Sophiris Bio Inc.
Annual Report 2017

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549 FORM 10-K (Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017 ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission file number: 001-36054 Sophiris Bio Inc.(Exact name of registrant as specified in its charter) British Columbia98-1008712(State or Other Jurisdiction of(I.R.S. EmployerIncorporation or Organization)Identification No.) 1258 Prospect Street, La Jolla, California92037(Address of Principal Executive Offices)(Zip Code) 858-777-1760(Registrant’s Telephone Number, Including Area Code) Indicate by check mark if the registrant is a well-known season issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of1934. Yes ☐ No ☒ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐ Table of Contents Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, andwill not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. ☐ Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or anemerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growthcompany” in Rule 12b-2 of the Exchange Act. Large accelerated filer☐Accelerated filer☐ Non-accelerated filer☐ (Do not check if a smaller reporting company)Smaller reporting company☒ 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 anynew or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No As of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’scommon shares held by non-affiliates of the registrant was approximately $66.1 million, based on the closing price of the registrant’s common shares onThe NASDAQ Capital Market on June 30, 2017 of $2.20. As of March 8, 2018, the registrant had 30,111,153 common shares (no par value) outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive Proxy Statement for the 2018 Annual Meeting of Shareholders to be filed with the Securities and ExchangeCommission by April 30, 2018 are incorporated by reference into Part III of this report. Table of Contents SOPHIRIS BIO INC.TABLE OF CONTENTS Page PART I.Item 1.Business1Item 1A.Risk Factors26Item 1B.Unresolved Staff Comments53Item 2.Properties53Item 3.Legal Proceedings53Item 4.Mine Safety Disclosures53 PART II.Item 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities54Item 6.Selected Financial Data55Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations56Item 7A.Quantitative and Qualitative Disclosures About Market Risk70Item 8.Financial Statements and Supplementary Data71Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure96Item 9A.Controls and Procedures96Item 9B.Other Information96 PART III.Item 10.Directors, Executive Officers and Corporate Governance97Item 11.Executive Compensation97Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters97Item 13.Certain Relationships and Related Transactions, and Director Independence97Item 14.Principal Accounting Fees and Services97 PART IV.Item 15.Exhibits, Financial Statement Schedules98Signatures102 Table of Contents PART I. FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K and the information incorporated herein by reference contain forward-looking statements that involve anumber of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements canonly be based on facts and factors currently known by us. Consequently, these forward-looking statements are inherently subject to risks anduncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements. Forward-looking statements include statements about our strategies, objectives, discoveries, clinical trials, development programs, financialforecasts and other statements that are not historical facts, including statements which may be preceded by the words “intend,” “will,” “plan,”“expect,” “anticipate,” “estimate,” “aim,” “seek,” “suggest,” “may,” “believe,” “hope” or similar words. Similarly, statements that describe our futureplans, strategies, intentions, expectations, objectives, goals or prospects and other statements that are not historical facts are also forward-lookingstatements. These statements include but are not limited to statements under the captions “Business,” “Risk Factors,” and “Management’s Discussionand Analysis of Financial Condition and Results of Operations” as well as other sections in this Annual Report on Form 10-K. You should be aware thatthe occurrence of any of the events discussed under the heading “Item 1A. Risk Factors” and elsewhere in this report could substantially harm ourbusiness, results of operations and financial condition and that if any of these events occurs, the trading price of our common shares could decline andyou could lose all or a part of the value of your common shares. The cautionary statements made in this report are intended to be applicable to allrelated forward-looking statements wherever they may appear in this Annual Report on Form 10-K. We urge you not to place undue reliance on theseforward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. Except as required by law, we assume no obligation toupdate our forward-looking statements, even if new information becomes available in the future. All dollar amounts are expressed in U.S. dollars unless otherwise noted. All amounts are expressed on an as-converted from Canadian dollar toU.S. dollar basis are calculated using the conversion rate as of December 31, 2017 unless otherwise noted. Item 1.Business Overview We are a clinical-stage biopharmaceutical company focused on developing innovative products for the treatment of urological diseases. We areheadquartered in San Diego, California and our common shares currently trade on The NASDAQ Capital Market. We are currently developing topsalysin(PRX302) as a treatment for clinically significant localized prostate cancer and as a treatment for the lower urinary tract symptoms of benign prostatichyperplasia, or BPH, commonly referred to as an enlarged prostate. Topsalysin, a first-in-class, pore-forming protein, is a highly ablative agent that isselective and targeted in that it is only activated by enzymatically active prostate specific antigen, or PSA, which is found in high concentrations aroundprostate tumor cells and in the transition zone of the prostate. In 2004, we licensed exclusive rights to topsalysin from UVIC Industry Partnerships Inc., orUVIC, and The Johns Hopkins University, or Johns Hopkins, for the treatment of prostate cancer and in 2009, we licensed exclusive rights to topsalysinfrom UVIC and Johns Hopkins for the treatment of the symptoms of BPH. In April 2010, we entered into an exclusive license agreement with KisseiPharmaceuticals Co., Ltd., or Kissei, pursuant to which we granted Kissei the right to develop and commercialize topsalysin in Japan for the treatment ofthe symptoms of BPH, prostate cancer, prostatitis or other diseases of the prostate. Topsalysin, a genetically modified recombinant protein, is delivered via ultrasound-guided injection directly into the prostate. This membrane-disrupting protein is selectively activated by enzymatically active PSA which is only present in the prostate, leading to localized cell death and tissuedisruption without damage to neighboring tissue and nerves. This method of administration limits the circulation of the drug in the body, and we believethat this limited systemic exposure to the drug, together with how the drug is activated in the prostate, greatly diminishes the risk of side effects. Webelieve that the highly targeted mechanism by which topsalysin selectively destroys prostate tissue in BPH makes topsalysin a potential focal treatmentfor clinically significant localized prostate cancer. We have completed a single-center, open-label Phase 2a proof of concept clinical trial of topsalysin for the treatment of localized low tointermediate risk prostate cancer. The primary objective of the trial was to assess the safety and tolerability of topsalysin when used to selectively targetand focally ablate a clinically significant tumor. The potential efficacy was evidenced by histological changes, indicating tumor ablation at six monthsfollowing treatment. 1Table of Contents A total of 18 patients with localized low to intermediate risk prostate cancer were enrolled in the Phase 2a proof of concept clinical trial. The one-time administration of topsalysin was well tolerated with no serious adverse events and no new safety signals being reported. Topsalysin demonstratedan ability to ablate tumor cells in more than 60 percent of patients (11of 18 patients) six months after treatment in a patient population with pre-identified, clinically significant prostate cancer. All 18 patients enrolled completed the study. Biopsy data at six months following treatment showed that: ●Two patients experienced complete ablation of their targeted tumor with no evidence of any tumor remaining at six months; ●Nine patients experienced a partial response, defined as either a reduction in the maximum cancer core length or a reduction in Gleasonpattern; and ●Seven patients had no response to treatment. In addition, we have completed enrollment of a multicenter, open-label Phase 2b clinical trial to confirm the dose and optimize the delivery oftopsalysin for the treatment of clinically significant localized prostate cancer. This study utilizes commercially available software which allows us to co-register previously obtained magnetic resonance imaging, or MRI, images of a patient’s prostate to a real time 3D ultrasound to target the delivery oftopsalysin directly into and around a pre-identified clinically significant tumor. A clinically significant tumor is defined in our study as, either a Gleasonscore 6 (pattern 3+3) and greater than or equal to 6 mm Maximum Cancer Core Length, or MCCL, or a Gleason score 7 (pattern 3+4 or 4+3) and lesserthan or equal to 10 mm MCCL, which is thought to have the potential to progress and would therefore warrant treatment. A Gleason score is a gradingsystem utilized to describe how aggressive a prostate tumor is and how likely it is to spread. Generally, there are five recognized Gleason histologicalscores and a higher Gleason score indicates a more aggressive tumor. The primary objective of the study is safety and tolerability of an injection oftopsalysin and the key efficacy variable is focal ablation of a clinically significant lesion on biopsy at 24 weeks. This study completed enrollment of 38patients in December 2017 at eight clinical trial sites in the United Kingdom and United States. We expect biopsy data from all patients dosed with thefirst administration of topsalysin to be available by the end of the second quarter of 2018. During the first quarter of 2018, an independent data monitoring committee, or the IDMC met to review the reported adverse events from all patientsafter the first administration of topsalysin. The IDMC unanimously recommended the clinical trial continue without changes to the protocol. We believethat topsaylsin continues to demonstrate a favorable safety profile. The Phase 2b study includes an option to re-treat patients with a second administration of topsalysin, with a targeted biopsy to occur 24 weeksfollowing the second administration. In order to be eligible for a second administration, the patient cannot have experienced a significant adverse eventattributable to topsalysin or the dosing procedure from the first administration and the patient will need to have had a clinical response from the firstadministration but still have the presence of a clinically significant lesion area. We expect to have final biopsy data on all patients who receive a secondadministration by the fourth quarter of 2018. We have begun planning for a Phase 3 clinical trial for topsalysin for the treatment of clinically significantlocalized prostate cancer and initiation of this clinical trial is subject to receiving positive data from our Phase 2b study and additional financing. We have also completed the first of two Phase 3 clinical trials that we believe would be required to obtain marketing approval for topsalysin for thetreatment of the symptoms of BPH. In October 2013, we initiated our first Phase 3 clinical trial, which we refer to as the “PLUS-1” trial, of topsalysin forthe treatment of the lower urinary tract symptoms of BPH. The Phase 3 “PLUS-1” trial was an international, multicenter, randomized, double-blind, andvehicle-controlled trial to assess the efficacy and safety of a single intraprostatic administration of topsalysin (0.6 µg/g prostate) for the treatment of thelower urinary symptoms of BPH. Patients were randomized on a 1:1 ratio to either topsalysin or vehicle-only injection, and then monitored for one year. Atotal of 479 patients with moderate to severe BPH were enrolled and randomized by September 2014. On November 10, 2015, we announced final resultsfrom this trial. Topsalysin demonstrated a statistically significant improvement in International Prostate Symptom Score, or IPSS, total score from baselineover 12 months compared to the vehicle-only control group (7.60 vs. 6.58 point overall improvement; p = 0.043), the primary endpoint of the trial. IPSSis a patient recorded, composite assessment that takes into account factors such as ability to empty the bladder, frequency of urination, intermittency ofurination, urgency of urination, weak strength of urine stream, straining while urinating, and having to urinate multiple times at night after going to bed.Topsalysin continues to demonstrate a favorable safety profile, with no evidence of any treatment related sexual or cardiovascular side effects. 2Table of Contents Beyond our on-going Phase 2b clinical trial for the treatment of localized prostate cancer, we are not planning on pursuing additional clinicaltrials, including a second Phase 3 trial in BPH, unless we obtain additional funding or secure a development partner to fund such new clinical trials. Therecan be no assurance that such funding or a development partner will be available on acceptable terms or at all. Further, we cannot currently estimate whenthe clinical development required to seek the regulatory approvals needed to commercialize topsalysin for the treatment of clinically significantlocalized prostate cancer or the treatment of the symptoms of BPH will be completed. Topsalysin - Mechanism of Action Topsalysin is a genetically altered form of the naturally occurring protein proaerolysin. In nature, proaerolysin is produced by Aeromonas bacteria,which are commonly found as a contaminant in fresh water and fresh water fish. We have altered the sequence encoding the bacterial protein so thattopsalysin is only activated by enzymatically active PSA (as shown in the figure below), an enzyme that is produced in large quantities in the prostate ofmen with prostate cancer and BPH. Topsalysin binds to the GPI-anchored receptors on the cell surface of prostate cells. Once activated by PSA, topsalysin combines with otheractivated topsalysin molecules, forming stable transmembrane pores that induce cell death. Topsalysin has not been detected in plasma followinginjection into the prostate. The prostate specific activation of topsalysin by enzymatically active PSA thus limits exposure of non-prostate tissues to thedrug’s activity, contributing to the safety of the therapy. 3Table of Contents The mechanism of action is shown in the figure below. Topsalysin Mechanism of Action Background on Clinically Significant Localized Prostate Cancer Prostate cancer is the second most common form of cancer in men in the United States. According to the National Cancer Institute, there wereapproximately 161,000 new cases of prostate cancer in the United States identified in 2017 with approximately 80% of patients diagnosed with localizeddisease (disease that has not progressed beyond the confines of the prostate). In the United States, approximately 27,000 were expected to die fromprostate cancer in 2017. Prostate cancer grows very slowly and research has shown that, in many cases, patients with early localized disease have a low likelihood of thecancer spreading beyond the confines of the prostate. These patients may elect to undergo active surveillance, which does not offer any therapeuticbenefit but means that their doctor will continue to monitor the patient (typically PSA levels, digital rectal exams and periodic or as indicated biopsies)for any progression of disease. The information collected by the doctor during active surveillance is used to determine if a patient can remain in activesurveillance or should undergo treatment. The complex psychological impact that results from a cancer diagnosis is demonstrated by a significantproportion of men (about 10% in most studies) electing to undergo treatment, even though they have had no evidence of biochemical orhistopathological progression of their disease during active surveillance. Current Therapies for Localized Prostate Cancer Patients with localized prostate cancer who elect to treat their prostate cancer have traditionally been offered radical treatments in the form ofsurgery to remove the entire prostate and/or whole gland radiation. Potential side effects and toxicities from radical treatments can be significant andpermanent. Men who have undergone radical treatments have experienced the following side effects and toxicity rates: erectile dysfunction 30% - 90%,incontinence 5% - 20% and rectal toxicity (which could include proctitis (inflammation of the rectum) with bleeding and bowel problems such asdiarrhea) 5% - 20%. The increasing use of multi-parametric magnetic resonance imaging, or mpMRI, of the prostate and advances in software to co-registerpreviously obtained mpMRI images with live 3D ultrasound images enables physicians to more accurately target their prostate biopsies. Consequently, itis increasingly possible to more confidently identify men with clinically significant lesions. This enables physicians and patients to make a moreinformed decision about the clinical significance of their disease and whether their disease is at a stage that requires treatment. If it is agreed thattreatment is appropriate some patients may be a candidate for targeted focal therapy rather than radical therapies. The objective of targeted focal therapyis to remove the significant disease while preserving as much of the prostate as possible thereby potentially avoiding many of the complications and sideeffects associated with the radical whole gland treatments. There are several focal targeted therapies currently being offered to patients such as targetedlaser ablation, high-intensity focused ultrasound, cryoablation, radiofrequency ablation and photodynamic therapy each with the aim of reducing thetreatment impact to the surrounding anatomical structures, potentially leading to lower rates of side effects while retaining the cancer control benefits thatthe whole gland radical treatments offer. This focal targeted approach to the treatment of prostate cancer is consistent with the management of almost allother solid organ cancers (breast, kidney, liver and pancreas) in which organ preservation is fundamental to functional preservation. 4Table of Contents Topsalysin for the Targeted Focal Treatment of Clinically Significant Localized Prostate Cancer The intraprostatic injection of topsalysin represents a highly targeted approach for potentially treating clinically significant localized prostatecancer that is confined within the encapsulated prostate gland for two reasons: ●a targeted focal delivery of an intraprostatic injection of topsalysin directly into and around a pre-identified tumor(s) within theprostate is now possible; and ●topsalysin has a highly targeted mechanism of action, activated specifically only within the prostate. Using advancements in MRI and 3D ultrasound imaging, physicians are able to deliver the injection of topsalysin directly into the tumors locatedwithin the prostate. The increased use of mpMRI and advances in software to co-register the mpMRI images with live 3D ultrasound images also meansthat physicians are now able to locate tumors within the prostate and take more accurate biopsies from a patient, enabling the diagnosis of clinicallysignificant lesions. These technical advances are enabling physicians and patients to make a more informed decision about the clinical significance oftheir disease and whether their disease requires radical treatment or they would be candidates for active surveillance. In addition, these advances make itpossible to identify patients with clinically significant lesions that could be candidates for targeted ablation with a focal therapy. The targeted focaltreatment of localized prostate cancer is consistent with the treatment approach frequently used for other solid tumors such as breast and liver cancer,where the objective is to remove the tumor and preserve as much of the organ as possible. The mechanism of action of topsalysin allows for a highly targeted therapeutic activity in localized disease. Topsalysin is only activated in thepresence of enzymatically active PSA which is found surrounding prostate cancer lesions. Therefore, we believe topsalysin has the potential to provide afocal targeted therapy for the ablation of localized prostate cancer while potentially avoiding many of the complications and side effects associated withradical treatments. Background on BPH BPH is a non-cancerous enlargement of the prostate gland that commonly affects men who are age 50 and older. BPH causes a restriction in urineflow from the urethra resulting in lower urinary tract symptoms, or LUTS. BPH, and its associated clinical manifestations of LUTS, is one of the mostcommon medical conditions of aging men in the United States, with approximately 70% men aged 60-69 years and 80% of men older than the age of 70being affected by BPH. The number of men with symptoms of BPH is expected to increase as the male population ages. Our market research suggests thatas many as 36 million men in the United States are affected by BPH with approximately five million of these men suffering from bothersome symptoms.Symptomatic BPH greatly diminishes a patient’s quality of life. It causes a significant array of LUTS, including increased urinary frequency, urgency tourinate, frequent night-time urination, weak urine stream, and incomplete emptying of the bladder. In addition, men with BPH symptoms are predisposedto a higher risk of urinary tract infections, urinary stone formation, bladder damage, and in very late stage and/or unattended cases, renal damage. Current Therapies for BPH Physicians and patients choose treatments for the symptoms of BPH primarily based on the severity of symptoms, the patient’s quality of life andthe presence of other medical conditions. Treatment options include watchful waiting, lifestyle changes, oral medications, minimally invasive surgicaltherapies or more aggressive surgical therapies, such as transurethral resection of the prostate, or TURP, or open prostatectomy. Our market researchindicates that approximately three million men in the United States are taking oral drug therapy and there were approximately 200,000 surgicalprocedures for the treatment of the symptoms of BPH conducted in 2011. The effectiveness of treatments for the symptoms of BPH is measured by IPSS and improvement in peak urine flow rate, or Qmax. IPSS is a patientrecorded, composite assessment that takes into account factors such as ability to empty the bladder, frequency of urination, intermittency of urination,urgency of urination, weak strength of urine stream, straining while urinating, and having to urinate multiple times at night after going to bed. This indexis measured on a 0 to 35 scale with 0 being defined as having no problems and 35 being defined as the high end of severe symptoms. Patients aretypically considered to have mild symptoms with IPSS of 1 to 7, moderate symptoms with scores of 8 to 19 and severe symptoms with scores of 20 to 35.An improvement of 3 points in IPSS is generally considered clinically meaningful by urologists. IPSS is a validated primary clinical endpoint used toassess the treatment benefit in BPH clinical trials and has served as the primary efficacy endpoint for the approval of many products for the treatment ofthe symptoms of BPH. An approximate 2 point difference in IPSS improvement between active and control has historically been utilized by the FDA toapprove oral therapies, although the FDA has not provided guidance that a 2 point difference is required for approval of treatment for the symptoms ofBPH. 5Table of Contents Oral Drug Therapy The most common form of therapy for men experiencing mild to moderate LUTS associated with BPH is oral drug therapy. Current classes of oralmedications available for treatment of the symptoms of BPH include alpha-blockers, 5-alpha-reductase inhibitors, or 5-ARIs, a combination of an alpha-blocker and 5-ARI, and a phosphodiesterase Type 5 inhibitor, or PDE5. An alpha-blocker provides rapid relief of BPH symptoms but does not preventcontinued growth of the prostate. Examples of alpha-blockers include terazosin, doxazosin, tamsulosin, alfuzosin, and silodosin. Frequently reported sideeffects of alpha-blockers include hypotension, or low blood pressure, dizziness and feeling of weakness. 5-ARIs, such as finasteride and dutasteride,reduce the size of the prostate and thus provide symptom relief. It may take up to six months from starting treatment with a 5-ARI for the prostate toreduce in size and for patients to experience the benefit of treatment. Side effects include sexual dysfunction. In addition, tadalafil (marketed by Eli Lillyas Cialis®), a PDE5 inhibitor (a class of drugs typically prescribed for erectile dysfunction), was shown to improve IPSS after four weeks of dosing and hasbeen approved for treatment of the symptoms of BPH. Headache and dyspepsia, or indigestion, are the most commonly observed side effects of Cialis®,which is not recommended for use in combination with an alpha-blocker because of the risk of hypotension. Many men will discontinue oral drug therapy due to inadequate response and/or the side effects mentioned above. Another drawback of thecurrently available oral therapies is the necessity of taking one or more pills daily. Published patient survey data (N=2,166) suggests that as many as 57%of patients taking oral drug therapy discontinue use within the first three years. In previously completed clinical trials, each of these classes of oral medications has typically produced approximately 3 to 6 point reductions inIPSS, but the actual magnitude of treatment benefit observed compared to placebo is generally two to three points. Minimally Invasive Surgical Therapies Minimally invasive surgical therapies used to treat the symptoms of BPH include transurethral microwave thermotherapy, or TUMT, transurethralneedle ablation, or TUNA, Urolift®, a system which lifts and holds the enlarged prostate tissue away from the urethra, and green laser treatment, whichdelivers high energy to ablate the prostatic tissue as an alternative to TURP. These treatments, frequently referred to as MIST, are generally less effectivethan surgical procedures in reducing the size of the prostate gland and often require retreatment within three years. However, these treatments may requirecatheterization and are still associated with pain and the potential for complications such as bleeding and long-lasting side effects such as urinaryincontinence and sexual dysfunction, including erectile dysfunction and retrograde ejaculation (semen flowing backward into the bladder). A new TUNA,known as the Rezum System, was approved in 2015. Rezum delivers radiofrequency generated thermal therapy in the form of water vapor via atransurethral needle. Studies of MIST procedures have shown varying improvements in IPSS, with TUNA and TUMT showing improvement in IPSS ofapproximately 10 to 13 points. Other Surgical Options Surgical procedures such as TURP typically reduce the size of the prostate gland and relieve the pressure on the urethra by ablating the prostatetissue that blocks the flow of urine. Studies of surgical procedures have generally shown reductions in IPSS of approximately 16 points. TURP isperformed under spinal or general anesthesia, which carries the risk of side effects. TURP may result in nerve damage, bleeding (sometimes requiringtransfusion), and long-lasting side effects, such as urinary incontinence and sexual dysfunction, including erectile dysfunction and retrograde ejaculation. Topsalysin for the Treatment of the Symptoms of BPH In our completed Phase 3 clinical trial, topsalysin significantly improved symptoms of BPH through 12 months of follow-up after a singletreatment. Topsalysin is designed to be a safe, simple and convenient treatment that provides rapid and sustained relief of BPH symptoms. It is deliveredthrough a targeted injection into the prostate, precisely ablating the prostate tissue without damaging neighboring tissue and nerves. This method ofadministration limits the circulation of the drug in the body and we believe that this limited systemic exposure to the drug, together with how the drug isactivated in the body, greatly diminishes the risk of side effects. The injection of topsalysin is individualized to each patient based on the size of the prostate and the drug is delivered in a procedure that can beperformed in a urologist’s office. The entire process can be completed during a short office visit, and the actual injection of the drug into each of the twolobes of the prostate takes approximately four minutes. A physician administering topsalysin may elect to administer a local anesthetic before injection.Most urologists are familiar with the transrectal route of administration, as it is the same method urologists use to take biopsies of the prostate. Market research we conducted with 100 urologists in 2012 has shown that topsalysin compares favorably to both oral therapies and procedures ona number of key attributes related to effectiveness, safety, tolerability, and burden placed on the patient. Specifically, when shown results from our Phase2b clinical trial, the physicians viewed topsalysin as being more effective and having a better side effect profile than currently available oral drugs.Administration of topsalysin was also perceived as more effective, safer, and easier to perform than MIST procedures, TUNA and TUMT. When comparedto TURP surgery, topsalysin was also perceived as safer and easier to administer. In this market research, physicians indicated a willingness to considertopsalysin as an alternative to both oral therapies and surgical procedures and also viewed topsalysin as a potential new choice for men who havediscontinued oral therapy and are not willing to undergo a surgical procedure. 6Table of Contents Clinical Overview To date, we have completed eight clinical trials of topsalysin and we have an on-going Phase 2b clinical trial for the treatment of men withhistologically proven, clinically significant localized prostate cancer. Five of our completed clinical trials were for the treatment of the symptoms of BPHand three were for the treatment of prostate cancer. In the eight completed clinical trials a total of 365 patients with moderate to severe BPH and 48patients with prostate cancer have been treated with topsalysin for an estimated combined topsalysin exposure of 413 patients. We have completed a Phase 2a clinical trial of topsalysin for the treatment of localized low to intermediate risk prostate cancer. The one-timeadministration of topsalysin was well tolerated with no serious adverse events and no new safety signals being reported. Patients received a transperinealadministration of topsalysin under general anesthesia at a dose higher than used in our completed Phase 3 BPH PLUS-1 trial but less than the highest doseused in our previous prostate cancer trial. Topsalysin demonstrated an ability to ablate tumor cells in more than 60 percent of patients (11 of 18 patients)six months after treatment in a patient population with pre-identified, clinically significant prostate cancer. We have completed two clinical trials of topsalysin for the treatment of locally recurrent prostate cancer. The patients in these two small open-labelstudies were patients who had previously undergone radiation for the treatment of their prostate cancer and showed signs of disease progressionevidenced by rising levels of PSA. The results from these clinical trials demonstrated that topsalysin was well-tolerated and showed early signs oftherapeutic activity following a single intraprostatic treatment. In each of the clinical trials for BPH topsalysin was administered as a single intraprostatic treatment with 12 months of follow up. Six clinical trialsfor topsalysin (three prostate cancer trials and three BPH trials) used the transperineal route of administration for the intraprostatic injection and the twomost recent clinical trials in BPH, including our completed PLUS-1 trial, used the transrectal route. The transrectal route appears to be as well tolerated asthe transperineal route. All of the completed clinical trials of topsalysin for the treatment of the symptoms of BPH have shown clinically meaningful, sustained efficacywith regard to improvement in LUTS, as measured by IPSS and Qmax, the standard measures of the treatment of symptoms for BPH. Topsalysin has beenwell-tolerated in all completed clinical trials to date. Adverse events in our completed clinical trials were typically mild and transient in nature, limited tolocal discomfort and irritative urinary symptoms that generally occurred on the same day as topsalysin injection. There have been no drug-related sexualor cardiovascular side effects reported. Clinical Development of Topsalysin Our clinical program for topsalysin is summarized below. On-Going Development in Localized Prostate Cancer CLINICAL TRIAL STATUS TRIAL DESIGN PRX302-2-08Phase 2b DoseConfirmation andDelivery OptimizationTrial On-going Phase 2b open-label 6 to 12 month trial with topsalysin in patients who have histologically proven,clinically significant localized prostate cancer to confirm the dose and optimize the delivery of asingle and potentially a second transperineal intraprostatic treatment of topsalysin Number of patients: 38Dosing: Varied based upon prostate volume and size of the lesion up to 12 ug/gram of prostate and1,000 ug/gram of lesion Completed Clinical Development in Prostate Cancer CLINICAL TRIAL STATUS TRIAL DESIGN PRX302-2-07Phase 2a Completed Phase 2a open-label 6 month proof of concept trial with topsalysin in patients who hadhistologically proven, localized low to intermediate risk prostate cancer. 18 patientsDosing: Varied based upon prostate volume and the size of the lesion to be injected but the dose didnot exceed 5µg/gm of prostate and when normalized for lesion size up to 1000 ug/gram of tumorlesion PRX302-1-02Phase 2a Completed Open-label, safety, 12 month dose escalation & volume escalation of a single transperinealintraprostatic treatment of topsalysin in patients who had previously undergone radiation treatmentof their prostate cancer 6 patientsDosing: 6.0µg/g, 12.0µg/g of prostateVolume: 20% to 40% of prostate volume Phase 1 Completed Open-label, safety, 12 month dose-escalation of a single transperineal intraprostatic treatment oftopsalysin in patients who had previously undergone radiation treatment of their prostate cancer 24 patientsDosing: 0.03µg/g of prostate, 0.09µg/g of prostate, 0.3µg/g of prostate, 0.6µg/g of prostate, 1.2µg/gof prostate, 2.1µg/g of prostate, 3.0µg/g of prostateVolume: Fixed at 10% of prostate volume 7Table of Contents Clinical Development in Prostate Cancer On-Going Clinical Development in Localized Prostate Cancer We have completed enrollment of a multicenter, open-label Phase 2b clinical trial to confirm the dose and optimize the delivery of topsalysin forthe treatment of clinically significant localized prostate cancer. This study utilizes commercially available software which allows us to co-registerpreviously obtained MRI images of a patient’s prostate to a real-time 3D ultrasound to target the delivery of topsalysin directly into and around a pre-identified clinically significant tumor. A clinically significant tumor is defined in our study as, either a Gleason score 6 (pattern 3+3) and greater than orequal to 6 mm Maximum Cancer Core Length, or MCCL, or a Gleason score 7 (pattern 3+4 or 4+3) and lesser than or equal to 10 mm MCCL, which isthought to have the potential to progress and would therefore warrant treatment. (A Gleason score is a grading system utilized to describe how aggressivea prostate tumor is and how likely it is to spread. Generally, there are five recognized Gleason histological scores and a higher Gleason score indicates amore aggressive tumor.) The primary objective of the study is safety and tolerability of an injection of topsalysin and the key efficacy variable is focalablation of a clinically significant lesion on biopsy at 24 weeks. This study completed enrollment of 38 patients in December 2017 at eight clinical trial sites in the United Kingdom and United States. We expectbiopsy data from all patients dosed with the first administration of topsalysin to be available by the end of the second quarter of 2018. During the first quarter of 2018, the IDMC met to review the reported adverse events from all patients after the first administration of topsalysin.The IDMC unanimously recommended the clinical trial continue without changes to the protocol. We believe that topsaylsin continues to demonstrate afavorable safety profile. Based upon the results of the 6-month biopsy, the study includes an option to potentially re-treat the targeted lesion area with a secondadministration of topsalysin, with a targeted biopsy to occur six months following the second administration. In order to be eligible for a secondadministration, the patient cannot have experienced a significant adverse event attributable to topsalysin or the dosing procedure from the firstadministration and the patient will need to have had a clinical response from the first administration but still have the presence of a clinically significantlesion area. We expect to have final biopsy data on all patients who receive a second administration by the fourth quarter of 2018. We have begun planning for a Phase 3 clinical trial for topsalysin for the treatment of clinically significant localized prostate cancer and initiationof this clinical trial is subject to receiving positive data from our Phase 2b study and additional financing. 8Table of Contents Completed Clinical Development Phase 2a Proof of Concept Trial in Localized Prostate Cancer In June 2016, we completed a single-center, open-label Phase 2a proof of concept clinical trial of topsalysin for the treatment of localized low tointermediate risk prostate cancer. We believe that the highly targeted mechanism by which topsalysin selectively destroys prostate tissue in BPH makestopsalysin a potential targeted focal treatment for localized prostate cancer. The clinical trial utilized previously obtained MRI images of each patient’sprostate mapped to real time 3D ultrasound to target the delivery of topsalysin directly into and around a pre-identified clinically significant tumor. Aclinically significant tumor was defined in our study as, either a Gleason score 6 (pattern 3+3) and >3mm Maximum Cancer Core Length, or MCCL, orGleason score 7 (pattern 3+4 or 4+3) < 10 mm MCCL, which is thought to have the potential to progress and would therefore warrant treatment. (AGleason pattern is a grading system utilized to describe how aggressive a prostate tumor is and how likely it is to spread. Generally, there are fiverecognized Gleason histological patterns and a higher Gleason pattern indicates a more aggressive tumor.) Patients received a transperinealadministration of topsalysin under general anesthesia at a dose higher than used in our completed Phase 3 BPH PLUS-1 trial but less than the highest doseused in our previous prostate cancer trial. The primary objective of the trial was to assess the safety and tolerability of topsalysin when used to selectivelytarget and focally ablate a clinically significant tumor. The potential efficacy was evidenced by histological changes, indicating tumor ablation at sixmonths following treatment. The clinical trial was conducted at a single center, the University College London, which is well known for the focaltreatment of prostate cancer in the United Kingdom. A total of 18 patients with localized low to intermediate risk prostate cancer were enrolled in the Phase 2a proof of concept clinical trial. The one-time administration of topsalysin was well tolerated with no serious adverse events and no new safety signals being reported. Topsalysin demonstratedan ability to ablate tumor cells in more than 60 percent of patients (11 of 18 patients) six months after treatment in a patient population with pre-identified, clinically significant prostate cancer. All 18 patients enrolled completed the study. Biopsy data at six months following treatment showed that: ●Two patients experienced complete ablation of their targeted tumor with no evidence of any tumor remaining at six months; ●Nine patients experienced a partial response, defined as either a reduction in the maximum cancer core length or a reduction inGleason pattern; and ●Seven patients had no response to treatment. Phase 2 Open-Label Clinical Trial in Prostate Cancer In September 2009, we completed a Phase 2 clinical trial of topsalysin in six patients with biopsy-proven, locally-recurrent prostate cancer that,following radiation therapy, showed signs of disease progression evidenced by rising levels of PSA. Therapeutic activity in the form of overall decreasesin PSA levels and in the number of adenocarcinoma-positive biopsy cores following topsalysin treatment was observed in two of six patients. Phase 1 Open-Label Clinical Trial in Prostate Cancer In May 2008, we completed a multicenter, open-label, dose-escalation Phase 1 clinical trial of topsalysin in 24 patients in the United States withbiopsy-proven, locally-recurrent prostate cancer that, following radiation therapy, showed signs of disease progression evidenced by rising levels of PSA.Elevated and rising levels of PSA can be a sign of the presence or progression of prostate cancer. The primary clinical endpoint of this clinical trial was toexamine the safety and tolerability of topsalysin with therapeutic activity as the secondary clinical endpoint. Clinical trial results demonstrated thattopsalysin was well-tolerated and showed early signs of therapeutic activity following a single intraprostatic treatment. No topsalysin treatment-related serious adverse events were reported and the treatment-related adverse effects that were reported were mild andwere primarily associated with the injection procedure. 9Table of Contents Clinical Development in BPH Completed Clinical Development in BPH CLINICAL TRIAL STATUS TRIAL DESIGN PLUS-1Phase 3 Trial #1 for thetreatment of the symptomsof BPH Completed Prospective, randomized, double-blind, placebo-controlled clinical trial of a single transrectal intraprostatictreatment of topsalysin, which will utilize the IPSS outcome measure evaluated at 12 months as the primaryendpoint 479 patients, 239 on topsalysin; 240 on vehicleDosing: 0.6µg/g of prostateVolume: 20% of prostate volume PRX302-2-03TRIUMPHPhase 2b Completed Randomized, double-blinded, placebo-controlled trial of a single transperineal intraprostatic treatment oftopsalysin 92 patients; 61 on topsalysin; 31 on vehicleDosing: 0.6 µg/g of prostateVolume: 20% of prostate volume PRX302-2-06Transrectal TrialPhase 1/2 Completed Randomized dose-escalation, multicenter trial of a single transrectal intraprostatic treatment of topsalysin 40 patients; 32 on topsalysin in 4 dosing cohorts; 8 on placeboDosing: 0.15µg/g of prostate, 0.30µg/g of prostate, 0.60µg/g of prostate, 1.2µg/g of prostateVolume: 20% of prostate volume PRX302-2-02Phase 2a Completed Open-label, safety, volume escalation clinical trial of a single transperineal intraprostatic treatment oftopsalysin 18 patientsDosing: 0.3µg/g of prostate, 0.6µg/g of prostate, 0.9µg/g of prostateVolume: 10 to 30% of prostate volume PRX302-2-01Phase 1 Completed Open-label, safety, dose-escalation clinical trial of a single transperineal intraprostatic treatment oftopsalysin 15 patientsDosing: 0.025µg/g of prostate, 0.072µg/g of prostate, 0.25µg/g of prostate, 0.35µg/g of prostateVolume: 1.5 to 2.0 mL Plans for Future Clinical Development in BPH CLINICAL TRIAL STATUS TRIAL DESIGN Phase 3 Trial #2 for thetreatment of the symptomsof BPH Planned butinitiationdependentupon receipt offunding to runthe study Prospective, randomized, double-blind, placebo-controlled clinical trial of a single transrectal intraprostatictreatment of topsalysin Dosing: 0.6µg/gVolume: 20% of prostate volume Open-Label Safety StudyPhase 3 for the treatment ofthe symptoms of BPH Planned butinitiationdependentupon receipt offunding to runthe study Safety of repeat dose and long-term safety of transrectal intraprostatic treatment of topsalysin Approximately 100 patientsDosing: 0.6µg/gVolume: 20% of prostate volume Completed Clinical Development in BPH PLUS-1 Randomized, Double-Blind, Placebo-Controlled Transrectal Route of Injection Clinical Trial In October 2013 we initiated our first Phase 3 clinical trial, which we refer to as the “PLUS-1” trial, of topsalysin for the treatment of the lowerurinary tract symptoms of BPH. The Phase 3 “PLUS-1” trial is an international, multicenter, randomized, double-blind, and vehicle-controlled trial toassess the efficacy and safety of a single intraprostatic administration of topsalysin (0.6 µg/g prostate) for the treatment of the symptoms of BPH. Patientswere randomized in a 1:1 ratio to either topsalysin or vehicle-only injection, and then monitored for one year. A total of 479 patients with moderate tosevere BPH were enrolled and randomized by September 2014. The 52-week completion rate was 91.9%, with a similar number of premature withdrawalsfrom study for the topsalysin group (8.8%) vs. the vehicle group (7.5%). On average, the injection itself was completed in less than four minutes. ThisPhase 3 clinical trial used the IPSS total score change from baseline over 52 weeks using the repeated measures linear mixed model as the primaryendpoint. Secondary endpoints included Qmax (maximum urine flow) change from baseline over 52 weeks. 10Table of Contents Treatment groups were well balanced at baseline, including average IPSS total score (21.2 points both groups), Qmax (maximum urine flow) (9.5mL/sec both groups), total prostate volume (49.8 mL for topsalysin vs. 48.1 mL vehicle), prior BPH treatment (55.2% topsalysin vs. 55.1% vehicle), andquality of life (4.5 points both groups, “mostly dissatisfied” to “unhappy” with current urinary condition). The results of this trial were: ●Topsalysin demonstrated statistical significance over vehicle – The primary efficacy endpoint of the IPSS total score change from baselineover 52 weeks was analyzed, per guidance from the FDA, using the repeated measures linear mixed model applied to the modified intent-to-treat population of every patient randomized and dosed with study drug. Topsalysin demonstrated a statistically significant improvement inIPSS total score from baseline over 12 months compared to the vehicle-only control group (7.60 vs. 6.58 point overall improvement;p = 0.043), the primary endpoint of the study. ●Improvement was clinically meaningful, rapid and sustained – In a secondary efficacy analysis of IPSS total score using an ANCOVA modeland last observation carried forward, or LOCF, to impute missing post-baseline data, the improvement in IPSS for topsalysin was wellsustained over the 52 weeks following the single administration. The maximal effect of 8.31 points improvement in IPSS vs vehicle 6.89points (p = 0.012) was achieved at Week 18 with 8.04 points of improvement for topsalysin still remaining at Week 52 vs 6.64 points forpatients treated with vehicle only (p = 0.022) representing an end-of-study preservation of 97% of the peak benefit. ●Improvement in Qmax – Secondary efficacy endpoints included analysis of Qmax (maximum urine flow) change from baseline over 52 weeksby the repeated measures linear mixed model, which showed overall improvement of 1.77 mL/sec for topsalysin, representing a statisticaltrend that narrowly missed statistical significance (p = 0.055) compared to the vehicle group. ●Improvement in Quality of Life was clinically meaningful – An additional efficacy endpoint was the patient self-assessment of disease-specific Quality of Life. On the 0 to 6 point Quality of Life (QOL) from the IPSS questionnaire, the topsalysin average change from the 4.5point baseline was a sustained 1.6 to 1.7 points improvement from Weeks 18 through 52, which was statistically significantly superior tovehicle for every post-baseline visit beginning at Week 18 (reaching p = 0.004). ●Topsalysin was well-tolerated – Topsalysin treatment was generally well-tolerated, and no patient was withdrawn from the trial or had theirstudy drug injection altered because of an adverse event, or AE. The safety profile was consistent with that reported in the TRIUMPH Phase 2trial. Adverse events occurring in >5% of patients treated with topsalysin regardless of assessed relatedness to study treatment are set forth inthe table below. These AEs are not unexpected manifestations of the intraprostatic cellular destruction and resultant inflammation integral tothe topsalysin mechanism of action. The median duration for each of these adverse events was typically less than one day. In general, theseadverse events were mild or moderate, transient, began within the first few days after treatment (primarily on the same day as the study druginjection) and were resolved without consequences. Adverse Events Occurring in >5% of Subjects treated with topsalysin Vehicle (N=240) Topsalysin (N=239) Adverse Event(1) n (%) n (%) Dysuria (e.g., burning, pain, or discomfort on urination) 20 (8.3) 48 (20.1)Haematuria (microscopic or visible red blood cells in urine) 36 (15.0) 45 (18.8)Pollakiuria (frequent urination) 14 (5.8) 23 (9.6)Pyrexia (fever) 10 (4.2) 21 (8.8)Perineal Pain 13 (5.4) 21 (8.8) (1) (MedDRA Preferred Terms) The incidence of serious adverse events, or SAEs was similar in both treatment groups. There were two SAEs assessed by the investigator as at leastpossibly related to treatment for topsalysin and one such SAE for vehicle. The topsalysin-related SAEs were moderate events of “acute non-infectiousprostatitis” and “fever following prostate procedure” not unexpected manifestations of the intraprostatic cellular destruction and resultant inflammationintegral to the topsalysin mechanism of action. The vehicle-related SAE was a mild event of “urinary tract infection.” There were no treatment relatedsexual dysfunction or cardiovascular side effects reported in this clinical trial. 11Table of Contents In order to seek regulatory approval for topsalysin for the treatment of the symptoms of BPH, we would be required to conduct a second Phase 3clinical trial and we do not expect to commence any additional Phase 3 clinical trials unless we obtain the funding required to conduct such trial. TRIUMPH Phase 2b Randomized, Double-Blind, Placebo-Controlled Clinical Trial In 2010, we completed TRIUMPH, a multicenter, randomized, double-blinded, placebo-controlled Phase 2b clinical trial of topsalysin in 92patients with moderate to severe BPH symptoms who were randomized to topsalysin or vehicle on a 2:1 ratio. The primary objective of this clinical trialwas to evaluate the effect on symptoms of BPH of topsalysin versus placebo. Patients randomized to placebo, which is referred to as the vehicle, wereadministered by injection an equivalent volume of phosphate-buffered saline that did not include active drug product. The patient population that weused to evaluate efficacy in this clinical trial, as defined by the clinical trial protocol, was the efficacy evaluable, or EE, population of patients, which wasdefined as those 73 patients who (1) received the full treatment, (2) completed three month assessments, and (3) had no major protocol violation, asdetermined by a blinded, independent review panel of urology experts. The intent-to-treat, or ITT, and safety patient populations consisted of all 92patients who received any study drug. Our efficacy analyses in this clinical trial used the LOCF method to impute missing post-baseline data. The results of this clinical trial were: ● Topsalysin improved LUTS due to BPH – We achieved the primary endpoint of this clinical trial, which was a statistically significantimprovement in IPSS at three months following injection for patients treated with topsalysin versus patients who received vehicle.Topsalysin treatment resulted in a 9.1 average reduction of IPSS, as compared to a 5.8 average reduction in patients who received vehicle(p=0.040). ●Improvement was clinically meaningful, rapid and sustained – Improvement in IPSS was observed as early as 14 days following injectionand was sustained through the twelfth month of observation. This improvement in IPSS was clinically meaningful, and superior to vehicle. ●Improvement in Qmax – Topsalysin treatment resulted in an approximately 3.1 mL/sec average increase in Qmax at three months, ascompared to 1.3 mL/sec for vehicle (p=0.047). The improvement in Qmax for topsalysin was apparent from the first post-baseline assessmentand sustained through the twelfth month of observation. ●Topsalysin was well-tolerated – The topsalysin injection was well-tolerated by patients in this clinical trial. The most common adverseevents that were potentially attributable to topsalysin are set forth in the table below. These adverse events generally are not unexpectedmanifestations of the intraprostatic cellular destruction and inflammation integral to the topsalysin mechanism of action. The medianduration for each of these adverse events was typically less than two days. In general, these adverse events were mild and transient, beganwithin the first few days after treatment (primarily on the same day as the study drug injection) and were resolved without furthercomplications. There were no drug-related erectile dysfunction or cardiovascular side effects reported in this clinical trial. In addition, 16.1% of patients in thevehicle group dropped out of the study due to lack of efficacy and the need for alternative therapy as compared to 3.3% of patients in the active group. Adverse Events Occurring in >5% of Subjects treated with topsalysin (ITT Population) Adverse Event(1) Vehicle (N=31)n (%) Topsalysin (N=61)n (%) Hematuria, or presence of red blood cells in urine 11(35.5) 18(29.5) Dysuria, or painful urination 2(6.5) 17(27.9) Pollakiuria, or increased frequency of urination 5(16.1) 14(23.0) Micturition Urgency, or urgency of urination 3(9.7) 13(21.3) Perineal Pain 0(0.0) 7(11.5) Vertigo 2(6.5) 4(6.6) Malaise 0(0.0) 4(6.6) (1) (MedDRA Preferred Terms) 12Table of Contents In summary, these results demonstrate that topsalysin is able to maintain a treatment benefit based on both measures of efficacy, IPSS and Qmax,which is clinically meaningful and sustained for the 12 months of monitoring in this clinical trial. IPSS and Qmax in the Phase 2b BPH TRIUMPH Clinical TrialN=73 Efficacy-Evaluable Patients using LOCF; 52 topsalysin and 21 Vehicle In our studies and other intraprostatic injection studies, vehicle response rates of 5 to 7 point improvements in IPSS have been observed. Webelieve that the vehicle response is due in part to the fluid injection potentially ablating prostate cells. Although the clinical trial protocol did not specify an ITT population analysis, an improvement of 8.2 points in IPSS was observed in the activegroup of the ITT population. This was not statistically significant when compared to an improvement in the vehicle group of 7.2 points. Thirteen percentof the active group and 23% of the vehicle group were included in the ITT population but not included in the EE population because they were deemedmajor protocol violators based on confounding factors. Examples of confounding factors were taking prohibited medications, including othermedications to treat the symptoms of BPH, or undergoing prohibited procedures during the clinical trial. Transrectal Phase 1/2, Randomized, Double-Blind, Placebo-Controlled Clinical Trial in BPH In March 2012, we completed dosing in a multicenter, randomized, double-blinded, vehicle-controlled Phase 1/2 clinical trial of topsalysin usingthe transrectal route of administration for the intraprostatic injection of topsalysin. Each of the previous clinical trials used transrectal ultrasound to guidethe intraprostatic injection, but this clinical trial was the first to use the rectum as the route of administration rather than passing the needle through theperineum. The transrectal route has the advantage of being very similar to the routine prostate biopsy procedure, and therefore requires little extra trainingfor the practicing urologist. The primary endpoint of this clinical trial was to evaluate the three-month safety and tolerability of escalating doses oftopsalysin. The safety data from this new route of administration of topsalysin were needed for a comparison with the safety profile obtained from ourpreviously-conducted Phase 1 and 2 clinical trials, which utilized a transperineal route of administration. We enrolled 40 patients with moderate to severe BPH symptoms in this clinical trial who were randomized to topsalysin or placebo in a 4:1 ratiowithin each of the four escalating dose cohorts. All patients in this clinical trial received a single, transrectal, intraprostatic treatment of study drug orvehicle at 20% of the patient’s prostate volume, in four sequential cohorts according to escalating topsalysin dose: 0.15, 0.30, 0.60, and 1.20 µg/gprostate. Dose escalation decisions were guided by an independent data monitoring committee for each new cohort after all patients in the previouscohort had been followed for at least 15 days after study drug administration. The results of this clinical trial showed that topsalysin was generally well-tolerated. The side effect profile in this transrectal clinical trial wasconsistent with the side effects reported in the previous, transperineal topsalysin clinical trials, indicating that topsalysin injection by the transrectal routewas tolerated at least as well as the transperineal route. There was one serious adverse event that was deemed by the investigator to be related to injectionof topsalysin in this clinical trial. This serious adverse event of urinary retention required an indwelling catheter followed by TUNA. There were noreports of sepsis in this clinical trial. With the switch to a transrectal route of administration, there is a potential risk of sepsis as currently the rate of sepsiswith prostate biopsies in the United States is approximately 3-5%. However, prostate biopsies involve as many as 20 punctures and a large needle,whereas topsalysin administration requires only two punctures with a smaller needle. There were no drug-related erectile dysfunction or cardiovascularside effects reported in this clinical trial. 13Table of Contents The small sample size of only eight patients on topsalysin and two patients on vehicle in each cohort was insufficient to show statisticallysignificant improvements in BPH symptoms compared to vehicle. Although improvement in IPSS was noted on average for all dose cohorts through 12months, there is no meaningful difference between topsalysin and vehicle-treated patients. We do not believe that any conclusions about efficacy can bedrawn from this study due to the small sample size. In our TRIUMPH clinical trial, we observed post-injection transient elevations of two markers: PSA, a marker of prostate tissue disruption, andserum C-reactive protein, or CRP, a non-specific marker of associated inflammation. Post-injection transient elevations in PSA and CRP were alsoobserved in the transrectal study, suggesting that the targeted delivery of topsalysin to the prostate is successfully achieved with either the transperinealor the transrectal route of administration. Phase 2a Open-Label Clinical Trial in BPH (PRX302-2-02) In 2009, we completed an open-label, multicenter, Phase 2a clinical trial in BPH to evaluate the safety and tolerability of topsalysin. We enrolled18 patients with moderate to severe BPH symptoms who were either unresponsive to, intolerant to or unwilling to use oral medications for treatment ofthe symptoms of BPH. In this clinical trial, three cohorts of six patients each received a single treatment of topsalysin administered via transperinealinjection. We measured therapeutic activity through changes in IPSS, Qmax, and quality of life scores compared to baseline scores at screening. Inaddition, we monitored changes in prostate volume. In this clinical trial, topsalysin was well-tolerated and patients attained meaningful symptomaticrelief through follow up of 12 months following a single treatment. Based on the results of this clinical trial, we identified 20% of total prostate volume asour volume dose for our Phase 2b clinical trial. Phase 1 Open-Label Clinical Trial in BPH (PRX302-2-01) In 2008, we completed an open-label, multicenter, Phase 1 clinical trial in BPH to evaluate the dose of topsalysin needed to demonstratetherapeutic activity following a single treatment, as well as to evaluate safety and tolerability. We enrolled 15 patients with moderate to severe BPHsymptoms who were either unresponsive to, intolerant to or unwilling to use oral medications for treatment of the symptoms of BPH. We administeredtopsalysin to five cohorts of three patients each at escalating doses of topsalysin. Topsalysin was well-tolerated. Plans for Future Clinical Development in BPH In order to seek regulatory approval for topsalysin for the treatment of the symptoms of BPH, we will be required to successfully conduct a secondPhase 3 clinical trial. We are currently not planning on pursuing a second Phase 3 trial in BPH, unless we secure a development partner to fund such new clinical trial orobtain other financing. There can be no assurance that such funding or a development partner will be available on acceptable terms or at all. For thatreason, we cannot currently estimate when the clinical development required to seek the regulatory approvals needed to commercialize topsalysin for thetreatment of the symptoms of BPH will be completed. To date, no BPH patients have been administered more than one treatment of topsalysin. Assuming sufficient capital resources, we would plan toinitiate an open label repeat dose clinical trial in which patients from our transrectal clinical trial, as well as patients from our first Phase 3 clinical trial,will be eligible to receive a repeat dose of topsalysin, at least 12 months after their first dose. We believe this repeat dose Phase 3 clinical trial issupported by results from our pre-clinical study of repeat dosing in monkeys. In this pre-clinical study, two treatments of topsalysin were given tomonkeys 56 days apart. Data from this study indicated that topsalysin resulted in ablation of cells after both the first and the second dose, even in thepresence of circulating antibodies, and did not result in hypersensitivity. 14Table of Contents Competition In the treatment of clinically significant localized prostate cancer we expect that topsalysin will compete with radical treatments such asprostatectomy and radiation as well as a number of other targeted focal therapies which are gaining traction such as brachytherapy, high-intensity focusedultrasound, cryotherapy, laser ablation, cyber, radiofrequency ablation and photodynamic therapy (padeliporfin di-potassium). The increasing use of mpMRI of the prostate and advances in software to co-register previously obtained mpMRI images with live 3D ultrasoundimages enables physicians to more accurately target their prostate biopsies. Consequently, it is increasingly possible to more confidently identify menwith clinically significant lesions. Thereby, enabling physicians and patients to make a more informed decision about the clinical significance of theirdisease and whether their disease requires a radical treatment approach with the potential for significant morbidity or whether they may be a candidate fortargeted focal therapy where the objective is to remove the significant disease while preserving the as much of the prostate as possible and potentiallyavoiding many of the complications and side effects associated with the radical whole gland treatments. In January 2018 Nymox Pharmaceuticals, or Nymox, announced top-line five year clinical trial biopsy data from the intraprostatic administrationof its investigational therapy NX-1207 (fexapotide triflutate) in patients with low grade localized (T1c) prostate cancer. We expect that topsalysin will compete with the current treatment options for the symptoms of BPH, which include oral drug therapy and surgery.Oral drug therapies include alpha-blockers, such as tamsulosin (marketed under various trade names by numerous companies, including as Flomax® byAstellas Pharma), alfuzosin (marketed in the United States by Sanofi as Uroxatral®), doxazosin (marketed by Pfizer as Cardura® and CarduraXL®) andsilodosin (marketed by Watson Pharmaceuticals as Rapaflo® in the United States), (b) 5-alpha reductase inhibitors, such as dutasteride (marketed byGlaxoSmithKline plc as Avodart®) and finasteride (marketed by Merck & Co., Inc. as Proscar®), and (c) combinations of a-blockers and 5-alpha reductaseinhibitors such as tamsulosin and dutasteride (marketed by GSK as Jalyn®). In addition, Eli Lilly and Company’s oral drug tadalafil (marketed as Cialis®),a PDE5 inhibitor, obtained FDA approval for the treatment of the symptoms of BPH in October 2011. Several MIST procedures are available, includingtransurethral microwave thermotherapy, or TUMT, TUNA, photo-selective vaporization of prostate, holmium laser enucleation of the prostate,transurethral electro vaporization of the prostate, Urolift, which is designed to open the urethra directly without the need to resect or ablate prostate tissueand interstitial laser coagulation. A new TUNA, Rezum by NxThera which delivers radiofrequency generated thermal therapy in the form of water vaporvia a transurethral needle, received approval in September 2015 and became available on the US markets late 2016. Currently, the most commonly usedMIST procedures are laser ablations of the prostate, TUMT, and TUNA. Surgery for BPH treatment is usually considered in patients who fail drug therapyas a result of side effects or inadequate relief of symptoms, have refractory urinary retention, or have recurrent urinary tract infections. Alternatively,surgery may be the initial treatment in patients with severe urinary symptoms. Surgical procedures for BPH include TURP, as well as other proceduressuch as transurethral incision of the prostate and transurethral vaporization of the prostate. In addition, there are other treatments that are currently in clinical development for the treatment of the symptoms of BPH. In late 2016, ProceptBioRobotics announced the completion of enrollment with 184 patients in a global Phase 3 clinical trial to evaluate the AquaBeam System, a waterjetablation therapy for endoscopic resection of prostate tissue. Light Sciences Oncology Inc.’s AptocineTM is currently in Phase 2 clinical trials. In May2017, Nymox announced that it had filed for marketing authorization for Fexapotide Triflutate for the treatment of the symptoms of BPH in five Europeancountries, the Netherlands, the United Kingdom, Germany, France and Spain. In February 2018, Nymox announced that it plans to submit a New DrugApplication for Fexapotide Triflutate for the treatment of BPH in the United States before the end of 2018. Sales and Marketing We do not currently have a sales, marketing or distribution organization. We intend to commercialize topsalysin by establishing, either internallyor through a contract sales force, a urology sales force to sell topsalysin, if approved, in the United States, or through partnership. We plan to partner withthird parties to commercialize topsalysin outside the United States. Specifically, we intend to: ●establish a sales force in the United States of experienced urology and other specialty-care sales representatives; ●build a marketing organization; ● establish commercialization alliances with larger or more specialized pharmaceutical and sales organizations; and ●generate and use pharmacoeconomic data to support the cost savings and therapeutic benefits of topsalysin. 15Table of Contents Manufacturing We neither currently possess nor do we plan to develop our own manufacturing capabilities. All of our manufacturing is, and will be, outsourced tothird parties with oversight by our internal managers. In 2012, we entered into a manufacturing and supply agreement with Boehringer Ingelheim RCVGmbH & Co KG, or BI, to manufacture topsalysin. The manufacture of topsalysin drug substance starts with a vial of the working cell bank of Aeromonassalmonicida bacteria which is then processed through four consecutive stages involving: batch fermentation and harvest, purification using immobilizedmetal affinity chromatography, purification using an ionic exchange chromatography and bulk formulation of topsalysin drug substance. The entiremanufacturing process takes approximately two weeks. There has been a successful scale-up up to the commercial batch size for drug substance. The finalization of the commercial fill finish process, for the production of drug product is still underway but we have decided to pursue thereformulation of topsalysin before manufacturing clinical supplies for our Phase 3 clinical trials. We are in the process of identifying a third party who hasthe capacity and ability to manufacture the new drug product formulation. Although topsalysin is manufactured from readily available materials usingstandard pharmaceutical methods and equipment, the process of identifying a new drug product manufacturer may lead to significant delays and increaseour costs. Once we have identified and entered into a new supply agreement with a third party to manufacture our drug product, a technology transfer willneed to be completed from BI to the new drug product manufacturer. We currently procure an ingredient used in the formulation of topsalysin from a multinational industrial biotech company which is a single sourcesupplier. We currently have adequate supply of clinical trial product for our on-going Phase 2b clinical trial in clinically significant localized prostatecancer. We have scheduled with BI the manufacture of additional topsalysin drug substance in 2018 that we need for future clinical trials. We will alsoneed to demonstrate that our reformulated drug product is comparable to our prior drug product. Any delay in in manufacture of drug substance,completion of our reformulation of drug product, technology transfer or completion of fill finish for our future clinical trial supply would result in futuredelays in our ability to commence additional clinical trials. Supply Agreement with Boehringer Ingelheim RCV GmbH & Co KG In June 2012, we entered into a technology transfer and supply agreement with BI, for the provision of technology transfer services and for theestablishment of certain manufacturing processes for, and the manufacture of, purified topsalysin, the diluting agent for use in topsalysin drug productsand placebos, and a placebo to be used in clinical trials. We will be required to make payments based upon the provision and completion of certain tasksspecified in the agreement. Starting in 2013, the prices of BI’s services have been adjusted annually based on the average of the Austrian trade index andthe average Standard Wages Index, both as of July of the previous year, subject to certain restrictions. BI will be required to manufacture the products inline with certain project timelines. If we postpone the performance of any services, we may be required to pay certain postponement fees. Additionally, ifwe cancel any services we will be required to pay the entire cost for such services and the entire cost of any materials that cannot be returned by BI to theappropriate vendor or otherwise used by BI. If we are required to have any product manufactured outside our expected manufacturing cycles due to anunforeseen loss of product, we will have to work with BI to arrange an available manufacturing slot and our receipt of drug product may be delayed. BImust provide all services under the agreement, including the manufacture, packaging, storing and delivery of topsalysin drug products, in accordancewith cGMP (as defined below), as specified by the FDA. The agreement has an initial term of six years and will automatically renew for a single five-yearperiod unless either party objects to such renewal at least two-years prior to the expiration of the agreement. Either party may terminate the agreementearly for cause, including for any uncured material breach of the agreement, the other party’s insolvency or the assignment of the other party’s rights orobligations to a direct competitor of the non-assigning party. Additionally, we have the right to terminate the agreement immediately upon the rejectionor non-approval of a regulatory filing due to medical, safety or regulatory concerns or in the event that we abandon our clinical program for topsalysindue to any clinical failure, subject in each case to payment of specified termination costs to BI. Intellectual Property We hold commercial rights to topsalysin in major markets, including, Canada, the United States, Europe and Asia (except Japan where we havelicensed the rights to Kissei). We in-licensed topsalysin from UVIC and Johns Hopkins. Our success will depend in large part on our ability to obtain,maintain, defend and enforce patents and other proprietary technology rights. We file and prosecute patent applications to protect our proprietarydiscoveries. In addition to patent protection, we also seek to rely on trade secret protection, trademark protection and know-how to expand ourproprietary position around our technology, discoveries and inventions that we consider important to our business. We also seek to protect ourintellectual property in part by entering into confidentiality agreements and/or invention assignment agreements with our employees, consultants,scientific advisors, and certain consultants and investigators that grant us ownership of any discoveries or inventions made by them. Further, we seektrademark protection in Canada, the United States and certain other countries where available and when we deem appropriate. We have registered theSophiris trademark, which we use in connection with our pharmaceutical research and development services as well as our clinical-stage productcandidates in Europe, Canada, Japan and the United States. 16Table of Contents Patents and patent applications covering topsalysin which we license or own are covered by issued patents and patent applications under thefollowing four patent families: ●Proaerolysin Containing Protease Activation Sequences and Methods of Use for Treatment of Prostate Cancer (exclusively licensed); ●Method of Treating the Symptoms of Benign Prostatic Hyperplasia (BPH) Using Modified Pore-Forming Proteins (exclusivelylicensed); ●Method for Treating Prostatitis Utilizing Modified Pore-Forming Protein Proaerolysin (exclusively licensed); and ●Formulations and Methods of Administration (owned by us). We own or have exclusively licensed six issued United States patents related to our prostate program: US 7,282,476 (prostate cancer) expiring in2023, US 7,745,395 (prostate cancer) expiring in 2023, US 7,838,266 (prostate cancer) expiring in 2022, US 8,278,279 (prostatitis) expiring in 2029, US8,901,070 (prostatitis) expiring in 2029 and US 8,916,161 (BPH) expiring in 2031, as well as eight issued patents in countries including Australia, China,the European Patent Office (including 16 validation states), India, Japan, Hong Kong, and South Africa expiring in 2022, eight patents in the EuropeanPatent Office (including 13 validation states), Canada, Japan, Korea, China, Australia, New Zealand, Israel, Singapore, and South Africa expiring in 2026,and additional pending U.S. and/or foreign patent applications in Australia, Canada, the European Patent Office, and India variously set to expire in2022, 2026, 2029, or 2031. This portfolio includes issued United States patents that cover the composition of topsalysin and methods of using topsalysinto treat prostatitis, prostate cancer, and symptoms of BPH. This portfolio includes two issued Chinese patents. To date, we have not sought to enforce anyissued patents in China. We cannot give any assurances that we will be able to enforce our patents in China to the same degree that we could in theUnited States. Technology Licenses Exclusive License Agreement with UVIC Industry Partnerships Inc. and The Johns Hopkins University for Prostate Cancer In September 2004, we entered into an exclusive license agreement with UVIC and Johns Hopkins, with respect to the use of topsalysin for thedevelopment of therapeutics for prostate cancer. This agreement was amended on December 8, 2004 and July 1, 2010. Such amendments did not changethe material terms of the agreement. For the term of this agreement, we have an exclusive right of first option to obtain a license for future improvementsto the patent rights covered by the agreement. In addition, we have the right to grant sublicenses to third parties under the agreement provided that suchsublicenses meet certain criteria. In order to secure the license, we paid an initial license fee of CND$75,000, or $62,000, applying the conversion rate as of the date of payment, anda reimbursement fee of CND$28,000, or $24,000, applying the conversion rate as of the date of payment, to cover expenses associated with the filing andmaintenance fees of patents covered by the agreement. In addition, we are required to pay an annual license maintenance fee and are obligated to pay apercentage of gross sales for licensed products sold by us, our affiliates or our sublicensees during the term of the agreement. Such percentage is in the lowsingle-digits and is subject to adjustment in certain circumstances. We are also required to make payments based upon the achievement of specificdevelopment and regulatory milestones totaling up to approximately CND$3.6 million, or $2.9 million, as converted. In the event we receive consideration for granting a sublicense, we are obligated to pay UVIC and Johns Hopkins a percentage of suchconsideration, which percentage is in the 20-29% range, including any future consideration we may receive under our exclusive license agreement withKissei relating to development of therapeutics for the treatment of prostate cancer however, pursuant to a separate agreement which we entered into in2003 with Dr. J. Thomas Buckley, one of our founders, the aggregate amount of such consideration payable by us to UVIC and Johns Hopkins wasreduced by 25%. Furthermore, we issued 3,420 common shares to Johns Hopkins and 1,710 common shares to UVIC in partial consideration for the rightsgranted to us under the agreement. Under the terms of the agreement, we are required to use reasonable commercial efforts to develop and commercialize the technology covered bythe agreement, and in this regard, have agreed to put a business plan in place. Our failure to commercialize the technology covered by the agreement mayresult in termination of the agreement. 17Table of Contents The term of the agreement will, on a country-by-country basis, continue until expiration of the last to expire issued patent or, if no patent has issuedin such country, then 20 years after the effective date of the agreement. UVIC and Johns Hopkins have a unilateral right to terminate the agreement upon notice if we become insolvent, cease to carry out our business,subject the licensed technology to any security interest or breach any of our obligations under this agreement if such breach has remained uncured for 60days following written notice thereof. In addition, the agreement may automatically terminate in the event we undergo bankruptcy proceedings. Exclusive License Agreement with UVIC Industry Partnerships Inc. and The Johns Hopkins University for BPH In October 2009, we entered into an exclusive license agreement with UVIC and Johns Hopkins with respect to the use of topsalysin for thedevelopment of therapeutics for the symptoms of BPH and other non-cancer diseases and conditions of the prostate, as amended in July 2010. Suchamendment did not change the material terms of the agreement. We have the right to grant sublicenses to third parties under the agreement provided thatsuch sublicenses meet certain criteria. In order to secure the license, we paid an initial license fee of CND$45,000, or $39,000, applying the conversion rate as of the date of payment. Inaddition, we are required to pay an annual license maintenance fee and are obligated to pay a percentage of gross sales for licensed products sold by us,our affiliates or our sublicensees during the term of the agreement. Such percentage is in the low single-digits. Furthermore, we are required to makepayments based upon the achievement of specific development and regulatory milestones separated among the indications of BPH and two additionaltherapeutic indications selected by us, totaling up to approximately CND$1.3 million, or $1.0 million, as converted. In the event we receiveconsideration for granting a sublicense, we are obligated to pay UVIC and Johns Hopkins a percentage of such consideration, which percentage is in the10-19% range, depending upon the rights granted under the sublicense agreement. To the extent we receive any milestone payments relating to thedevelopment of therapeutics for the treatment of the symptoms of BPH under our exclusive license agreement with Kissei we are obligated to pay apercentage of such consideration, which percentage is in the 10-19% range, to UVIC and Johns Hopkins; however, pursuant to a separate agreementwhich we entered into in 2003 with Dr. J. Thomas Buckley, one of our founders, the aggregate amount of such consideration payable by us to UVIC andJohns Hopkins was reduced by 25%. Under the terms of the agreement, we are required to use reasonable commercial efforts to develop and commercialize the technology covered bythe agreement, and in this regard, we have agreed to put a business plan covering the marketing and commercialization of such technology in place. Ourfailure to commercialize the technology covered by the agreement may result in termination of the agreement. The term of the agreement will, on a country-by-country basis, continue until expiration of the last to expire issued patent or, if no patent hasissued in such country, then 20 years after the effective date of the agreement. UVIC and Johns Hopkins have a unilateral right to terminate the agreementupon notice if we become insolvent, cease to carry out our business, subject the licensed technology to any third-party security interest or breach any ofour obligations under this agreement if such breach has remained uncured for 60 days following written notice thereof. In addition, the agreement mayautomatically terminate in the event we undergo bankruptcy proceedings. Strategic Relationship with Kissei Pharmaceutical Co., Ltd. In April 2010, we entered into an exclusive license agreement with Kissei, for the development and commercialization of topsalysin (and otherproducts covered by the licensed patents) in Japan for the treatment of the symptoms of BPH, prostate cancer, prostatitis or other diseases of the prostate.Under the terms of the license, Kissei is permitted to sublicense its rights if certain conditions are met. In order to secure the license, Kissei paid us an up-front payment of $3.0 million. During the year ended December 31, 2013, we recorded asrevenue a $5.0 million non-refundable milestone payment due from Kissei upon the achievement of certain development activities. In addition, weremain eligible to receive up to approximately $67.0 million in additional payments contingent upon achievement of specified development, regulatoryand commercial milestones, some of which are in Kissei’s sole discretion to achieve, separated among the indications of BPH, prostate cancer, andprostatitis or other diseases of the prostate, as well as the achievement of overall accumulated gross sales levels for such indications. The additional $67.0million of non-refundable milestone payments is comprised as follows: aggregate milestone payments of $12.0 million are related to the BPH indication,of which $7.0 million relates to the completion of regulatory approvals and $5.0 million relates to the achievement of certain product sale goals; a total of$21.0 million is related to the prostate cancer indication, of which $7.0 million relates to the completion of development activities, $7.0 million relates tothe completion of regulatory approvals and $7.0 million relates to the achievement of certain product sale goals; and a total of $21.0 million is related toprostatitis or other diseases of the prostate, of which $7.0 million relates to the completion of development activities, $7.0 million relates to thecompletion of regulatory approvals and $7.0 million relates to the achievement of certain product sale goals. An additional $13.0 million of aggregatemilestone payments are not indication specific, of which $5.0 million relates to the completion of regulatory approvals and $8.0 million relates to theachievement of certain product sale goals. In addition, we may receive a drug supply fee and royalty payments in the 20-29% range as a percentage offuture net sales of licensed products sold under the agreement. The royalties payable by Kissei are subject to reductions or offsets in certaincircumstances. Kissei’s royalty obligations continue until the later of expiration of the last valid claim in the licensed patents covering the applicablelicensed product, or 10 years after first commercial sale of such licensed product in Japan. Kissei is responsible for all costs associated with thedevelopment, regulatory approval, commercialization and marketing of topsalysin in Japan. 18Table of Contents Kissei may unilaterally terminate the agreement, provided that if such termination occurs after commercial launch of a product under theagreement, Kissei must provide us with six months prior written notice. Absent early termination, the exclusive license agreement will remain in effectuntil Kissei or its sublicensees or affiliates discontinue the sale of products under the agreement. Regulatory Overview Our business and operations are subject to a variety of U.S. federal, state and local, and foreign supranational, national, provincial and municipallaws, regulations and trade practices. The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries imposesubstantial and burdensome requirements upon companies involved in the clinical development, manufacture, marketing and distribution of drugs andbiologics. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, qualitycontrol, safety, effectiveness, labeling, storage, recordkeeping, approval, advertising and promotion, and export and import of our product candidate. U.S. Government Regulation U.S. Drug Development Process In the United States, the FDA regulates drugs and biologic products under the Federal Food, Drug and Cosmetic Act, or FDCA, its implementingregulations, and other laws, including, in the case of biologics, the Public Health Service Act. Our product candidate, topsalysin, is subject to regulationby the FDA as a biologic. Biologics require the submission of a BLA to the FDA and approval of the BLA by the FDA before marketing in the UnitedStates. The process of obtaining regulatory approvals for commercial sale and distribution and the subsequent compliance with applicable federal, state,local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S.requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative orjudicial civil or criminal sanctions. These sanctions could include the FDA’s refusal to approve pending applications, license suspension or revocation,withdrawal of an approval, imposition of a clinical hold on clinical trials, warning letters, product recalls, product seizures, total or partial suspension ofproduction or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil and/or criminal penalties. The processrequired by the FDA before a biologic may be marketed in the United States generally involves the following: ●completion of preclinical laboratory tests, animal studies and formulation studies performed in accordance with the FDA’s currentGood Laboratory Practices, or GLP, regulations; ●submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trialsin the United States may begin; ●performance of adequate and well-controlled human clinical trials in accordance with the FDA’s current good clinical practices, orGCP, regulations to establish the safety and efficacy of the product candidate for its intended use; ●submission to the FDA of a BLA; ●satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the product is produced to assesscompliance with the FDA’s current good manufacturing practice standards, or cGMP, regulations to assure that the facilities, methodsand controls are adequate to preserve the product’s identity, strength, quality and purity; ●potential audits by the FDA of the nonclinical and clinical trial sites that generated the data in support of the BLA; ●possible review of the BLA by an external Advisory Committee to the FDA, whose recommendations are not binding on the FDA; and ●FDA review and approval of the BLA prior to any commercial marketing or sale. 19Table of Contents Before testing any compounds with potential therapeutic value in humans, the drug candidate enters the preclinical testing stage. Preclinical testsinclude laboratory evaluations of product chemistry, stability and formulation, as well as animal studies to assess the potential toxicity and activity of theproduct candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including GLPs. The sponsor must submitthe results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposedclinical protocol, to the FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raisesconcerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable healthrisks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also imposeclinical holds on a product candidate at any time before or during clinical trials due to safety concerns or non-compliance, or for other reasons. Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators, generallyphysicians not employed by or under the clinical trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other things, theobjectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety andeffectiveness. Each protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted in accordance with GCPs. Further, eachclinical trial must be reviewed and approved by an IRB at or servicing each institution at which the clinical trial will be conducted. An IRB is chargedwith protecting the welfare and rights of clinical trial participants and considers such items as whether the risks to individuals participating in the clinicaltrials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent that mustbe signed by each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. Human clinical trials aretypically conducted in three sequential phases that may overlap or be combined: ●Phase 1. The product candidate is initially introduced into a limited population of healthy human subjects and tested for safety, dosagetolerance, absorption, metabolism, distribution and excretion. In the case of some products for some diseases, or when the product may be tooinherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients with the disease orcondition for which the product candidate is intended to gain an early indication of its effectiveness. ●Phase 2. The product candidate is evaluated in a limited patient population (but larger than in Phase 1) to identify possible adverse effectsand safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to assess dosage tolerance, optimaldosage and dosing schedule. ● Phase 3. Clinical trials are undertaken to further evaluate dosage and provide substantial evidence of clinical efficacy and safety in anexpanded patient population (such as several hundred to several thousand) at geographically dispersed clinical trial sites. Phase 3 clinicaltrials are typically conducted when Phase 2 clinical trials demonstrate that a dose range of the product candidate is effective and has anacceptable safety profile. These trials typically have at least two groups of patients who, in a blinded fashion, receive either the product or aplacebo. Phase 3 clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for productlabeling. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of a BLA. Post-approval studies, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These studies are used togain additional experience from the treatment of patients in the intended therapeutic indication to further assess the biologic’s safety and effectivenessafter BLA approval. Phase 4 studies can be initiated by the drug sponsor or as a condition of BLA approval by the FDA. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA and written IND safety reports must be promptlysubmitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests asignificant risk for human subjects. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about thechemistry and physical characteristics of the biologic and finalize a process for manufacturing the product in commercial quantities in accordance withcGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among otherthings, must develop methods for testing the identity, strength, quality and purity of the final biologic product. Additionally, appropriate packaging mustbe selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deteriorationover its shelf life. 20Table of Contents U.S. Review and Approval Processes The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests,proposed labeling and other relevant information are submitted to the FDA in the form of a BLA requesting approval to market the product for one ormore specified indications. The submission of a BLA is subject to the payment of substantial user fees. Once the FDA receives a BLA, it has 60 days to review the BLA to determine if it is substantially complete and the data is readable, before itaccepts the BLA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the BLA. Under the goals and policies agreedto by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has 12 months from submission in which to complete its initial review of astandard BLA and make a decision on the application, and eight months from submission for a priority BLA, and such goal is referred to as the PDUFAdate. The FDA does not always meet its PDUFA dates for either standard or priority BLAs. The review process and the PDUFA date may be extended bythree months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided inthe submission within the last three months before the PDUFA date. After the BLA submission is accepted for filing, the FDA reviews the BLA to determine, among other things, whether the proposed product is safeand effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity,strength, quality and purity. The FDA may refer applications for novel drug or biological products or drug or biological products which present difficultquestions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and arecommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of anadvisory committee, but it considers such recommendations carefully when making decisions. During the approval process, the FDA also will determinewhether a risk evaluation and mitigation strategy, or REMS, is necessary to assure the safe use of the product. If the FDA concludes a REMS is needed, thesponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without an approved REMS, if required. Development of a REMScan substantially increase the costs of obtaining approval. Before approving a BLA, the FDA will typically inspect the facilities at which the product is manufactured. The FDA will not approve the BLAunless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistentproduction of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sitesto assure that the clinical studies were conducted in compliance with GCP requirements. If the FDA determines that the application, manufacturingprocess or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing orinformation before a BLA can be approved. The FDA will issue a complete response letter if the agency decides not to approve the BLA. The complete response letter describes all of thespecific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, forexample, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might taketo place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all ofthe deficiencies identified in the letter, or withdraw the application. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use mayotherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings orprecautions be included in the product labeling. In addition, the FDA may require post marketing studies, sometimes referred to as Phase 4 testing, whichinvolves clinical trials designed to further assess drug safety and effectiveness and may require testing and surveillance programs to monitor the safety ofapproved products that have been commercialized. After approval, certain changes to the approved biologic, such as adding new indications,manufacturing changes or additional labeling claims, are subject to further FDA review and approval. Depending on the nature of the change proposed, aBLA supplement must be filed and approved before the change may be implemented. For many proposed post-approval changes to a BLA, the FDA hasup to 180 days to review the application. As with new BLAs, the review process is often significantly extended by the FDA requests for additionalinformation or clarification. Post-Approval Requirements Any biologic products for which we or our collaborators receive FDA approvals are subject to continuing regulation by the FDA, including, amongother things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacyinformation, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying withFDA promotion and advertising requirements, which include, among others, restrictions on direct-to-consumer advertising, promoting biologics for usesor in patient populations that are not described in the product’s approved labeling (known as “off-label use”), industry-sponsored scientific andeducational activities, and promotional activities involving the internet. The FDA closely regulates the post-approval marketing and promotion ofbiologics, and although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses.Failure to comply with these or other FDA requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters,suspension of manufacturing, seizure of product, injunctive action, mandated corrective advertising or communications with healthcare professionals,possible civil or criminal penalties, or other negative consequences, including adverse publicity. 21Table of Contents We will rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products. Ourcollaborators may also utilize third parties for some or all of a product we are developing with such collaborator. Manufacturers are required to complywith applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. cGMP regulations require among other things, qualitycontrol and quality assurance as well as the corresponding maintenance of records and documentation. Drug manufacturers and other entities involved inthe manufacture and distribution of approved biologics are required to register their establishments with the FDA and certain state agencies and aresubject to periodic inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers mustcontinue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. U.S. Patent Term Restoration and Marketing Exclusivity Depending upon the timing, duration and specifics of the FDA approval of our biologic product candidate, some of our United States patents maybe eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as theHatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lostduring product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patentbeyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date ofan IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patentapplicable to an approved product is eligible for the extension and the application for the extension must be submitted prior to the expiration of thepatent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extensionor restoration. In the future, we may intend to apply for restoration of patent term for one of our currently owned or licensed patents to add patent lifebeyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA. Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications of other companies seeking toreference another company’s BLA. We believe that if topsalysin is approved as a biological product under a BLA, it should qualify for a 12-year period ofexclusivity currently permitted by the Biologics Price Competition and Innovation Act of 2009, or BPCIA. Under the BPCIA, an application for abiosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. However, an applicationmay be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by theinnovator BLA holder. The BPCIA is complex and is only beginning to be interpreted and implemented by the FDA. U.S. Foreign Corrupt Practices Act The U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities toobtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything ofvalue to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business or tootherwise influence a person working in an official capacity. U.S. Federal and State Health Regulation Laws In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrictcertain marketing practices in the biopharmaceutical industry in recent years. These laws include anti-kickback statutes, false claims statutes patient dataprivacy and security laws, and physician sunshine laws and regulations, many of which may become more applicable if our product candidates areapproved and we begin commercialization. The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, orreceiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any health care item orservice reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. This statute has been interpreted to apply toarrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are anumber of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors aredrawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases, or recommendations may be subject to scrutiny ifthey do not satisfy the requirements of an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protectionfrom anti-kickback liability. 22Table of Contents Federal false claims laws and civil monetary penalties laws prohibit, among other things, any person or entity from knowingly presenting, orcausing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a falseclaim paid. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items andservices reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor, including commercial payors. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit,among other things, executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters. HIPAA, asamended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, also imposes certainrequirements relating to the privacy, security and transmission of individually identifiable health information. We are also subject to state laws governingthe privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have thesame effect, thus complicating compliance efforts. The Physician Payments Sunshine Act, and its implementing regulations, require certain manufacturers of drugs, devices, biological and medicalsupplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to reportannually 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, the physicians and teaching hospitals and to report annually certain ownership and investmentinterests held by physicians and their immediate family members. Additional state laws require pharmaceutical companies to implement a comprehensivecompliance program and/or limit expenditure for, or payments to, individual medical or health professionals. Because of the breadth of these laws and the narrowness of the applicable exceptions and safe harbors, it is possible that some of our businessactivities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the health regulatory lawsdescribed above or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal and civil and/oradministrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, contractualdamages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any ofwhich could adversely affect our ability to operate our business and our results of operations. In the United States and foreign jurisdictions, there have been and continue to be a number of initiatives that seek to promote changes inhealthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. For example, in March 2010 thePatient Protection and Affordable Health Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the PPACA, wasenacted, which includes measures to significantly change the way health care is financed by both governmental and private insurers. Among theprovisions of the PPACA of greatest importance to the pharmaceutical and biotechnology industry are the following: ●an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportionedamong these entities according to their market share in certain government healthcare programs; ● new requirements on certain manufacturers of drugs, devices, biological products and medical supplies to report annually certain financialarrangements, including reporting any “transfer of value” made or distributed to physicians and teaching hospitals and reporting annuallycertain ownership and investment interests held by physicians and their immediate family members; ●a new requirement to annually report drug samples that certain manufacturers and authorized distributors provide to physicians; ●a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectivenessresearch, along with funding for such research; ●a licensure framework for follow-on biological products; ●an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, an extension ofmanufacturers’ Medicaid rebate liability, an expansion of the eligibility criteria for people to participate in the Medicaid program, and thecreation of a new Medicare Part D coverage gap discount program; ●creation of the Independent Payment Advisory Board which will have authority to recommend certain changes to the Medicare program thatcould result in reduced payments for prescription drugs and those recommendations could have the effect of law even if Congress does notact on the recommendations; and ●establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services to test innovative payment and servicedelivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. 23Table of Contents Since its enactment there have been judicial and Congressional challenges to other aspects of the PPACA, and we expect there will be additionalchallenges and amendments to the PPACA in the future. In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, in August 2011, the Presidentsigned into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend toCongress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This included reductions to Medicare payments toproviders of 2% per fiscal year, which went into effect in April 2013 and, following passage of the Bipartisan Budget Act of 2015, will stay in effectthrough 2025 unless additional Congressional action is taken. Additionally, in January 2013, the American Taxpayer Relief Act of 2012 was signed intolaw, which, among other things, reduced Medicare payments to several providers, including hospitals and imaging centers. Further, recently there hasbeen heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. For example, there have beenseveral recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review therelationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. We expect that additional federal and state healthcare reform measures will be adopted in the future, any of which could result in reduced demandfor our products or other adverse effects. Europe / Rest of World Government Regulation In addition to regulations in the United States, we, and our collaborators, will be subject to a variety of regulations in other jurisdictions governing,among other things, clinical trials and any commercial sales and distribution of our products. For example, the European Union, or EU, has established itsown data security and privacy legal framework, including but not limited to Directive 95/46/EC, or the Data Protection Directive. The Data ProtectionDirective will be replaced starting in May 2018 with the recently adopted European General Data Protection Regulation, or GDPR, which contains newprovisions specifically directed at the processing of health information, higher sanctions and extra-territoriality measures intended to bring non-EUcompanies under the regulation. We may be required to implement additional controls to facilitate compliance with the GDPR and other new or evolvingdata protection laws and regulations. Whether or not we, or our collaborators, obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities inforeign countries prior to the commencement of clinical trials or marketing of the product in those countries. The requirements and process governing theconduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. If we, or our collaborators, fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines,suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. Pharmaceutical Coverage, Pricing and Reimbursement Significant uncertainty exists as to the coverage and reimbursement status of any product candidate for which we obtain regulatory approval. In theUnited States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part onthe availability of reimbursement from third-party payors including government health administrative authorities, managed care providers, private healthinsurers and other organizations. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will beapproved. Further, one payor’s determination to provide coverage for a drug product does not assure that other payors will also provide coverage for thedrug product. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of theassociated costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of thecost of our products. Therefore, successful commercialization of our product will depend in part on the availability of third-party payor reimbursement forthe cost of our products and/or payment to the physician for administering our product. 24Table of Contents Employees As of December 31, 2017, we had six full-time employees, two of whom have Ph.D. degrees. In addition, we had engaged seven part-time individualconsultants to assist us with managing manufacturing vendors and contract research organizations, project management, market research, legal andregulatory compliance. None of our employees are covered by collective bargaining agreements and we consider relations with our employees to begood. Research and Development Expenses Research and development expenses consist primarily of costs associated with the clinical development of topsalysin. Research and developmentexpenses are the primary source of our expenses and totaled $6.2 million, $3.5 million and $9.9 million for the years ended December 31, 2017, 2016 and2015, respectively. Corporate Information We file annual, quarterly, current reports, proxy statements and other information with the Securities and Exchange Commission, or the SEC. Ourprimary website can be found at http://www.sophirisbio.com. We make available free of charge at this website (under the “Investors — FinancialInformation” caption) all of our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, including our AnnualReport on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and amendments to those reports. These reports are madeavailable on the website as soon as reasonably practicable after their filing with, or furnishing to, the SEC. The SEC maintains an internet site thatcontains our public filings with the SEC and other information regarding the Company, at www.sec.gov. These reports and other information concerningthe Company may also be accessed at the SEC’s Public Reference Room at 100 F Street, NE, Washington DC 20549. The public may obtain informationon the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Furthermore, we also make available on our website free ofcharge, and in print to any shareholder who requests it, the Committee Charters for our Audit, Compensation, and Governance and NominatingCommittees, as well as the Code of Business Conduct and Ethics that applies to all directors, officers and employees of the Company. Amendments tothese documents or waivers related to the Code of Business Conduct and Ethics will be made available on our website as soon as reasonably practicableafter their execution. The contents of the websites referred to in this paragraph are not incorporated into this Annual Report. Further, our references to theURLs for these websites are intended to be inactive textual reference only. Our predecessor, Protox Pharmaceuticals Inc., was incorporated in January 2002. We were formed in May 2003 under the predecessor to the BritishColumbia Business Corporations Act, or the BCBCA, by the amalgamation of Stratos Biotechnologies Inc., Nucleus BioScience Inc. and BrightwaveVentures Inc. under the name SNB Capital Corp. In July 2004, we acquired all the shares of Protox Pharmaceuticals Inc. in a plan of arrangement underthe BCBCA and changed its name to Protox Therapeutics Inc. In 2012, we changed our name to Sophiris Bio Inc. We are governed by the BusinessCorporations Act of British Columbia. Our operations were initially located in Vancouver, British Columbia. In April 2011, we relocated our coreactivities and headquarters from Vancouver, British Columbia to San Diego, California. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growthcompany until the earlier of (1) (a) December 31, 2018, (b) the last day of the fiscal year in which we have total annual gross revenue of at least $1.0billion, or (c) the last day of the fiscal year in which we are deemed to be a large accelerated filer, and (2) the date on which we have issued more than $1.0billion in non-convertible debt during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,”and references herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.” 25Table of Contents Item 1A.Risk Factors Risks Related to Our Business and Industry We will require significant funding to complete the development and commercialization of topsalysin and we may be unable to raise capitalwhen needed, which would force us to delay, reduce or eliminate our development program or commercialization efforts or cease operations. Our operations have consumed substantial amounts of cash since inception. Since inception, we have raised approximately $146 million from thesale of equity securities in private placements and public offerings, $28 million from the issuance of debt securities, and $11 million from the exercise ofcommon share purchase warrants. We will need to continue to spend substantial amounts to continue clinical development of topsalysin. We have anongoing Phase 2b clinical trial to confirm the dose and optimize the delivery of topsalysin for the treatment of patients with clinically significantlocalized prostate cancer. We will require significant additional funding to advance topsalysin in clinical development outside of this Phase 2b clinicaltrial. At this point in time we are planning for a Phase 3 clinical trial of topsalysin for the treatment of patients with clinically significant localizedprostate cancer subject to the receipt of positive data and subject to obtaining additional financing. We are not planning on pursuing other clinical trials,including a second Phase 3 trial for the treatment of patients with benign prostatic hyperplasia, or BPH, unless we secure a development partner to fundsuch new clinical trials or obtain financing in excess of the financing required for our prostate cancer development program, which is our developmentpriority. There can be no assurance that such funding or a development partner will be available on acceptable terms or at all. We expect that our existing cash, cash equivalents and securities available-for-sale, together with interest thereon, will be sufficient to fund ouroperations to the middle of 2019, assuming we do not conduct any clinical trials other than our ongoing Phase 2b clinical trial for the treatment ofclinically significant localized prostate cancer. However, changing circumstances may cause us to consume capital significantly faster than we currentlyanticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. Any clinical developmentefforts, including our on-going Phase 2b clinical trial and our ongoing operations will require significant funding. We expect to finance future cash needs through public or private equity offerings, debt financings or strategic partnerships and alliances orlicensing arrangements. We cannot be certain that additional funding will be available on acceptable terms, or at all. Subject to limited exceptions, ourLoan and Security Agreement with Silicon Valley Bank, or SVB, prohibits us from incurring indebtedness without the prior written consent of SVB. Ifwe are unable to raise additional capital in sufficient amounts or on terms acceptable to us we will need to significantly delay, scale back or discontinuethe development or commercialization of topsalysin. We also could be required to: ● seek collaborators for one or more of our current or future product candidates on terms that are less favorable than might otherwise beavailable; ●relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop orcommercialize ourselves; or ●seek a third party to acquire us or our assets. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price ofour common shares to decline. We are a development stage company with no approved products and no revenue from commercialization of any products. We have not completed the development of any product candidates and, accordingly, have not begun to commercialize, or generate any productrevenues from any product candidate. Topsalysin requires significant additional clinical testing and investment prior to seeking marketing approval foreither the treatment of localized prostate cancer or the treatment of the symptoms of BPH. On November 10, 2015, we announced final results from ourPhase 3 "PLUS-1" study of topsalysin as a treatment for lower urinary tract symptoms of BPH. However, in order to seek regulatory approval for thetreatment of the symptoms of BPH, we would be required to conduct a second Phase 3 clinical trial in this indication. At this point in time we have noimmediate plans to conduct a second Phase 3 trial in BPH. 26Table of Contents On June 9, 2016, we announced the biopsy data of all 18 patients from a Phase 2a proof of concept clinical trial of topsalysin for the treatment oflocalized low to intermediate risk prostate cancer. We have fully enrolled a Phase 2b clinical trial to confirm the dose and optimize the delivery oftopsalysin for the treatment of clinically significant localized prostate cancer, which is being conducted across clinical trial sites in the United Kingdomand United States. We expect biopsy data from all patients dosed with the first administration of topsalysin to be available by the end of the secondquarter of 2018. The on-going Phase 2b trial includes an option to retreat patients with a second dose of topsalysin, subject to eligibility criteria, with anadditional targeted biopsy to occur six months following the second dose. We expect to have final biopsy data on all patients who receive a second dosein the fourth quarter of 2018. We are planning a Phase 3 clinical trial of topsalysin for the treatment of patients with clinical significant localized prostate cancer assumingreceipt of positive data from the ongoing Phase 2b trial. There have been limited development efforts for a targeted focal therapeutic for patients withclinically significant localized prostate cancer and, therefore, there is significant uncertainty regarding the Phase 3 clinical trial design, including primaryendpoint(s), that will be required by the US Food and Drug Administration, or FDA, or any foreign regulatory authority. We have had and will continue tohave informal discussions with foreign regulatory authorities in Europe where there is more regulatory experience with targeted focal therapy for patientswith localized prostate cancer, in order to help inform future clinical trial design. While we believe that we may be able to seek regulatory approval fortopsalysin for the treatment of clinically significant localized prostate cancer with one successful Phase 3 clinical trial, we have not discussed late-stageclinical development in this indication with the FDA. The regulatory authorities may ultimately disagree with our assessment of the design, scope andnumber of clinical trials or other studies before we can submit for regulatory approval. To mitigate these uncertainties, we plan to initiate formaldiscussions with the FDA and the European Medicines Agency, or EMA, once we have initial data from our on-going Phase 2b clinical trial. The outcomeof these discussions may change our assessment of required clinical trials and our development plans. Any delay in the finalization of the design of aPhase 3 clinical study would delay our development of topsalysin for the treatment of localized prostate cancer. A commitment of substantial resources by us and potential partners will be required to conduct additional clinical trials for topsalysin to meetapplicable regulatory standards, obtain required regulatory approvals, and to successfully commercialize this product candidate for the treatment in eitherindication. Topsalysin is not expected to be commercially available for either indication for several years, if at all, and any projected timelines forcommercialization are subject to a number of factors that are outside our control. There is no assurance that we will be able to commercialize topsalysinwithin the time periods we expect or that our clinical trials will support the regulatory approvals needed to commercialize topsalysin at all. We are highly dependent on the success of our sole product candidate, topsalysin, and we may not be able to successfully obtain regulatory ormarketing approval for, or successfully commercialize, this product candidate. To date, we have expended significant time, resources and effort on the development of topsalysin for the treatment of clinically significantlocalized prostate cancer and for the treatment of lower urinary tract symptoms of BPH, including conducting preclinical and clinical trials. We have noproduct candidates in our clinical development pipeline other than topsalysin, which we are developing for those two potential indications. Our abilityto generate product revenues and to achieve commercial success in the near term will initially depend almost entirely on our ability to successfully raisecapital to fund our topsalysin program and to develop, obtain regulatory approval for and then successfully commercialize topsalysin for either of theseindications in the United States and the European Economic Area, or EEA. Before we can market and sell topsalysin in the United States or foreignjurisdictions for any indication, we will need to commence and complete additional clinical trials, manage clinical, preclinical, and manufacturingactivities, obtain necessary regulatory approvals from the FDA in the United States and from similar foreign regulatory agencies in other jurisdictions,obtain manufacturing supply, build a commercial organization or enter into a marketing collaboration with a third party, and in some jurisdictions,obtain reimbursement authorization, among other things. We cannot assure you that we will be able to successfully complete the necessary clinicaltrials and/or obtain regulatory approvals and sufficient commercial manufacturing supply for topsalysin in either indication. If we do not receiveregulatory approvals, our business, prospects, financial condition and results of operations will be adversely affected. Even if we obtain the regulatoryapprovals to market and sell topsalysin, we may never generate significant revenues from any commercial sales of topsalysin for several reasons,including because the market for topsalysin may be smaller than we anticipate, topsalysin may not be adopted by physicians and payors or becausetopsalysin may not be as efficacious or safe as other treatment options. If we fail to successfully commercialize topsalysin, we may be unable to generatesufficient revenues to sustain and grow our business and our business, prospects, financial condition and results of operations will be adverselyaffected. 27Table of Contents The clinical trial protocol and design for our completed and any additional future Phase 3 clinical trials of topsalysin may not be sufficient toallow us to submit a BLA to the FDA in the indication of lower urinary tract symptoms of BPH or demonstrate safety or efficacy at the levelrequired by the FDA for product approval. Our initial Phase 3 clinical trial for the treatment of lower urinary tract symptoms of BPH and any additional Phase 3 clinical trial of topsalysin inthis indication use the International Prostate Symptom Score, or IPSS, outcome measure evaluated at total change from baseline over 52 weeks as theprimary endpoint. Secondary endpoints include Qmax (maximum urine flow) change from baseline (maximum urine flow) over 52 weeks. The IPSSoutcome measure, which is a validated primary efficacy endpoint used to assess the treatment benefit in BPH clinical trials, is a patient recorded,composite assessment that takes into account factors such as ability to empty the bladder, frequency of urination, intermittency of urination and theurgency of urination. The IPSS outcome measure is subjective in nature and requires patients in the trial to accurately and retroactively assess numeroussymptoms. The subjective nature of the IPSS outcome measure may make efficacy more difficult to demonstrate than for clinical trials for therapies thatcan show objective measures of efficacy. We have not requested a special protocol assessment, or SPA, which drug development companies sometimes use to obtain an agreement withthe FDA concerning the design and size of a clinical trial intended to form the primary basis of an effectiveness claim. Without the concurrence of theFDA on an SPA or otherwise, we cannot be certain that the design, conduct and data analysis approach for our initial Phase 3 clinical trial and anyfuture Phase 3 clinical trials has or will generate data sufficient to establish the effectiveness of topsalysin for treatment of BPH symptoms to the FDA’ssatisfaction, and therefore allow us to submit or receive approval of a Biologics License Application, or BLA for topsalysin in this indication.Specifically, the FDA has not agreed upon the amount of IPSS treatment effect that must be demonstrated in our Phase 3 clinical trials of topsalysin inorder for it to grant marketing approval in this indication. Historically, oral medications for the treatment of BPH have shown approximately a 2 pointimprovement in IPSS between active and control, which was not seen in our PLUS-1 clinical trial. If the FDA requires us, or we otherwise determine, toamend our protocols, change our clinical trial designs, increase enrollment targets or conduct additional clinical trials, our ability to obtain regulatoryapproval in this indication could be delayed and we could be required to make significant additional expenditures related to clinical development.Further, even if we achieve positive results on the endpoints for a clinical trial, the FDA may disagree with our interpretation of the data and deem theresults insufficient to demonstrate efficacy at the level required by the FDA for product approval. It is possible that we may make modifications to theclinical trial protocols or designs of our future clinical trials that delay enrollment or completion of such clinical trials and could delay regulatoryapproval of topsalysin for the treatment of symptoms of BPH. Our clinical trials may fail to adequately demonstrate safety and efficacy of topsalysin for either indication being pursued which would preventor delay regulatory approval and commercialization. Clinical development is expensive, takes many years to complete and its outcome is inherently uncertain. Failure can occur at any time duringthe clinical trial process and topsalysin is subject to the risks of failure inherent in drug development. Success in early clinical trials does not mean thatlater clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despitehaving progressed through initial clinical testing, even at statistically significant levels. We will be required to demonstrate through well-controlledclinical trials of topsalysin that our product candidate is safe and effective for use in its target indication before we can obtain regulatory approvals forits commercial sale. Companies frequently suffer significant setbacks in late-stage clinical trials, even after earlier clinical trials have shown promisingresults. Any future clinical trials of topsalysin may not be successful for a variety of reasons, including faults in the clinical trial designs, the failure toenroll a sufficient number of patients, undesirable side effects and other safety concerns and the inability to demonstrate sufficient efficacy. If topsalysinfails to demonstrate sufficient safety or efficacy, we would experience potentially significant delays in, or be required to abandon our development of,topsalysin, which would have a material and adverse impact on our business, prospects, financial condition and results of operations. We rely on third parties to manufacture topsalysin and we intend to rely on third parties to manufacture commercial supplies of topsalysin, if andwhen it is approved. The development and commercialization of topsalysin could be stopped or delayed if we are unable to identify amanufacturer who can supply our finished drug product on a large scale or any such third party fails to provide us with sufficient quantities oftopsalysin or the diluent or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance. We do not currently have, nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use inthe conduct of our clinical trials, and we lack the resources and the capability to manufacture topsalysin on a commercial scale. Instead, we rely on ourthird-party manufacturing partners. Although we have entered into agreements for the manufacture of clinical supplies of topsalysin, our third partymanufacturing partners may not perform as agreed, may be unable to comply with cGMP requirements and with FDA, state and foreign regulatoryrequirements or may terminate their agreements with us. We do not control the manufacturing processes of our third party manufacturers and we arecompletely dependent on our third party manufacturers for the production of topsalysin in accordance with cGMPs, which include, among other things,quality control, quality assurance and the maintenance of records and documentation. 28Table of Contents We have entered into an agreement with Boehringer Ingelheim RCV GmbH & Co KG, or BI, to manufacture topsalysin drug substance. We havecompleted scale-up up to the commercial batch size for topsalysin drug substance, but the finalization of the commercial fill finish process for theproduction of drug product is still underway. In addition, we are in the process of reformulating topsalysin drug product. Reformulation could result insignificant delays in the manufacturing of clinical supplies for future clinical trials and the commencement of future clinical trials. We are incurringsignificant costs to ensure that the new drug product formulation is comparable with our previous drug product formulation. There is no guarantee thatthe new drug product formulation will obtain the same clinical results as our old drug formulation. We have scheduled with BI the manufacture of additional drug substance that we need for future clinical trial supplies. We have not had drugsubstance manufactured for us since 2013 so there is no guarantee that the manufacturing will be completed when expected. We are in the process offinalizing the selection of a manufacturer for a commercial fill finish process for the production of topsalysin drug product. We have incurred significantcosts in connection with the reformulation of our drug product and we will continue to incur significant costs in connection with the technologytransfer and manufacturer of clinical drug supplies. If we are not able to complete our scheduled manufacturing of drug substance, the reformulation ofdrug product, or technology transfer for the production of finished drug product when expected, we could experience significant delays in thecommencement of our planned Phase 3 clinical trial for the treatment of clinically significant prostate cancer. BI currently procures an ingredient used in the current diluent formulation for use with topsalysin drug product from a multinational industrialbiotech company which is a single source supplier, on a purchase order basis. If our single source provider is unable to or decides to no longer supply BIor us with an ingredient for the diluent, we could experience delays in obtaining product for clinical trials until we procured another source or until wereformulate the product and we may be required to contract with another source in order to assure adequate commercial supply. Reformulation couldresult in significant further delays. If our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the applicable regulatoryauthorities’ strict regulatory requirements, or pass regulatory inspection, they will not be able to secure or maintain regulatory approval for themanufacturing facilities. In addition, we have no control over the ability of any third-party manufacturers to maintain adequate quality control, qualityassurance and qualified personnel. If the FDA or any other applicable regulatory authorities do not approve these facilities for the manufacture of ourproducts or if they withdraw any such approval in the future, or if our suppliers or third-party manufacturers decide they no longer want to supply ourbiologic or manufacture our products, we may need to find alternative manufacturing facilities, which would significantly impact our ability todevelop, obtain regulatory approval for or market our products. The facilities used by our third-party manufacturers to manufacture topsalysin and any other potential product candidates that we may develop inthe future must be approved by the applicable regulatory authorities, including the FDA, pursuant to inspections that will be conducted after we submitour BLA to the FDA. Further, manufacturers are subject to ongoing periodic unannounced inspection by the FDA and other governmental authorities toensure strict compliance with government regulations. Currently, our contract manufacturers are located outside the United States and the FDA hasrecently increased the number of foreign drug manufacturers which it inspects. As a result, these third-party manufacturers may be subject to increasedscrutiny. Topsalysin is manufactured by starting with cells which are stored in a cell bank. We have one master cell bank and multiple working cell banksand believe we would have adequate backup should any cell bank be lost in a catastrophic event. However, it is possible that we could lose multiplecell banks and have our manufacturing severely impacted by the need to replace the cell banks. Also, if we were to experience an unexpected loss oftopsalysin supply, we could experience delays in our future clinical trials as our third party manufacturers would need to manufacture additionaltopsalysin and would need sufficient lead time to schedule a manufacturing slot. This is due to the fact that, given its nature, topsalysin cannot bemanufactured in a facility at the same time as other biologics. The manufacture of biopharmaceutical products is complex and requires significant expertise and capital investment, including the developmentof advanced manufacturing techniques and process controls. We and our contract manufacturers must comply with cGMP regulations and guidelines.Manufacturers of biopharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production andcontamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, qualityassurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations.Furthermore, if microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made,such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure youthat any stability or other issues relating to the manufacture of any of our products will not occur in the future. Additionally, our manufacturer mayexperience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturerwere to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide any product candidatesto patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion ofclinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commencenew clinical trials at additional expense or terminate clinical trials completely. 29Table of Contents Any adverse developments affecting clinical or commercial manufacturing of our products may result in shipment delays, inventory shortages,lot failures, product withdrawals or recalls, the need to reformulate our product or other interruptions in the supply of our products. We may also have totake inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seekmore costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially adversely affect ourbusiness and delay or impede the development and commercialization of any of our products or product candidates and could have a material adverseeffect on our business, prospects, financial condition and results of operations. We may seek a partner for the continued development and commercialization of topsalysin. If we seek a partner and are unable to find a partneror such partnership is unsuccessful, we may be unable to commercialize topsalysin. We may seek a third-party partner for financial and scientific resources for the further clinical development and commercialization of topsalysin.There is no assurance that we will be able to find such a partner and, if we do, we may have to relinquish a significant portion of the future economicvalue of topsalysin to such partner. Also, a partner will likely significantly limit our control over the course of clinical development of topsalysin. Ourability to recognize revenue from a successful partnering arrangement of the sort we are contemplating may be impaired by several factors, including: ●a partner may shift its priorities and resources away from topsalysin due to many reasons, including a change in business strategy, a merger,acquisition, sale or downsizing of its company or business unit; ●successfully identifying a new partner and negotiating an agreement could be more difficult or the terms less advantageous because we havealready established a partnership for Japan; ●a partner may have the ability to unilaterally cease development of topsalysin; ●a partner may change the success criteria for topsalysin as a treatment for the symptoms of BPH or as a treatment for clinically significantlocalized prostate cancer thereby delaying or ceasing clinical development of topsalysin; ●a partner could develop a product that competes, either directly or indirectly, with topsalysin; ●a partner with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution or sale oftopsalysin; ●a dispute could arise between us and a partner concerning the research, development or commercialization of topsalysin which could delay orterminate development and, possibly, result in costly litigation or arbitration which may divert management attention and resources; and ●a partner may use our proprietary information or intellectual property in such a way as to invite litigation from a third party or fail to maintainor prosecute intellectual property rights such that our rights are jeopardized. In addition, any adverse developments that occur during any clinical trials conducted by or under the supervision of a partner may affect ourability to obtain regulatory approval or commercialize topsalysin. Further, if a partnership terminates an agreement with us or is otherwise unsuccessful, we may need to seek out and establish an alternativepartnership. This may not be possible, or we may not be able to do so on terms which are acceptable to us, in which case, it may be necessary for us tocease the development of topsalysin or conduct the remaining clinical development on our own and with our own funds. Any of these events would have a material adverse effect on our results of operations and financial condition. 30Table of Contents Topsalysin is subject to extensive regulation, and we may not obtain regulatory approvals for topsalysin. The clinical development, manufacturing, labeling, packaging, storage, tracking, recordkeeping, advertising, promotion, export, import,marketing and distribution and other possible activities relating to our product candidate are, and for any other biologic or drug candidate that we maydevelop will be, subject to extensive regulation by the FDA in the United States and other regulatory agencies in foreign jurisdictions. Topsalysin issubject to regulation in the United States as a biologic. Biologics require the submission of a BLA, and we are not permitted to market topsalysin in theUnited States until we obtain approval from the FDA of a BLA. To market topsalysin in the EEA, which includes the 28 member states of the EuropeanUnion plus Norway, Liechtenstein and Iceland, we must submit a Marketing Authorization Application, or MAA, to the EMA, for approval under theEMA’s centralized procedure, which if the marketing authorization is granted, will enable us to market the product throughout the entire territory of theEEA. A BLA or MAA must be supported by extensive clinical and preclinical data, as well as extensive information regarding chemistry, manufacturingand controls, or CMC, sufficient to demonstrate the safety and effectiveness of the applicable product candidate to the satisfaction of FDA and EMA,respectively. Regulatory approval of a BLA or an MAA is not guaranteed, and the approval process is expensive and will take several years. The FDA andforeign regulatory entities also have substantial discretion in the approval process. The number and types of preclinical studies and clinical trials thatwill be required for BLA or MAA approval varies depending on the product candidate, the disease or the condition that the product candidate isdesigned to target and the regulations applicable to any particular product candidate. Despite the time and expense associated with preclinical studiesand clinical trials, failure can occur at any stage, and we could encounter problems that cause us to repeat or perform additional preclinical studies orclinical trials or generate additional CMC data. The FDA, EMA and similar foreign authorities could delay, limit or deny approval of a productcandidate for many reasons, including because they: ●may not deem our product candidate to be adequately safe and effective; ● may not find the data from our preclinical studies and clinical trials or CMC data to be sufficient to support a claim of safety and efficacy; ● may not approve the manufacturing processes or facilities associated with our product candidate; ● may conclude that we have not sufficiently demonstrated long-term stability of the formulation of the drug product for which we are seekingmarketing approval; ● may change approval policies (including with respect to our product candidate’s class of biologics) or adopt new regulations; or ● may not accept a submission due to, among other reasons, the content or formatting of the submission. Obtaining approval of a BLA is a lengthy, expensive and uncertain process. As part of the U.S. Prescription Drug User Fee Act, the FDA has agoal to review and act on a percentage of all submissions in a given time frame. The general review goal for a BLA is 12 months from the submissiondate for a standard application and eight months from the submission date for a priority review application. The FDA’s review goals are subject tochange, and it is unknown whether the review of a BLA for topsalysin will be completed within the FDA’s target timelines or will be delayed. Moreover,the duration of the FDA’s review may depend on the number and types of other BLAs that are submitted to the FDA around the same time period or arepending. Generally, public concern regarding the safety of drug products could delay or limit our ability to obtain regulatory approval, result in theinclusion of unfavorable information in our labeling, or require us to undertake other activities that may entail additional costs. We have not submitted an application for approval or obtained FDA approval for any product. This lack of experience may impede our ability toobtain FDA approval in a timely manner, if at all, for topsalysin. In addition, failure to comply with FDA and other applicable U.S. and foreign regulatoryrequirements, either before or after product approval, may subject us to administrative or judicially imposed sanctions, including warning letters, civiland criminal penalties, injunctions, withdrawal of approved products, product seizure or detention, product recalls, total or partial suspension ofproduction, and refusal to approve pending BLAs or supplements to approved BLAs. Even if we believe that data collected from our preclinical studies and clinical trials of our product candidate are promising, our data may not besufficient to support marketing approval by the FDA or any foreign regulatory authority, or regulatory interpretation of these data and procedures may beunfavorable. In addition, the FDA’s regulatory review of BLAs for product candidates intended for widespread use by a large proportion of the generalpopulation is becoming increasingly focused on safety, which may lead to increased scrutiny of the safety data we submit in any BLA for topsalysin.Even if approved, a product candidate may not be approved for all indications requested and such approval may be subject to limitations on the indicateduses for which the biologic may be marketed, restricted distribution methods or other limitations. Our business and reputation may be harmed by anyfailure or significant delay in obtaining regulatory approval for the sale of our product candidate. We cannot predict when or whether regulatory approvalwill be obtained for any product candidate we develop. 31Table of Contents To market any biologics outside of the United States, we and current or future collaborators must comply with numerous and varying regulatoryand compliance related requirements of other countries. Approval procedures vary among countries and can involve additional product testing andadditional administrative review periods, including obtaining reimbursement and pricing approval in select markets. The time required to obtainapproval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all ofthe risks associated with FDA approval as well as additional, presently unanticipated, risks. Regulatory approval in one country does not ensureregulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process inothers, including the risk that our product candidates may not be approved for all indications requested and that such approval may be subject tolimitations on the indicated uses for which the drug may be marketed. Delays in the commencement or completion of clinical testing could significantly impact our product development costs and will delay ourability to pursue regulatory approval and, in turn, our ability to generate any product revenues. Although we have completed the first of two required Phase 3 clinical trials of topsalysin for the treatment of the symptoms of BPH andcompleted a Phase 2a proof of concept clinical trial for the treatment of localized low to intermediate risk prostate cancer, and have an ongoing Phase2b trial for the treatment of clinically significant localized prostate cancer, we do not know whether or when we will be able to fund any additionalclinical trials for either the treatment of clinically significant localized prostate cancer or the treatment of the symptoms of BPH, or if any future trialswill be completed on time, or at all. Further, the commencement or completion of clinical trials can be delayed for a variety of reasons, including delays in or related to: ●raising sufficient capital or securing a development partner to fund future clinical trials, including a Phase 3 clinical trial of topsalysin for thefocal treatment of clinically significant localized prostate cancer and a second Phase 3 clinical trial for the treatment of the symptoms ofBPH; ●obtaining regulatory approval, or feedback on trial design necessary, to commence a clinical trial; ● identifying, recruiting and training suitable clinical investigators; ● identifying, recruiting and enrolling suitable patients to participate in a clinical trial; ● catastrophic loss of drug product due to shipping delays or delays in customs in connection with delivery of drug product to foreigncountries for use in clinical trials; ● reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of whichcan be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; ●completing the reformulation of topsalysin drug substance and drug product; ●achieving commercial-scale manufacturing of topsalysin; ●validating a commercial fill finish process for topsalysin drug product and obtaining sufficient quantities of topsalysin for use in any futurePhase 3 clinical trials; ●having patients complete a trial or return for post-treatment follow-up; ● adding new clinical trial sites; ●failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols; ●failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions; ● unforeseen safety issues or any determination that a clinical trial presents unacceptable health risks; ● obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective site; and ● retaining patients who have initiated a clinical trial but may withdraw due to adverse side effects from the therapy, insufficient efficacy,fatigue with the clinical trial process or personal issues. 32Table of Contents Any delays in the commencement or completion of our clinical trials will delay our timeline to obtain regulatory approval for our productcandidate. In addition, many of the factors that cause, or lead to, a delay in the commencement of clinical trials may also ultimately lead to the denial ofregulatory approval for a product candidate. We do not expect to commence enrollment of our second required Phase 3 clinical trial for the treatment ofthe lower urinary tract symptoms of BPH until we have raised the additional capital required to fund such second Phase 3 clinical trial. We may face competition to enroll localized prostate cancer and BPH patients in our future clinical trials from other clinical trials for othersponsors including potential competitors. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including thesize and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial,competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other availabletherapies, including any new drugs that may be approved for the indications we are investigating. Delays in enrollment in any future clinical trials oftopsalysin would result in delays in our ability to pursue regulatory approval of topsalysin. Changes in regulatory requirements and guidance also may occur and we may need to amend clinical trial protocols to reflect these changes.Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may impact the costs, timing and successfulcompletion of a clinical trial. If we experience delays in the completion of, or if we must terminate, any clinical trial of topsalysin, our ability to obtainregulatory approval for that product candidate will be delayed and the commercial prospects, if any, for the product candidate may be harmed. If weultimately commercialize topsalysin, other therapies for the same indications may have been introduced to the market during the period we have beendelayed and such therapies may have established a competitive advantage over our product candidates. We have relied upon and expect to rely upon multiple CROs to conduct and oversee our ongoing and any future clinical trials for topsalysin. Ifany of our CROs does not meet our deadlines or otherwise conduct the trials as required or if any CRO experiences regulatory compliance issueswe may not be able to obtain regulatory approval for or commercialize our product candidate when expected or at all. We have used multiple CROs for our clinical trials of topsalysin and expect to rely upon CROs for any future clinical trials. We also rely uponmedical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and in accordancewith applicable legal and regulatory requirements. These third parties play a significant role in the conduct of these trials and the subsequent collectionand analysis of data from the clinical trials. There is no guarantee that any such third party will devote adequate time and resources to our clinical trial.If any of our CROs or any other third parties upon which we rely for administration and conduct of our clinical trials do not successfully carry out theircontractual duties or obligations or fail to meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data theyobtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or if they otherwise perform in a substandardmanner, our clinical trials may be extended, delayed, suspended or terminated, and we may not be able to complete development of and ultimatelyobtain approval for and successfully commercialize topsalysin. We will rely heavily on these third parties for the execution of our future clinical trialsand will control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted inaccordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on CROs does not relieve us of our regulatoryresponsibilities. We and our CROs are required to comply with current Good Clinical Practice, or GCP, which are regulations and guidelines enforced by the FDA,the competent authorities of the Member States of the EEA and comparable foreign regulatory authorities for products in clinical development.Regulatory authorities enforce these GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and clinical trialsites. If we or any of our CROs fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemedunreliable and our submission of marketing applications may be delayed or the FDA may require us to perform additional clinical trials beforeapproving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply orcomplied with applicable GCP regulations. In addition, our clinical trials must be conducted with product produced under the current GoodManufacturing Practice, or cGMP, regulations enforced by the FDA, and our clinical trials require a large number of test subjects. Our failure to complywith these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may beimplicated if any of our CROs violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws. 33Table of Contents Switching or adding CROs can involve substantial cost and require extensive management time and focus. In addition, there is a naturaltransition period when a new CRO commences work. As a result, delays may occur, which can materially impact our ability to meet our desired clinicaldevelopment timelines. Though we carefully manage our relationship with our CROs, there can be no assurance that we will not encounter suchchallenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, prospects, financialcondition or results of operations. Topsalysin may cause undesirable side effects or have other properties that may delay or prevent its regulatory approval or commercialization orlimit its commercial potential. Undesirable side effects caused by topsalysin could cause us or regulatory authorities to interrupt, delay, suspend or terminate clinical trials andcould result in a more restrictive label or the delay or denial of marketing approval by the FDA or other regulatory authorities. This, in turn, could limitor prevent us from commercializing topsalysin and generating revenues from its sale. The most common adverse events observed in patients whoreceived topsalysin in our initial Phase 3 clinical trial for the treatment of lower urinary tract symptoms of BPH that were potentially attributable totopsalysin included painful urination, the presence of red blood cells in urine, frequent urination and urinary urgency, fever, and perineal pain. Each ofthe foregoing adverse events occurred in greater than 5% of the topsalysin population. Further, the incidence of serious AEs, or SAEs, was similar inpatients treated with topsalysin and vehicle. There were two SAEs assessed by the investigator as at least possibly related to treatment for topsalysin andone such SAE for vehicle. The topsalysin-related SAEs were moderate events of “acute non-infectious prostatitis” and “fever following prostateprocedure” not unexpected manifestations of the intraprostatic cellular destruction and resultant inflammation integral to the topsalysin mechanism ofaction. The vehicle-related SAE was a mild event of “urinary tract infection.” The adverse events which occurred in our Phase 2a localized prostatecancer trial were similar in nature to the adverse events noted in our BPH program and no SAEs were reported. Although the SAEs were moderate andnot unexpected, they may not be fully indicative of the adverse events that would be encountered in commercial use or in larger trials. Results from ourfuture clinical trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could besuspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval oftopsalysin for its targeted indication. Further, such side effects could affect patient recruitment or the ability of enrolled patients to complete a trial orresult in potential product liability claims. Any of these occurrences may have a material and adverse impact on our business, prospects, financialcondition and results of operations. In addition, if topsalysin receives marketing approval for the treatment of the symptoms of BPH or localized prostate cancer, or both, and we orothers later identify undesirable side effects caused by topsalysin, a number of significant negative consequences could result, including: ●regulatory authorities may withdraw their approval of topsalysin; ● regulatory authorities may require that we demonstrate a larger clinical benefit by conducting additional clinical trials for approval to offsetthe risk; ● regulatory authorities may require the addition of labeling statements or warnings that could diminish the usage of the product or otherwiselimit the commercial success of topsalysin; ● we may be required to change the way topsalysin is administered; ● we may choose to recall, withdraw or discontinue sale of topsalysin; ● we could be sued and held liable for harm caused to patients; ● we may not be able to enter into collaboration agreements on acceptable terms and execute on our business model; and ● our reputation may suffer. 34Table of Contents Any one or a combination of these events could prevent us from achieving or maintaining market acceptance of the affected product or couldsubstantially increase the costs and expenses of commercializing topsalysin, which in turn could delay or prevent us from generating any revenues fromthe sale of the product, which could significantly harm our business, prospects, financial condition and results of operations. Any adverse developments that occur during any clinical trials conducted by Kissei may affect our ability to obtain regulatory approval orcommercialize topsalysin. Kissei retains the rights to develop and commercialize topsalysin in Japan for the treatment of the symptoms of BPH, prostate cancer, prostatitisor other diseases of the prostate. If serious adverse events occur during any other clinical trials Kissei decides to conduct with respect to topsalysin, theFDA and other regulatory authorities may delay, limit or deny approval of topsalysin or require us to conduct additional clinical trials as a condition tomarketing approval, which would increase our costs. If we receive FDA approval for topsalysin and a new and serious safety issue is identified inconnection with clinical trials conducted by Kissei, the FDA and other regulatory authorities may withdraw their approval of the product or otherwiserestrict our ability to market and sell our product. In addition, treating physicians may be less willing to administer our product due to concerns oversuch adverse events, which would limit our ability to commercialize topsalysin. Kissei is not currently conducting any clinical trials with topsalysin forthe treatment of BPH, prostate cancer, prostatitis or other diseases of the prostate. We face significant competition from other pharmaceutical and biotechnology companies and from minimally invasive surgical therapies andsurgical alternatives, and our operating results will suffer if we fail to compete effectively. The biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in the United States and internationalmarkets, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. Many ofour competitors have substantially greater financial, technical and other resources, such as larger research and development staff, experienced marketingand manufacturing organizations and well-established sales forces. Additional mergers and acquisitions in the biotechnology and pharmaceuticalindustries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in thecommercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed indeveloping, acquiring or licensing on an exclusive basis, products that are more effective, easier to administer and/or less costly than topsalysin. We expect that topsalysin will compete with the current treatment options for the treatment of clinically significant localized prostate cancer,which include surgical options such as laparoscopic and radical prostatectomy or radiation. In addition, there are other focal targeted therapies whichare gaining traction that are currently in clinical development or have been recently approved which include: brachytherapy, cryotherapy, high focusedultrasound, cyber knife, radio frequency ablation, laser ablation, and TOOKAD, a vascular –targeted photodynamic therapy recently approved by theEMA. In addition, in January 2018, Nymox Pharmaceuticals announced top-line five year clinical trial biopsy data from the intraprostaticadministration of their investigational therapy NX-1207 (fexapotide triflutate) in patients with low grade localized (T1c) prostate cancer. We expect that topsalysin will compete with the current treatment options for the symptoms of BPH, which include oral drug therapy andsurgery. Oral drug therapies include (a) alpha-blockers, such as tamsulosin (marketed under various trade names by numerous companies, including asFlomax® by Astellas Pharma), alfuzosin (marketed in the United States by Sanofi as Uroxatral®), doxazosin (marketed by Pfizer as Cardura® andCardura® XL) and silodosin (marketed by Watson Pharmaceuticals as Rapaflo® in the United States), (b) 5-alpha reductase inhibitors, such asdutasteride (marketed by GlaxoSmithKline plc as Avodart®) and finasteride (marketed by Merck & Co., Inc. as Proscar®), (c) combinations of a-blockers and 5-alpha reductase inhibitors such as tamsulosin and dutasteride (marketed by GSK as Jalyn®) and (d) tadalafil (marketed as Cialis® by EliLilly), a PDE5 inhibitor which obtained FDA approval for the treatment of the symptoms of BPH in October 2011. Several minimally invasive surgicaltherapies, or MIST, are available, including transurethral microwave thermotherapy, or TUMT, transurethral needle ablation, or TUNA, photo-selectivevaporization of prostate, holmium laser enucleation of the prostate, transurethral electrovaporization of the prostate, interstitial laser coagulation, andthe UroLift® system (marketed by NeoTract, Inc.), which is an implant delivered into the body via a small needle and designed to hold prostate tissueout of the way of the blocked urethra. Currently, the most commonly used MIST procedures are laser ablations of the prostate, TUMT, and TUNA.Surgery for BPH treatment is usually considered in patients who fail drug therapy as a result of side effects or inadequate relief of symptoms, haverefractory urinary retention, or have recurrent urinary tract infections. Alternatively, surgery may be the initial treatment in patients with severe urinarysymptoms. Surgical procedures for BPH include transurethral resection of the prostate, as well as other procedures such as transurethral incision of theprostate and transurethral vaporization of the prostate. In May 2017, Nymox Pharmaceuticals announced that it had filed for marketing authorizationfor Fexapotide Triflutate for the treatment of the symptoms of BPH in five European countries, the Netherlands, the United Kingdom, Germany, Franceand Spain. In December 2017, Procept BioRobotics received FDA clearance for its AquaBeam System, a waterjet ablation therapy for endoscopicresection of prostate tissue. In addition, there are other treatments that are currently in clinical development for the treatment of the symptoms of BPH.Light Sciences Oncology Inc.’s AptocineTM is currently in Phase 2 clinical trials. 35Table of Contents The availability and price of our competitors’ products and procedures could limit the demand, and the price we are able to charge, fortopsalysin. Further, our lack of data on long term disease progression 5 to 10 years following administration of topsalysin in order to demonstrate thatour product is comparable to more radical therapies such as prostatectomy and/or radiation could limit demand for topsalysin for focal treatment ofprostate cancer. We will not successfully execute on our business objectives if the market acceptance of topsalysin is inhibited by price competition, ifphysicians are reluctant to switch from existing products or procedures to topsalysin or if physicians switch to other new products or surgeries or chooseto reserve topsalysin for use in limited patient populations. In addition, established pharmaceutical companies may invest heavily to acceleratediscovery and development of novel compounds or to in-license and develop novel compounds that could make topsalysin obsolete. Any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability andsafety in order to be approved and overcome price competition and to be commercially successful. Accordingly, our competitors may succeed inobtaining patent protection, obtaining FDA approval or discovering, developing and commercializing products before we do, which would have amaterial adverse impact on our business. The inability to compete with existing products or subsequently introduced products would have a materialadverse impact on our business, prospects, financial condition and results of operations. Even if we obtain and maintain approval for topsalysin from the FDA in either indication, we may never obtain approval for topsalysin outsideof the United States, which would limit our market opportunities and adversely affect our business. Sales of topsalysin outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketingapproval. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approvethe manufacturing and marketing of the product candidates in those countries. Approval procedures vary among jurisdictions and can involverequirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies orclinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for salein that country. In some cases, the price that we intend to charge for our products is also subject to approval. We may decide to submit an MAA to theEMA for approval in the EEA. As with the FDA, obtaining approval of an MAA from the EMA is a similarly lengthy and expensive process and theEMA has its own procedures for approval of product candidates. Even if a product is approved, the FDA or the EMA, as the case may be, may limit theindications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consumingclinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and the EEA also haverequirements for approval of drug candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvalsand compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent theintroduction of our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in othercountries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatoryapproval in one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval for any of our productcandidates may be withdrawn. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketingapprovals, our target market will be reduced and our ability to realize the full market potential of topsalysin will be harmed and our business will beadversely affected. 36Table of Contents We will be, with respect to any product candidate for which we obtain FDA approval, subject to ongoing FDA obligations and continuedregulatory review, which may result in significant additional expense. Any regulatory approvals that we obtain for our product candidate may also be subject to limitations on the approved indicated uses for whichthe product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including post-marketing studies and clinical trials and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA or acomparable foreign regulatory authority, like the EMA, approves a product candidate, the manufacturing processes, labeling, packaging, distribution,adverse event reporting, storage, advertising, promotion, import, export, tracking and recordkeeping for the product will be subject to extensive andongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, aswell as continued compliance with cGMPs for marketed drugs and drugs used in clinical trials and GCPs for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with ourthird-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: ●restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory productrecalls; ●fines, warning 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, orsuspension or revocation of product license approvals; ● product seizure or detention, or refusal to permit the import or export of products; and ● injunctions, the imposition of civil or criminal penalties, or exclusions. The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval ofour product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if weare not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustainprofitability, which would have a material adverse effect on our business, prospects, financial condition and results of operations. Moreover, the federal Drug Supply Chain Security Act, imposes obligations on manufacturers of pharmaceutical products, among others, relatedto product tracking and tracing. Among the requirements of this new federal legislation, manufacturers will be required to provide certain informationregarding the drug product to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keepcertain records regarding the drug product. Further, manufacturers have drug product investigation, quarantine, disposition, and notificationresponsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of fraudulenttransactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death. If we fail to comply with health care laws, we could face substantial penalties and our business, operations and financial condition could beadversely affected. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors,certain federal and state healthcare laws and regulations, including those pertaining to fraud and abuse and patients’ rights, are and will be applicable toour business. We could be subject to healthcare regulation by both the federal government and the states in which we conduct our business. The federaland state health care laws and regulations that may affect our ability to operate include, without limitation: anti-kickback statutes, false claims statutespatient data privacy and security laws, and physician sunshine laws and regulations, many of which may become more applicable if our productcandidates are approved and we begin commercialization. If our operations are found to be in violation of any of these laws or regulations, we may besubject to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, imprisonment, exclusion from participation infederal healthcare programs, and additional reporting obligations and oversight if we become subject to a corporate integrity agreement or otheragreement to resolve allegations of non-compliance with these laws, as well as contractual damages, reputational harm, diminished profits and futureearnings, and the curtailment or restructuring of our operations. Any such penalties could adversely affect our ability to operate our business and ourfinancial results. Any action against us for violation of these laws and regulations, even if we successfully defend against it, could cause us to incursignificant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliancewith these laws and regulations may prove costly. 37Table of Contents We will need to increase the size of our organization and the scope of our outside vendor relationships, and we may experience difficulties inmanaging growth. As of December 31, 2017, we had six full-time employees. In addition, we had engaged seven part-time individual consultants to assist us withmanaging vendors and CROs, project management and regulatory compliance. We will need to expand our managerial, operational, financial and otherresources in order to manage our future operations and clinical trials, continue our research and development activities, and commercialize our productcandidate. Our management and scientific personnel, systems and facilities currently in place may not be adequate to support our future growth. Ourneed to effectively manage our operations, growth and various projects requires that we: ● manage our clinical trials effectively; ● manage our internal development efforts effectively while carrying out our contractual obligations to licensors, contractors and other thirdparties; ● continue to improve our operational, financial and management controls and reporting systems and procedures; ● attract and retain sufficient numbers of talented employees; and ● manage our regulatory compliance oversight and infrastructure. To date, we have utilized the services of third-party vendors to perform tasks including clinical trial management, statistics and analysis,regulatory affairs, formulation development and other drug development functions. Our growth strategy may also entail expanding our group ofcontractors or consultants to implement these tasks going forward. Because we rely on numerous consultants, effectively outsourcing many keyfunctions of our business, we will need to be able to effectively manage these consultants to ensure that they successfully carry out their contractualobligations and meet expected deadlines. However, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of theservices provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able toobtain regulatory approval for our product candidate or otherwise advance our business. There can be no assurance that we will be able to manage ourexisting consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all. If we are not able toeffectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may be unable tosuccessfully implement the tasks necessary to further develop and commercialize our product candidate and, accordingly, may not achieve our research,development and commercialization goals. Our limited operating history makes evaluating our business and future prospects difficult. Our predecessor, Protox Pharmaceuticals Inc., was incorporated in January 2002. We were formed in May 2003 under the predecessor to theBritish Columbia Business Corporations Act, or the BCBCA, by the amalgamation of Stratos Biotechnologies Inc., Nucleus BioScience Inc. andBrightwave Ventures Inc. under the name SNB Capital Corp. In July 2004, we acquired all the shares of Protox Pharmaceuticals Inc. in a plan ofarrangement under the BCBCA and changed its name to Protox Therapeutics Inc. In 2011, we formed a wholly-owned U.S. subsidiary incorporated inDelaware, Protox Therapeutics Corp. In 2012, we changed our name to Sophiris Bio Inc. and changed the name of our subsidiary to Sophiris Bio Corp.In 2012, Sophiris Bio Corp. formed a wholly-owned subsidiary incorporated in Delaware, Sophiris Bio Holding Corp. We face considerable risks anddifficulties as a company with limited operating history, particularly as a consolidated entity with an operating subsidiary that also has a limitedoperating history. If we do not successfully address these risks, our business, prospects, operating results and financial condition will be materially andadversely harmed. Our limited operating history makes it particularly difficult for us to predict our future operating results and appropriately budget forour expenses. In the event that actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financialposition could be materially affected. We have limited experience as a consolidated operating entity, and have not yet demonstrated an ability tosuccessfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in thepharmaceutical or biotechnology areas. The terms of our Loan and Security Agreement with Silicon Valley Bank require us to meet certain operating covenants and place restrictions onour operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict ourability to operate our business. In September 2017, we entered into a $10 million Loan and Security Agreement with SVB. This loan is secured by a lien covering all of ourassets, excluding intellectual property, and we also pledged as collateral all of our equity interests in Sophiris Bio Corp. and Sophiris Bio HoldingCorp. While any amounts are outstanding under the Loan and Security Agreement, we are subject to a number of affirmative and restrictive covenants,including covenants regarding dispositions of property, business combinations or acquisitions, incurrence of additional indebtedness and transactionswith affiliates, among other customary covenants. We are also restricted from paying dividends or making other distributions or payments on our capitalstock, subject to limited exceptions. Upon the occurrence of an event of default by us under the Loan and Security Agreement, SVB will havecustomary acceleration, collection and foreclosure remedies. Further, if we are liquidated, SVB’s right to repayment would be senior to the rights of the holders of our common shares to receive any proceedsfrom the liquidation. SVB could declare a default under the loan upon the occurrence of any event that SVB interprets as a material adverse change asdefined under the loan agreement, thereby requiring us to repay the loan immediately or to attempt to reverse the declaration of default throughnegotiation or litigation. Any declaration by SVB of an event of default could significantly harm our business and prospects and could cause the priceof our common shares to decline. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating andfinancial flexibility. 38Table of Contents Our ability to generate revenues from topsalysin will be subject to attaining significant market acceptance among physicians, patients andhealthcare payors. Topsalysin, if approved in either indication for which we are currently pursuing development or any other indication, may not attain marketacceptance among physicians, patients, healthcare payors or the medical community. We believe that the degree of market acceptance and our ability togenerate revenues from topsalysin will depend on a number of factors, including: ● timing of market introduction of our products as well as competitive procedures or drugs; ●efficacy and safety of topsalysin and the availability of data to demonstrate long-term efficacy; ●the clinical indication(s) for which topsalysin is approved; ● continued projected growth of the urological disease markets, including incidence of localized prostate cancer with tumors amenable to focaltherapy, and incidence of BPH; ● continued adoption and improvement of imaging and diagnostic tools, including MRI-guided biopsies and molecular tests, to assess andidentify candidates for focal treatment of localized prostate cancer; ● acceptance by patients, primary care specialists and key specialists, including urologists and oncologists for localized prostate cancer andurologists for BPH; ● potential or perceived advantages or disadvantages of topsalysin over alternative treatments, for prostate cancer and BPH including cost oftreatment and relative convenience and ease of administration, the amount of time for a patient to notice the effects of the treatment andlength of sustained benefits from treatment; ●strength of sales, marketing and distribution support; ● the price of topsalysin, both in absolute terms and relative to alternative treatments; ● the effect of current and future healthcare laws; ●availability of coverage and adequate reimbursement and pricing from government and other third-party payors for MRI-guided biopsies andother diagnostic tools and for topsalysin procedures; and ●product labeling or product insert requirements of the FDA or other regulatory authorities. If topsalysin is approved in either or both indications but fails to attain market acceptance by physicians, patients, health care payors, or themedical community, we may not be able to generate significant revenue to achieve or sustain profitability, which would have a material adverse effecton our business, prospects, financial condition and results of operations. Coverage and reimbursement may not be available, or may be available at only limited levels, for topsalysin, which could make it difficult for usto sell topsalysin profitably. Market acceptance and sales of topsalysin will depend in large part on global reimbursement policies and may be affected by future healthcarereform measures, both in the United States and other key international markets. Patients who are prescribed medicine for the treatment of theirconditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to useour products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Therefore, successfulcommercialization of our product will depend in part on the availability of governmental and third-party payor reimbursement for the cost of topsalysinand/or payment to the physician for administering topsalysin. In the United States, no uniform policy of coverage and reimbursement for drug productsexists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, thecoverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use ofour products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. One third-party payor’s decisionto cover a particular medical product or service does not assure that other payors will also provide coverage for the medical product or service, or toprovide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require us to provide scientific and clinicalsupport for the use of our products to each payor separately, with no assurance that adequate coverage and reimbursement will be obtained. Further, athird-party payor’s decision to provide coverage for a medical product or service does not imply that an adequate reimbursement rate will be approved.The market for our product candidates will depend significantly on access to third-party payors’ formularies or lists of treatments for which third-partypayors provide coverage and reimbursement. 39Table of Contents Third-party payors establish coverage and reimbursement policies for new products, including product candidates like topsalysin. In particular,in the United States, private health insurers and other third-party payors often provide reimbursement for treatments based on the level at which thegovernment (through the Medicare or Medicaid programs) provides reimbursement for such treatments. In the United States, the EEA and othersignificant or potentially significant markets for our product candidate, government authorities and third-party payors are increasingly attempting tolimit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which has resulted in loweraverage selling prices. Further, the increased emphasis on managed healthcare in the United States and on country and regional pricing andreimbursement controls in Canada and the EEA will put additional pressure on product pricing, coverage, reimbursement and utilization, which mayadversely affect our product sales and results of operations. These pressures can arise from policies and practices of managed care groups, judicialdecisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, coverage and reimbursement policies andpricing in general. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments fromprivate payors. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, orcollectively, the PPACA, became law in the United States. PPACA substantially changes the way healthcare is financed by both governmental andprivate insurers and significantly affects the pharmaceutical industry. Among the provisions of the PPACA of greatest importance to the pharmaceuticalindustry are the following: (i) an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologicagents, apportioned among these entities according to their market share in certain government healthcare programs; (ii) an increase in the rebates amanufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs,respectively; (iii) a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts tonegotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatientdrugs to be covered under Medicare Part D; (iv) extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals whoare enrolled in Medicaid managed care organizations; (v) expansion of eligibility criteria for Medicaid programs by, among other things, allowingstates to offer Medicaid coverage to additional individuals with income at or below 133% of the Federal Poverty Level, thereby potentially increasingmanufacturers’ Medicaid rebate liability; (vi) expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricingprogram; (vii) expansion of health care fraud and abuse laws, including the federal civil False Claims Act and the Anti-Kickback Statute, newgovernment investigative powers, and enhanced penalties for noncompliance; and (viii) a new Patient-Centered Outcomes Research Institute tooversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. Since its enactment there have been judicial and Congressional challenges to other aspects of the PPACA, as well as recent efforts by the Trumpadministration to repeal or replace certain aspects of the PPACA. Since January 2017, President Trump has signed two Executive Orders designed to delaythe implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA.Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the PPACA. While Congress has not passedcomprehensive repeal legislation, two bills affecting the implementation of certain taxes under the PPACA have been signed into law. The Tax Cuts andJobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA oncertain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”.Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed theimplementation of certain PPACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, theannual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices.Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the PPACA, effective January 1, 2019, to increase from 50 percent to70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap inmost Medicare drug plans, commonly referred to as the “donut hole”. Congress may consider other legislation to replace elements of the PPACA. Wecontinue to evaluate the potential effect of the possible repeal and replacement of the PPACA may have on our business. 40Table of Contents In addition, other legislative changes have been proposed and adopted in the United States since the PPACA. For example, through the processcreated by the Budget Control Act of 2011, there are automatic reductions of Medicare payments to providers up to 2% per fiscal year, which went intoeffect in April 2013 and, following passage of the BBA, will remain in effect through 2027 unless additional Congressional action is taken. In January2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments toseveral providers. Further, recently there has been heightened governmental scrutiny in the United States over the manner in which drug manufacturers setprices for their marketed products, in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressionalinquiries and proposed federal legislation designed to, among other things, bring more transparency to product pricing, review the relationship betweenpricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the state level, legislatures areincreasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price orpatient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, insome cases, designed to encourage importation from other countries and bulk purchasing. We expect that additional federal and state healthcare reformmeasures will be adopted in the future, any of which could result in reduced demand for our products or other adverse effects on our business. In the EEA, the success of topsalysin, if approved, will depend largely on obtaining and maintaining government reimbursement, because inmany European countries patients are unlikely to use therapies that are not reimbursed by the government. Negotiating prices with governmentalauthorities can delay commercialization by 12 months or more. Reimbursement policies may adversely affect our ability to sell our products on aprofitable basis. In many international markets, governments control the prices of prescription pharmaceuticals, including through the implementationof reference pricing, price cuts, rebates, revenue-related taxes and profit control, and expect prices of prescription pharmaceuticals to decline over thelife of the product or as volumes increase. Recently, many countries in the EEA have increased the amount of discounts required on pharmaceuticalproducts and other therapies, and we expect these discounts to continue as countries attempt to manage healthcare expenditures, especially in light ofcurrent economic conditions. As a result of these pricing practices, it may become difficult to achieve profitability or expected rates of growth inrevenue or results of operations. Any shortfalls in revenue could adversely affect our business, prospects, financial condition and results of operations. Certain countries have a very difficult reimbursement environment and we may not obtain reimbursement or pricing approval, if required, in allcountries where we expect to market a product, or we may obtain reimbursement approval at a level that would make marketing a product in certaincountries not viable. We expect to experience pricing pressures in connection with the sale of topsalysin, if approved, and any other products that we may develop,due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals. If wefail to successfully secure and maintain adequate coverage and reimbursement for our products or are significantly delayed in doing so, we will havedifficulty achieving market acceptance of our products and expected revenue and profitability which would have a material adverse effect on ourbusiness, prospects, financial condition and results of operations. Our business and operations would suffer in the event of system failures. Despite the implementation of security measures, our internal computer systems and those of our current and any future CROs and othercontractors and consultants and collaborators are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war andtelecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if suchan event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our businessoperations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval effortsand significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture topsalysin and conduct clinicaltrials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruptionor security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietaryinformation, we could incur liability and the further development and commercialization of our product candidate could be delayed. Business interruptions could seriously harm our future revenue and financial condition and increase our costs and expenses. Our operations could be subject to earthquakes, power shortages, telecommunications failures, systems failures, water shortages, floods,hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. Theoccurrence of any of these business interruptions could seriously harm our business and financial condition and increase our costs and expenses. Amajority of our management operates in our principal executive offices located in San Diego, California. If our San Diego offices were affected by anatural or man-made disaster, particularly those that are characteristic of the region, such as wildfires and earthquakes, or other business interruption,our ability to manage our domestic and foreign operations could be impaired, which could materially and adversely affect our results of operations andfinancial condition. We currently rely, and intend to rely in the future, on our third-party manufacturers to produce our supply of topsalysin. Our abilityto obtain supplies topsalysin could be disrupted, and our results of operations and financial condition could be materially and adversely affected if theoperations of these third party manufacturers were affected by a man-made or natural disaster or other business interruption. The ultimate impact of suchevents on us, our significant suppliers and our general infrastructure is unknown. 41Table of Contents Our business involves the use of hazardous materials, and we and our third-party manufacturers must comply with environmental laws andregulations, which can be expensive and restrict how we do business. Our third-party manufacturers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including thecomponents of topsalysin and other hazardous compounds. Specifically, the cleavage of the PSA-sensitive activation sequence of topsalysin in themanufacturing process could potentially lead to the release of the C-terminal inhibitory peptide resulting in the formation of active aerolysin, a pore-forming hemolytic toxin. We and our manufacturers are subject to federal, state and local as well as foreign laws and regulations governing the use,manufacture, storage, handling and disposal of these hazardous materials. Although we believe that the safety procedures utilized by our third-partymanufacturers for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminatethe risk of accidental contamination or injury from these materials. Our third-party manufacturers, do not manufacture topsalysin in its facility at thesame time as it manufactures other biologics due to the toxic nature of aerolysin. In the event of an accident, state, federal or foreign authorities maycurtail the use of these materials and interrupt our business operations. We do not currently maintain hazardous materials insurance coverage. If we aresubject to any liability as a result of our third-party manufacturers’ activities involving hazardous materials, our business and financial condition maybe adversely affected. In the future we may seek to establish longer term third-party manufacturing arrangements, pursuant to which we would seek toobtain contractual indemnification protection from such third-party manufacturers potentially limiting this liability exposure. If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of ourproducts. We face an inherent risk of product liability as a result of the clinical testing and, if approved, the commercialization of topsalysin. For example,we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing,marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangersinherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state or foreign consumer protectionacts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limitcommercialization of our product candidate. Even a successful defense would require significant financial and management resources. Regardless of themerits or eventual outcome, liability claims may result in: ● decreased demand for our product or product candidates that we may develop; ● injury to our reputation; ●withdrawal of clinical trial participants; ● initiation of investigations by regulators; ●costs to defend the related litigation; ● a diversion of management’s time and our resources; ●substantial monetary awards to clinical trial participants or patients; ● product recalls, withdrawals or labeling, marketing or promotional restrictions; ● loss of revenue; ●exhaustion of any available insurance and our capital resources; ● the inability to commercialize our products or product candidates; and ● a decline in our share price. 42Table of Contents Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claimscould prevent or inhibit the commercialization of products we develop. We currently carry product liability insurance covering our clinical studies andcommercial product sales in the amount of $10 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount thatis not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. If we determine that it is prudent toincrease our product liability coverage due to the commercial launch of any product, we may be unable to obtain such increased coverage onacceptable terms or at all. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have nocoverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are notcovered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our businessstrategy. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retainhighly qualified managerial, scientific and medical personnel. We are highly dependent on our management and scientific and medical personnel,including our Chief Executive Officer and President, Randall E. Woods and our Chief Operating Officer and Head of Research and Development,Allison Hulme Ph.D. and multiple outside consultants. In order to retain valuable employees at our company, in addition to salary and cash incentives,we provide incentive stock options that vest over time. The value to employees of stock options that vest over time will be significantly affected bymovements in our share price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Our scientific team in particular has expertise in many different aspects of drug development and may be difficult to retain or replace. Weconduct our operations at our facilities in San Diego, California and this region is headquarters to many other biopharmaceutical companies and manyacademic and research institutions and therefore we face increased competition for personnel in this location. Competition for skilled personnel in ourmarket is very intense and competition for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptableterms. In addition, we have scientific and clinical advisors who assist us in formulating our product development and clinical strategies. These advisorsare not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, ormay have arrangements with other companies to assist in the development of products that may compete with ours. Despite our efforts to retain valuable employees, members of our management and scientific and development teams may terminate theiremployment with us on short notice. Although we have written employment arrangements with all of our employees, these employment arrangementsprovide for at-will employment, which means that our employees can leave our employment at any time, with or without notice. The loss of the servicesof any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business, financialcondition and prospects. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities,including noncompliance with regulatory standards and requirements and insider trading. We are exposed to the risk of fraud or other illegal activity by our employees, independent contractors, consultants, commercial partners andvendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the laws of the FDA andother similar regulatory bodies; provide true, complete and accurate information to the FDA and other similar regulatory bodies; comply withmanufacturing standards we have established; comply with federal and state healthcare fraud and abuse and health regulatory laws and other similarforeign fraudulent misconduct laws; or report financial information or data accurately or disclose unauthorized activities to us. These laws may impact,among other things, our activities with principal investigators and research subjects, as well as our sales, marketing and education programs. Inparticular, the promotion, sales, and marketing of health care items and services, as well as certain business arrangements in the healthcare industry, aresubject to extensive laws intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibita wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other businessarrangements generally. Misconduct could also involve the improper use or disclosure of information obtained in the course of clinical trials, whichcould result in regulatory sanctions and serious harm to our reputation. Additionally, we are subject to state and foreign equivalents of each of thehealthcare laws described above, some of which may be broader in scope and may apply regardless of the payor. 43Table of Contents We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter misconduct, and the precautions wetake to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us fromgovernmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. Efforts to ensure that our businessarrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities willconclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse orother healthcare laws. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actionscould have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, monetaryfines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs,additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any ofwhich could adversely affect our ability to operate our business and our results of operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions thatmay be brought against us, our business may be impaired. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell any products we maydevelop, we may not be able to effectively market and sell our products and generate product revenue. We are developing topsalysin for large patient populations served by urologists and oncologists as well as general practice physicians, whichnumber in the tens of thousands in the United States. Traditional pharmaceutical companies employ groups of sales representatives numbering in thethousands to call on this large of a number of physicians. We do not currently have an organization for the sale, marketing or distribution of topsalysinand we must build this organization or make arrangements with third parties to perform these functions in order to commercialize topsalysin and anyfuture products. We intend to establish (either internally or through a contract sales force) a sales force to sell topsalysin, if approved, in the UnitedStates, although any partnership that we establish for the development of topsalysin will likely provide U.S. commercialization rights or co-commercialization rights to the partner for this indication. We plan to partner with third parties to commercialize topsalysin outside the United States.The establishment and development of our own sales force or the establishment of a contract sales force to market any products we may develop in theUnited States will be expensive and time consuming and could delay any product launch, and we cannot be certain that we would be able tosuccessfully develop this capacity. If we are unable to establish our sales and marketing capability or any other non-technical capabilities necessary tocommercialize any products we may develop, we will need to contract with third parties to market and sell such products in the United States. Wecurrently possess limited resources and may not be successful in establishing our own internal sales force or in establishing arrangements with thirdparties on acceptable terms, if at all. We have incurred significant operating losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We have a limited operating history and we have financed our operations primarily through equity and debt financings and have incurredsignificant operating losses since our inception. We had a net loss of $8.6 million, $11.2 million, and $14.2 million during the years endedDecember 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, we had an accumulated deficit of $149.5 million. Our prior losses,combined with expected future losses, have had and will continue to have an adverse effect on our shareholders’ equity and working capital. Our losseshave resulted principally from costs incurred in our research activities for topsalysin. We anticipate that our operating losses will substantially increaseover the next several years as we continue development of topsalysin, including the conduct of any future clinical trials for the treatment of clinicalsignificant localized prostate cancer and the symptoms of BPH. In addition, if we obtain regulatory approval of topsalysin in either indication, we mayincur significant sales and marketing expenses and outsourced manufacturing expenses, as well as continued development expenses. Because of thenumerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses orwhether or when we will become profitable. 44Table of Contents We have not generated any product revenue and may never become profitable. Our ability to become profitable depends upon our ability to develop and commercialize topsalysin. To date, other than the upfront payment wereceived from Kissei and the $5.0 million milestone payment we received in April 2013 from Kissei for the achievement of development milestones, wehave not generated any revenue from topsalysin and we do not know when, or if, we will generate any future revenue. Our ability to generate futurerevenue depends on a number of factors, including: ●successfully completing the clinical development topsalysin in one or both indications; ● obtaining U.S. and/or foreign regulatory approvals for topsalysin in one or both indications; ● manufacturing commercial quantities of topsalysin at acceptable costs levels if regulatory approvals are received; ● achieving broad market acceptance of topsalysin in the medical community and with third-party payors and patients; and ● creating an internal commercial infrastructure or identifying and entering into one or more strategic collaborations to effectively market andsell topsalysin. We may never be able to successfully develop or commercialize topsalysin in either indication. Even if we do obtain regulatory approval tocommercialize topsalysin, which we do not expect to occur for several years, we may never generate product sales and may never achieve or sustainprofitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our common shares and couldimpair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish intellectualproperty rights to our product candidates. We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships andalliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, theownership interest of our existing shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect therights of our shareholders. Debt financings may be coupled with an equity component, such as warrants to purchase shares, which could also result indilution of our existing shareholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could alsoresult in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or licenseintellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional fundsthrough strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our productcandidates, or grant licenses on terms that are not favorable to us. The recently passed comprehensive tax reform bill could adversely affect our business and financial condition. On December 22, 2017, the president of the United States signed into law new legislation that significantly revises the Internal Revenue Code of1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, includingreduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% ofadjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income andelimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated,elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead ofdeductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in thecorporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adverselyaffected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. 45Table of Contents Fluctuations in foreign currency exchange rates could result in changes in our reported revenues and earnings. We currently incur expenses denominated in foreign currencies for multiple vendors. This includes our manufacturing and supply agreementwith BI for the manufacture of topsalysin, for which payments are denominated in foreign currency. In addition, we are utilizing several clinical vendorswhich are located in various countries outside of the United States. These clinical vendors invoice us in the local currency of the vendor. We do notengage in foreign currency hedging arrangements for our accounts payable, and, consequently, foreign currency fluctuations may adversely affect ourearnings. During the year ended December 31, 2017 and 2016, 18.1% and 6.5% respectively, of our operating expenses were denominated in currenciesother than the U.S. dollar. Going forward we anticipate that our sales and expenses, if any, will be denominated in the local currency of the country inwhich they occur. We may decide to manage this risk by hedging our foreign currency exposure, principally through derivative contracts. Even if wedecide to enter into such hedging transactions, we cannot be sure that such hedges will be effective or that the costs of such hedges will not exceed theirbenefits. Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily the euro, could result in material amounts of cashbeing required to settle the hedge transactions or could adversely affect our financial results. Risks Related to our Intellectual Property If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to compete effectively inour market. We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to ourproduct candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can beuncertain. The patent applications that we own or in-license may fail to result in issued patents with claims that cover the products in Canada, theUnited States or in other foreign countries. If this were to occur, early generic competition could be expected against product candidates indevelopment. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, whichcan invalidate a patent or prevent a patent from issuing based on a pending patent application. Even if patents do successfully issue, third parties maychallenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. Composition-of-matter patents on the biological or chemical active pharmaceutical ingredient are generally considered to be the strongest formof intellectual property protection for pharmaceutical products, as such patents provide protection without regard to any method of use. We cannot becertain that the claims in our patent applications covering composition-of-matter of topsalysin will be considered patentable by the U.S. Patent andTrademark Office, or U.S. PTO, and courts in the United States or by the patent offices and courts in foreign countries. Method-of-use patents protect theuse of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical toour product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product forour targeted indications, physicians may prescribe these products off-label. Although off-label prescriptions may infringe or contribute to theinfringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute. Furthermore, even if they areunchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around ourclaims. If the patent applications we hold with respect to topsalysin fail to issue or if their breadth or strength of protection is threatened, it coulddissuade companies from collaborating with us to develop them, and threaten our ability to commercialize, our products. We cannot offer anyassurances about which, if any, patents will issue or whether any issued patents will be found not invalid and not unenforceable or will go unthreatenedby third parties. Further, if we encounter delays in regulatory approvals, the period of time during which we could market topsalysin under patentprotection could be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, andsome remain so until issued, we cannot be certain that we were the first to file any patent application related to topsalysin. Furthermore, if third partieshave filed such patent applications, an interference proceeding in the United States can be provoked by a third party or instituted by us to determinewho was the first to invent any of the subject matter covered by the patent claims of our applications. In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery and development processesthat involve proprietary know-how, information or technology that is not covered by patents. Although we expect all of our employees to assign theirinventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information ortechnology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that ourtrade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secretsor independently develop substantially equivalent information and techniques. 46Table of Contents The Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law in September 2011 and includes a number of significantchanges to U.S. patent law. These include changes in the way patent applications will be prosecuted and may also affect patent litigation. The U.S. PTOis currently developing regulations and procedures to administer the Leahy-Smith Act, and many of the substantive changes to patent law associatedwith the Leahy-Smith Act will not become effective until one year or 18 months after its enactment. Accordingly, it is not clear what, if any, impact theLeahy-Smith Act will have on the cost of prosecuting our patent applications, our ability to obtain patents based on our patent applications and ourability to enforce or defend our issued patents. An inability to obtain, enforce and defend patents covering our proprietary technologies wouldmaterially and adversely affect our business prospects and financial condition. Further, the laws of some foreign countries do not protect proprietaryrights to the same extent or in the same manner as the laws of the United States and Canada. As a result, we may encounter significant problems inprotecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secretprotection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business,results of operations and financial condition. Third party claims of intellectual property infringement may prevent or delay our development and commercialization efforts. Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantialamount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology andpharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter party reexamination proceedings before the U.S.PTO. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we, andour collaborators, are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the riskincreases that our product candidates may be subject to claims of infringement of the patent rights of third parties. Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patentapplications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of topsalysin.Because patent applications can take many years to issue, there may be currently pending patent applications, which may later result in issued patentsthat our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringesupon these patents. We are aware of at least one third-party patent that may be relevant to our product candidates. If any third-party patents were held bya court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturingprocess or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless weobtained a license under the applicable patents, or until such patents expire. Similarly, if any third-party patent were held by a court of competentjurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any suchpatent may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until suchpatent expires. In either case, such a license may not be available on commercially reasonable terms or at all. Parties making claims against usmay obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of ourproduct candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversionof employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages,including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign ourinfringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license wouldbe available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need toobtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time.We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop andcommercialize one or more of our product candidates, which could harm our business significantly. We cannot provide any assurances that third-partypatents do not exist which might be enforced against our products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, anobligation on our part to pay royalties and/or other forms of compensation to third parties. 47Table of Contents If we fail to comply with our obligations in the agreements under which we license rights to technology from third parties, we could lose licenserights that are important to our business. We are a party to a number of technology license agreements that are essential to our business and expect to enter into additional licenseagreements in the future. For example, we have exclusive licenses to topsalysin from UVIC Industry Partnerships Inc. and The Johns HopkinsUniversity. The agreements governing these exclusive licenses include provisions that permit the licensors to terminate the license agreements in anumber of situations, including if we grant a security interest on the licensed technology. These licensors might claim that filings made by OxfordFinance LLC, or Oxford, with the U.S. PTO or foreign jurisdictions in 2011 in connection with our Loan and Security Agreement imposed a securityinterest on the applicable technology. However, no claims from these licensors have been made to date regarding violations of these license agreementsas a result of these filings and these filings were released when we repaid the outstanding balance under the Oxford Loan and Security Agreement in fullin 2016. Furthermore, if any such claims are made in the future, we believe that such claims would not have merit and we would vigorously defend andreject such claims. If we fail to comply with our obligations under our license agreements, or we are insolvent or subject to a bankruptcy proceeding, theapplicable licensor may have the right to terminate such license agreement, in which event we would not be able to market products covered by suchlicense agreement, including topsalysin. We may also be subjected to litigation or other potential disputes under our license agreements if we fail tocomply with our obligations under those agreements. The loss of our rights to technology that we have licensed under certain agreements would have amaterial adverse effect on our business. We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming andunsuccessful. Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to fileinfringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of oursor our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patentsdo not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of beinginvalidated or interpreted narrowly and could put our patent applications at risk of not issuing. Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to ourpatents or patent applications or those of our collaborators or licensors. An unfavorable outcome could require us to cease using the related technologyor to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license oncommercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs anddistract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual propertyrights, particularly in countries where the laws may not protect those rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that someof our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of theresults of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, itcould have a material adverse effect on the price of our common shares. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and otherrequirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with theserequirements. Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetimeof the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, feepayment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a latefee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of thepatent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result inabandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits,non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patentapplications covering our product candidates, our competitors might be able to enter the market, which would have a material adverse effect on ourbusiness. We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidentialinformation of third parties. We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims thatwe or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of ouremployees’ former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownershipinterest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if weare successful, litigation could result in substantial cost and be a distraction to our management and other employees. 48Table of Contents We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and ourintellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws ofsome foreign countries, including China, do not protect intellectual property rights to the same extent as federal and state laws in the United States.Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling orimporting products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies injurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products toterritories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our productcandidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. Thelegal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual propertyprotection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing ofcompeting products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result insubstantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpretednarrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in anylawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforceour intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that wedevelop or license. Risks Related to Ownership of Our Common Shares U.S. holders of our shares may suffer adverse tax consequences if we are characterized as a passive foreign investment company after 2012. Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets(which may be determined in part by the market value of our ordinary shares, which is subject to change) are held for the production of, or produce,passive income, we would be characterized as a passive foreign investment company, or PFIC, for United States federal income tax purposes. Based onthe composition of our gross income and gross assets and the nature of our business, we expect that we were a PFIC for the taxable years endingDecember 31, 2012 through 2016 and that we will likely be a PFIC for the taxable year ending December 31, 2017. In 2018 and for future years, ourstatus as a passive foreign investment company will also depend on whether we are a “controlled foreign corporation” for U.S. federal income taxpurposes, how quickly we utilize the cash proceeds from our IPO in our business and other factors. If we are a PFIC for the taxable year ending December31, 2017 or any subsequent year, U.S. holders of our shares may suffer adverse tax consequences. Gains realized by non-corporate U.S. holders on thesale of our ordinary shares would be taxed as ordinary income, rather than as capital gain, and the preferential tax rate applicable to dividends receivedon our ordinary shares would be lost. Interest charges would also be added to taxes on gains and dividends realized by all U.S. holders. A U.S. holder may avoid these adverse tax consequences by timely making a qualified electing fund election. For each year that we would meetthe PFIC gross income or asset test, an electing U.S. holder would be required to include in gross income its pro rata share of our net ordinary incomeand net capital gains, if any. A U.S. holder may make a qualified electing fund election only if we commit to provide U.S. holders with their pro ratashare of our net ordinary income and net capital gains. Because we intend to provide this information, a U.S. holder should be eligible to make aqualified electing fund election. A U.S. holder may also mitigate the adverse tax consequences of being a PFIC by timely making a mark-to-market election. Generally, for eachyear that we would meet the PFIC gross income or asset test, an electing U.S. holder would include in gross income the increase in the value of its sharesduring each of its taxable years and deduct from gross income the decrease in the value of such shares during each of its taxable years. A mark-to-marketelection may be made and maintained only if our shares are regularly traded on a qualified exchange. While we anticipate that these requirements willbe satisfied following our IPO, whether our shares are regularly traded on a qualified exchange is an annual determination based on facts that, in part,are beyond our control. Accordingly, we can provide no assurances that a U.S. holder will be eligible to make a mark-to-market election. You shouldconsult your own tax advisor as to the specific tax consequences to you in the event we are characterized as a PFIC for the taxable year endingDecember 31, 2017 or any subsequent year. 49Table of Contents The financial reporting obligations of being a public company require significant company resources and management attention. We are subject to the public company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, andthe rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act,the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the listing requirements of The NASDAQ Capital Market.As a result, we have incurred, and will continue to incur, significant legal, accounting and other expenses that we did not incur as a private company,particularly after we are no longer an “emerging growth company” as defined in the JOBS Act. We expect that we will be an emerging growth companyuntil December 31, 2018, although circumstances could cause us to lose that status earlier. Further, the need to establish the corporate infrastructuredemanded of a public company may divert management’s attention from implementing our growth strategy. We have made, and will continue to make,changes to our corporate governance standards, disclosure controls and financial reporting and accounting systems to meet our reporting obligations.Any changes that we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timelybasis, or at all, which could subject us to delisting of our common shares, fines, sanctions and other regulatory action and potentially civil litigation. Inaddition, we incur significant legal, accounting, reporting and other expenses in order to maintain a listing on The NASDAQ Capital Market. Theseexpenses relate to, among other things, the obligation to present financial information according to U.S. GAAP in the United States. We are alsorequired to comply with certain disclosure and filing requirements under applicable securities laws in Canada as a reporting issuer in certain provinces. The price of our common shares is likely to be highly volatile, and you could lose all or part of your investment. The trading price of our common shares has been volatile and is likely to continue to be volatile and could be subject to wide fluctuations inresponse to various factors, some of which are beyond our control, including limited trading volume. In addition to the other risk factors discussed inthis section, these factors include: ● the outcome of our pursuit of strategic alternatives, including whether we raise any additional capital to fund our ongoing operations; ● the results of our completed and future clinical trials of topsalysin or changes in the development status of topsalysin; ● any adverse development or perceived adverse development with respect to our submission of a BLA to the FDA for topsalysin; ●unanticipated serious safety concerns related to the use of topsalysin; ● adverse regulatory decisions, including failure to receive regulatory approval for topsalysin; ● our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial; ●our ability to obtain resources for us and our clinical trial programs on our desired schedule; ● inability to obtain adequate commercial supply for any approved product or inability to do so at acceptable prices; ● developments concerning our commercial partners, including but not limited to, those with manufacturers; ● competition from existing technologies and products or new technologies and products that may emerge; ● announcements of significant acquisitions, strategic partnerships, joint ventures, new products, capital commitments or other events by us orour competitors; ● the inability to establish collaborations or termination of a collaboration; ● actual or anticipated variations in our quarterly operating results; ●failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public; 50Table of Contents ● our cash position; ●announcement or expectation of additional financing efforts; ●issuances of debt or equity securities; ●our inability to successfully enter new markets or develop additional product candidates; ●actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate; ● sales of our common shares by us, or our shareholders in the future; ●trading volume of our common shares on The NASDAQ Capital Market and price; ● market conditions in our industry; ●overall performance of the equity markets and general political and economic conditions; ● introduction of new products or services by us or our competitors; ● additions or departures of key management, scientific or other personnel; ● publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage bysecurities or industry analysts; ● changes in the market valuation of similar companies; ●disputes or other developments related to intellectual property and other proprietary rights, including patents, litigation matters and ourability to obtain patent protection for our technologies and product candidates; ● changes in laws or regulations and policies applicable to product candidates, including but not limited to clinical trial requirements forapprovals; ● changes in accounting practices; ●significant lawsuits, including patent or shareholder litigation; and ● other events or factors, many of which are beyond our control. Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market pricesof equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of thosecompanies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest ratechanges or international currency fluctuations, may negatively impact the market price of our common shares. Future sales and issuances of our common shares or rights to purchase common shares by us, including pursuant to our equity incentive plan,could result in additional dilution of the percentage ownership of our shareholders and could cause our share price to fall. We expect that significant additional capital will be needed in the future to continue our planned operations, including commercializationefforts, expanded research and development activities and costs associated with operating as a public company. To the extent we raise additionalcapital by issuing equity or convertible securities, our shareholders may experience substantial dilution. We may sell common shares, convertiblesecurities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common shares,convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales mayalso result in material dilution to our existing shareholders, and new investors could gain rights superior to our existing shareholders. Pursuant to our equity incentive plan, our management is authorized to grant options to our employees, directors and consultants. The number ofshares available for future grant under our plan is equal to 10% of all shares of our issued and outstanding common shares at any time. Currently, thenumber of shares available for issuance under our equity incentive plan automatically increases when we issue additional common shares. If our boardof directors elects to grant additional options each year our shareholders may experience additional dilution, which could cause our share price to fall. 51Table of Contents We are at risk of securities class action litigation. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities.This risk is especially relevant for us because biotechnology and biochemical companies have experienced significant stock price volatility in recentyears. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm ourbusiness. We do not intend to pay dividends on our common shares so any returns will be limited to the value of our shares. We have never declared or paid any cash dividend on our common shares. We currently anticipate that we will retain future earnings for thedevelopment, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. OurLoan and Security Agreement with SVB also contains a negative covenant which prohibits us from paying dividends without the prior written consentof SVB. Any return to shareholders will therefore be limited to the increase, if any, of our share price. We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growthcompanies will make our common shares less attractive to investors. We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may takeadvantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies,including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act reduced disclosureobligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding anonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Weexpect that we will be an emerging growth company until December 31, 2018, although circumstances could cause us to lose that status earlier. Evenafter we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to takeadvantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestationrequirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reportsand proxy statements. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If someinvestors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may bemore volatile. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standardsapply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and,therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Our charter documents, certain related party contracts and certain Canadian legislation could delay or deter a change of control, limit attemptsby our shareholders to replace or remove our current management and limit the market price of our common shares. Our authorized preferred shares are available for issuance from time to time at the discretion of our board of directors, without shareholderapproval. Our articles grant our board of directors the authority, subject to the BCBCA, to determine the special rights and restrictions granted to orimposed on any unissued series of preferred shares, and those rights may be superior to those of our common shares. In addition, provisions in the BCBCA and in our articles, may have the effect of delaying or preventing changes in our management, includingprovisions that: ● prohibit cumulative voting in the election of directors; and ● require the approval of our board of directors or the holders of a supermajority of our outstanding share capital to amend our articles and ournotice of articles. These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it moredifficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management. Any of theforegoing could prevent or delay a change of control and may deprive or limit strategic opportunities to our shareholders to sell their shares. 52Table of Contents Risks Related To Being A Canadian Entity We are governed by the corporate laws in British Columbia, Canada which in some cases have a different effect on shareholders than thecorporate laws in Delaware, United States. The material differences between the BCBCA as compared to the Delaware General Corporation Law, or the DGCL, which may be of most interestto shareholders include the following: (i) for material corporate transactions (such as mergers and amalgamations, other extraordinary corporatetransactions, amendments to our articles) the BCBCA generally requires two-thirds majority vote by shareholders, whereas DGCL generally only requiresa majority vote of shareholders for similar material corporate transactions; (ii) the quorum for shareholders meetings is not prescribed under the BCBCAand is only two persons representing 5% of the issued shares under our articles, whereas under DGCL, quorum requires a minimum of one-third of theshares entitled to vote to be present and companies’ certificates of incorporation frequently require a higher percentage to be present; (iii) under theBCBCA a holder of 5% or more of our common shares can requisition a special meeting at which any matters that can be voted on at our annual meetingcan be considered, whereas the DGCL does not give this right; (iv) our articles require two-thirds majority vote by shareholders to pass a resolution forone or more directors to be removed, whereas DGCL only requires the affirmative vote of a majority of the shareholders; however, many public companycharters limit removal of directors to a removal for cause; and (v) our articles may be amended by resolution of our directors to alter our authorized sharestructure, including to (a) consolidate or subdivide any of our shares and (b) create additional classes or series of shares, whereas under DGCL, a majorityvote by shareholders is generally required to amend a corporation’s certificate of incorporation and a separate class vote may be required to authorizealterations to a corporation’s authorized share structure. We cannot predict if investors will find our common shares less attractive because of thesematerial differences. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common sharesand our share price may be more volatile. Item 1B.Unresolved Staff Comments None. Item 2.Properties Our corporate headquarters are located in San Diego, California. The facility we lease encompasses approximately 2,002 square feet of office space.The lease for this facility expires in May 2019. We believe that our facility is sufficient to meet our needs and that suitable additional space will beavailable as and when needed. Item 3.Legal Proceedings We are not currently party to any material legal proceedings. Item 4.Mine Safety Disclosures None. 53Table of Contents Part II. Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common shares are currently traded on The NASDAQ Capital Market under the symbol “SPHS.” The following table sets forth the high and low sales prices for our common shares for the period January 1, 2016 through December 31, 2017. 2016 High Low First Quarter $2.41 $1.35 Second Quarter 2.33 0.80 Third Quarter 8.55 2.05 Fourth Quarter 3.30 2.20 2017 First Quarter $3.24 $2.33 Second Quarter 2.85 1.83 Third Quarter 2.36 1.80 Fourth Quarter 2.57 1.80 Holders of Record As of March 8, 2018, there were approximately 10 shareholders of record of our common shares, which included Cede & Co., a nominee forDepository Trust Company, or DTC, and CDS & Co., a nominee for The Canadian Depository for Securities Ltd., or CDS. Common shares that are held byfinancial institutions as nominees for beneficial owners are deposited into participant accounts at either DTC or CDS and are considered to be held ofrecord by Cede & Co. or CDS & Co. as one shareholder. Dividends We have not paid any cash dividends on our common shares since inception and do not anticipate paying cash dividends in the foreseeable future.We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of ourbusiness. Our Loan and Security Agreement with SVB contains a negative covenant which prohibits us from paying dividends without the prior writtenconsent of SVB. Securities Authorized for Issuance under Equity Compensation Plans Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K. Repurchases of Equity Securities There were no repurchases of equity securities during the fourth quarter of 2017. 54Table of Contents Item 6.Selected Financial Data The following data has been derived from our audited financial statements, including the consolidated balance sheets at December 31, 2017 and2016 and the related consolidated statements of operations and comprehensive loss for the three years ended December 31, 2017 and related notesappearing elsewhere in this Annual Report on Form 10-K. The statement of operations data for the years ended December 31, 2014 and 2013 and thebalance sheet data as of December 31, 2015, 2014 and 2013 are derived from our audited consolidated financial statements that are not included in thisAnnual Report on Form 10-K. You should read the selected financial data set forth below in conjunction with “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. For the Years Ended December 31, 2017 2016 2015 2014 2013 (In thousands, except per share data) Consolidated Statement of Operations Data: Revenues $— $— $— $— $5,000 Operating expenses: Research and development 6,186 3,538 9,862 24,708 10,279 General and administrative 5,732 6,768 3,626 5,332 4,511 Total operating expenses 11,918 10,306 13,488 30,040 14,790 Loss from operations (11,918) (10,306) (13,488) (30,040) (9,790)Other income (expense): Interest expense (207) (373) (690) (726) (1,308)Interest income 238 37 22 51 — Gain (loss) on revaluation of warrant liability 3,307 (330) — 49 689 Loss on early extinguishment of debt — (180) — — — Other expense, net (48) (12) (41) (46) (240)Total other income (expense) 3,290 (858) (709) (672) (859)Net loss before income tax expense (8,628) (11,164) (14,197) (30,712) (10,649)Income tax expense — — — — (500)Net loss $(8,628) $(11,164) $(14,197) $(30,712) $(11,149)Basic and diluted net loss per common share(1) (2) $(0.29) $(0.49) $(0.84) $(1.85) $(1.39)Weighted average shares used to calculate net loss percommon share (1) (2) 30,111 23,002 16,881 16,586 8,029 (1)See Note 4 of our Notes to the Consolidated Financial Statements for an explanation of the method used to calculate the basic and diluted net lossper common share and the number of shares used in the computation of the per share amounts.(2) Reflects the 52-for-1 share consolidation of our common shares for the year ending December 31, 2013. As of December 31, 2017 2016 2015 2014 2013 (In thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and securities available-for-sale $25,844 $29,001 $8,381 $22,695 $48,149 Working capital 24,153 27,754 5,610 19,998 41,267 Total assets 26,877 29,998 8,892 25,591 51,892 Promissory notes, including current portion 6,807 — 5,343 5,941 6,877 Warrant liability 10,089 13,396 — — 883 Stock-based compensation liability — 57 168 22 202 Accumulated deficit (149,548) (140,920) (129,756) (115,559) (84,847)Total shareholders’ equity 26,877 14,324 1,906 14,688 40,279 55Table of Contents Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis in conjunction with “Item 8. Financial Statements and Supplementary Data” includedbelow in this Annual Report on Form 10-K. Operating results are not necessarily indicative of results that may occur in future periods. This discussion and analysis contains forward-looking statements that involve a number of risks, uncertainties and assumptions. Actual events orresults may differ materially from our expectations. Important factors that could cause actual results to differ materially from those stated or implied byour forward-looking statements include, but are not limited to, those set forth in “Item 1A. Risk Factors” in this Annual Report on Form 10-K. Allforward-looking statements included in this Annual Report on Form 10-K are based on information available to us as of the time we file this AnnualReport on Form 10-K and, except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements. All dollar amounts are expressed in U.S. dollars unless otherwise noted. All amounts converted from Canadian dollars to U.S. dollars arecalculated using the conversion rate as of December 31, 2017 unless otherwise noted. Overview Background We are a clinical-stage biopharmaceutical company focused on developing innovative products for the treatment of urological diseases. We areheadquartered in San Diego, California and our common shares currently trade on The NASDAQ Capital Market. We are currently developing topsalysin(PRX302) as a treatment for clinically significant localized prostate cancer and as a treatment for the lower urinary tract symptoms of benign prostatichyperplasia, or BPH, commonly referred to as an enlarged prostate. Topsalysin, a first-in-class, pore-forming protein, is a highly ablative agent that isselective and targeted in that it is only activated by enzymatically active prostate specific antigen, or PSA, which is found in high concentrations aroundprostate tumor cells and in the transition zone of the prostate. In 2004, we licensed exclusive rights to topsalysin from UVIC Industry Partnerships Inc., orUVIC, and The Johns Hopkins University, or Johns Hopkins, for the treatment of prostate cancer and in 2009, we licensed exclusive rights to topsalysinfrom UVIC and Johns Hopkins for the treatment of the symptoms of BPH. In April 2010, we entered into an exclusive license agreement with KisseiPharmaceuticals Co., Ltd., or Kissei, pursuant to which we granted Kissei the right to develop and commercialize topsalysin in Japan for the treatment ofthe symptoms of BPH, prostate cancer, prostatitis or other diseases of the prostate. Topsalysin, a genetically modified recombinant protein, is delivered via ultrasound-guided injection directly into the prostate. This membrane-disrupting protein is selectively activated by enzymatically active PSA which is only present in the prostate, leading to localized cell death and tissuedisruption without damage to neighboring tissue and nerves. This method of administration limits the circulation of the drug in the body, and we believethat this limited systemic exposure to the drug, together with how the drug is activated in the prostate, greatly diminishes the risk of side effects. Webelieve that the highly targeted mechanism by which topsalysin selectively destroys prostate tissue in BPH makes topsalysin a potential focal treatmentfor clinically significant localized prostate cancer. We have completed a single-center, open-label Phase 2a proof of concept clinical trial of topsalysin for the treatment of localized low tointermediate risk prostate cancer. The primary objective of the trial was to assess the safety and tolerability of topsalysin when used to selectively targetand focally ablate a clinically significant tumor. The potential efficacy was evidenced by histological changes, indicating tumor ablation at six monthsfollowing treatment. A total of 18 patients with localized low to intermediate risk prostate cancer were enrolled in the Phase 2a proof of concept clinical trial. The one-time administration of topsalysin was well tolerated with no serious adverse events and no new safety signals being reported. Topsalysin demonstratedan ability to ablate tumor cells in more than 60 percent of patients (11of 18 patients) six months after treatment in a patient population with pre-identified, clinically significant prostate cancer. 56Table of Contents All 18 patients enrolled completed the study. Biopsy data at six months following treatment showed that: ●Two patients experienced complete ablation of their targeted tumor with no evidence of any tumor remaining at six months; ●Nine patients experienced a partial response, defined as either a reduction in the maximum cancer core length or a reduction in Gleasonpattern; and ●Seven patients had no response to treatment. In addition, we have completed enrollment of a multicenter, open-label Phase 2b clinical trial to confirm the dose and optimize the delivery oftopsalysin for the treatment of clinically significant localized prostate cancer. This study utilizes commercially available software which allows us to co-register previously obtained magnetic resonance imaging, or MRI, images of a patient’s prostate to a real time 3D ultrasound to target the delivery oftopsalysin directly into and around a pre-identified clinically significant tumor. A clinically significant tumor is defined in our study as, either a Gleasonscore 6 (pattern 3+3) and greater than or equal to 6 mm Maximum Cancer Core Length, or MCCL, or a Gleason score 7 (pattern 3+4 or 4+3) and lesserthan or equal to 10 mm MCCL, which is thought to have the potential to progress and would therefore warrant treatment. A Gleason score is a gradingsystem utilized to describe how aggressive a prostate tumor is and how likely it is to spread. Generally, there are five recognized Gleason histologicalscores and a higher Gleason score indicates a more aggressive tumor. The primary objective of the study is safety and tolerability of an injection oftopsalysin and the key efficacy variable is focal ablation of a clinically significant lesion on biopsy at 24 weeks. This study completed enrollment of 38patients in December 2017 at eight clinical trial sites in the United Kingdom and United States. We expect biopsy data from all patients dosed with thefirst administration of topsalysin to be available by the end of the second quarter of 2018. During the first quarter of 2018, an independent data monitoring committee, or the IDMC, met to review the reported adverse events from allpatients after the first administration of topsalysin. The IDMC unanimously recommended the clinical trial continue without changes to the protocol. Webelieve that topsaylsin continues to demonstrate a favorable safety profile. The Phase 2b study includes an option to re-treat patients with a second administration of topsalysin, with a targeted biopsy to occur 24 weeksfollowing the second administration. In order to be eligible for a second administration, the patient cannot have experienced a significant adverse eventattributable to topsalysin or the dosing procedure from the first administration and the patient will need to have had a clinical response from the firstadministration but still have the presence of a clinically significant lesion area. We expect to have final biopsy data on all patients who receive a secondadministration by the fourth quarter of 2018. We have begun planning for a Phase 3 clinical trial for topsalysin for the treatment of clinically significantlocalized prostate cancer and initiation of this clinical trial is subject to receiving positive data from our Phase 2b study and additional financing. We have also completed the first of two Phase 3 clinical trials that we believe would be required to obtain marketing approval for topsalysin for thetreatment of the symptoms of BPH. In October 2013, we initiated our first Phase 3 clinical trial, which we refer to as the “PLUS-1” trial, of topsalysin forthe treatment of the lower urinary tract symptoms of BPH. The Phase 3 “PLUS-1” trial was an international, multicenter, randomized, double-blind, andvehicle-controlled trial to assess the efficacy and safety of a single intraprostatic administration of topsalysin (0.6 µg/g prostate) for the treatment of thelower urinary symptoms of BPH. Patients were randomized on a 1:1 ratio to either topsalysin or vehicle-only injection, and then monitored for one year. Atotal of 479 patients with moderate to severe BPH were enrolled and randomized by September 2014. On November 10, 2015, we announced final resultsfrom this trial. Topsalysin demonstrated a statistically significant improvement in International Prostate Symptom Score, or IPSS, total score from baselineover 12 months compared to the vehicle-only control group (7.60 vs. 6.58 point overall improvement; p = 0.043), the primary endpoint of the trial. IPSSis a patient recorded, composite assessment that takes into account factors such as ability to empty the bladder, frequency of urination, intermittency ofurination, urgency of urination, weak strength of urine stream, straining while urinating, and having to urinate multiple times at night after going to bed.Topsalysin continues to demonstrate a favorable safety profile, with no evidence of any treatment related sexual or cardiovascular side effects. Beyond our on-going Phase 2b clinical trial for the treatment of localized prostate cancer, we are not planning on pursuing additional clinicaltrials, including a second Phase 3 trial in BPH, unless we obtain additional funding or secure a development partner to fund such new clinical trials. Therecan be no assurance that such funding or a development partner will be available on acceptable terms or at all. Further, we cannot currently estimate whenthe clinical development required to seek the regulatory approvals needed to commercialize topsalysin for the treatment of clinically significantlocalized prostate cancer or the treatment of the symptoms of BPH will be completed. On September 8, 2017, we entered into a new Loan and Security Agreement with Silicon Valley Bank. Under the terms of the agreement, we havethe ability to request term loan advances in two tranches. The first tranche, effective the date of the agreement for $7.0 million and the second trancheavailable to us in a single advance not to exceed $3.0 million if we have either (a) received net proceeds of $20.0 million from the sale of common sharesprior to December 31, 2018 or (b) obtained positive Phase 2b data in Topsalysin trial for treatment of localized cancer prior to December 31, 2018. 57Table of Contents Kissei Pharmaceuticals License Agreement In April 2010, we entered into an exclusive license agreement for the development and commercialization of topsalysin (and other productscovered by the licensed patent). The agreement with Kissei Pharmaceuticals Co., Ltd., a Japanese pharmaceutical company, or Kissei covers thedevelopment and commercialization of topsalysin in Japan for the treatment of the symptoms of BPH, prostate cancer, prostatitis or other diseases of theprostate. Pursuant to the agreement in 2010, we received an upfront license payment of $3.0 million. We have determined that the deliverables under thisagreement included the license, the transfer of relevant technical information and participation in a periodic development meeting. we recognized theentire upfront license payment upon receipt as the license was deemed to have stand-alone value and no significant undelivered performance obligationswere identified in connection with the license. During the year ended December 31, 2013, we recorded as revenue a $5.0 million non-refundable substantive milestone payment due from Kisseiupon the achievement of certain development activities during this period. In accordance with our revenue recognition policy, we recognize the receiptof milestone payments in accordance with the milestone method in the period in which the underlying triggering event occurs. Topsalysin License Agreement for Prostate Cancer In 2004, we licensed exclusive rights to topsalysin for the treatment of prostate cancer under an agreement with UVIC and Johns Hopkins. We haveagreed to make cumulative milestone payments over the lifecycle of topsalysin of up to CND$3.6 million, or $2.9 million, as converted, on theachievement of certain clinical and regulatory milestones and to pay royalties on commercial sales of resulting products. From the inception of theagreement, we have paid milestone payments of CND$0.1 million, or $0.1 million, applying the historical conversion rate at each payment date. To datewe have completed three clinical trials in patients with prostate cancer. Topsalysin License Agreement for BPH In 2009, we licensed exclusive rights to topsalysin under an agreement with UVIC and Johns Hopkins with respect to the use of topsalysin for thetreatment of the symptoms of BPH and other non-cancer diseases and conditions of the prostate, with the exception of prostate cancer. The licenseagreement requires us to make payments of CND$1.3 million, or $1.0 million, as converted, on the achievement of certain clinical and regulatorymilestones and to pay royalties on commercial sales of resulting products. From the inception of the agreement, we have incurred sub-license fees of $0.6million and milestone payments of $0.1 million under this agreement. Financial Operations Overview Revenues Our revenues to date consist of a $3.0 million up-front payment received from Kissei in 2010 and a $5.0 million non-refundable milestone paymentfor our achievement of certain development activities in 2013. We have no products approved for sale, and we have not generated any revenues fromproduct sales. Other than potential development milestones from Kissei, we do not expect to receive any revenues from topsalysin until we obtain regulatoryapproval and commercialize such product or until we potentially enter into additional collaborative agreements with third parties for the developmentand commercialization of topsalysin, which additional agreements will not likely occur until we complete the development of topsalysin. If ourdevelopment efforts for topsalysin, or the efforts of Kissei or any future collaborator, result in clinical success and regulatory approval or collaborationagreements with other third parties, we may generate revenues from topsalysin. However, we may never generate revenues from topsalysin as we or anycollaborator may never succeed in obtaining regulatory approval or commercializing this product. Research and Development Expenses Research and development expenses can be driven by a number of factors including: (a) the scope of clinical development and research programspursued; (b) the type and size of clinical trials undertaken; (c) the number of clinical trials that are active during a particular period of time; (d) the rate ofpatient enrollment; (e) regulatory activities to support the clinical programs; and (f) Chemistry, Manufacturing and Controls, or CMC, activitiesassociated with process development, scale-up and manufacture of drugs used in clinical trials; and such expenses are ultimately a function of decisionsmade to continue the development and testing of a product candidate based on supporting safety and efficacy results from clinical trial. 58Table of Contents The majority of our operating expenses to date have been incurred in research and development activities related to topsalysin. Research anddevelopment expenses include: ● external research and development expenses incurred under agreements with clinical research organizations, or CROs, and investigative sitesand clinical trial costs, as well as payments to consultants; ●employee related expenses, including salaries, benefits, travel and stock-based compensation expense; ● third-party manufacturing expenses; and ●facilities, depreciation and other allocated expenses. We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be usedin future research and development activities as expenses when the service has been performed or when the goods have been consumed. Since ourinception in January 2002 through December 31, 2017, we have incurred a total of $104.2 million in research and development expenses. We expect to incur significant manufacturing costs in 2018 as we have scheduled manufacturing of drug substance, we are completingreformulation of drug product, and we expect to enter into a supply agreement for manufacture of fill finish of drug supply for our Phase 3 clinical trialsand will be responsible for the costs of technology transfer under such agreement. We have committed to spend approximately $2.6 million in 2018 onthese manufacturing activities. At this time, due to the risks inherent in the clinical trial process and given the stage of our product development program, we are unable toestimate with any certainty the costs we will incur in the continued development of topsalysin for potential approval and commercialization in twoindications. Clinical development timelines, the probability of success and development costs can differ materially from expectations. However, we doexpect our research and development expenses to continue for the foreseeable future as we advance topsalysin through clinical development. The processof conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. Any failure by us or delay in completing clinical trials,or in obtaining regulatory approvals, could lead to increased research and development expense and, in turn, have a material adverse effect on our resultsof operations. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related benefits including stock-based compensation. Other general andadministrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses, marketresearch expenses and professional fees for auditing, tax, investor relations and legal services. We expect general and administrative expenses to remainfairly consistent over the next year but we do expect that general and administrative expenses will increase as we move towards commercialization of ourdrug candidates in future periods. Interest Expense Interest expense represents interest payable, amortization of our debt discount and issuance costs on our outstanding promissory notes. Interest Income We earn interest income from interest-bearing cash and investment accounts. Gain (Loss) on Revaluation of Warrant Liability In connection with the offerings completed in 2016, we issued warrants to purchase our common shares. These warrants may require us to pay thewarrant holder cash under certain provisions of the warrant and therefore we account for these warrants as a liability. As a result of these warrants beingclassified as a liability, we are required to calculate the fair value of these warrants at each reporting date. The fair value of these warrants is calculatedutilizing a Black-Scholes pricing model. We calculated the initial fair value of these warrants at the date the warrants were issued. At each reporting date,we are required to remeasure the fair value of the warrant liability and any corresponding increase or decrease to the warrant liability is recorded as a gain(loss) on revaluation of warrant liability. In addition, if a warrant holder exercises warrants, we are required to revalue the fair value of the underlyingwarrants on the date of exercise and reclassify the change in the fair value from the warrant liability to contributed surplus. Certain inputs utilized in our Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of our control. Asignificant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of our warrantliability which could also result in material non-cash gain or loss being reported in our consolidated statement of operations and comprehensive loss. 59Table of Contents Loss on Early Extinguishment of Debt On September 2, 2016, we repaid the outstanding balance of the Oxford Loan and Security Agreement in full. We made a total payoff payment of$4.2 million to Oxford, which included the final payment of $300,000, a prepayment fee of $39,000, accrued interest of $2,000 and legal fees of $4,000.We had $159,000 of unamortized debt premium as of the date of the payoff. The debt repayment was accounted for as an extinguishment as per ASC 470-50, “Debt: Modification and Extinguishments”, and a loss on early extinguishment of the debt totaling $180,000 was recorded for the year endedDecember 31, 2016, consisting of the final payment and the prepayment fee which was offset by the unamortized debt premium. Other Expense, Net Other expense consists primarily of foreign exchange gains and losses and on occasion income or expense of an unusual nature. Foreign exchangegains and losses result from the settlement of foreign currency transactions and from the remeasurement of monetary assets and liabilities denominated incurrencies other than our functional currency. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,which have been prepared in conformity with generally accepted accounting principles in the United States. The preparation of our financial statementsrequires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the revenues and expenses incurred during thereported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actualresults may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in the notes to our consolidated financial statements appearing at the end of this AnnualReport on Form 10-K, we believe that the following accounting policies are critical to understanding and evaluating our reported financial results. Revenue Recognition We may enter into product development agreements with collaborative partners for the research and development of products for the treatment ofurological diseases. The terms of the agreements may include nonrefundable signing and licensing fees, milestone payments and royalties on any productsales derived from collaborations. These multiple element arrangements are analyzed to determine whether the deliverables can be separated or whetherthey must be accounted for as a single unit of accounting. License fees are recognized as revenue when persuasive evidence of an arrangement exists, thefee is fixed or determinable, delivery or performance has substantially completed and collection is reasonably assured. We recognize up front license payments as revenue upon delivery of the license only if the license has stand-alone value to the customer and if theagreement includes a general right of return, the delivery or performance of undelivered items is considered probable and within our control. The paymentis generally allocated to the separate units of accounting based on their relative selling prices. The selling price of each deliverable is determined usingvendor specific objective evidence of selling prices, if it exists; otherwise, third-party evidence of selling prices. If neither vendor specific objectiveevidence nor third-party evidence exists, we use our best estimate of the selling price for each deliverable. The payment allocated is limited to the amountthat is not contingent on the delivery of additional items or fulfillment of other performance conditions. Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which theperformance obligations will be performed and revenue recognized. If we cannot reasonably estimate the timing and the level of effort to complete ourperformance obligations under the arrangement, then revenue under the arrangement is recognized on a straight-line basis over the period we expect tocomplete the performance obligations. We evaluate milestone payments on an individual basis and recognizes revenue from non-refundable milestone payments when the earningsprocess is complete and the payment is reasonably assured. Non-refundable milestone payments related to arrangements under which we have continuingperformance obligations are recognized as revenue upon achievement of the associated milestone, provided that (i) the milestone event is substantive andits achievability was not reasonably assured at the inception of the agreement and (ii) the amount of the milestone payment is reasonable in relation to theeffort expended or the risk associated with the milestone event. Any amounts received under agreements in advance of performance, if deemedsubstantive, are recorded as deferred revenue and recognized as revenue as we complete our performance obligations. A milestone event is consideredsubstantive if (i) the milestone is commensurate with either (a) our performance to achieve the milestone or (b) the enhancement of the value of thedelivered item(s) as a result of a specific outcome resulting from our performance to achieve the milestone; (ii) it relates solely to past performance and(iii) it is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement. Ifany portion of the milestone payment does not relate to our performance, does not relate solely to past performance or is refundable or adjustable basedon future performance, the milestone is not considered to be substantive. Milestone payments are not bifurcated into substantive and non-substantivecomponents. Payments related to the achievement of non-substantive milestones is deferred and recognized over our remaining performance period. 60Table of Contents Royalty revenue will be recognized upon the sale of the related products provided that we have no remaining performance obligations under thearrangement. Accrued Research and Development Expenses Clinical trial costs are recorded as a component of research and development expenses. We accrue and expense clinical trial activities performed bythird parties based upon estimates of the percentage of work completed of the total work over the life of the individual study in accordance withagreements established with clinical research organizations and clinical trial sites. We determine the estimates through discussions with internal clinicalpersonnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such servicesbased on facts and circumstances known by us as of each balance sheet date. However, actual costs and timing of clinical trials are highly uncertain,subject to risks and may change depending upon a number of factors, including our clinical development plan. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Adjustmentsto prior period estimates have not been material. Examples of estimated accrued research and development expenses include: ●fees to clinical research organizations in connection with clinical studies; ● fees to investigative sites in connection with clinical studies; ● fees to vendors in connection with preclinical development activities; ● fees to vendors associated with the development of companion diagnostics; and ● fees to vendors related to product manufacturing, development and distribution of clinical supplies. Nonrefundable advance payments for goods and services that will be used or rendered in future research and development activities are recorded asa prepaid expense and recognized as expense in the period that the related goods are consumed or services are performed. Essentially all of our research and development expenses were related to topsalysin during the years ended December 31, 2017, 2016 and 2015.We recognized research and development expenses as follows (in thousands): For the Years Ended December 31, 2017 2016 2015 Clinical research and development $3,908 $2,974 $8,866 Pre-clinical research and development — — 1 Manufacturing 1,797 421 738 Stock-based compensation expense 481 143 257 $6,186 $3,538 $9,862 Warrant Liability In connection with the offering we completed on May 11, 2016, we issued 1,785,714 warrants to purchase common shares. These warrants mayrequire us to pay the warrant holder cash under certain provisions of the warrant and therefore we are accounting for these warrants as a liability. As aresult of these warrants being classified as a liability, we are required to calculate the fair value of these warrants at each reporting date. The fair value ofthese warrants is calculated utilizing a Black-Scholes pricing model. We calculated the initial fair value of these warrants on May 11, 2016, the date thewarrants were issued. On various dates, warrant holders exercised 1,775,714 warrants and as a result we were required to revalue the fair value of theunderlying warrants on the various exercise dates. The calculated fair value for the exercised warrants was reclassified from the warrant liability tocontributed surplus. The fair value of warrants was remeasured on December 31, 2017 and 2016. 10,000 warrants remain outstanding from this offeringwith an assessed fair market value of $19,000 and $26,000 as of December 31, 2017 and 2016, respectively. 61Table of Contents The following inputs were utilized in the Black-Scholes pricing model: December 31, 2017 2016 Stock price $2.27 $2.80 Exercise price $1.40 $1.40 Risk-free interest rate 2.01% 1.78%Volatility 143.57% 144.25%Dividend yield 0.00% 0.00%Expected life in years 3.36 4.36 Calculated fair value per warrant $1.95 $2.55 In connection with the offering we completed on August 26, 2016, we issued 5,606,250 warrants to purchase common shares. These warrants mayrequire us to pay the warrant holder cash under certain provisions of the warrant and therefore we are accounting for these warrants as a liability. As aresult of these warrants being classified as liabilities, we are required to calculate the fair value of these warrants at each reporting date. The fair value ofthese warrants are calculated utilizing a Black-Scholes pricing model. We calculated the initial fair value of these warrants on August 26, 2016, the datethe warrants were issued. The fair value of the warrants was remeasured on December 31, 2017 and 2016. The warrants outstanding from this offering havean assessed fair market value of $10.1 million and $13.4 million as of December 31, 2017 and 2016, respectively. The following inputs were utilized in the Black-Scholes pricing model: December 31, 2017 2016 Stock price $2.27 $2.8 Exercise price $4.00 $4.00 Risk-free interest rate 2.04% 1.85%Volatility 145.36% 140.47%Dividend yield 0.00% 0.00%Expected life in years 3.65 4.65 Calculated fair value per warrant $1.80 $2.38 Certain inputs utilized in our Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of our control. Asignificant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of our warrantliability which could also result in material non-cash gain or loss being reported in our consolidated statement of operations and comprehensive loss. A10% change in our closing stock price on December 31, 2017 would result in a $1.1 million change to the fair value of our warrant liability at December31, 2017. A 10% change in our stock price volatility at December 31, 2017 would result in a change of $0.7 million to our warrant liability at December31, 2017. A 10% change in the risk-free interest rate at December 31, 2017 would not have a material effect on the fair value of our warrant liability. Stock-Based Compensation We expense the fair value of employee stock options over the vesting period. Stock-based compensation expense is measured using the fair valueof the award at the grant date. The fair value of each stock-based award is estimated using the Black-Scholes pricing model and is expensed using thegraded vesting method over the vesting period. Effective January 1, 2017, we adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”). This guidance simplified the accounting for share-based compensation. Upon adoption, we elected to no longer apply aforfeiture rate to estimate forfeitures expected to occur and instead account for forfeitures as they occur. The impact from the adoption of this newguidance to the excess tax benefits or the share-based compensation expense was not material nor was the impact on the statement of cash flows. 62Table of Contents We recognized stock-based compensation expense as follows (in thousands): For the Years Ended December 31, 2017 2016 2015 Research and development $481 $143 $257 General and administrative 1,231 282 519 Total $1,712 $425 $776 As of December 31, 2017 there were $0.9 million of unrecognized compensation costs related to non-vested stock options. As of December 31,2017 we expect to recognize those costs over a weighted average period of 1.3 years. The fair value of options granted during the years ended December 31, 2017, 2016 and 2015 were estimated at the date of grant using thefollowing weighted average assumptions: For the Years Ended December 31, 2017 2016 2015 Expected life of the option term (years) 4.2 3.9 3.5 Risk-free interest rate 1.9% 1.5% 1.0%Dividend yield 0.0% 0.0% 0.0%Volatility 134.8% 144.0% 128.4% Expected Life of the Option Term – This is the period of time that the options granted are expected to remain unexercised. Options granted during2017 have a contractual term of ten years. We estimate the expected life of the option term based on actual past behavior for similar options. Risk-Free Interest Rate – This is the United States Treasury rate that most closely resembles the expected life of the option. Dividend Yield – We have never declared or paid dividends on common shares and have no plans to do so in the foreseeable future. Volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated or is expected to fluctuateduring a period. We considered the historical volatility from our Canadian initial public offering through the dates of grants. Stock-Based Compensation Liability Prior to our IPO, we had issued its stock options with a Canadian dollar denominated exercise price. Subsequent to the Company’s IPO, theCompany issues its stock options with a U.S. dollar denominated exercise price. Effective November 13, 2013, we voluntarily delisted from the Toronto Stock Exchange, or TSX. As a result of the delisting from the TSX and thechange in our functional currency to the U.S. dollar, the stock options granted with exercise prices denominated in Canadian dollars were considered dualindexed as defined in ASC 718, “Compensation, Stock Compensation”. As a result, we were required to account for these stock options as a liability.Historically these options had been accounted for as equity. The estimated fair value was determined using the Black-Scholes pricing model based on theestimated value of the underlying common shares at the valuation measurement date, the remaining service period of the stock options, risk-free interestrates, expected dividends and expected volatility of the price of the underlying common shares. As of November 13, 2013, we calculated the initial fairvalue of the vested awards of $163,000. This fair value was initially recorded as a deduction from Contributed Surplus. At each reporting periodsubsequent to November 13, 2013, we adjusted the fair value of the stock-based compensation liability and any corresponding increase or decrease to thestock-based compensation liability was recorded as an adjustment to Contributed Surplus and/or compensation expense on the consolidated statement ofoperations and comprehensive loss but in no case will the amount of stock-based compensation expense be less than the original grant date fair value ofthe stock options. The fair value of the stock-based compensation liability was $57,000 at December 31, 2016. As the calculated fair value of the stock options atDecember 31, 2016 was less than the original grant date fair value no additional compensation expense was recorded in the consolidated statement ofoperations and comprehensive loss. The fair value of the stock-based compensation liability was remeasured, using the Black-Sholes pricing model, was$0 at December 31, 2017. The change in the fair value of the stock-based compensation liability of $57,000 was recorded as an adjustment to ContributedSurplus. 63Table of Contents The following inputs were utilized in the Black-Scholes pricing model for the options granted with exercise prices denominated in Canadiandollars: December 31, 2017 2016 Stock price at the end of each reporting period $2.27 $2.80 Weighted average exercise price $10.39 $11.06 Risk-free interest rate 1.75% 0.85%Volatility 0.00% 120.81%Dividend yield 0.00% 0.00%Expected life in years 0.03 0.85 Calculated fair value per stock option $0.00 $0.33 On January 9, 2018, the final group of stock options with Canadian dollar denominated exercise prices expired unexercised. Subsequent to thisdate, all outstanding stock options have exercise prices denominated in US dollars. Fair Value of Financial Instruments We measure certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid for totransfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between marketparticipants. The carrying amounts of our financial instruments, including cash and cash equivalents and accounts payable and accrued expenses,approximate fair value due to their short maturities. We follow ASC 820-10, “Fair Value Measurements and Disclosures,” which among other things, defines fair value, establishes a consistentframework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring ornonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that marketparticipants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established,which prioritizes the inputs used in measuring fair value as follows: Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability throughcorrelation with market data at the measurement date and for the duration of the instrument’s anticipated life. Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued new guidance related to revenue recognition (ASU No. 2014-09Revenue from Contracts with Customers (Topic 606)). Subsequently the FASB has issued additional guidance (ASU Nos. 2015-14; 2016-08; 2016-10;2016-12; 2016-20 Revenue from Contracts with Customers (Topic 606)). The guidance establishes principles for reporting information about the nature,amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for annualreporting periods beginning after December 15, 2017, including interim periods within that reporting period. Upon adoption of this standard, we plan toutilize the modified retrospective adoption method, meaning the cumulative effect of applying the new guidance is recognized as an adjustment to theopening retained earnings balance. We did not recognize any revenue from contracts with customers in the years ended December 31, 2017, 2016 and2015. We anticipate that the impact will not be material to the consolidated financial statements as we do not currently generate revenues from contractswith customers. In February 2016, the FASB issued ASU, No. 2016-02, “Leases (Topic 842)”. This guidance requires lessees to recognize a lease liability and aright-of-use asset with the exception of short-term leases. In addition, lessees are required to classify leases as either operating or finance based oncurrent criteria of whether or not the lease is effectively a financed purchase by the lessee. The new standard is effective for the annual reporting periodbeginning after December 15, 2018 and early adoption is permitted. Although we are in the process of evaluating the impact of this guidance on itsconsolidated financial statements and related disclosures, we expect that our operating lease will be subject to the new standard and recognized asoperating lease liabilities and right-of-use assets upon adoption. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and CashPayments”, addressing eight specific cash flow issues in an effort to reduce diversity in practice. The amended guidance is effective for fiscal yearsbeginning after December 31, 2017, and for interim periods within those years. We have determined that seven of the eight specific cash flow issuesoutlined in this standard will not impact us. The guidance includes a change in the classification of debt prepayment or debt extinguishment costs, thischange may impact how we classified our payment related to the prepayment of the Oxford loan in the year ended December 31, 2016. We are in theprocess of evaluating the impact of this guidance on its consolidated cash flow statement. 64Table of Contents In May 2017, the FASB issued ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting". The newstandard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modificationaccounting in Topic 718. The new standard became effective for us on January 1, 2018. The adoption of this standard is not expected to have a materialimpact on our financial position or results of operations. Net Operating Loss Carryforwards As of December 31, 2017 we had Canadian and U.S. federal tax net operating loss carryforwards of $133.7 million and $2.1 million, respectively,which begin to expire in 2026 and 2035, respectively. As of December 31, 2017, we also had Canadian investment tax credits and U.S. federal researchand development tax credits of $2.6 million and $1.6 million, respectively. The Canadian investment tax credits and U.S. federal research anddevelopment tax credits will begin to expire in 2018 and 2031, respectively. JOBS Act In April 2012, the JumpStart Our Business Startups Act of 2012, or the JOBS Act, was signed into law. The JOBS Act contains provisions that,among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” we are electing not totake advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result,we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growthcompanies. Section 107 of the JOBS Act provides that our decision not to take advantage of the extended transition period is irrevocable. In addition, foras long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that areapplicable to other public companies that are not emerging growth companies. Pursuant to such exemptions, we may not be required to, among otherthings, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of thecompensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and ConsumerProtection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory auditfirm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion andanalysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance andcomparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five yearsfollowing the completion of our initial public offering or until we no longer meet the requirements of being an “emerging growth company,” whichever isearlier. We expect that we will be an emerging growth company until December 31, 2018, although circumstances could cause us to lose that statusearlier. Results of Operations Comparison of the Years Ended December 31, 2017 and 2016 The following table summarizes the results of our operations for the year ended December 31, 2017 and 2016, together with the changes in thoseitems in dollars (in thousands): For the Years Ended December 31, Change 2017 vs. 2017 2016 2016 Research and development expenses $6,186 $3,538 2,648 General and administrative expenses 5,732 6,768 (1,036)Interest expense (207) (373) 166 Interest income 238 37 201 Gain (loss) on revaluation of warrant liability 3,307 (330) 3,637 Loss on early extinguishment of debt — (180) 180 Other expense, net (48) (12) 36 65Table of Contents Research and development expenses. Research and development expenses were $6.2 million in the year ended December 31, 2017 compared to$3.5 million in the year ended December 31, 2016. The increase in research and development costs is attributable to the following: ● a $2.2 million increase in costs associated with our Phase 2b clinical trial of topsalysin for the focal treatment of localized prostate cancerwhich was initiated in March 2017; ●a $1.3 million increase in the costs associated with manufacturing activities for topsalysin, including reformulation costs, and ●a $0.3 million increase in the non-cash stock-based compensation expense, primarily associated with stock options granted to employeesin December 2016. These increases were partially offset by decreases of $0.4 million for costs associated with our completed Phase 2a proof of concept clinical trial forlow to intermediate risk prostate cancer and $0.8 million in personnel related costs, partially related to our completed reduction in work force in May2016. General and administrative expenses. General and administrative expenses were $5.7 million in the year ended December 31, 2017 compared to$6.8 million for the year ended December 31, 2016. The decrease of approximately $1.0 million is primarily due to the inclusion of $1.6 million inoffering costs which were allocated to our liability warrants issued in both our private and public offerings which were completed in 2016. In addition,there is a decrease of $0.3 million of professional services and $0.6 million of personnel related costs from 2016 to 2017. These decreases are partiallyoffset by increases in non-cash stock-based compensation expense of $0.9 million, market research activities of $0.4 million and consulting expense of$0.2 million. The increase in the non-cash stock-based compensation expense is primarily associated with stock options granted to employees inDecember 2016 and members of our Board of Directors in May 2017. Interest expense. Interest expense was $0.2 million in the year ended December 31, 2017 compared to $0.4 million for the year ended December 31,2016. Interest expense for the year ended December 31, 2017 is related to the Loan and Security Agreement with SVB entered into in September 2017.Interest expense for the year ended December 31, 2016 was related our Loan and Security Agreement with Oxford. We repaid the outstanding principalbalance of the Oxford Loan and Security Agreement in full in September 2016. Interest income. Interest income was $0.2 million for the year ended December 31, 2017 compared to $37,000 for the year ended December 31,2016. The increase is partially due to the increase in the average balances of the interest-bearing cash and investment accounts period over period andalso due to an increase in the yields earned on our interest bearing cash and investment accounts. Gain (loss) on revaluation of warrant liability. Gain on revaluation of the warrant liability was $3.3 million for the year ended December 31, 2017as compared to a loss of $0.3 million for the year ended December 31, 2016. The non-cash gain (loss) is associated with the change in the fair value of ourwarrant liability which is calculated using a Black-Scholes pricing model. Loss on early extinguishment of debt. Loss on early extinguishment of debt was $0.2 million for the year ended December 31, 2016. This consistsof the final payment and prepayment fee offset by our unamortized debt premium resulting from the payoff of our loan with Oxford. Comparison of the Years Ended December 31, 2016 and 2015 The following table summarizes the results of our operations for the year ended December 31, 2016 and 2015, together with the changes in thoseitems in dollars (in thousands): For the Years Ended December 31, Change 2016 vs. 2016 2015 2015 Research and development expenses $3,538 $9,862 (6,324)General and administrative expenses 6,768 3,626 3,142 Interest expense (373) (690) 317 Interest income 37 22 15 Loss on revaluation of warrant liability (330) — (330)Loss on early extinguishment of debt (180) — (180)Other expense, net (12) (41) 29 66Table of Contents Research and development expenses. Research and development expenses were $3.5 million in the year ended December 31, 2016 compared to$9.9 million in the year ended December 31, 2015. The decrease in research and development costs is attributable to the following: ● a $5.9 million decrease in costs associated with our Phase 3 PLUS-1 clinical trial of topsalysin as the trial is completed, specifically a $3.9million decrease in cost associated with our clinical research organizations, $1.3 million decrease for patient visits to our clinical siteinvestigators as sites and a $0.7 million decrease primarily in costs associated with data tracking, consulting, clinical supplies, siteinspections and travel of the Phase 3 PLUS-1 clinical trial; ●a $0.6 million decrease in the costs associated with our completed Phase 2a proof of concept clinical trial for the treatment of localized low tointermediate risk prostate cancer; and ●a $0.4 million decrease in the costs associated with the manufacturing activities for topsalysin. These decreases are partially offset by an increase of $0.3 million for costs associated with our Phase 2b for the treatment of localized prostatecancer, an increase of $0.1 million in personnel related costs and an increase of $0.1 million milestone payment due to UVIC and Johns Hopkins for thecompletion of Phase 1 clinical activities associated topsalysin for prostate cancer. General and administrative expenses. General and administrative expenses were $6.8 million in the year ended December 31, 2016 compared to$3.6 million for the year ended December 31, 2015. The increase is primarily due to the inclusion of $1.6 million in offering costs which were allocated tothe warrants issued in our registered direct transaction and public offering, both completed in the year ended December 31, 2016, a $0.8 million increasein personnel related costs and a $0.7 million in increases for legal, accounting, consulting and professional services. Interest expense. Interest expense was $0.4 million in the years ended December 31, 2016 compared to $0.7 million for the year ended December31, 2015. Interest expense is related to our Loan and Security Agreement with Oxford. We repaid the outstanding principal balance of our Oxford Loanand Security Agreement in September 2016. Interest income. Interest income was $37,000 for the year ended December 31, 2016 compared to $22,000 for the year ended December 31, 2015.The increase is due to the increase in the average balances of the interest-bearing cash and investment accounts period over period. Loss on revaluation of warrant liability. Loss on revaluation of the warrant liability was $0.3 million for the year ended December 31, 2016. Thenon-cash loss is associated with the change in the fair value of our warrant liability. Loss on early extinguishment of debt. Loss on early extinguishment of debt was $0.2 million for the year ended December 31, 2016. This consistsof the final payment and prepayment fee offset by our unamortized debt premium resulting from the payoff of our loan with Oxford. Liquidity and Capital Resources Overview Since our inception, our operations have been primarily financed through public and private equity sales, debt financings and payments fromKissei. Since inception, we have devoted our resources to funding and conducting research and development programs, including discovery research,preclinical studies and clinical trial activities. At December 31, 2017, we had cash, cash equivalents and securities available-for-sale of $25.8 million,representing a decrease of $3.2 million from December 31, 2016. We had working capital of $24.2 million at December 31, 2017, a decrease of $3.6million from December 31, 2016. We expect that our cash, cash equivalents and securities available-for-sale will be sufficient to fund our operations tothe middle of 2019, assuming we conduct no additional clinical trials beyond our on-going Phase 2b clinical trial for the treatment of clinicallysignificant localized prostate cancer. We will need to raise additional capital in order to pursue further development of topsalysin. There can be noassurance that such funding will be available on acceptable terms or at all. 67Table of Contents Promissory Note On September 2, 2016, we repaid the outstanding principal balance on our Loan and Security Agreement with Oxford. On September 8, 2017, we entered into a Loan and Security Agreement with SVB. Under the terms of the agreement, we have the ability torequest term loan advances in two tranches. The first tranche of $7.0 million was effective the date of the agreement and the second tranche is availableto us in a single advance not to exceed $3.0 million if we have either (a) received net proceeds of $20.0 million from the sale of common shares prior toDecember 31, 2018 or (b) obtained positive Phase 2b data in topsalysin trial for treatment of localized cancer prior to December 31, 2018. The principal borrowed under the first tranche of $7.0 million bears fixed interest of 6.75% per annum. We have the option to prepay theoutstanding balance of the loan in full, subject to a prepayment fee of 1% to 3% depending upon when the prepayment occurs. Upon the finalrepayment of the loan on the maturity date of September 1, 2021, by prepayment, or upon acceleration, we will pay SVB an additional fee of 5% of theprincipal amount of $7.0 million. This additional fee is recorded as a debt discount and is being recognized as interest expense over the life of the loanutilizing the effective interest method. The repayment terms are interest only payments through September 2018 followed by 36 equal monthlypayments of principal and interest. We are not subject to any financial covenants under the loan. As of December 31, 2017, we were in compliance with all covenants under the loan.The loan agreement contains customary affirmative and negative covenants, indemnification provisions and events of default. The affirmative covenantsinclude, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports and maintaincertain intellectual property rights. The negative covenants include, among others, restrictions on transferring or licensing our assets, changing ourbusiness, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, and creating other lienson our assets, in each case subject to customary exceptions. If we default under the loan, SVB may accelerate all of our repayment obligations and takecontrol of our pledged assets. SVB could declare a default under the loan upon the occurrence of any event that SVB interprets as a material adversechange as defined under the loan agreement, thereby requiring us to repay the loan immediately. Pursuant to the first tranche of the loan, we issued toSVB warrants to purchase an aggregate of up to 99,526 of our common shares at an exercise price of $2.11 per share. The warrants will expire seven yearsfrom the date of the grant. Future Operations We have devoted substantial resources to developing topsalysin, protecting and enhancing our intellectual property and providing general andadministrative support for these activities. We have not generated any revenue from product sales and, to date, have funded our operations primarilythrough public and private equity security sales, debt financings and payments from Kissei. We will require significant additional capital to fund our operations and complete development of topsalysin and there is no assurance that we willobtain additional capital. Our future capital requirements will depend on, and could increase significantly as a result of many factors, including: ● progress in, and the costs of, our clinical trials, including results of our on-going Phase 2b clinical trial for clinically significant localizedprostate cancer and the costs of a Phase 3 prostate cancer trial assuming positive Phase 2b trial results, preclinical studies and other researchand development activities for topsalysin; ● the costs and timing of regulatory approvals; ●our ability to maintain our strategic license with Kissei and its ability to achieve applicable milestones and establish and maintain additionalstrategic collaborations, including licensing and other arrangements; ● the costs involved in filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; ● the costs of obtaining and securing manufacturing supply for clinical or commercial production of product candidates, including the costsassociated with our current reformulation of topsalysin drug product; and ●the costs of establishing, or contracting for, sales and marketing capabilities if we obtain regulatory approvals to market topsalysin. Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through private and public sales of our securities,debt financings, by establishing additional strategic collaborations for topsalysin or from exercise of outstanding common share purchase warrants andstock options. 68Table of Contents Cash Flows The following table shows a summary of our cash flows for the years ended December 31, 2017, 2016 and 2015 (in thousands): For the Years Ended December 31, 2017 2016 2015 Net cash provided by (used in): Operating activities $(9,968) $(10,329) $(14,357)Investing activities 6,323 (13,721) 16,066 Financing activities 6,932 30,971 50 Effect of exchange rate changes on cash and cash equivalents — (2) (1)Net increase in cash and cash equivalents $3,287 $6,919 $1,758 Operating Activities Net cash used in operating activities decreased to $10.0 million for the year ended December 31, 2017 compared to $10.3 million for the yearended December 31, 2016. The decrease in net cash used in operating activities of approximately $0.4 million was primarily due to the net cash outflowimpact of the decrease in our net loss from period to period partially offset by a decrease in funds used for the payment of accounts payable and accruedexpenses for the year ended December 31, 2017. Net cash used in operating activities decreased to $10.3 million for the year ended December 31, 2016 compared to $14.4 million for the yearended December 31, 2015. The decrease in net cash used in operating activities of $4.0 million was primarily due to the net cash outflow impact of thedecrease in our net loss from period to period and a decrease in funds used for the payment of accounts payable and accrued expenses for the year endedDecember 31, 2016. Investing Activities Net cash provided by investing activities was $6.3 million for the year ended December 31, 2017, compared to net cash used in investing activitiesof $13.7 million for the year ended December 31, 2016. The increase in net cash provided by investing activities from December 31, 2016 to December31, 2017 represents the usage of our securities classified as available-for-sale to purchase securities with maturities less than 90 days which are classifiedas cash and cash equivalents and the usage of the proceeds from the maturity of our securities classified as available-for-sales to fund our operationsduring 2017. Net cash used in investing activities was $13.7 million for the year ended December 31, 2016, compared to net cash provided by investingactivities of $16.1 million for the year ended December 31, 2015. The increase in net cash used in investing activities from December 31, 2015 toDecember 31, 2016 represents the usage of our cash and cash equivalents to purchase securities classified as available-for-sale during 2016. Financing Activities Net cash provided by financing activities was $6.9 million for the year ended December 31, 2017, as compared to $31.0 million for the year endedDecember 31, 2016. The cash provided by financing activities for the year ended December 31, 2017 is primarily related to the receipt of $6.9 millionfrom our Loan and Security Agreement with SVB. Net cash provided by financing activities was $31.0 million for the year ended December 31, 2016. The increase in cash provided by financingactivities for the year ended December 31, 2016 is primarily related to the receipt of the proceeds from our completed common share offerings of $33.5million, net of issuance costs. We also received proceeds of $2.6 million from the exercise of warrants and stock options during the year ended December31, 2016. These cash inflows were offset by $5.1 million of principal payments on our loan with Oxford. Net cash provided by financing activities was $50,000 for the year ended December 31, 2015. The cash provided by financing activities for theyear ended December 31, 2015 reflects the proceeds of $0.8 million from the common share purchases by Aspire Capital Fund, LLC pursuant a commonstock purchase agreement entered into in May 2014 which expired in December 2016, offset by $0.7 million in principal payments on our Oxford loan. 69Table of Contents Contractual Obligations and Commitments Our contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingentliabilities for which we cannot reasonably predict future payments. Accordingly, the table below excludes contractual obligations relating to milestoneand royalty payments due to third parties, all of which are contingent upon certain future events. The following is a summary of our contractualobligations as of December 31, 2017 (in thousands): Payments Due by Period Total Less than1 year 1-3years 3-5years More than5 years Operating lease obligation relating to facility(1) $178 $126 $52 $— $— Principal, interest payable and additional fee underpromissory notes (2) 8,448 1,059 5,239 2,150 — Purchase commitments(3) 2,643 2,643 — — — Total $11,269 $3,828 $5,291 $2,150 $— (1)We currently lease an office facility comprising our headquarters in San Diego, California under a non-cancelable lease. The lease, as amended,expires in May 2019 and the minimum rent is $9,187 per month, subject to annual cost of living increases, plus our pro rata share of certainoperating costs and other expenses.(2)In September 2017, we entered into a Loan and Security Agreement with SVB. The principal borrowed under the first tranche of $7.0 millionbears fixed interest of 6.75% per annum. We have the option to prepay the outstanding balance of the loan in full, subject to a prepayment fee of1% to 3% depending upon when the prepayment occurs. Upon the final repayment of the loan on the maturity date of September 1, 2021, byprepayment, or upon acceleration, we are required to pay SVB an additional fee of $0.3 million. This amount is reflected in the able above. Therepayment terms are interest only payments through September 2018 followed by 36 equal monthly payments of principal and interest(3)This amount represents purchase commitments pursuant to our manufacturing and supply agreement with Boehringer Ingelheim RCV GmbH &Co KG, or BI. We are required to schedule our manufacturing activities with BI in advance. If we cancel any of these scheduled activities withoutproper notice we could be required to pay penalties equal to the cost of the originally scheduled activity. As such we have included the activitiesscheduled as of December 31, 2017 which, if cancelled, could result in us incurring penalties for cancellation. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have a current or futurematerial effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. Item 7A.Qualitative and Quantitative Disclosures About Market Risk Under SEC rules and regulations, as a smaller reporting company, we are not required to provide the information required by this item. 70Table of Contents Item 8.Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Sophiris Bio Inc. and its subsidiaries as of December 31, 2017 and 2016, and therelated consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidatedfinancial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results oftheir operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principlesgenerally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theCompany’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federalsecurities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether dueto error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part ofour audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on theeffectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error orfraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts anddisclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates madeby management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonablebasis for our opinion. /s/ PricewaterhouseCoopers LLPSan Diego, CAMarch 21, 2018 We have served as the Company's auditor since 2013. 71Table of Contents Sophiris Bio Inc.Consolidated Balance Sheets(In thousands, except share amounts) December 31, 2017 2016 Assets: Current assets: Cash and cash equivalents $16,087 $12,800 Securities available-for-sale 9,757 16,201 Other receivables 13 128 Prepaid expenses 999 846 Total current assets 26,856 29,975 Property and equipment, net 2 4 Other long-term assets 19 19 Total assets $26,877 $29,998 Liabilities and shareholders’ equity: Current liabilities: Accounts payable $832 $459 Accrued expenses 1,499 1,762 Current portion of promissory notes 372 — Total current liabilities 2,703 2,221 Long-term promissory notes 6,435 — Warrant liability 10,089 13,396 Stock-based compensation liability — 57 Total liabilities 19,227 15,674 Commitments and contingencies (Note 16) Shareholders’ equity: Common shares, unlimited authorized shares, no par value; 30,111,153 and 30,107,644 shares issued andoutstanding at December 31, 2017 and 2016, respectively 131,247 131,245 Contributed surplus 25,854 23,900 Accumulated other comprehensive gain 97 99 Accumulated deficit (149,548) (140,920)Total shareholders’ equity 7,650 14,324 Total liabilities and shareholders’ equity $26,877 $29,998 The accompanying notes are an integral part of these audited consolidated financial statements. 72Table of Contents Sophiris Bio Inc.Consolidated Statements of Operations and Comprehensive Loss(In thousands, except per share amounts) For the Years Ended December 31, 2017 2016 2015 Operating expenses: Research and development $6,186 $3,538 $9,862 General and administrative 5,732 6,768 3,626 Total operating expenses 11,918 10,306 13,488 Other income (expense): Interest expense (207) (373) (690)Interest income 238 37 22 Gain (loss) on revaluation of warrant liability 3,307 (330) — Loss on early extinguishment of debt — (180) — Other expense, net (48) (12) (41)Total other income (expense) 3,290 (858) (709)Net loss $(8,628) $(11,164) $(14,197)Basic and diluted loss per share $(0.29) $(0.49) $(0.84)Weighted average number of outstanding shares – basic and diluted 30,111 23,002 16,881 Other comprehensive loss: Unrealized loss on securities available-for-sale (2) — — Total other comprehensive loss $(8,630) $(11,164) $(14,197) The accompanying notes are an integral part of these audited consolidated financial statements. 73Table of Contents Sophiris Bio Inc. Consolidated Statements of Shareholders’ Equity(In thousands, except share amounts) CommonShares Contributed Accumulated AccumulatedOtherComprehensive TotalShareholders’ Shares Amount Surplus Deficit Income Equity Balance at January 1, 2015 16,844,736 $113,095 $17,053 $(115,559) $99 $14,688 Issuance of common shares 400,000 785 — — — 785 Change in the fair value of stock-basedcompensation liability recorded tocontributed surplus — — (146) — — (146)Stock-based compensation expense — — 776 — — 776 Net loss — — — (14,197) — (14,197)Balance at December 31, 2015 17,244,736 $113,880 $17,683 $(129,756) $99 $1,906 Issuance of common shares andwarrants, net of issuance cost of$1,366 11,046,428 33,534 — — — 33,534 Exercise of warrants 1,775,714 2,486 — — — 2,486 Exercise of stock options 40,766 92 — — — 92 Initial valuation of warrant liabilityupon issuance of warrants — (18,747) — — — (18,747)Valuation of exercised warrantsreclassified from warrant liability tocontributed surplus — — 5,681 — — 5,681 Change in the fair value of stock-basedcompensation liability recorded tocontributed surplus — — 111 — — 111 Stock-based compensation expense — — 425 — — 425 Net loss — — — (11,164) — (11,164)Balance at December 31, 2016 30,107,644 $131,245 $23,900 $(140,920) $99 $14,324 Exercise of stock options 3,509 2 — — — 2 Issuance of warrants with securedpromissory note — — 185 — — 185 Change in the fair value of stock-basedcompensation liability recorded tocontributed surplus — — 57 — — 57 Stock-based compensation expense — — 1,712 — — 1,712 Net loss — — — (8,628) — (8,628)Other comprehensive loss — — — — (2) (2)Balance at December 31, 2017 30,111,153 $131,247 $25,854 $(149,548) $97 $7,650 The accompanying notes are an integral part of these audited consolidated financial statements. 74Table of Contents Sophiris Bio Inc.Consolidated Statements of Cash Flows(In thousands) For the Years Ended December 31, 2017 2016 2015 Cash flows used in operating activities Net loss for the period $(8,628) $(11,164) $(14,197)Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 1,712 425 776 Amortization of debt discount 44 81 137 Amortization of promissory note issuance costs 17 — — Depreciation of property and equipment 4 12 20 Amortization of discount on available-for-sale securities 116 20 5 Change in fair value warrant liability (3,307) 330 — Noncash portion of loss on early extinguishment of debt — (159) — Payment of original issue discount — (124) — Foreign exchange transaction loss 6 — 6 Changes in operating assets and liabilities: Other receivables 116 (120) 8 Prepaid expenses (153) (379) 2,358 Accounts payable 374 (446) (1,728)Accrued expenses (269) 1,195 (1,742)Net cash used in operating activities (9,968) (10,329) (14,357)Cash flows (used in) provided by investing activities Purchases of property and equipment (3) — — Maturity of securities available-for-sale 22,161 2,750 26,169 Purchases of securities available-for-sale (15,835) (16,471) (10,103)Net cash provided by (used in) investing activities 6,323 (13,721) 16,066 Cash flows provided by financing activities Proceeds from the issuance of common shares and warrants, net of paid issuancecosts — 33,534 785 Proceeds from the exercise of warrants — 2,486 — Proceeds from exercise of stock options 2 92 — Proceeds from the issuance of the Silicon Valley Bank promissory note, net ofissuance costs 6,930 — — Principal payments on the Oxford promissory notes — (5,141) (735)Net cash provided by financing activities 6,932 30,971 50 Effect of exchange rate changes on cash and cash equivalents — (2) (1)Net increase in cash and cash equivalents 3,287 6,919 1,758 Cash and cash equivalents at beginning of period 12,800 5,881 4,123 Cash and cash equivalents at end of period $16,087 $12,800 $5,881 Supplemental disclosures of cash flow information Cash paid for interest $105 $334 $559 75Table of Contents For the Years Ended December 31, 2017 2016 2015 Supplemental disclosures of non-cash investing and financing activities Valuation of warrant liability upon issuance of warrants $— $18,747 $— Value of warrants issued in connection with the Silicon Valley Bank promissorynote $185 $— $— Valuation of exercised warrants reclassified from warrant liability to contributedsurplus $— $5,681 $— Change in the fair value of stock-based compensation liability recorded tocontributed surplus $(57) $(111) $146 Unrealized loss on securities available-for sale $2 $— $— The accompanying notes are an integral part of these audited consolidated financial statements. 76Table of Contents Sophiris Bio Inc. Notes to the Consolidated Financial Statements 1.Nature of the business Company Sophiris Bio Inc., or the Company, or Sophiris, is a clinical-stage biopharmaceutical company focused on innovative products for the treatment ofurological diseases. The Company is governed by the British Columbia Business Corporations Act. The Company’s operations were initially located inVancouver, British Columbia until April 2011, when its core activities and headquarters relocated from Vancouver, British Columbia to San Diego,California. The consolidated financial statements include the accounts of Sophiris and its wholly-owned subsidiaries, Sophiris Bio Corp. and Sophiris BioHolding Corp., both of which are incorporated in the State of Delaware. 2.Summary of significant accounting policies Significant accounting policies followed by the Company in the preparation of its consolidated financial statements are as follows: Basis of consolidation The consolidated financial statements include the accounts of the Company, Sophiris Bio Corp. and Sophiris Bio Holding Corp. All intercompanybalances and transactions have been eliminated for purposes of consolidation. Basis of presentation and use of estimates The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in theUnited States or GAAP. GAAP requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenue,expenses and related disclosures. The Company bases estimates and judgments on historical experience and on various other factors that it believes to bereasonable under the circumstances. The significant estimates in these consolidated financial statements include stock-based compensation expense, fairvalue of the warrant liability and accrued research and development expenses, including accruals related to the Company’s clinical trial(s). TheCompany’s actual results may differ from these estimates. The Company evaluates its estimates on an ongoing basis. Changes in estimates are reflected inreported results in the period in which they become known by the Company’s management. Foreign currency Historically gains and losses resulting from foreign currency translation were recorded in accumulated other comprehensive gain (loss), which is aseparate component of shareholders’ equity. Foreign currency transaction gains and losses are recognized as a component of other expense. Cash and cash equivalents Cash equivalents are short-term, highly liquid investments with an original maturity of three months or less at the date of purchase. Securities Available-for-Sale Investments with an original maturity of more than three months when purchased have been classified by management as securities available-for-sale. Such investments are carried at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive gain (loss)in shareholders’ equity. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included ininterest income. No other-than-temporary impairments were identified for the investment securities held by the Company as of December 31, 2017 and2016. The cost of investment securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity.Such amortization and accretion are included in interest income. The cost of securities sold is based on the specific-identification method. The Companyhas classified all of its investment securities as available-for-sale, including any of those with maturities beyond one year, as current assets on theconsolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are consideredavailable for use in current operations. 77Table of Contents Concentration of credit risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents andinvestment securities classified as available-for-sale. The Company maintains deposits in federally insured financial institutions in excess of federallyinsured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutionsin which those deposits are held. Additionally, the Company has adopted an investment policy that includes guidelines relative to credit quality,diversification of maturities and liquidity. Property and equipment Property and equipment are recorded at cost and depreciated using the straight-line method, based on their estimated useful lives as follows: Asset classification Estimated useful life (in years) Equipment 3-5 Computer hardware 3 Software 3-5 Leasehold improvements Lesser of useful life or lease term Furniture and fixtures 5 Repairs and maintenance costs are expensed as incurred. The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amountof assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison ofthe undiscounted cash flow to the recorded value of the asset. If impairment is indicated, the asset will be written down to its estimated fair value on adiscounted cash flow basis. The Company has not recognized any impairment losses through December 31, 2017. Promissory notes Promissory notes are recognized initially at fair value. Promissory notes are subsequently carried at amortized cost; any difference between theinitial fair market value and the redemption value is recognized in the statement of operations and comprehensive loss over the period of the notespayable using the effective interest method. The fair value of the promissory notes when issued with equity classified instruments is recognized initially at its relative fair value, with the fairvalue of the promissory note estimated using the net present value of similar promissory notes issued on a standalone basis. The equity classifiedinstruments that are issued with the borrowings are valued at fair value using the Black-Scholes valuation model. Revenue recognition The Company may enter into product development agreements with collaborative partners for the research and development of products for thetreatment of urological diseases. The terms of the agreements may include nonrefundable signing and licensing fees, milestone payments and royalties onany product sales derived from collaborations. These multiple element arrangements are analyzed to determine whether the deliverables can be separatedor whether they must be accounted for as a single unit of accounting. License fees are recognized as revenue when persuasive evidence of an arrangementexists, the fee is fixed or determinable, delivery or performance has substantially completed and collection is reasonably assured. The Company recognizes up front license payments as revenue upon delivery of the license only if the license has stand-alone value to thecustomer and if the agreement includes a general right of return, the delivery or performance of undelivered items is considered probable and within thecontrol of the Company. The payment is generally allocated to the separate units of accounting based on their relative selling prices. The selling price ofeach deliverable is determined using vendor specific objective evidence of selling prices, if it exists; otherwise, third-party evidence of selling prices. Ifneither vendor specific objective evidence nor third-party evidence exists, the Company uses its’ best estimate of the selling price for each deliverable.The payment allocated is limited to the amount that is not contingent on the delivery of additional items or fulfillment of other performance conditions. 78Table of Contents Whenever the Company determines that an arrangement should be accounted for as a single unit of accounting, it must determine the period overwhich the performance obligations will be performed and revenue recognized. If the Company cannot reasonably estimate the timing and the level ofeffort to complete its performance obligations under the arrangement, then revenue under the arrangement is recognized on a straight-line basis over theperiod the Company is expected to complete its performance obligations. The Company evaluates milestone payments on an individual basis and recognizes revenue from non-refundable milestone payments when theearnings process is complete and the payment is reasonably assured. Non-refundable milestone payments related to arrangements under which theCompany has continuing performance obligations are recognized as revenue upon achievement of the associated milestone, provided that (i) themilestone event is substantive and its achievability was not reasonably assured at the inception of the agreement and (ii) the amount of the milestonepayment is reasonable in relation to the effort expended or the risk associated with the milestone event. Any amounts received under agreements inadvance of performance, if deemed substantive, are recorded as deferred revenue and recognized as revenue as the Company completes its performanceobligations. A milestone event is considered substantive if (i) the milestone is commensurate with either (a) the Company’s performance to achieve themilestone or (b) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the Company’s performance toachieve the milestone; (ii) it relates solely to past performance and (iii) it is reasonable relative to all of the deliverables and payment terms (includingother potential milestone consideration) within the arrangement. If any portion of the milestone payment does not relate to the Company’s performance,does not relate solely to past performance or is refundable or adjustable based on future performance, the milestone is not considered to be substantive.Milestone payments are not bifurcated into substantive and non-substantive components. Payments related to the achievement of non-substantivemilestones is deferred and recognized over the Company’s remaining performance period. Royalty revenue will be recognized upon the sale of the related products provided the Company has no remaining performance obligations underthe arrangement. Research and development expenses Research and development costs are charged to expense as incurred. Research and development expenses comprise costs incurred in performingresearch and development activities, including personnel-related costs, stock-based compensation, facilities, research-related overhead, clinical trialcosts, contracted services, manufacturing, license fees and other external costs. The Company accounts for nonrefundable advance payments for goodsand services that will be used in future research and development activities as expenses when the service has been performed or when the goods havebeen consumed rather than when the payment is made. Accrued research and development expenses Clinical trial costs are recorded as a component of research and development expenses. The Company accrues and expenses clinical trial activitiesperformed by third parties based upon estimates of the percentage of work completed of the total work over the life of the individual study in accordancewith agreements established with clinical research organizations and clinical trial sites. The Company determines the estimates through discussions withinternal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paidfor such services based on facts and circumstances known to the Company as of each balance sheet date. However, actual costs and timing of clinicaltrials are highly uncertain, subject to risks and may change depending upon a number of factors, including the Company’s clinical development plan. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.Adjustments to prior period estimates have not been material. Examples of estimated accrued research and development expenses include: ●fees to clinical research organizations in connection with clinical studies; ● fees to investigative sites in connection with clinical studies; ● fees to vendors in connection with preclinical development activities; ● fees to vendors associated with the development of companion diagnostics; and ● fees to vendors related to product manufacturing, development and distribution of clinical supplies. Nonrefundable advance payments for goods and services that will be used or rendered in future research and development activities, are recordedas a prepaid expense and recognized as expense in the period that the related goods are consumed or services are performed. 79Table of Contents Dividend policy The Company has never declared or paid any cash dividends on its capital shares. The Company intends to retain all available funds and anyfuture earnings to support its operations and finance the growth and development of its business. The Company does not intend to pay cash dividends onits common shares for the foreseeable future. Any future determination related to the Company’s dividend policy will be made at the discretion of itsboard of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions,business prospects and other factors of the Company’s board of directors may deem relevant. In addition, the Company’s Loan and Security Agreementwith Silicon Valley Bank, or SVB, contains a negative covenant which prohibits the Company from paying dividends without the prior written consent ofSVB. Stock-based compensation The Company expenses the fair value of employee stock options over the vesting period. Compensation expense is measured using the fair valueof the award at the grant date. The fair value of each stock-based award is estimated using the Black-Scholes pricing model and is expensed using thegraded vesting method over the vesting period. Effective January 1, 2017, the Company adopted ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements toEmployee Share-Based Payment Accounting”). This guidance simplified the accounting for share-based compensation. Upon adoption, the Companyelected to no longer apply a forfeiture rate to estimate forfeitures expected to occur and instead account for forfeitures as they occur. The impact from theadoption of this new guidance to the excess tax benefits or the share-based compensation expense was not material nor was the impact on the statement ofcash flows. Prior to the Company’s initial public offering, or IPO, the Company had issued its stock options with a Canadian dollar denominated exerciseprice. Subsequent to the Company’s IPO, the Company issues its stock options with a U.S. dollar denominated exercise price. Effective November 13, 2013, the Company voluntarily delisted from the Toronto Stock Exchange, or TSX. As a result of the delisting from theTSX and the change in the Company’s functional currency to the U.S. dollar, the stock options granted with exercise prices denominated in Canadiandollars are considered dual indexed as defined in Accounting Standards Codification, or ASC, topic 718, “Compensation, Stock Compensation”. As aresult, the Company is required to account for these stock options as a liability. Historically these options had been accounted for as equity. Theestimated fair value is determined using the Black-Scholes pricing model based on the estimated value of the underlying common shares at the valuationmeasurement date, the remaining service period of the stock options, risk-free interest rates, expected dividends and expected volatility of the price of theunderlying common shares. The fair value of the stock-based compensation liability was zero at December 31, 2017. As the calculated fair value of thestock options at December 31, 2017 was less than the original grant date fair value no additional compensation expense was recorded in the consolidatedstatement of operations and comprehensive loss. The change in the fair value of the stock-based compensation liability was recorded as an adjustment toContributed Surplus of ($57,000) and ($111,000) for the years ended December 31, 2017 and 2016, respectively. All of the stock options with exerciseprices denominated in Canadian dollars expired on January 9, 2018. Subsequent to this date, all of the Company’s stock options had exercise pricesdenominated in US dollars. Warrant liability In connection with the offerings we completed in the year ended December 31, 2016, we issued warrants to purchase common shares. Thesewarrants may require us to pay the warrant holder cash under certain provisions of the warrant and therefore we are accounting for these warrants as aliability in accordance with ASC 480 “Distinguishing Liabilities from Equity”. As a result of these warrants being classified as liabilities, we are requiredto calculate the fair value of these warrants at each reporting date. The fair value of these warrants are calculated utilizing a Black-Scholes pricing model.We calculated the initial fair value of these warrants at the date the warrants were issued. At each reporting date we are required to remeasure the fair valueof the warrant liability and any corresponding increase or decrease to the warrant liability is recorded as a component of other income or expense in ourconsolidated statement of operations and comprehensive loss. In addition, if a warrant holder exercises warrants we are required to revalue the fair valueof the underlying warrants on the date of exercise and reclassify the change in the fair value from the warrant liability to contributed surplus. Certain inputs utilized in our Black-Scholes pricing model may fluctuate in future periods based upon factors which are outside of the Company’scontrol. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of ourwarrant liability which could also result in material non-cash gain or loss being reported in our consolidated statement of operations and comprehensiveloss. Income taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognizedfor the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which these temporary differences areexpected to be recovered or settled. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that someor all of the deferred tax assets will not be realized. 80Table of Contents The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reservesare based on a determination of whether and how much of a tax benefit taken by the Company in its tax filing is more likely than not to be realizedfollowing resolution of any potential contingencies present related to the tax benefit. Potential interest and penalties associated with such uncertain taxpositions are recorded as components of income tax expense. Segment reporting Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation bythe chief operating decision-maker, or CODM. The Company’s Chief Executive Officer serves as its CODM. The Company views its operations andmanages its business as one segment operating primarily in the United States. As of December 31, 2017, all of the Company’s assets were located in theUnited States of America with the exception of $15,000 of cash and cash equivalents located in Canada. All of the Company’s property and equipmentwas located within the United States as of December 31, 2017. Fair value of financial instruments The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paidfor to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between marketparticipants. The carrying amounts of the Company’s financial instruments, including cash equivalents, accounts payable and accrued expenses,approximate fair value due to their short maturities. The Company follows ASC 820-10, “Fair Value Measurements and Disclosures,” which among other things, defines fair value, establishes aconsistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either arecurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability inan orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptionsthat market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has beenestablished, which prioritizes the inputs used in measuring fair value as follows: Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability throughcorrelation with market data at the measurement date and for the duration of the instrument’s anticipated life. Level 3 – Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Recent accounting pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued new guidance related to revenue recognition (Accounting StandardsUpdate, or ASU, No. 2014-09 Revenue from Contracts with Customers (Topic 606)). Subsequently the FASB has issued additional guidance (ASU Nos.2015-14; 2016-08; 2016-10; 2016-12; 2016-20 Revenue from Contracts with Customers (Topic 606)). The guidance establishes principles for reportinginformation about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidanceis effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Upon adoption of thisstandard, we plan to utilize the modified retrospective adoption method, meaning the cumulative effect of applying the new guidance is recognized as anadjustment to the opening retained earnings balance. The Company did not recognize any revenue from contracts with customers in the years endedDecember 31, 2017, 2016 and 2015. The Company anticipates that the impact will not be material to the consolidated financial statements as theCompany does not currently generate revenues from contracts with customers. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. This guidance requires lessees to recognize a lease liability and aright-of-use asset with the exception of short-term leases. In addition, lessees are required to classify leases as either operating or finance based oncurrent criteria of whether or not the lease is effectively a financed purchase by the lessee. The new standard is effective for the annual reporting periodbeginning after December 15, 2018 and early adoption is permitted. Although the Company is in the process of evaluating the impact of this guidanceon its consolidated financial statements and related disclosures, the Company expects that its operating lease will be subject to the new standard andrecognized as operating lease liabilities and right-of-use assets upon adoption. 81Table of Contents In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and CashPayments”, addressing eight specific cash flow issues in an effort to reduce diversity in practice. The amended guidance is effective for fiscal yearsbeginning after December 31, 2017, and for interim periods within those years. The Company has determined that seven of the eight specific cash flowissues outlined in this standard will not impact the Company. The guidance includes a change in the classification of debt prepayment or debtextinguishment costs, this change may impact how the Company classifies its payment related to the prepayment of its Oxford loan in the year endedDecember 31, 2016. The Company is in the process of evaluating the impact of this guidance on its consolidated cash flow statement. In May 2017, the FASB issued ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting". The newstandard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modificationaccounting in Topic 718. The new standard became effective for the Company on January 1, 2018. The adoption of this standard is not expected to havea material impact on the Company's financial position or results of operations. 3.Reduction in workforce The Company completed a reduction in workforce in May 2016 through which five of its ten employees were terminated. The Company incurred acharge of approximately $81,000 during May 2016, which is included in operating expenses, related to cash severance and continuation of benefits inconnection with the workforce reduction. No additional cash payments are expected to be made related to this reduction in workforce. In addition, theCompany incurred a non-cash stock-based compensation charge of approximately $76,000 during May 2016 associated with the modification of stockoptions for individuals included in the reduction in workforce. See additional discussion regarding the modification of stock options for terminatedemployees at Note 13. 4.Net loss per common share Basic net loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted-average number of commonshares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the netloss by the weighted-average number of potentially dilutive securities outstanding for the period determined using the treasury-stock method. Forpurposes of this calculation, stock options and warrants are considered to be potentially dilutive securities and are only included in the calculation ofdiluted net loss per share when their effect is dilutive. The following table presents the computation of basic and diluted net loss per share (in thousands, except per share amounts): For the Years Ended December 31, 2017 2016 2015 Net loss per share: Net loss $(8,628) $(11,164) $(14,197)Weighted-average common shares – basic and diluted 30,111 23,002 16,881 Net loss per share – basic and diluted per share $(0.29) $(0.49) $(0.84) The following dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding as of the year endedDecember 31, 2017, 2016 and 2015 as the Company recorded a net loss in all periods and, therefore, they would be anti-dilutive (in thousands): For the Years Ended December 31, 2017 2016 2015 Options to purchase common shares 2,931 2,868 1,677 Common share purchase warrants 5,825 5,965 589 82Table of Contents 5.Securities available-for-sale Securities available-for-sale consisted of the following as of December 31, 2017 (in thousands): December 31, 2017 Amortized Unrealized Estimated Cost Gain Loss Fair Value Commercial paper $3,590 $— $— $3,590 U.S. government sponsored enterprise securities 4,985 — (2) 4,983 Corporate debt securities 1,184 — — 1,184 $9,759 $— $(2) $9,757 As of December 31, 2017, all of the Company’s securities available-for-sale have a maturity date of less than one year. Securities available-for-sale consisted of the following as of December 31, 2016 (in thousands): December 31, 2016 Amortized Unrealized Estimated Cost Gain Loss Fair Value Commercial paper $3,890 $— $— $3,890 U.S. government sponsored enterprise securities 12,311 — — 12,311 $16,201 $— $— $16,201 As of December 31, 2016, all of the Company’s securities available-for-sale have a maturity date of less than one year. 6.Fair value measurement and financial instruments As of December 31, 2017 the Company has $25.2 million of securities consisting of money market funds, commercial paper, U.S. governmentsponsored enterprise securities and corporate debt securities with maturities that range from three days to eleven months with an overall average time tomaturity of approximately three months. The Company has the ability to liquidate these investments without restriction. The Company determines fairvalue for securities with Level 1 inputs through quoted market prices. The Company determines fair value for securities with Level 2 inputs throughbroker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The Company’s Level 2 securities have beeninitially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing third party pricing services orother observable market data. The pricing services utilize industry standard valuation models, including both income and market based approaches andobservable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealerquotes, bids, offers, and other industry and economic events. The Company’s Level 3 inputs are unobservable inputs based on the Company’s assessmentthat market participants would use in pricing the instruments. The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis for the periods presented (inthousands): December 31,2017 Level 1 Level 2 Level 3 Assets: Money market funds $34 $34 $— $— Commercial paper 19,020 — 19,020 — U.S. government sponsored enterprise securities 4,983 — 4,983 — Corporate debt securities 1,184 — 1,184 — Total assets $25,221 $34 $25,187 $— Liabilities: Warrant liability $10,089 $— $— $10,089 Total liabilities $10,089 $— $— $10,089 December 31,2016 Level 1 Level 2 Level 3 Assets: Money market funds $57 $57 $— $— Commercial paper 16,085 — 16,085 — U.S. government sponsored enterprise securities 12,311 — 12,311 — Total assets $28,453 $57 $28,396 $— Liabilities: Warrant liability $13,396 $— $— $13,396 Stock-based compensation liability 57 — — 57 Total liabilities $13,453 $— $— $13,453 83Table of Contents Warrant liability In connection with the offering completed on May 11, 2016, the Company issued 1,785,714 warrants to purchase its common shares. Thesewarrants may require the Company to pay the warrant holder cash under certain provisions of the warrant and therefore the Company is accounting forthese warrants as a liability. As a result of these warrants being classified as a liability, the Company is required to calculate their fair value at eachreporting date. The fair value of these warrants is calculated utilizing a Black-Scholes pricing model. The Company calculated the initial fair value ofthese warrants on May 11, 2016, the date the warrants were issued. On various dates from May 11, 2016 through December 31, 2016, the warrant holdersexercised 1,775,714 warrants and as a result the Company revalued the fair value of the underlying warrants on each exercise date. The fair value of theexercised warrants was reclassified from the warrant liability to contributed surplus upon exercise. As of December 31, 2017, only 10,000 warrants remainoutstanding from the May 11, 2016 offering for which the fair value was remeasured as of December 31, 2017. The following inputs were utilized in theBlack-Scholes pricing model during the year ended December 31, 2017 and 2016: December 31, 2017 2016 Stock price at the end of each reporting period $2.27 $2.80 Exercise price $1.40 $1.40 Risk-free interest rate 2.01% 1.78%Volatility 143.57% 144.25%Dividend yield 0.00% 0.00%Expected life in years 3.36 4.36 Calculated fair value per warrant $1.95 $2.55 In connection with the offering completed on August 26, 2016, the Company issued 5,606,250 warrants to purchase its common shares. Thesewarrants may require the Company to pay the warrant holder cash under certain provisions of the warrant and therefore the Company is accounting forthese warrants as a liability. As a result of these warrants being classified as a liability, the Company is required to calculate the fair value of thesewarrants at each reporting date. The fair value of these warrants is calculated utilizing a Black-Scholes pricing model. The Company calculated the initialfair value of these warrants on August 26, 2016, the date the warrants were issued. As of December 31, 2017, 5.6 million warrants remain outstanding forwhich the fair value was remeasured. The following inputs were utilized in the Black-Scholes pricing model during the year ended December 31, 2017and 2016: December 31, 2017 2016 Stock price at the end of each reporting period $2.27 $2.80 Exercise price $4.00 $4.00 Risk-free interest rate 2.04% 1.85%Volatility 145.36% 140.47%Dividend yield 0.00% 0.00%Expected life in years 3.65 4.65 Calculated fair value per warrant $1.80 $2.38 The following table presents a reconciliation of the warrant liability measured at fair value using unobservable inputs (Level 3) (in thousands): For the Years Ended December 31, 2017 2016 Balance at beginning of period $13,396 $— Calculated fair value of warrants on May 11, 2016, date of issuance — 1,687 Calculated fair value of warrants on August 26, 2016 date of issuance — 17,060 Fair value of warrants exercised and recorded as an adjustment to contributed surplus — (5,681)Change in fair value of warrant liability (3,307) 330 Balance at end of period $10,089 $13,396 84Table of Contents Stock-based compensation liability The Company calculates the fair value of the stock-based compensation liability for those stock options with exercise prices denominated inCanadian Dollars (level 3) at each reporting period utilizing a Black-Scholes pricing model. The following inputs were utilized in the Black-Scholespricing model: December 31, 2017 2016 Stock price at the end of each reporting period $2.27 $2.80 Weighted average exercise price $10.39 $11.06 Risk-free interest rate 1.75% 0.85%Volatility 00.0% 120.81%Dividend yield 0.00% 0.00%Expected life in years 0.03 0.85 Calculated fair value per stock option $0.00 $0.33 The following table presents a reconciliation of the stock-based compensation liability measured at fair value using unobservable inputs (Level 3)(in thousands): For the Years Ended December 31, 2017 2016 Balance at beginning of period $57 $168 Change in fair value of stock-based compensation liability recorded as an adjustment tocontributed surplus (57) (111)Balance at end of period $— $57 On January 9, 2018, the final group of stock options with Canadian dollar denominated exercise prices expired unexercised. Subsequent to thisdate, all outstanding stock options have exercise prices denominated in US dollars. The Company recognizes transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual eventor change in circumstances that caused the transfer occurs. There were no transfers of assets or liabilities between the fair value measurementclassifications. 7.Prepaid expenses Prepaid expenses as of December 31, 2017 and 2016 consisted of the following (in thousands): December 31, 2017 2016 Prepaid insurance $233 $273 Prepaid research and development expenses 709 546 Other prepaid expenses 57 27 Prepaid expenses $999 $846 As of December 31, 2017 and 2016, prepaid research and development expenses includes $0.7 million and $0.5 million, respectively for upfrontfees paid to the Company’s clinical research organization assisting with the Company’s clinical trials and to a third-party manufacturer for thedevelopment of topsalysin. The upfront fees will be relieved in future periods based upon work completed. 8.Property and equipment Property and equipment consisted of the following (in thousands): December 31, 2017 2016 Equipment $5 $5 Computer hardware and software 20 23 Leasehold improvements 156 155 Furniture and fixtures 72 72 253 255 Less: accumulated depreciation (251) (251)Property and equipment, net $2 $4 Depreciation expense was $4,000, $12,000 and $20,000 for the years ended December 31, 2017, 2016 and 2015, respectively. 85Table of Contents 9.Accrued expenses Accrued expenses as of December 31, 2017 and 2016 consisted of the following (in thousands): December 31, 2017 2016 Accrued personnel related costs $904 $1,491 Accrued interest 41 — Accrued research and development expenses 273 87 Accrued audit and tax services 246 129 Other accrued expenses 35 55 Accrued expenses $1,499 $1,762 10.Promissory notes On September 2, 2016, the Company repaid the outstanding principal balance on its Loan and Security Agreement with Oxford Finance LLC, orOxford. On September 8, 2017, the Company entered into a new Loan and Security Agreement with Silicon Valley Bank, or SVB. Under the terms of theagreement, the Company has the ability to request term loan advances in two tranches. The first tranche of 7.0 million was effective on the date of theagreement and the second tranche is available to the Company in a single advance not to exceed $3.0 million if the Company has either (a) received netproceeds of $20.0 million from the sale of common shares prior to December 31, 2018 or (b) obtained positive Phase 2b data in a clinical trial oftopsalysin for treatment of localized cancer prior to December 31, 2018. The principal borrowed under the first tranche of $7.0 million bears fixed interest of 6.75% per annum. The Company has the option to prepaythe outstanding balance of the loan in full, subject to a prepayment fee of 1% to 3% depending upon when the prepayment occurs. Upon the finalrepayment of the loan on the maturity date of September 1, 2021, by prepayment, or upon acceleration, the Company shall pay SVB an additional fee of5% of the principal amount of $7.0 million. This additional fee is recorded as a debt discount and is being recognized as interest expense over the life ofthe loan utilizing the effective interest method. The repayment terms are interest only payments through September 2018 followed by 36 equal monthlypayments of principal and interest. Pursuant to the first tranche of the loan, the Company issued warrants to SVB to purchase an aggregate of up to 99,526 of the Company’scommon shares at an exercise price of $2.11 per share. The warrants will expire seven years from the date of the grant. The fair value of $0.2 million forthis equity component was derived using the Black-Scholes pricing model utilizing the following inputs: risk-free interest rate – 1.9%, volatility –113.9%, dividend yield – 0% and expected life in years – 7. The $7.0 million proceeds were allocated to equity and the debt based on their relative fairvalues. As of September 30, 2017, the aggregate fair value of the debt, based on level 3 inputs, was approximately $7.0 million. The equity componentwas recognized as a debt discount and will be amortized to interest expense over the life of the debt. Interest on the loan, consisting of the stated interestrate, final payment fee and amortization of the discount, is being recognized under the effective interest method. The third party issuance costs incurred related to the loan of $0.1 million are being amortized under the effective interest method over the life ofthe loan and have been recorded as a reduction to the loan balance. In connection with the loan, the Company granted to SVB a security interest in all of the Company’s personal property now owned or hereafteracquired, excluding intellectual property and certain other assets. The Company is not subject to any financial covenants under the loan. As of December 31, 2017, the Company was in compliance with allcovenants under the loan. The loan agreement contains customary affirmative and negative covenants, indemnification provisions and events ofdefault. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, delivercertain financial reports and maintain certain intellectual property rights. The negative covenants include, among others, restrictions on transferring orlicensing our assets, changing our business, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making otherdistributions, and creating other liens on our assets, in each case subject to customary exceptions. If the Company defaults under the loan, SVB mayaccelerate all of our repayment obligations and take control of our pledged assets. SVB could declare a default under the loan upon the occurrence ofany event that SVB interprets as a material adverse change as defined under the loan agreement, thereby requiring us to repay the loan immediately. 86Table of Contents As of December 31, 2017, the future contractual principal and final fee payments on our debt obligations are as follows (in thousands): 2018 $584 2019 2,333 2020 2,333 2021 2,100 Total $7,350 The following table shows actual interest expense, amortization of the debt discount and amortization of the issuance costs that was charged tointerest expense (in thousands): For the Years Ended December 31, 2017 2016 2015 Stated interest $146 $292 $553 Amortization of debt discount 44 81 137 Amortization of promissory notes issuance costs 17 — — Interest expense $207 $373 $690 The Company calculated the fair value of the secured promissory notes as $6.8 million (Level 3) as of December 31, 2017. The fair value of long-term debt is based on the net present value of calculated interest and principal payments, using an interest rate of 6.75%, which takes into considerationthe financial position of the Company and the recent interest rate environment for new debt issuances for comparable companies. The fair value of thisequity component was derived using the Black-Scholes valuation model. The Company calculated the promissory notes’ fair value by allocating toequity and the debt based on their respective fair values. 11.Shareholders’ equity Shares issued in public offering On August 26, 2016, the Company completed a public offering whereby it issued 7,475,000 common shares at a price of $4.00 per share. TheCompany received $27.4 million, net of underwriters’ discounts, commissions and offering cost. Additionally, for each common share purchased, theinvestors received a warrant to purchase 0.75 of a common share of the Company at an exercise price of $4.00 per full share for a period of five years fromAugust 26, 2016. In connection with this offering, the Company entered into a Purchase Agreement with Piper Jaffray & Co., as representative of the severalunderwriters named therein, or the August Purchase Agreement. For a period of two years after August 26, 2016, the August Purchase Agreement prohibits the Company from entering into a variable ratetransaction and prohibits the Company from issuing any securities which have a price that will be determined at a future date. The common share warrants are recorded as a liability and then marked to market each period through earnings in other income (expense) eachperiod as the warrants included in this transaction contain a “fundamental change” provision, which may in certain circumstances allow the commonshare warrants to be redeemed for cash at an amount equal to the Black-Scholes Value, as defined by the warrant agreements. In addition, the warrantsinclude a “failure to timely deliver shares” provision, which may require the Company to pay cash to the warrant holder in certain circumstances asdefined by the warrant agreements. See a discussion on the calculation of the fair value associated with these warrants at Note 6. In connection with this offering the Company incurred offering costs of approximately $2.5 million. The Company allocated these offering costsbetween the estimated fair value of the common shares and the fair value of the warrants on the date of their issuance. The Company allocatedapproximately $1.1 million of offering costs to the common shares which was recorded as a reduction to equity. The remaining $1.4 million of offeringcosts was allocated to the warrants. The amount allocated to the warrants was expensed and included as a component of general and administrativeexpenses for the year ended December 31, 2016 as the warrants are classified as liabilities. 87Table of Contents Shares issued in registered direct transaction On May 11, 2016, the Company completed an offering in which net proceeds of approximately $4.6 million was raised by selling 3,571,428common shares at a price of $1.40 per share. Additionally, for each common share purchased, the investors received a warrant to purchase one-half of acommon share of the Company at an exercise price of $1.40 per full share for a period of five years from May 11, 2016. During the year ended December31, 2016, 1,775,714 of these warrants were exercised which generated proceeds of $2.5 million. The common share warrants are recorded as a liability and then marked to market each period through earnings in other income (expense) eachperiod as the warrants included in this transaction contain a “fundamental change” provision, which may in certain circumstances allow the commonshare warrants to be redeemed for cash at an amount equal to the Black-Scholes Value, as defined by the warrant agreements. In addition, the warrantsinclude a “failure to timely deliver shares” provision, which may require the Company to pay cash to the warrant holder in certain circumstances asdefined by the warrant agreements. See a discussion on the calculation of the fair value associated with these warrants at Note 6. In connection with this offering the Company incurred offering costs of approximately $0.4 million. The Company allocated these offering costsbetween the estimated fair value of the common shares and the fair value of the warrants on the date of their issuance. The Company allocatedapproximately $0.3 million of offering costs to the common shares which was recorded as a reduction to equity. The remaining $0.1 million of offeringcosts was allocated to the warrants. This amount was expensed and included as a component of general and administrative expenses for the year endedDecember 31, 2016 as the warrants are classified as liabilities. Authorized As of December 31, 2017 and 2016, the Company had unlimited shares of no par common shares authorized. There were 30.1 million commonshares issued and outstanding as of December 31, 2017 and 2016. Shares reserved for future issuance The shares reserved for future issuance as of December 31, 2017, 2016 and 2015 consisted of the following (in thousands): December 31, 2017 2016 2015 Common share purchase warrants 5,825 5,965 589 Stock options Granted and outstanding 2,931 2,868 1,677 Reserved for future grants 36 143 8 8,792 8,976 2,274 12.Common share purchase warrants At December 31, 2017 and 2016 there were 5.8 million and 6.0 million common share purchase warrants outstanding at a weighted averageexercise price of $4.05 and $4.97, respectively. During the year ended December 31, 2017, approximately 0.1 million common share purchase warrantswere issued and approximately 0.2 million warrants expired unexercised. The following table summarizes the expiration dates for the Company’s outstanding common share purchase warrants as of December 31, 2017 (inthousands) except per share data: Number ofWarrantsOutstanding Exercise Price Expiration Date27 $28.17 July 15, 201810 $1.40 May 11, 202182 $2.19 June 30, 20215,606 $4.00 August 26, 2021100 $2.11 September 8, 20245,825 88Table of Contents 13.Stock-based compensation plan The Company’s Amended and Restated 2011 Stock Option plan, or the Plan, provides for the granting of options for the purchase of commonshares of the Company at the fair value of the Company’s common shares on the date of the option grant. Options are granted to employees, directors andnon-employees. The board of directors or a committee appointed by the board of directors administers the Plan and has discretion as to the number,vesting period and expiry date of each option award. Historically the Company granted options with an exercise price denominated in Canadian dollarsprior to the Company’s U.S. IPO. Following the Company’s U.S. IPO the Company has granted options with an exercise price denominated in U.S. dollars. The Plan is based on a cumulative percentage of options issuable up to 10% of the Company’s outstanding common shares. As of December 31,2017, 2016 and 2015, there were 35,646, 142,566 and 7,639 shares, respectively, registered and available to be issued under the Plan. During the year ended December 31, 2017, the Company issued options to purchase 221,588 common shares to its directors and employees. Theseoptions vest over a three year period for employees and over a one year period for directors. The contractual period for the granted options is ten years. The Company received $2,000 for the exercise of options to purchase common shares during the year ended December 31, 2017, none of which aresubject to repurchase. The aggregate intrinsic value of options exercised is calculated as the difference between the exercise price of the option and theclosing market price of the Company’s common stock on the date of the exercise. The aggregate intrinsic value of options exercised during the yearended December 31, 2017 was $9,000. The Company recognized stock-based compensation expense as follows (in thousands): For the Years Ended December 31, 2017 2016 2015 Research and development $481 $143 $257 General and administrative 1,231 282 519 Total $1,712 $425 $776 In connection with the Company’s May 2016 completed reduction in workforce, the Company’s Board of Directors approved certain modificationsto the outstanding stock options of terminated employees. All outstanding vested stock options were modified so that the expiration date of the vestedoptions at the time of each employee’s termination would be extended to the remaining life of the stock options. As a result of this modification, theCompany recorded non-cash stock-based compensation expense of approximately $76,000 during the year ended December 31, 2016. In addition, alloutstanding unvested stock options were modified so that the expiration date of the unvested options on the date of each employee’s termination wouldbe extended for one year from the termination date and the unvested options would automatically vest if a change of control occurred prior to themodified option expiration date. An additional stock-based compensation charge associated with the modification of the unvested options will berecorded if a change in control occurs prior to the expiration of the unvested options. As of December 31, 2017 there were $0.9 million of unrecognized compensation costs related to unvested stock options. As of December 31, 2017the Company expects to recognize those costs over a weighted average period of 1.3 years. The fair values of options granted during the year ended December 31, 2017, 2016 and 2015 were estimated at the date of grant using thefollowing weighted-average assumptions: For the Years Ended December 31, 2017 2016 2015 Expected life of the option term (years) 4.2 3.9 3.5 Risk-free interest rate 1.9% 1.5% 1.0%Dividend rate 0.0% 0.0% 0.0%Volatility 134.8% 144.0% 128.4% Expected Life of the Option Term – This is the period of time that the options granted are expected to remain unexercised. Options granted during2017 have a contractual term of ten years. The Company estimates the expected life of the option term based on actual past behavior for similar options. Risk-Free Interest Rate – This is the United States Treasury rates that most closely resembles the expected life of the option. Dividend Rate – The Company has never declared or paid dividends on common shares and has no plans to do so in the foreseeable future. 89Table of Contents Volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated or is expected to fluctuateduring a period. The Company considered the historical volatility from its Canadian initial public offering through the dates of grants. The following table summarizes stock option activity, including options issued to employees, directors and non-employees (in thousands, exceptper share and contractual term data): OptionsOutstanding WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm(in years) AggregateIntrinsicValue Outstanding at January 1, 2015 1,378 $6.65 3.6 $— Options granted 302 0.54 Options expired (3) 29.16 Outstanding at December 31, 2015 1,677 $5.52 2.9 $374 Options granted 1,290 2.21 Options exercised (41) 2.26 Options expired (56) 28.94 Options forfeited (2) 4.41 Outstanding at December 31, 2016 2.868 $3.63 4.8 $1,431 Options granted 222 2.12 Options exercised (3) 0.46 Options expired (101) 16.34 Options forfeited (55) 2.23 Outstanding at December 31, 2017 2,931 $3.10 4.4 $992 Vested or expected to vest at December 31, 2017 2,931 $3.10 4.4 $992 Exercisable at December 31, 2017 1,974 $3.41 2.7 $703 The total amounts for options outstanding, vested or expected to vest, and exercisable at December 31, 2017 include options with exercise pricesdenominated in Canadian dollars and U.S. Dollars. The Canadian dollar amounts have been converted to U.S. dollars for purposes of the calculation. The weighted average fair value of options granted during the years ended December 31, 2017, 2016 and 2015 was approximately $1.78, $1.88,and $0.42, respectively. The aggregate intrinsic value was calculated as the difference between the exercise price of the stock options converted to U.S. dollars and the fairvalue of the Company’s common stock as of the respective balance sheet date. The Company settles employee stock option exercises with newly issuedcommon shares. 14.License agreements Kissei agreement In April 2010, the Company entered into an exclusive license agreement for the development and commercialization of topsalysin (and otherproducts covered by the licensed patent). The agreement with Kissei Pharmaceuticals Co., Ltd., a Japanese pharmaceutical company, or Kissei, covers thedevelopment and commercialization of topsalysin in Japan for the treatment of the symptoms of BPH, prostate cancer, prostatitis or other diseases of theprostate. Pursuant to the agreement in 2010, the Company received an upfront license payment of $3.0 million. The Company has determined that thedeliverables under this agreement included the license, the transfer of relevant technical information and participation in a periodic developmentmeeting. The Company recognized the entire upfront license payment upon receipt as the license was deemed to have stand-alone value and nosignificant undelivered performance obligations were identified in connection with the license. The agreement also notes that the Company shall supply Kissei with bulk material under a separate supply agreement for use in future clinicalstudies and, if approved, for commercial sales. The license agreement also notes that if the Company is unwilling or unable to supply Kissei with thenecessary bulk material that Kissei will have the option to manufacture the bulk material themselves or they can outsource the manufacturing to a thirdparty. To date the Company and Kissei have not signed a supply agreement. The agreement also provides that the Company shall have full responsibility, including financial responsibility, for filing, prosecuting andmaintaining all of the patents in Japan during the term of the agreement. The filing of patents is an administrative and perfunctory deliverable. Theassociated costs are immaterial. The prosecution and maintenance of patents is not considered an undelivered performance obligation. 90Table of Contents During the year ended December 31, 2013, the Company recorded as revenue a $5.0 million non-refundable substantive milestone payment duefrom Kissei upon the achievement of certain development activities during the year ended December 31, 2013, as such milestone had been achievedduring this period. In accordance with the Company’s revenue recognition policy, the Company recognizes the receipt of milestone payments inaccordance with the milestone method in the period in which the underlying triggering event occurs. The Company received payment for the milestonein April 2013. In addition to the upfront license payment and the $5.0 million milestone payment recognized as revenue during the year ended December 31,2013, the Company is entitled to receive up to $67.0 million of non-refundable milestone payments as follows: a total of $12.0 million for the BPHindication, of which $7.0 million relates to the completion of regulatory approvals and $5.0 million relates to the achievement of certain product salegoals; a total of $21.0 million for the prostate cancer indication, of which $7.0 million relates to the completion of certain development activities, $7.0million relates to the completion of regulatory approvals and $7.0 million relates to the achievement of certain product sale goals; and a total of $21.0million for prostatitis or other diseases of the prostate, of which $7.0 million relates to the completion of certain development activities, $7.0 millionrelates to the completion of regulatory approvals and $7.0 million relates to the achievement of certain product sale goals. An additional $13.0 million ofaggregate milestone payments are not indication specific, of which $5.0 million relates to the completion of regulatory approvals and $8.0 million relatesto the achievement of certain product sale goals. Management evaluated the nature of the events triggering these additional milestone payments and concluded that these events fall into twocategories: (a) events which involve the performance of the Company’s obligations under the Kissei license agreement, and (b) events which do notinvolve the performance of the Company’s obligations under the Kissei license agreement. Milestone payments which involve the performance of the Company’s obligations include activities related to the completion of developmentactivities and regulatory approvals in the United States. Management concluded that each of these payments constitutes a substantive milestone. Thisconclusion was based primarily on the facts that (i) each triggering event represents a specific outcome that can be achieved only through successfulperformance by the Company of one or more of its deliverables, (ii) achievement of each triggering event was subject to inherent risk and was notreasonably assured at the inception of the agreement, (iii) each of these milestones is non-refundable, (iv) substantial effort is required to complete eachmilestone, (v) the amount of each milestone payment is reasonable in relation to the value created in achieving the milestone, (vi) a substantial amount oftime is expected to pass between the up-front payment and the potential milestone payments, and (vii) the milestone payments relate solely to pastperformance. Based on the foregoing, the Company recognizes any revenue from these milestone payments under the milestone method in the period inwhich the underlying triggering event occurs. Milestone payments which do not involve the performance of the Company’s obligations include the completion of development activities,regulatory approvals and certain product sale goals in Japan, all of which are areas in which the Company has no pertinent contractual responsibilitiesunder the agreement. Management concluded that these milestones are not substantive and will be recognized in accordance with the Company’saccounting policy for revenue recognition. The following table breaks down the remaining unpaid milestone payments by indication or, in the case ofmilestones not associated with a specific indication, by triggering events and by involvement of the Company (in thousands): Milestone PaymentsInvolvingPerformanceof CompanyObligations MilestonePaymentsNotInvolvingPerformanceof CompanyObligations Milestones by Indication BPH — $12,000 Prostate cancer — $21,000 Prostatitis and other diseases of the prostate — $21,000 Milestones Not Associated with an Indication Gross sale targets — $8,000 Regulatory approvals $5,000 — The Company may also receive a drug supply fee, assuming the Company supplies material to Kissei, and royalty payments in the 20-29% range asa percentage of future net sales of licensed products sold under the agreement. 91Table of Contents Kissei is not currently studying topsalysin for the treatment of prostate cancer, prostatitis or other diseases of the prostate. In addition, Kissei hasthe option to sublicense the development and commercialization for topsalysin in their territory. Topsalysin license agreement for Benign Prostate Hyperplasia In 2009, the Company signed an exclusive license agreement with UVIC Industry Partnerships Inc., or UVIC, and The Johns Hopkins University, orJohns Hopkins, with respect to the use of topsalysin for the treatment of the symptoms of benign prostate hyperplasia and other non-cancer diseases andconditions of the prostate. The license agreement requires the Company to make payments of CND$1.3 million in the aggregate on the achievement ofcertain clinical and regulatory milestones and to pay royalties on commercial sales of resulting products. To the extent the Company receives anymilestone payments relating to the development of therapeutics for the treatment of the symptoms of BPH under its exclusive license agreement withKissei, the Company is obligated to pay a percentage of such consideration, which percentage is in the 10-19% range, to UVIC and Johns Hopkins;however, pursuant to a separate agreement which the Company entered into in 2003 with Dr. J. Thomas Buckley, one of the Company’s founders, theaggregate amount of such consideration payable by the Company to UVIC and Johns Hopkins is reduced by 25%. From the inception of the agreement, the Company has incurred sub-license fees of $0.6 million and milestone payments of $0.1 million under thisagreement. Topsalysin License Agreement for Prostate Cancer In 2004, the Company licensed exclusive rights to topsalysin for the treatment of prostate cancer under an agreement with UVIC and JohnsHopkins. The Company has agreed to make cumulative milestone payments over the lifecycle of topsalysin of up to CND$3.6 million on theachievement of certain clinical and regulatory milestones and to pay royalties on commercial sales of resulting products. In the event the Companyreceives consideration for granting a sublicense, the Company is obligated to pay UVIC and Johns Hopkins a percentage of such consideration, whichpercentage is in the 20-29% range, including any future consideration we may receive under our exclusive license agreement with Kissei relating todevelopment of therapeutics for the treatment of prostate cancer. However, pursuant to the agreement which the Company entered into with Dr. J. ThomasBuckley, the aggregate amount of such consideration payable by the Company to UVIC and Johns Hopkins is reduced by 25%. From the inception of the agreement the Company has paid milestone payments of CND$0.1 million. To date, the Company has completed threeclinical trials in patients with prostate cancer. 15.Income taxes The component of the loss before provision for income taxes were as follows (in thousands): For the Years Ended December 31, 2017 2016 2015 United States $(1,931) $(521) $(1,389)Canada (6,697) (10,643) (12,808)Loss before provision for income taxes $(8,628) $(11,164) $(14,197) The components of the provision for income taxes from continuing operations is as follows (in thousands): For the Years Ended December 31, 2017 2016 2015 Current Tax: Canada $— $— $— US — — — State — — — $— $— $— Deferred Tax: Canada $— $— $— US — — — State — — — — — — $— $— $— 92Table of Contents A reconciliation of income taxes to the amount computed by applying the statutory federal income tax rate to the net loss is as follows (inthousands, except income tax rates): For the Years Ended December 31, 2017 2016 2015 Combined federal and provincial income tax rates 26.00% 26.00% 26.00%Income tax benefit at statutory rates $(2,243) $(2,902) $(3,691)State income tax, net of federal benefit (3) 1 (63)Permanent items 3 (17) 36 Tax credits — — (105)Non-deductible stock-based compensation 429 81 155 Foreign accrual property income 72 69 48 Expired NOLs 140 79 887 Return to provision true up 1 60 (320)Uncertain tax positions 718 68 296 Rate differential (154) 60 (175)Effect of Canadian rate change (1,428) — — Effect of U.S. federal rate change 545 — — Effect of U.S. state rate change — 183 — Other 12 (112) (57)Revaluation of warrant liability (860) 86 — CTA — (312) (1,702)Change in valuation allowance 2,768 2,656 4,691 Income tax expense $— $— $— Significant components of the Company’s deferred tax assets as of December 31, 2017 and 2016 are shown below (in thousands): December 31, 2017 2016 Deferred tax assets: Net operating loss carryforwards (non-capital losses) $36,110 $32,140 Scientific research and development 2,605 2,509 Tax credits 3,964 4,066 Stock based compensation 815 1,116 Other, net 164 529 Share issue costs 490 1,042 Total deferred tax assets, net, before valuation allowance 44,148 41,402 Valuation allowance (44,148) (41,402)Net deferred tax assets $— $— Due to the operating losses since inception, a valuation allowance has been recognized to offset net deferred assets as realization of such deferredtax assets is not more likely than not. During the years ended December 31, 2017 and 2016, the valuation allowance on the deferred tax assets increasedby $2.7 million and $3.0 million, respectively. At December 31, 2017, the Company had Canadian, U.S. federal and California net operating loss carryforwards of approximately $133.7 million,$2.1 million and $1.4 million, respectively, which may be used to reduce future taxable income. The income tax benefit, if any, of these losses has notbeen recorded due to the uncertainty of their recovery. The net operating losses being to expire in 2026 for Canadian tax purposes, 2035 for U.S. federaltax purposes and 2034 for California tax purposes. At December 31, 2017, the Company had Canadian Scientific Research and Experimental Development, or SR&ED, tax credits, investment taxcredits and foreign tax credits of approximately $9.6 million, $2.6 million and $0.2 million. The SR&ED tax credits carry forward indefinitely, while theinvestment tax credits and foreign tax credits begin to expire in 2018 and 2023, respectively. In addition, the Company has U.S. federal and California research and development tax credits of $1.6 million and $0.6 million. The federal creditsbegin to expire in 2031 and the California credits carry forward indefinitely. The Company’s Canadian tax years are subject to inspection from 2011 forward. The Company’s U.S. federal and California 2011 tax returns aresubject to examination by taxing authorities. 93Table of Contents The future utilization of the Company’s net operating loss carry forwards and research and development credit carry forwards to offset futuretaxable income and tax, respectively, may be subject to an annual limitation under Internal Revenue Code of 1986, as amended, or the Code, Sections382 and 383 as a result of ownership changes that may have occurred previously or may occur in the future. Section 382 and 383 limits a company’sability to utilize certain net operating loss carry forwards and tax credit carry forwards in the event of a cumulative change in ownerships in excess of 50%as defined in the Code. Uncertain Tax Positions In accordance with ASC740, “Income Taxes” (ASC740), tax benefits. In accordance with ASC740, tax benefits are only recognized when a positionis more likely than not of being sustained. Tax benefits are then measured using a cumulative benefit approach whereby the largest amount of tax benefitthat is more likely than not of being sustained is recognized. The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands): For the Years Ended December 31, 2017 2016 2015 Beginning balance $428 $325 $— Increase related to prior year tax positions 610 103 304 Increase related to current year tax positions 113 — 21 Ending balance $1,151 $428 $325 The amount of unrecognized tax benefit that, if recognized and realized, would affect the effective tax rate is zero as of December 31, 2017. To theextent unrecognized tax benefits are recognized at a time such valuation allowance no longer exists, the addition amount that would affect the effectivetax rate is approximately $1.2 million. The Company does not anticipate any significant decreases in its unrecognized tax benefits over the next 12months. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. For the years ended December 31, 2017and 2016, the Company has not recognized any interest or penalties related to income taxes. The Tax Cuts and Jobs Act or Tax Act, which was enacted on December 22, 2017, reduced the U.S. federal corporate tax rate from 35% to 21% andrepealed the corporate Alternative Minimum Tax. As a result of the Tax Act, the Company remeasured certain deferred tax assets and liabilities based onthe rates at which they are expected to reverse in the future, which is generally 21%. The amount recorded related to the remeasurement of the Company’sdeferred tax balance was $0.5 million, which was fully offset by a decrease in the Company’s valuation allowance and resulted in no impact to income taxexpense. In conjunction with the tax law change, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 to address theapplication of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) inreasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company has recognized the provisional tax impactsrelated to the relevant tax provisions included in the Tax Act and has included these amounts in its consolidated financial statements for the year endedDecember 31, 2017. The ultimate impact may differ from these provisional amounts, due to, among other things, additional analysis, changes ininterpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a resultof the Tax Act. On September 11, 2017, British Columbia’s Minister of Finance, presented the New Democratic Party’s first provincial budget. The budgetincreased the general and manufacturing and processing (M&P) income tax rate for British Columbia from 11% to 12% effective January 1, 2018 and thecombined federal and British Columbia rate increased from 26% to 27%. As a result of the change in the income tax rate, the Company remeasuredcertain deferred tax assets and liabilities based on the rate at which they are expected to be reverse in the future, which is generally 27%. The amountrecorded related to the remeasurment of our deferred tax balance was $1.4 million. The corresponding increase in valuation allowance resulted in anincome tax benefit. 16.Commitments and contingencies Operating leases The Company leases a facility, comprising the Company’s headquarters, located in San Diego, California under a non-cancelable lease. DuringDecember 2017, the Company exercised a one-year lease extension on its headquarters in San Diego, California. As a result of this extension, theexpiration date for the Company’s headquarters was extended from May 2018 to May 2019. The rent on the Company’s headquarters is currently $9,187per month. 94Table of Contents Total rent expense under operating leases was $0.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. Future minimum lease payments under non-cancelable operating leases at December 31, 2017 are as follows (in thousands): Future rentpayments 2018 $126 2019 52 Total $178 Purchase commitments The Company is required to schedule its manufacturing activities in advance. If the Company cancels any of these scheduled activities withoutproper notice the Company would be required to pay penalties equal to the cost of the originally scheduled activity. The Company estimates that the costof these penalties would be approximately $2.6 million at December 31, 2017 if the Company cancels the scheduled activities. The amounts recordedunder these manufacturing contracts included in research and development was $0.6 million, $0.3 million and $0.6 million for the years endedDecember 31, 2017, 2016 and 2015, respectively. License agreements The Company has license agreements with third parties that require the Company to make annual license maintenance payments and contingentfuture payments upon the success of licensed products that include milestone and/or royalties. As the timing of when these payments will actually bemade is uncertain and the payments are contingent upon the completion of future events, the Company cannot predict minimum future payments over thenext five years. 17.401(k) plan The Company has a deferred compensation plan, or the 401(k) Plan, pursuant to Section 401(k) of the Code where by all employees, subject tocertain age requirement can contribute pretax earnings to the plan. The Company makes safe harbor contributions to the 401(k) Plan up to 4% of eligiblecompensation, subject to limitations under the Code. The Company’s total contributions to the 401(k) Plan were $0.1 million for each of the years endedDecember 31, 2017, 2016 and 2015. 95Table of Contents Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. Item 9A.Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and currentreports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and thatsuch information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate,to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized thatany controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desiredcontrol objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As of December 31, 2017, we carried out an evaluation, under the supervision and with the participation of our management, including our chiefexecutive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our chief executive officer and chief financial officer concluded that ourdisclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2017. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined inExchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of ourmanagement, including our principal executive and financial officer, to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. As of December 31, 2017, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth bythe Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on thisassessment, our management concluded that, as of December 31, 2017, our internal control over financial reporting was effective based on those criteria.We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may takeadvantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies,including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended December 31, 2017 that materially affected, or are reasonably likely to materially affect, our internalcontrol over financial reporting. Item 9B.Other Information Not applicable. 96Table of Contents Part III. Certain information required by Part III of this Annual Report on Form 10-K is omitted from this report because the registrant will file a definitiveProxy Statement within 120 days after the end of its fiscal year pursuant to Regulation 14A for its 2018 Annual Meeting of Shareholders to be held within180 days of December 31, 2017, referred to as the Proxy Statement, and the information included therein is incorporated herein by reference. Item 10.Directors, Executive Officers and Corporate Governance The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled“Election of Directors” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance.” We have adopted a code of ethics for directors, officers (including our principal executive officer, principal financial officer and principalaccounting officer) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on ourwebsite at http://www.sophirisbio.com under the Corporate Governance section of our Investor Relations page. We will promptly disclose on our website(i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer orcontroller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that isgranted to one of these specified individuals that is required to be disclosed pursuant to SEC rules and regulations, the name of such person who isgranted the waiver and the date of the waiver. Item 11.Executive Compensation The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled“Executive and Director Compensation” and “Compensation Committee Interlocks and Insider Participation.” Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled“Principal Shareholders” and “Equity Compensation Plan Information.” Item 13.Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled“Election of Directors” and “Certain Relationships and Related Party Transactions.” Item 14.Principal Accounting Fees and Services The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the section entitled“Principal Accountant Fees and Services” and “Pre-Approval Policies and Procedures.” 97Table of Contents Part IV. Item 15.Exhibits, Financial Statements and Schedules (a) Documents filed as part of this report. 1. Financial Statements. We have filed the following documents as part of this Annual Report: Page Report of Independent Registered Public Accounting Firm71Balance Sheets72Statements of Operations and Comprehensive Loss73Statements of Shareholders’ Equity74Statements of Cash Flows75Notes to Financial Statements77 2. Financial Statement Schedules. All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or notes thereto. (b) Exhibits The following exhibits are filed as part of, or incorporated by reference into, this report: Exhibitnumber Description of Exhibit Incorporated by Reference or Attached Hereto 3.1 Certificate of Amalgamation of the Registrant, dated January 1,2005. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 3.2 Notice of Articles of the Registrant. Incorporated by reference to the Quarterly Report on Form 10-Qfiled on August 10, 2017. 3.3 Articles of the Registrant. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 4.1 Form of Common Share Certificate. Incorporated by reference to the Amendment No. 4 to theRegistrant’s Form S-1/A (SEC File No. 333-186724) filed onJuly 15, 2013. 4.2 Common Share Purchase Warrant Issued to Oxford FinanceLLC. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 4.3 Common Share Purchase Warrant Issued to Oxford FinanceLLC. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 4.4 Omnibus Amendment to Warrants to Purchase Common Sharesdated February 14, 2014 by and between the Company andOxford Finance LLC. Incorporated by reference to the Current Report on Form 8-Kfiled on February 18, 2014. 4.5 Common Share Purchase Warrant Issued to Oxford Finance LLCdated June 30, 2014. Incorporated by reference to the Quarterly Report on Form 10-Qfiled on August 7, 2014. 4.6 Common Share Purchase Warrant Issued to Oxford Finance LLCdated June 30, 2014. Incorporated by reference to the Quarterly Report on Form 10-Qfiled on August 7, 2014. 98Table of Contents 4.7 Form of Common Share Purchase Warrant Issued in connectionwith the Company’s May 2016 Financing. Incorporated by reference to the Current Report on Form 8-Kfiled on May 11, 2016. 4.8 Form of Common Share Purchase Warrant Issued in connectionwith the Company’s August 2016 Financing. Incorporated by reference to the Current Report on Form 8-Kfiled on August 23, 2016. 4.9 Common Share Purchase Warrant Issued to Silicon Valley Bank,dated September 8, 2017. Incorporated by reference to the Quarterly Report on Form 10-Qfiled on November 9, 2017. 10.1+ Amended and Restated 2011 Stock Option Plan. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.2+ Form of Option Certificate. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.3+ Form of Indemnification Agreement by and between theCompany and each of its directors. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.4+ Employment Agreement by and between Sophiris Bio Corp. andAllison Hulme, Ph.D., dated March 31, 2011. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.5+ Employment Agreement between Sophiris Bio Corp. andRandall E. Woods, dated August 16, 2012. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.6+ Employment Agreement between Sophiris Bio Corp. and PeterSlover, dated March 19, 2012. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.7* Exclusive License Agreement effective September 30, 2004 byand among UVIC Industry Partnerships Inc., The Johns HopkinsUniversity and the Registrant. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.8 Amendment to Exclusive License Agreement by and amongUVIC Industry Partnerships Inc., The Johns Hopkins Universityand the Registrant, dated January 10, 2005. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.9* Exclusive License Agreement effective October 16, 2009 byand among UVIC Industry Partnerships Inc., The Johns HopkinsUniversity and the Registrant. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.10* Exclusive License Agreement by and between theRegistrant and Kissei Pharmaceuticals Co., Ltd., dated April 28,2010. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.11 Exclusive License Amending Agreement by and among UVICIndustry Partnerships Inc., The Johns Hopkins University andthe Registrant, dated July 1, 2010, with respect to the ExclusiveLicense Agreement effective September 30, 2004 by and amongUVIC Industry Partnerships Inc., The Johns Hopkins Universityand the Registrant. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.12 Exclusive License Amending Agreement by and among UVICIndustry Partnerships Inc., The Johns Hopkins University andthe Registrant, dated July 1, 2010, with respect to the ExclusiveLicense Agreement effective October 16, 2009 by and amongUVIC Industry Partnerships Inc., The Johns Hopkins Universityand the Registrant. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 99Table of Contents 10.13 Standard Lease by and between Allison-Zongker, L.P. and theRegistrant, dated April 15, 2011. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.14 First Amendment to that Certain Lease Agreement datedApril 15, 2011 by and between Allison-Zongker, L.P. and theRegistrant, effective April 2, 2012. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.15 Indemnification Letter Agreement by and between theRegistrant, Warburg Pincus Private Equity X, L.P. and WarburgPincus X Partners, L.P., dated November 19, 2010. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.16* Technology Transfer and Supply Agreement by and betweenBoehringer Ingelheim RCV GmbH & Co KG and the Registrant,dated June 29, 2012. Incorporated by reference to the Registrant’s Form S-1 (SECFile No. 333-186724) filed on February 15, 2013. 10.17+ Non-employee Director Compensation Program. Incorporated by reference to the Current Report on Form 8-Kfiled on March 17, 2017. 10.18 Agreement Respecting Intellectual Property by and between theRegistrant and Dr. J. Thomas Buckley, dated February 12, 2003,as amended by the Amendment Agreement dated May 5, 2004. Incorporated by reference to the Amendment No. 4 to theRegistrant’s Form S-1/A (SEC File No. 333-186724) filed onJuly 15, 2013. 10.19+ Officer Change in Control Severance Benefit Agreement by andbetween Randall E. Woods and the Registrant. Incorporated by reference to the Quarterly Report on Form 10-Qfiled on November 12, 2014. 10.20+ Officer Change in Control Severance Benefit Agreement by andbetween Allison Hulme and the Registrant. Incorporated by reference to the Quarterly Report on Form 10-Qfiled on November 12, 2014. 10.21+ Officer Change in Control Severance Benefit Agreement by andbetween Peter T. Slover and the Company. Incorporated by reference to the Quarterly Report on Form 10-Qfiled on November 12, 2014. 10.22 Letter Agreement, dated May 6, 2016, by and between theRegistrant and Roth Capital Partners, LLC. Incorporated by reference to the Current Report on Form 8-Kfiled on May 11, 2016. 10.23 Form of Securities Purchase Agreement, dated May 6, 2016, byand between the Registrant and the Purchasers thereto. Incorporated by reference to the Current Report on Form 8-Kfiled on May 11, 2016. 10.24 Loan and Security Agreement, dated September 8, 2017 by andamong the Registrant, Sophiris Bio Corp., Sophiris Bio HoldingCorp. and Silicon Valley Bank. Incorporated by reference to the Quarterly Report on Form 10-Qfiled on November 9, 2017. 23.1 Consent of Independent Registered Public Accounting Firm. Attached hereto 24.1 Power of Attorney (included on signature page). Attached hereto 31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the SecuritiesExchange Act of 1934, as amended. Attached hereto 100Table of Contents 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the SecuritiesExchange Act of 1934, as amended. Attached hereto 32.1 Certification of Chief Executive Officer pursuant to Section 906of the Sarbanes-Oxley Act of 2002. Attached hereto 32.2 Certification of Chief Financial Officer pursuant to Section 906of the Sarbanes-Oxley Act of 2002. Attached hereto 101.INS** XBRL Instance Document Attached hereto101.SCH** XBRL Taxonomy Extension Schema Document Attached hereto101.CAL** XBRL Taxonomy Extension Calculation LinkbaseDocument Attached hereto101.DEF** XBRL Taxonomy Extension Definition LinkbaseDocument Attached hereto101.LAB** XBRL Taxonomy Extension Label Linkbase Document Attached hereto101.PRE** XBRL Taxonomy Extension Presentation LinkbaseDocument Attached hereto +Indicates management contract or compensatory plan.*Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with theSecurities and Exchange Commission.**In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K is deemed notfiled or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes ofSection 18 of the Exchange Act, and otherwise is not subject to liability under these sections. 101Table of Contents SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized, in the City of San Diego, State of California, on the 21st day of March, 2018. SOPHIRIS BIO INC. By:/s/ Randall E. Woods Randall E. Woods Chief Executive Officer and President KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Randall E. Woods andPeter T. Slover, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or herand in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this report,and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting untosaid attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to bedone in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that saidattorneys-in-fact and agents, or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date /s/ Randall E. Woods Chief Executive Officer, President and Director March 21, 2018Randall E. Woods (Principal Executive Officer) /s/ Peter T. Slover Chief Financial Officer March 21, 2018Peter T. Slover (Principal Financial Officer and Principal Accounting Officer) /s/ Lars Ekman, M.D., Ph.D. Executive Chairman and Director March 21, 2018Lars Ekman, M.D., Ph.D. /s/ Allison Hulme, Ph.D. Chief Operating Officer and Director March 21, 2018Allison Hulme, Ph.D. /s/ John Geltosky, Ph.D. Director March 21, 2018John Geltosky, Ph.D. /s/ Jim Heppell Director March 21, 2018Jim Heppell /s/ Gerald Proehl Director March 21, 2018Gerald Proehl 102 Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-215227, No. 333-211814, No. 333-210452, No.333-190945 and No. 333-203136) and Form S-3 (No. 333-198782 and No. 333-219887) of Sophiris Bio Inc. of our report dated March 21, 2018 relatingto the financial statements, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLPSan Diego, CaliforniaMarch 21, 2018 Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Randall E. Woods, certify that: 1. I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2017 of Sophiris Bio Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) forthe registrant and have: a.) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b.) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c.) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a.) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. /s/ Randall E. Woods Randall E. Woods President & Chief Executive Officer Date: March 21, 2018 Exhibit 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Peter T. Slover, certify that: 1. I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2017 of Sophiris Bio Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a.) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared; b.) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c.) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a.) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. /s/ Peter T. Slover Peter T. Slover Chief Financial Officer Date: March 21, 2018 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report on Form 10-K of Sophiris Bio Inc. (the Company) for the year ended December 31, 2017 as filed with theSecurities and Exchange Commission on the date hereof (the Report), I, Randall E. Woods, President and Chief Executive Officer of the Company,certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended;and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. /s/ Randall E. Woods Randall E. Woods President & Chief Executive Officer Date: March 21, 2018 The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not to be incorporated by reference into any filing ofthe Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report on Form 10-K of Sophiris Bio Inc. (the Company) for the year ended December 31, 2017, as filed with theSecurities and Exchange Commission on the date hereof (the Report), I, Peter T. Slover, Chief Financial Officer of the Company, certify, pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended;and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. /s/ Peter T. Slover Peter T. Slover Chief Financial Officer Date: March 21, 2018 The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not to be incorporated by reference into any filing ofthe Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 

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