severance benefits in lieu of any severance benefits set forth in Section 6.5(b) or Section 6.6(b) herein:(i) Accrued Compensation. The Company shall pay to Executive all Accrued Compensation (as defined in Section6.2(b) herein).(ii) CIC Cash Compensation Amount Payment. The Company shall pay Executive an amount equal to (A)Executive’s annual Base Salary plus Executive’s Target Annual Bonus (as defined in Section 3.2 herein) multiplied by (B) 1.5 (collectively, the“CIC Cash Compensation Amount”). The CIC Cash Compensation Amount will be paid in one lump sum within ten (10) days following the ReleaseEffective Date.(iii) Stock Awards. The vesting of all outstanding Stock Awards held by Executive shall be accelerated in full, effectiveas of the Release Effective Date.(iv) Health Insurance Benefits. To the extent provided by the federal COBRA law or, if applicable, state insurancelaws, and by the Company’s current group health insurance policies, Executive will be eligible to continue Executive’s group health insurancebenefits at Executive’s own expense. If Executive timely elects continued coverage under COBRA, the Company shall pay Executive’s COBRApremiums, and any applicable Company COBRA premiums, necessary to continue Executive’s then-current coverage for a period of 18 monthsafter7the date of Executive’s termination of employment; provided, however, that any such payments will cease if Executive voluntarily enrolls in ahealth insurance plan offered by another employer or entity during the period in which the Company is paying such premiums. Executive agrees toimmediately notify the Company in writing of any such enrollment.Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing benefit withoutpotentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act),the Company shall in lieu thereof provide to Executive a taxable monthly amount to continue his group health insurance coverage in effect on thedate of separation from service (which amount shall be based on the premium for the first month of COBRA coverage), which payments shall bemade regardless of whether Executive elects COBRA continuation coverage and shall commence in the month following the month in whichExecutive incurs a separation from service and shall end on the earlier of (x) the date on which Executive voluntarily enrolls in a health insuranceplan offered by another employer or entity during the period in which the Company is paying such amounts and (y) 18 months after the date ofExecutive’s separation from service.(b) For purposes of this Agreement, a “Change in Control” shall have occurred if at any time following the Effective Date, any ofthe following events shall occur:(i) The Company is merged, or consolidated, or reorganized into or with another corporation or other legal person, andas a result of such merger, consolidation or reorganization less than 50% of the combined voting power of the then-outstanding securities of suchcorporation or person immediately after such transaction are held in the aggregate by the holders of voting securities of the Company immediatelyprior to such transaction;(ii) The Company sells all or substantially all of its assets or any other corporation or other legal person and thereafter,less than 50% of the combined voting power of the then-outstanding voting securities of the acquiring or consolidated entity are held in theaggregate by the holders of voting securities of the Company immediately prior to such sale;(iii) There is a report filed after the date of this Agreement on Schedule 13D or Schedule 14D-1 (or any successorschedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) disclosing that any person(as the term “person” is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term beneficialowner is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) representing 50% or more of thecombined voting power of the then-outstanding voting securities of the Company; or(iv) During any period of two (2) consecutive years following the Effective Date, individuals who at the beginning of anysuch period constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election to thenomination for election by the Company’s shareholders of each director of the Company first elected during such period was approved by a vote ofat least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of such period.6.9 Mitigation. Except as otherwise specifically provided herein, Executive shall not be required to mitigate the amount of any paymentprovided under this Agreement by seeking other employment or self-employment, nor shall the amount of any payment provided for under thisAgreement be reduced by any compensation earned by Executive as a result of employment by another employer or through self-employment orby retirement benefits after the date of Executive’s termination of employment from the Company, except as provided herein.6.10 Coordination. If upon termination of employment, Executive becomes entitled to rights under other plans, contracts orarrangements entered into by the Company, this Agreement shall be coordinated with such other arrangements so that Executive’s rights underthis Agreement are not reduced, and that any payments under this Agreement offset the same types of payments otherwise provided under suchother arrangements, but do not otherwise reduce any payments or benefits under such other arrangements to which Executive becomes entitled.6.11 Application of Section 409A. Notwithstanding anything to the contrary herein, the following provisions apply to the extentseverance benefits provided herein are subject to Section 409A of the Code and the regulations and other guidance thereunder and any state lawof similar effect (collectively “Section 409A”). Severance benefits shall not commence until Executive has a “separation from service” for purposesof Section 409A. If Executive is a “specified employee” within the meaning of 409A(a)(2)(B)(i) of the Code, any installment payments of Disability8Base Salary Payments pursuant to Section 6.3(b) or Cash Compensation Amounts pursuant to Section 6.5(b) or 6.6(b) that are triggered by aseparation from service shall be accelerated to the minimum extent necessary so that (a) the lesser of (y) the total cash severance paymentamount, or (z) six (6) months of such installment payments are paid no later than March 15 of the calendar year following such termination, and (b)all amounts paid pursuant to the foregoing clause (a) will constitute separate payments for purposes of Section 1.409A-2(b)(2) of the TreasuryRegulations and thus will be payable pursuant to the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations. It isintended that if Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code at the time of such separation fromservice the foregoing provision shall result in compliance with the requirements of Section 409A(a)(2)(B)(i) of the Code because payments toExecutive will either be payable pursuant to the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations or will notbe paid until at least 6 months after separation from service. The severance benefits are intended to qualify for an exemption from application ofSection 409A or comply with its requirements to the extent necessary to avoid adverse personal tax consequences under Section 409A, and anyambiguities herein shall be interpreted accordingly.6.12 Parachute Payments.(a) If any payment or benefit (including payments or benefits pursuant to this Agreement) that Executive would receive inconnection with a Change in Control or otherwise (“Payment”) would (1) constitute a “parachute payment” within the meaning of Section 280G ofthe Code, and (2) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Paymentshall be equal to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest portion of the Payment that would result in no portionof the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, aftertaking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highestapplicable marginal rate), results in Executive's receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or someportion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting "parachute payments" is necessaryso that the Payment equals the Reduced Amount, Executive shall have no rights to any additional payments and/or benefits, and reduction shalloccur in the manner that results in the greatest economic benefit for Executive. If more than one method of reduction will result in the sameeconomic benefit, the items so reduced will be reduced pro rata.(b) In the event it is subsequently determined by the Internal Revenue Service that some portion of the Reduced Amount asdetermined pursuant to clause (x) in the preceding paragraph is subject to the Excise Tax, Executive agrees to promptly return to the Company asufficient amount of the Payment so that no portion of the Reduced Amount is subject to the Excise Tax. For the avoidance of doubt, if theReduced Amount is determined pursuant to clause (y) in the preceding paragraph, Executive will have no obligation to return any portion of thePayment pursuant to the preceding sentence.(c) The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior tothe effective date of the event described in Section 280G(b)(2)(A)(i) of the Code will perform the foregoing calculations. If the independentregistered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting suchChange in Control or similar transaction, the Company will appoint a nationally recognized independent registered public accounting firm to makethe determinations required hereunder. The Company will bear all expenses with respect to the determinations by such independent registeredpublic accounting firm required to be made hereunder. Any good faith determinations of the independent registered public accounting firm madehereunder will be final, binding and conclusive upon the Company and you.Article 7GENERAL PROVISIONS7.1 Governing Law. The validity, interpretation, construction and performance of this Agreement and the rights of the parties thereundershall be interpreted and enforced under California law without reference to principles of conflicts of laws.7.2 Assignment; Successors; Binding Agreement.(a) No Assignment. Executive may not assign, pledge or encumber his interest in this Agreement or any part thereof.9(b) Assumption by Successor. The Company will require any successor (whether direct or indirect, by purchase, merger,consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by operation of law or by agreement in formand substance reasonably satisfactory to Executive, to assume and agree to perform this Agreement in the same manner and to the same extentthat the Company would be required to perform it if no such succession had taken place.(c) Binding Agreement. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legalrepresentatives, executors, administrators, successors, heirs, distributee, devisees and legatees. If Executive should die while any amount is atsuch time payable to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of thisAgreement to Executive’s devisee, legates or other designee or, if there be no such designee, to his estate.7.3 Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writingand shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid,addressed to the respective addresses set forth below or to such other address as either party may have furnished to the other in writing inaccordance herewith, except that notice of change of address shall be effective only upon receipt.To the Company:Retrophin, Inc.3721 Valley Centre Drive, Suite 250San Diego, CA 92130To Executive:____________7.4 Modification; Waiver; Entire Agreement. This Agreement constitutes the complete, final and exclusive embodiment of the entireagreement between Executive and the Company with regard to this subject matter. It is entered into without reliance on any promise orrepresentation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties orrepresentations. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreedto in writing signed by Executive and such officer as may be specifically designated by the Board of Directors of the Company. No waiver by eitherparty hereto at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed bysuch other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time.7.5 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of anyother provision of this Agreement, which shall remain in full force and effect.7.6 Controlling Document. Except to the extent described in Section 6.10, in case of conflict between any of the terms and conditionsof this Agreement and any document herein referred to, the terms and conditions of this Agreement shall control.7.7 Executive Acknowledgment. Executive acknowledges (a) that he has consulted with or has had the opportunity to consult withindependent counsel of his own choice concerning this Agreement, and has been advised to do so by the Company, and (b) that he has read andunderstands the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment.7.8 Dispute Resolution. To ensure the rapid and economical resolution of disputes that may arise in connection with Executive’semployment, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating tothe enforcement, breach, performance, execution, or interpretation of this Agreement, Executive’s employment, or the termination of thatemployment, shall be resolved, to the fullest extent permitted by law pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, by final, binding andconfidential arbitration in San Diego, California conducted before a single arbitrator by Judicial Arbitration and Mediation Services, Inc. (“JAMS”) orits successor, under the then applicable JAMS rules; provided, however, that in no event shall the Arbitrator be empowered to hear or determineany class or collective claim of any type. The JAMS rules can be found online at www.jamsadr.com. By agreeing to this arbitration procedure, bothExecutive and the Company10waive the right to resolve any such dispute through a trial by jury or judge or by administrative proceeding. The arbitrator shall: (a) have theauthority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b)issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The Company shallpay all of JAMS’ arbitration fees. Nothing in this letter agreement shall prevent either Executive or the Company from obtaining injunctive relief incourt if necessary to prevent irreparable harm pending the conclusion of any arbitration. The parties agree that the arbitrator shall award reasonableattorneys’ fees, costs, and all other related expenses to the prevailing party in any action brought hereunder, and the arbitrator shall havediscretion to determine the prevailing party in an arbitration where multiple claims may be at issue.7.9 Remedies.(a) Injunctive Relief. The parties agree that the services to be rendered by Executive hereunder are of a unique nature and thatin the event of any breach or threatened breach of any of the covenants contained herein, the damage or imminent damage to the value and thegoodwill of the Company’s business will be irreparable and extremely difficult to estimate, making any remedy at law or in damages inadequate.Accordingly, the parties agree that the Company shall be entitled to injunctive relief against Executive in the event of any breach or threatenedbreach of any such provisions by Executive, in addition to any other relief (including damage) available to the Company under this Agreement orunder law.(b) Exclusive. Both parties agree that the remedy specified in Section 7.9(a) above is not exclusive of any other remedy for thebreach by Executive of the terms hereof.7.10 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one andthe same Agreement.11Executed by the parties as follows:EXECUTIVE RETROPHIN, INC. By:Noah Rosenberg, M.D. By:Stephen Aselage Date:December 21, 2018 Date:July 26, 2018 12EXHIBIT AGENERAL RELEASE[To be signed on or after employment termination date]Pursuant to the terms of the Employment Agreement between Retrophin, Inc. (the “Company”) and Noah Rosenberg, M.D. (“Executive”) dated____, 2018 (the “Agreement”), the parties hereby enter into the following General Release (the “Release”):1. Accrued Salary and Vacation. Executive understands that, on the last date of Executive’s employment with the Company, theCompany will pay Executive any accrued salary and accrued and unused vacation to which Executive is entitled by law, regardless of whetherExecutive signs this Release.2. General Release. Executive hereby generally and completely releases the Company and its directors, officers, employees,shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectivelythe “Released Parties”) of and from any and all claims, liabilities and obligations, both known and unknown, arising out of or in any way related toevents, acts, conduct, or omissions occurring at any time prior to or at the time that Executive signs this Release.3. Scope of Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to Executive’semployment with the Company or the termination of that employment; (2) all claims related to Executive’s compensation or benefits from theCompany, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options,or any other ownership or equity interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the impliedcovenant of good faith and fair dealing (including claims based on or arising under the Agreement); (4) all tort claims, including claims for fraud,defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims fordiscrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federalAmericans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal Family and MedicalLeave Act, the California Labor Code (as amended), the California Family Rights Act, and the California Fair Employment and Housing Act (asamended).4. ADEA Waiver. Executive acknowledges that Executive is knowingly and voluntarily waiving and releasing any rights Executive mayhave under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value towhich Executive is already entitled. If Executive is age 40 or older upon execution of this Release, Executive further acknowledges that Executivehas been advised by this writing that, (1) Executive’s waiver and release do not apply to any rights or claims that may arise after the dateExecutive signs this Release; (2) Executive should consult with an attorney prior to signing this Release (although Executive may choosevoluntarily not to do so); (3) Executive has twenty-one (21) days to consider this Release (although Executive may choose voluntarily to sign itearlier); (4) Executive has seven (7) days following the date Executive signs this Release to revoke it by providing written notice of revocation tothe Company’s Chief Executive Officer; and (5) this Release will not be effective until the date upon which the revocation period has expired,which will be the eighth calendar day after the date Executive signs it provided that Executive does not revoke it. If Executive is under 40 years ofage upon execution of this Release, the Release will be effective upon signing and not revocable.5. Waiver of Unknown Claims. EXECUTIVE UNDERSTANDS THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWNAND UNKNOWN CLAIMS. Executive acknowledges that Executive has read and understands Section 1542 of the California Civil Code whichreads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the timeof executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” Executive herebyexpressly waives and relinquishes all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction withrespect to Executive’s respective release of claims herein, including but not limited to Executive’s release of unknown and unsuspected claims.6. Excluded Claims. Executive understands that notwithstanding the foregoing, the following are not included in the Released Claims(the “Excluded Claims”): (i) any rights or claims for indemnification Executive may have pursuant to any written indemnification agreement to whichhe is a party, the charter, bylaws, or operating agreements of any of the Released Parties, or under applicable law; or (ii) any rights which are notwaivable as a matter of law. In addition, Executive understands that nothing in this release prevents Executive from filing, cooperating13with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, or any similargovernment agency, except that Executive acknowledges and agrees that Executive shall not recover any monetary benefits in connection withany such claim, charge or proceeding with regard to any claim released herein. Executive hereby represents and warrants that, other than theExcluded Claims, Executive is not aware of any claims he has or might have against any of the Released Parties that are not included in theReleased Claims.7. Executive Representations. Executive hereby represents that Executive has been paid all compensation owed and for all hoursworked; Executive has received all the leave and leave benefits and protections for which Executive is eligible, pursuant to the Family and MedicalLeave Act, the California Family Rights Act, or otherwise; and Executive has not suffered any on-the-job injury for which Executive has not alreadyfiled a workers’ compensation claim.8. Nondisparagement. Executive agrees not to disparage the Company, its parent, or its or their officers, directors, employees,shareholders, affiliates and agents, in any manner likely to be harmful to its or their business, business reputation, or personal reputation (althoughExecutive may respond accurately and fully to any question, inquiry or request for information as required by legal process).9. Cooperation. Executive agrees not to voluntarily (except in response to legal compulsion) assist any third party in bringing orpursuing any proposed or pending litigation, arbitration, administrative claim or other formal proceeding against the other party, or against theCompany’s parent or subsidiary entities, affiliates, officers, directors, employees or agents. Executive further agrees to reasonably cooperate withthe other party, by voluntarily (without legal compulsion) providing accurate and complete information, in connection with such other party’s actualor contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters, arising from events,acts, or failures to act that occurred during the period of Executive’s employment by the Company.10. No Admission of Liability. The parties agree that this Release, and performance of the acts required by it, does not constitute anadmission of liability, culpability, negligence or wrongdoing on the part of anyone, and will not be construed for any purpose as an admission ofliability, culpability, negligence or wrongdoing by any party and/or by any party’s current, former or future parents, subsidiaries, related entities,predecessors, successors, officers, directors, shareholders, agents, employees and assigns. The parties specifically acknowledge and agree thatthis Release is a compromise of disputed claims and that the Company and Executive denies any liability for any matter released herein.EXECUTIVE RETROPHIN, INC. By: By: Date: Date: 14EXExhibit 21.1RETROPHIN, INC.LIST OF SUBSIDIARIESNo. Name1 Retrophin Pharmaceutical, Inc.2 Retrophin Therapeutics I, Inc.3 Retrophin Therapeutics II, Inc.4 Retrophin Europe Ltd5 Retrophin International Holdings Ltd6 RTRX International CV7 Retrophin Therapeutics International LLC8 US LLC 29 Retrophin Research Ltd10 Retrophin US Holdings LLC11 Manchester Pharmaceuticals LLC12 Centurion Merger Sub, Inc.13 [10-em856580]Exhibit 23.1Consent of Independent Registered Public Accounting FirmRetrophin, Inc.San Diego, CaliforniaWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-227182, 333-202861 and 333-198648) and Form S-8 (Nos. 333-224848, 333-218582, 333-213599, 333-206510 and 333-200224) of Retrophin, Inc. of our reports dated February 26, 2019, relating to the consolidated financial statements andthe effectiveness of Retrophin, Inc.’s internal control over financial reporting, which appear in this Form 10-K./s/ BDO USA, LLPNew York, New YorkFebruary 26, 2019Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a) I, Eric M. Dube, certify that:1.I have reviewed this Annual Report on Form 10-K of Retrophin, 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 the statements made, in light ofthe circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results ofoperations 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 in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in whichthis report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (theregistrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors andthe 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 reasonably likely to adversely affectthe 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 control over financialreporting.Date: February 26, 2019/s/ Eric M. Dube Eric M. Dube Chief Executive Officer (Principal Executive Officer)Exhibit 31.2 CERTIFICATION OFCHIEF FINANCIAL OFFICERPURSUANT TO EXCHANGE ACT RULE 13a-14(a) OR 15d-14(a) I, Laura Clague, certify that:1.I have reviewed this Annual Report on Form 10-K of Retrophin, 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 the statements made, in light ofthe circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results ofoperations 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 in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in whichthis report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (theregistrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors andthe 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 reasonably likely to adversely affectthe 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 control over financialreporting.Date: February 26, 2019/s/ Laura Clague Laura Clague Chief Financial Officer (Principal Financial Officer) Exhibit 32.1 CERTIFICATION OFCHIEF EXECUTIVE OFFICERPURSUANT TO 18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-K of Retrophin, Inc. (the “Company”), for the period ended December 31, 2018 (the “Report”), the undersignedofficer of the Company hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’sknowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: February 26, 2019/s/ Eric M. Dube Eric M. Dube Chief Executive Officer (Principal Executive Officer)Exhibit 32.2 CERTIFICATION OFCHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-K of Retrophin, Inc. (the “Company”), for the period ended December 31, 2018 (the “Report”), the undersignedofficer of the Company hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’sknowledge:1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2.The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: February 26, 2019/s/ Laura Clague Laura Clague Chief Financial Officer (Principal Financial Officer)

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