Stealth BioTherapeutics Corp.
Annual Report 2018

Plain-text annual report

STEALTH BIOTHERAPEUTICS CORP FORM 20-F (Annual and Transition Report (foreign private issuer)) Filed 04/04/19 for the Period Ending 12/31/18 Telephone CIK 617-600-6888 0001696396 Symbol MITO SIC Code Industry 2834 - Pharmaceutical Preparations Biotechnology & Medical Research Sector Healthcare Fiscal Year 12/31 http://www.edgar-online.com © Copyright 2020, EDGAR Online, a division of Donnelley Financial Solutions. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, a division of Donnelley Financial Solutions, Terms of Use. Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 20-F (Mark One)☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934OR ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934for the transition period from toOR ☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company reportCommission file number: 001-38810 STEALTH BIOTHERAPEUTICS CORP(Exact name of Registrant as specified in its charter) N/A(Translation of Registrant’s name into English)Cayman Islands(Jurisdiction of incorporation)Stealth BioTherapeutics Corpc/o Intertrust Corporate Services (Cayman) Limited190 Elgin Avenue, George TownGrand CaymanKY1-9005 Cayman Islands(address of principal executive offices)Irene McCarthy, Chief Executive OfficerStealth BioTherapeutics Inc.275 Grove Street, Suite 3-107Newton, MA 02466(617) 600-6888E-mail: IR@stealthbt.com(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered, pursuant to Section 12(b) of the Act Title of each class Name of each exchange on which registeredAmerican Depositary Shares, each representing 12 ordinary shares, par valueU.S.$0.0003 per share The Nasdaq Global Market LLCSecurities registered or to be registered pursuant to Section 12(g) of the Act.NoneSecurities for which there is a reporting obligation pursuant to Section 15(d) of the ActNone Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of business covered by the annual report. 68,487,948 ordinaryshares, $0.0003 par value per share. 91,600,398 Series A preferred shares, $0.0003 par value per share.Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “largeaccelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐Non-accelerated filer ☒ Emerging growth company ☒If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extendedtransition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act. ☐† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification afterApril 5, 2012.Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☒ International Financial Reporting Standards as issuedby the International Accounting Standards Board ☐ Other ☐If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected tofollow. Item 17 ☐ Item 18 ☐If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Table of ContentsTABLE OF CONTENTS PART I 3 Item 1. Identity of Directors, Senior Management and Advisors 3 Item 2. Offer Statistics and Expected Timetable 3 Item 3. Key Information 3 A.  Selected financial data 3 B.  Capitalization and indebtedness 4 C.  Reasons for the offer and use of proceeds 4 D.  Risk factors 4 Item 4. Information on the Company 56 A.  History and development of the company 56 B.  Business overview 56 C.  Organizational structure 122 D.  Property, plants and equipment 122 Item 4A. Unresolved Staff Comments 122 Item 5. Operating and Financial Review and Prospects 122 A.  Operating results 122 B.  Liquidity and capital resources 133 C.  Research and development, patents and licenses, etc 137 D.  Trend information 137 E.  Off-balance sheet arrangements 137 F.   Tabular disclosure of contractual obligations 137 G.    Safe harbor 137 Item 6. Directors, Senior Management and Employees 138 A.  Directors and senior management 138 B.  Compensation 141 C.  Board practices 148 D.  Employees 151 E.  Share ownership 151 Item 7. Major Shareholders and Related Party Transactions 151 A.  Major shareholders 151 B.  Related party transactions 153 C.  Interests of experts and counsel 154 Item 8. Financial Information 154 A.  Consolidated Statements and Other Financial Information 154 B.  Significant Changes 155 Item 9. The Offer and Listing 155 A.  Offer and listing details 155 B.  Plan of distribution 155 C.  Markets 155 D.  Selling shareholders 155 E.  Dilution 155 F.   Expenses of the issue 155 Item 10. Additional Information 155 A.  Share capital 155 B.  Memorandum and articles of association 155 C.  Material contracts 155 D.  Exchange controls 156 E.  Taxation 156 F.   Dividends and paying agents 161 G.    Statement by experts 161 - i -Table of ContentsH.    Documents on display 161 I.    Subsidiary Information 162 Item 11. Quantitative and Qualitative Disclosures About Market Risk 162 Item 12. Description of Securities Other than Equity Securities 162 A.  Debt Securities 162 B.  Warrants and Rights 162 C.  Other Securities 162 D.  American Depositary Shares 162 PART II 165 Item 13. Defaults, Dividend Arrearages and Delinquencies 165 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 165 Item 15. Controls and Procedures 165 Item 16. [Reserved] 166 Item 16A. Audit committee financial expert 166 Item 16B. Code of Ethics 166 Item 16C. Principal Accountant Fees and Services 166 Item 16D. Exemptions from the Listing Standards for Audit Committees 166 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 166 Item 16F. Change in Registrant’s Certifying Accountant 166 Item 16G. Corporate Governance 167 Item 16H. Mine Safety Disclosure 167 PART III 168 Item 17. Financial Statements 168 Item 18. Financial Statements 168 Item 19. Exhibits 168 - ii -Table of ContentsPRESENTATION OF FINANCIAL AND OTHER INFORMATIONAccounting PrinciplesThe consolidated financial statements presented at the end of this annual report have been prepared in conformity with accounting principles generallyaccepted in the United States of America (“GAAP”). Any reference in the notes to the consolidated financial statements to applicable guidance is meant torefer to authoritative GAAP, as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the FinancialAccounting Standards Board (“FASB”). The preparation of financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the company’s managementevaluates its estimates related to, but not limited to, estimates related to fair value of ordinary share, share-based compensation expense, recoverability ofthe company’s net deferred tax asset-related valuation allowances, and certain prepaid expenses and accrued expenses. The company bases its estimates onhistorical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results maydiffer materially from those estimates or assumptions.General InformationExcept where the context otherwise requires and for purposes of this annual report on Form 20-F only: • the “company,” “we,” “us,” “our company” and “our” refer to Stealth BioTherapeutics Corp., or Stealth, and its consolidated subsidiaries, includingStealth BioTherapeutics, Inc., or Stealth US, Stealth BioTherapeutics (HK) Limited, or Stealth HK, and Stealth BioTherapeutics (Shanghai) Limited,or Stealth Shanghai. • “ordinary shares” refers to our ordinary shares, par value $0.0003 per share; • “ADSs” refers to our American depositary shares, each of which represents 12 ordinary shares; • “ADRs” refers to American depositary receipts, which, if issued, evidence our ADSs; • unless otherwise indicated, all historical share and per-share data contained in this annual report on Form 20-F have been restated to give retroactiveeffect to a three-for-one reverse share split that became effective on December 28, 2018.This annual report on Form 20-F includes our audited consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016and audited consolidated balance sheets as of December 31, 2018 and 2017.We completed our initial public offering (“IPO”) of 6,500,000 ADSs, each representing 12 ordinary shares, in February 2019, and we issued anadditional 588,232 ADSs in March 2019 pursuant to our underwriters’ partial exercise of their over-allotment option.Our ADSs are listed on The Nasdaq Global Market under the symbol “MITO”. - 1 -Table of ContentsCAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSThis annual report on Form 20-F contains forward-looking statements that relate to future events, including our future operating results andconditions, our prospects and our future financial performance and condition, all of which are largely based on our current expectations and projections. Theforward-looking statements are contained principally in the sections entitled “Item 3.D.—Risk Factors,” “Item 4.—Information on the Company” and “Item5.—Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of the U.S. Private Securities LitigationReform Act of 1995. The words “anticipate,” “expect,” “hope,” “plan,” “potential,” “possible,” “will,” “believe,” “estimate,” “intend,” “may,” “predict,”“project,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain theseidentifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not placeundue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed inthe forward-looking statements we make as a result of known and unknown risks, uncertainties and other important factors, including but not limited to thefollowing: • our plans to develop and commercialize elamipretide, SBT-20 and our other product candidates and to identify additional product candidates; • ongoing and planned clinical trials and preclinical studies for our product candidates, including SBT-272, including the timing of initiation ofthese trials and studies and the timing of the anticipated results; • our plans to possibly enter into collaborations for the development of product candidates and the potential benefits of any collaboration; • the timing of anticipated regulatory filings or regulatory approvals and plans and expectations for expedited regulatory review for our productcandidates; • the potential advantages and clinical utility of our product candidates; • our commercialization, marketing and manufacturing capabilities and strategy; • our intellectual property position and strategy; • our estimates regarding the potential market opportunity for our product candidates; • our expectations related to the use of proceeds from our IPO; and • our estimates regarding expenses, future revenue, capital requirements, sufficiency of our current cash and cash equivalent and our need for andability to obtain additional funding.The forward-looking statements made in this annual report on Form 20-F relate only to events or information as of the date on which the statementsare made in this annual report on Form 20-F. Except as required by law, we undertake no obligation to update or revise publicly any forward-lookingstatements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence ofunanticipated events. You should read this annual report on Form 20-F completely and with the understanding that our actual future results may bematerially different from what we expect. - 2 -Table of ContentsPART IItem 1. Identity of Directors, Senior Management and AdvisorsNot applicable.Item 2. Offer Statistics and Expected TimetableNot applicable.Item 3. Key InformationA. Selected financial data.The consolidated statement of operations data for the fiscal years ended December 31, 2018, 2017 and 2016, and the summary consolidated balancesheet data as of December 31, 2018 and 2017, are derived from our audited consolidated financial statements appearing elsewhere in this annual report.The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the related noteswhich are included in “Item 18. Financial Statements” of this annual report. We prepare our consolidated financial statements in accordance with U.S.GAAP as issued by the FASB. Year Ended December 31, 2018 2017 2016 (in thousands, except share and per share data) Consolidated Statement of Operations Data: Operating expenses: Research and development $53,062 $63,220 $48,445 General and administrative 22,217 16,500 13,403 Total operating expenses 75,279 79,720 61,848 Loss from operations (75,279) (79,720) (61,848) Other income (expense), net (21,433) (3,190) 799 Net loss attributable to ordinary shareholders $(96,712) $(82,910) $(61,049) Net loss per share attributable to ordinary shareholders—basic and diluted 1 $(1.41) $(1.21) $(0.90) Weighted average ordinary shares used in net loss pershare attributable to ordinary shareholders—basic anddiluted 68,476,149 68,472,262 68,165,325 (1) See Notes 2 and 16 to our audited consolidated financial statements appearing elsewhere in this annual report for further details on the calculation ofbasic and diluted net loss per share attributable to ordinary shareholders. - 3 -Table of Contents As of December 31, 2018 2017 (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $10,855 $4,119 Working capital deficit (27,317) (18,675) Net assets (175,330) (79,909) Total assets 15,523 7,155 Total convertible preferred shares 211,377 211,377 Total accumulated deficit (426,269) (329,557) Total shareholders’ deficit (386,707) (291,286) B. Capitalization and indebtedness.Not applicable.C. Reasons for the offer and use of proceeds.Not applicable.D. Risk factors.Our business has significant risks. You should consider carefully the risks described below, together with the other information contained in this annualreport, including our consolidated financial statements and the related notes. If any of the following risks occur, our business, financial condition, results ofoperations and future growth prospects could be materially and adversely affected.Risks Related to Our Financial Position and Need for Additional CapitalWe have incurred significant losses since inception and expect to incur significant and increasing losses for at least the next several years. We maynever achieve or maintain profitability.We have incurred significant annual net operating losses in every year since our inception. Our net losses were $96.7 million, $82.9 million and$61.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, we had an accumulated deficit of$426.3 million. We expect to continue to incur significant and increasing operating losses for the foreseeable future, and we do not know whether or whenwe will become profitable. We have not generated any revenues from product sales, have not completed the development of any product candidates andmay never have a product candidate approved for commercialization. We have financed our operations to date through the issuance of our ADSs, ordinaryshares, Series A convertible preferred shares (“Series A preferred shares”) and debt financings and have devoted substantially all of our financial resourcesand efforts to research and development, including preclinical studies and clinical development programs. Our net losses may fluctuate significantly fromquarter to quarter and year to year. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our shareholders’ deficit andworking capital.We anticipate that our expenses will increase substantially if and as we: • continue to develop and conduct clinical trials with respect to our lead product candidate, elamipretide, including our ongoing Phase 2 and 3clinical trials, for the treatment of primary mitochondrial myopathy and dry age-related macular degeneration (“dry AMD”) and any futureclinical trials; • initiate and continue research and preclinical and clinical development efforts for our other product candidates, including SBT-272; • seek to identify and develop additional product candidates; - 4 -Table of Contents • seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any; • establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we mayobtain marketing approval, if any; • require the manufacture of larger quantities of product candidates for clinical development and potentially, commercialization; • maintain, expand and protect our intellectual property portfolio; • hire and retain additional personnel, such as clinical, quality control and scientific personnel; • add operational, financial, management information systems and commercial personnel, including personnel to support our productdevelopment and help us comply with our obligations as a public company; and • add property, equipment and physical infrastructure to support our research and development programs in the United States, Europe and China.Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless anduntil we are, or any future collaborator is, able to obtain marketing approval for, and successfully commercialize, one or more of our product candidates.This will require our, or any of our future collaborators’, success in a range of challenging activities, including completing clinical trials of our productcandidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we, or any of ourfuture collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from privateinsurance or government payors. Because of the uncertainties and risks associated with these activities, we are unable to accurately predict the timing andamount of increased expenses, and if or when we might achieve profitability. We and any future collaborators may never succeed in these activities and,even if we do, or any future collaborators do, we may never generate revenues that are large enough for us to achieve profitability. Even if we do achieveprofitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable woulddecrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts,diversify our pipeline of product candidates or continue our operations. A decline in the value of our company could cause holders of our securities to loseall or part of their investment.We will need substantial additional funding. If we are unable to raise capital when needed, we may be forced to delay, reduce or eliminate our productdevelopment programs or commercialization efforts.Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertainprocess that takes years to complete. We expect our expenses to increase in connection with our ongoing activities, particularly as we initiate new clinicaltrials of, initiate new research and preclinical development efforts for and seek marketing approval for our product candidates. In addition, if we obtainmarketing approval for any of our product candidates, we may incur significant commercialization expenses related to product sales, marketing,manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of a future collaborator.Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital whenneeded and on attractive terms, we may be forced to delay, reduce or eliminate our research and development programs or any future commercializationefforts.We will be required to expend significant funds in order to advance the development of elamipretide, as well as any other product candidates we maydevelop in the future. In addition, while we may seek one or more collaborators for future development of our product candidates, and, in particular, mayconduct any large Phase 3 clinical trials of elamipretide, such as those we would likely be required to conduct for common diseases such as - 5 -Table of Contentsdry AMD, in collaboration with one or more partners that would finance most of the associated costs, we may not be able to enter into a collaboration forany of our product candidates on suitable terms, or at all. Our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we planto undertake or to fund the completion of development of any of our product candidates. Accordingly, we will be required to obtain further funding throughpublic or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Adequate additional financing may not beavailable to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition andour ability to pursue our business strategy.We believe that our existing cash and cash equivalents as of December 31, 2018, together with additional funding received and the amendment to theexisting Loan and Security Agreement (“LSA”) providing an additional interest-only period of six months, will be sufficient to meet our cash commitmentsfor the next 12 months. Our estimate as to how long we expect our existing cash and cash equivalents to be able to fund our operations is based onassumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changingcircumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we mayneed to seek additional funds sooner than planned. Our future funding requirements, both short- and long-term, will depend on many factors, including: • the scope, progress, timing, costs and results of our current and future clinical trials; • research and preclinical development efforts for any future product candidates that we may develop; • our ability to enter into and the terms and timing of any collaborations, licensing agreements or other arrangements; • the number of future product candidates that we pursue and their development requirements; • the outcome, timing and costs of seeking regulatory approvals; • costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not theresponsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution andmanufacturing capabilities; • subject to receipt of marketing approval, revenue, if any, received from commercial sales of our current and future product candidates; • our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure; • costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending againstintellectual property related claims; and • costs of operating as a public company.Our recurring losses and negative cash flows could raise substantial doubt regarding our ability to continue as a going concern.Based on our cash balances, recurring losses and our projected spending, there could be doubt about our ability to continue as a going concern in futureperiods. Given our planned expenditures for the next several years, including, without limitation, expenditures in connection with our clinical trials ofelamipretide, SBT-272 and other new compounds, we may conclude, in connection with the issuance of our consolidated financial statements forsubsequent periods, that there could be substantial doubt regarding our ability to continue as a going concern. In addition, our lack of cash resources and ourpotential inability to continue as a going concern may materially adversely affect our ability to raise new capital or to enter into critical contractual relationswith third parties. - 6 -Table of ContentsWe have no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.We began operations in 2006 and initiated our first clinical trial in 2010. Our operations have been limited to financing and staffing our company anddeveloping our technology and conducting preclinical research and clinical trials for our product candidates. We have not demonstrated an ability to obtainmarketing approvals, manufacture a commercial scale product, or arrange for a third-party to do so on our behalf, or conduct sales and marketing activitiesnecessary for successful product commercialization. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays anddifficulties frequently encountered by companies in the early stages of development, especially clinical-stage biopharmaceutical companies such as ours.Predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfullydeveloping and commercializing pharmaceutical products.Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates.We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent that we raise additionalcapital through the sale of ordinary shares, ADSs, convertible securities or other equity securities, our existing shareholders’ ownership interest may besubstantially diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections. Additional debt financing,if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to takespecific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares or declaring dividends, that could adverselyimpact our ability to conduct our business. For example, in connection with our term loan facility with Hercules Capital, Inc. (“Hercules”) we granted asecurity interest on all of our assets, excluding our intellectual property, and agreed to a negative pledge on our intellectual property. The term loan facilityalso contains restrictive covenants including, subject to certain exceptions, covenants that prohibit us from incurring additional indebtedness, creating anylien on our property, making investments, paying dividends or redeeming shares, transferring any material portion of our assets, merging with or acquiringanother entity, entering into a transaction that will result in a change of control and making certain other corporate changes. Future debt securities or otherfinancing arrangements could contain similar or more restrictive negative covenants. In addition, securing financing could require a substantial amount oftime and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adverselyaffect our management’s ability to oversee the development of our product candidates.If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquishvaluable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unableto raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization effortsor grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.We have a significant amount of debt, which may affect our ability to operate our business and secure additional financing in the future.As of December 31, 2018, we had $19.3 million of outstanding principal under our term loan facility with Hercules and are eligible to borrow anadditional $20.0 million, in minimum increments of $5.0 million upon the approval of the lender.Between April 1 2019 and September 30, 2019, we are obligated to pay interest on these borrowings and commencing October 1, 2019, we will berequired to repay principal and interest on these borrowings in monthly installments through January 2021, subject to further deferment of principalpayments upon the achievement of certain milestones. Subject to the restrictions in this existing facility, we could incur additional indebtedness beyond ourborrowings from Hercules. - 7 -Table of ContentsOur outstanding indebtedness, including any additional indebtedness beyond our borrowings from Hercules, combined with our other financialobligations and contractual commitments, could have significant adverse consequences, including: • requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money available to fund workingcapital, capital expenditures, product development and other general corporate purposes; • increasing our vulnerability to adverse changes in general economic, industry and market conditions; • subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and • placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.We may not have sufficient funds and may be unable to arrange for additional financing to pay the amounts due under our existing debt instruments.Failure to make payments or comply with other covenants under our existing debt instruments could result in an event of default and acceleration ofamounts due. Additionally, under our loan and security agreement with Hercules, an occurrence that has a material adverse effect on our business,operations, properties, assets or financial condition, on the collateral, liens or priority of such liens or on our ability to perform under the terms of the loan orassociated agreements is an event of default. If an event of default occurs and the lenders accelerate the amounts due, we may not be able to makeaccelerated payments, and the lenders could seek to enforce security interests in the collateral securing such indebtedness, which includes substantially all ofour assets other than our intellectual property. In addition, the covenants under our credit facility, the pledge of our assets as collateral and the negativepledge with respect to our intellectual property could limit our ability to obtain additional debt financing.Risks Related to the Discovery, Development and Commercialization of Our Product CandidatesOur approach to the discovery and development of product candidates and the development of therapies targeting mitochondria generally are unproven,and we do not know whether we will be able to develop any products of commercial value.We are focused on discovering and developing therapies for diseases involving mitochondrial dysfunction, particularly by developing therapies thattarget mitochondria in order to normalize the function of dysfunctional mitochondria. While we believe that our approach may ultimately enable drugresearch and clinical development for mitochondrial diseases across a wide range of therapeutic areas, this approach is unproven. We have not yetsucceeded and may never succeed in demonstrating efficacy and safety for any of our product candidates in later stage clinical trials or in obtainingmarketing approval thereafter. For example, although we have conducted Phase 1 and Phase 2 clinical trials, we have not yet completed a Phase 3 clinicaltrial.In addition, there are over 250 genetic mutations underlying numerous rare diseases collectively known as primary mitochondrial diseases. Ourclinical trials for the treatment of primary mitochondrial myopathy required that subjects have genetic confirmation of primary mitochondrial disease.Participants in our ongoing Phase 3 clinical trial may have a different mix of genotypes than the subjects of our prior clinical trials, which could have animpact on the results of our Phase 3 clinical trial. However, we have agreed with the U.S. Food and Drug Agency (“FDA”) that we will stratify patients inour ongoing Phase 3 clinical trial according to certain categories of genetic mutation, so that patients within the agreed categories of mutations will beevenly balanced as between elamipretide and placebo treatment. Furthermore, no products or therapies targeting mitochondrial dysfunction have everobtained marketing approval from the FDA or the China National Medical Products Administration (“NMPA”), and the European Medicines Agency(“EMA”) has approved one therapy to treat Leber’s hereditary - 8 -Table of Contentsoptic neuropathy (“LHON”) (Raxone, or idebenone, made by Santhera Pharmaceuticals Holding), which is the only approved therapy to treat any primarymitochondrial disease.If we are unable to successfully discover and develop product candidates, our business prospects will be substantially harmed.We are dependent on the success of elamipretide, our lead product candidate. If we are unable to complete the clinical development of, obtain marketingapproval for or successfully commercialize this product candidate, either alone or with a collaborator, or if we experience significant delays in doing so,our business could be substantially harmed.We have no products approved for sale and are investing a significant portion of our efforts and financial resources in the development ofelamipretide for the treatment of rare primary mitochondrial diseases. Our prospects are substantially dependent on our ability, or the ability of any futurecollaborator, to develop, obtain marketing approval for and successfully commercialize elamipretide.The success of elamipretide will depend on several factors, including the following: • successful recruitment of subjects, enrollment in and completion of our ongoing clinical trials; • initiation and successful recruitment of subjects, enrollment in and completion of additional clinical trials; • safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority for marketing approval; • our ability to identify success criteria and endpoints for our clinical trials such that the FDA and other regulatory authorities will be able todetermine the clinical efficacy and safety profile of any product candidates we may develop; • timely receipt of marketing approvals from applicable regulatory authorities; • the performance of our future collaborators, if any; • the extent of any required post-marketing approval commitments to applicable regulatory authorities; • establishment of supply arrangements with third-party raw materials suppliers and manufacturers; • establishment of arrangements with third-party manufacturers to obtain finished drug products that are appropriately packaged for sale; • obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally; • protection of our rights in our intellectual property portfolio; • successful launch of commercial sales following any marketing approval; • a continued acceptable safety profile following any marketing approval; • accuracy of the estimates of the current and future number of patients with mitochondrial associated or inherited mitochondrial diseases; • commercial acceptance by patients, the medical community and third-party payors following any marketing approval; and • our ability to compete with other therapies targeting inherited mitochondrial diseases.Many of these factors—including with respect to clinical development, the regulatory submission process, potential threats to our intellectual propertyrights and the manufacturing, marketing and sales efforts of any - 9 -Table of Contentsfuture collaborator—are beyond our control, and clinical development of product candidates is inherently risky and uncertain. For example, although weobserved trends towards improvement in a certain subset of patients, our Phase 2/3 clinical trial in Barth syndrome (“Barth”) failed to reach its primaryefficacy endpoints. If we are unable to develop, receive marketing approval for and successfully commercialize elamipretide, on our own or with any futurecollaborator, or experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.Additionally, we are developing elamipretide for certain indications of the eye, including LHON and dry AMD. Our clinical trial for the treatment ofLHON involved administration of elamipretide by use of topical drops, and our clinical trial for the treatment of dry AMD involved administration ofelamipretide by subcutaneous injection. We are cognizant of the challenges of targeting back of eye diseases with topical drops. The human eye has evolvedto protect itself by washing foreign substances such as eye drops from the surface, with tears capable of removing as much as 95% of an eye drop. Thevitreous in the interior of the eye also poses a barrier to delivery of therapies from the front of the eye to the retina. Notwithstanding the results of ourPhase 2 clinical trial of elamipretide for the treatment of LHON, which did not meet its primary endpoint of change in best corrected visual acuity over the12-month double-blind portion of the trial, we will still consider topical drops for back of eye indications and may need to conduct additional studies todetermine the appropriate dose.We may not be successful in our efforts to identify or discover and develop additional potential product candidates.A significant portion of the research that we are conducting involves the development of new therapeutic compounds targeting the mitochondria. Theresults we obtain in preclinical testing and early clinical trials may not be predictive of results that are obtained in later studies, and we may suffersignificant setbacks in advanced clinical trials, even after seeing promising results in earlier studies. The drug discovery that we are conducting may not besuccessful in identifying compounds that have commercial value or therapeutic utility. Our discovery platform may initially show promise in identifyingpotential product candidates, yet fail to yield viable product candidates for clinical development or commercialization for a number of reasons, including: • compounds we develop may not demonstrate improved efficacy, safety or tolerability; • potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they areunlikely to receive marketing approval and achieve market acceptance; • competitors may develop alternative therapies that render our potential product candidates non-competitive or less attractive; or • a potential product candidate may not be capable of being produced at an acceptable cost.Our research programs to identify new product candidates will require substantial technical, financial and human resources, and we may beunsuccessful in our efforts to identify new product candidates. If we are unable to identify suitable additional compounds for preclinical and clinicaldevelopment, our ability to develop product candidates and obtain product revenues in future periods could be compromised, which could result insignificant harm to our financial position and adversely impact the price of our ADSs.We have never obtained marketing approval for a product candidate and we may be unable to obtain, or may be delayed in obtaining, marketingapproval for any of our product candidates.We have never obtained marketing approval for a product candidate. It is possible that the FDA may refuse to accept for substantive review any newdrug applications, or NDAs, that we submit for our product candidates or may conclude after review of our data that our application is insufficient to obtainmarketing approval of our product candidates. If the FDA does not accept or approve our NDAs for our most advanced product candidates, it may requirethat we conduct additional clinical, nonclinical or manufacturing validation studies and submit that - 10 -Table of Contentsdata before it will reconsider our applications. Depending on the extent of these or any other FDA-required studies, approval of any NDA or application thatwe submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, ifperformed and completed, may not be considered sufficient by the FDA to approve our NDAs.Any delay in obtaining, or an inability to obtain, any marketing approvals would prevent us from commercializing our product candidates, generatingrevenues and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts for our productcandidates, which could significantly and materially harm our business.Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials.The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinicaltrials do not necessarily predict success in future clinical trials. Many companies in the pharmaceutical and biotechnology industries have sufferedsignificant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we cannot be certain that we will not face similarsetbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may notbecome apparent until the clinical trial is well advanced. If our trial designs are not sufficient, our ophthalmic programs may be delayed or we may decideto terminate one or more of such programs.We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. Inaddition, preclinical and clinical data are often susceptible to varying interpretations and analyses. During the regulatory review process, we will need toidentify success criteria and endpoints at the time of the initiation of the trial such that the FDA or other regulatory authorities will be able to determine theclinical efficacy and safety profile of any product candidates we may develop, and the resulting clinical data and results may be difficult to analyze. Even ifthe FDA or other regulatory authorities were to find our success criteria to be sufficiently validated and clinically meaningful, we may not achieve thepre-specified endpoints to a degree of statistical significance. Many companies that believed that their product candidates had performed satisfactorily inpreclinical studies and clinical trials nonetheless failed to obtain marketing approval of their product candidates. Even if we, or any future collaborators,believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities maydisagree and may not grant marketing approval of our product candidates.In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due tonumerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in andadherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. Specifically, the clinical trials wehave completed to date have enrolled only small numbers of subjects, we have experienced dropout among participants and we have not always successfullyachieved our pre-specified clinical trial endpoints to a degree of statistical significance.To date, we have conducted small Phase 1 and Phase 2 clinical trials, many of which have been undertaken to help inform our clinical strategy anddevelop later stage clinical trials intended to assess efficacy. While the endpoints and populations for these later stage clinical trials, including Phase 3clinical trials that we are planning, are derived from results of our earlier trials and medical literature, in our prior clinical trials we did not demonstrate astatistically significant effect in the population and on the efficacy endpoints prospectively described in the clinical trial protocol. The lack of statisticalsignificance could be attributed to various factors, including the lack of power to demonstrate significance, the design of the studies or the lack of atreatment benefit from our product candidate. In some cases, we conducted post hoc, retrospective analyses of data subsets and have designed, and expect todesign planned, later clinical trials based on the results of such post hoc analyses. For example, in our Phase 2 clinical trial for the treatment of primarymitochondrial myopathy, in the - 11 -Table of Contentselamipretide-treated group, we observed an improvement on the primary endpoint of improvement in distance walked in six minutes (the six minute walktest, or 6MWT) relative to the placebo-treated group, which was not statistically significant, and our Phase 1/2 clinical trial for the treatment of primarymitochondrial myopathy did not demonstrate statistically significant changes in the high-dose versus placebo comparison of 6MWT results at day fivepursuant to the primary statistical analysis model specified in the statistical analysis plan. We conducted an exploratory post hoc analysis of the results fromthis Phase 1/2 clinical trial primarily to assess, among other things, whether there was a potentially confounding cohort effect in the placebo group, whichcould occur if subjects randomized to placebo within higher-dose cohorts performed better due to the placebo effect of knowing they were randomizedwithin a higher-dose cohort. This post hoc analysis showed a significant mean improvement from baseline in six-minute walk distance after five days oftreatment, as adjusted for gender and baseline distance, for individuals treated with the high dose of elamipretide compared to placebo-treated individuals.The design of our Phase 3 clinical trial for the treatment of mitochondrial myopathy was informed, in part, by the results of this post hoc analysis.If we fail to receive positive results in clinical trials of our product candidates and do not achieve statistical significance for the prospectivelyspecified primary endpoints in our planned Phase 3 clinical trials, the development timeline and regulatory approval and commercialization prospects forour most advanced product candidates, and, correspondingly, our business and financial prospects, would be negatively impacted.Because we are developing elamipretide for the treatment of several indications for which regulatory authorities have not issued definitive guidance asto how to measure and demonstrate efficacy, there is substantial risk that the design or outcomes of our clinical trials will not be satisfactory to supportmarketing approval.We are developing elamipretide for several indications for which there is currently no approved therapy in the United States, China or the EuropeanUnion, including primary mitochondrial myopathy, Barth, and dry AMD. We are developing elamipretide for LHON, for which there are no currentlyapproved therapies in the United States or China and only one therapy approved in Europe. Furthermore, there has been limited historical clinical trialexperience for the development of drugs to treat many of these indications. As a result, the design and conduct of clinical trials for these indications issubject to substantial risk. In particular, regulatory authorities in the United States and in other jurisdictions, including Europe and China, have not issueddefinitive guidance as to how to measure and demonstrate efficacy for primary mitochondrial myopathy, Barth, LHON or dry AMD and, as a result, there issubstantial risk that the design or outcomes of our clinical trials will not be satisfactory to support marketing approval. For example, the endpoints in ourPhase 2/3 clinical trial of elamipretide for the treatment of Barth syndrome included change in six-minute walk distance and change in a total fatigue scale,or BTHSA Total Fatigue, from the Barth symptom assessment, or BTHSA, a newly developed patient reported outcome measure, which has not beenutilized in prior trials and may not be accepted by regulators as a basis for approval. Even if this type of novel endpoint is accepted as a basis for approval inthe United States, we cannot be certain that regulators outside of the United States will accept such endpoints or will not require us to conduct additionalvalidation studies to support the suitability of such endpoints for approval in these jurisdictions.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indicationsthat may be more profitable or for which there is a greater likelihood of success.Because we have limited financial and managerial resources, we intend to focus on developing product candidates for specific indications that weidentify as most likely to succeed, in terms of both their potential for marketing approval and commercialization. As a result, we may forego or delaypursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential.Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending oncurrent and future research and development programs and - 12 -Table of Contentsproduct candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercialpotential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing orother royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to theproduct candidate.Clinical drug development involves a lengthy and expensive process with an uncertain outcome.Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as plannedor completed on schedule, or at all. The clinical development of our product candidates is susceptible to the risk of failure at any stage of drug development,including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe ormedically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or anycomparable foreign regulatory authority that a product candidate may not continue development or is not approvable. For example, Phase 3 clinical trials forcommon diseases associated with aging, such as dry AMD, would likely require a large number of subjects to be enrolled, which would cause any such trialto be very expensive. Moreover, it is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detectedduring clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of ourclinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of a product candidate that is greaterthan the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by our product candidates, ormistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case. Many companies in the pharmaceutical andbiotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we cannotbe certain that we will not face additional setbacks. It is possible that any of our development programs may be placed on full or partial clinical hold byregulatory authorities at any point, which would delay and possibly prevent further development of our product candidates.If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA and other comparable foreign regulators, we,or any future collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development andcommercialization of these product candidates.We, and any future collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the United States withoutobtaining marketing approval from the FDA. Comparable foreign regulatory authorities impose similar restrictions. We, and any future collaborators, maynever receive such approvals. We, and any future collaborators, must complete extensive preclinical development and clinical trials to demonstrate thesafety and efficacy of our product candidates in humans before we, or they, will be able to obtain these approvals.Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We havenot previously submitted an NDA to the FDA or similar drug approval filings to comparable foreign regulatory authorities for any of our productcandidates. Any inability to complete preclinical and clinical development successfully could result in additional costs to us, or any future collaborators, andimpair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. Moreover, if (i) we, or any futurecollaborators, are required to conduct additional clinical trials or other testing of our product candidates beyond the trials and testing that we or theycontemplate, (ii) we, or any future collaborators, are unable to successfully complete clinical trials of our product candidates or other testing, (iii) the resultsof these trials or tests are unfavorable, uncertain or are only modestly favorable, or - 13 -Table of Contents(iv) there are unacceptable safety concerns associated with our product candidates, we, or any future collaborators, may: • be delayed in obtaining marketing approval for our product candidates; • not obtain marketing approval at all; • obtain approval for indications or patient populations that are not as broad as intended or desired; • obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings; • be subject to additional post-marketing testing or other requirements; or • be required to remove the product from the market after obtaining marketing approval.Adverse events or undesirable side effects caused by, or other unexpected properties of, any of our product candidates may be identified duringdevelopment that could delay or prevent their marketing approval or limit their use.Adverse events or undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us, any futurecollaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of our product candidates andcould result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable regulatory authorities. If any of our productcandidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we, or any future collaborators, may need toabandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or othercharacteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. For example, subjects in certain of our clinical trials havereported adverse events arising from reaction at the injection site and some subjects have withdrawn as a result. Moreover, laboratory findings havedemonstrated mild to moderate elevations in eosinophils, a variety of white blood cells that combat parasites and infections and control mechanismsassociated with allergy and asthma, beginning at approximately three to four weeks after initiation of elamipretide treatment, although these have not beenreported to be associated with any systemic clinical manifestations of eosinophilia and in general were demonstrated to have returned to within normalrange or to baseline levels after withdrawal of elamipretide therapy and, in most subjects, to decrease to within normal range after approximately 16 weeksof elamipretide therapy (and without withdrawal of therapy). In addition, we observed a mean increase in certain liver enzymes in subjects who received thehighest dose of SBT-20 in our Phase 1 clinical trial, although the principal investigator determined that no individual increases in such liver enzymes wereclinically significant and similar increases were not observed in the highest dose cohort of a prior Phase 1/2 clinical trial of SBT-20. Many compounds thatinitially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented furtherdevelopment of the compound. If we, or any future collaborators, experience any of a number of possible unforeseen events in connection with clinicaltrials of our product candidates, potential marketing approval or commercialization of our product candidates could be delayed or prevented.We, or any future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or preventmarketing approval or commercialization of our product candidates, including: • clinical trials of our product candidates may produce unfavorable or inconclusive results; • we, or any future collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon productdevelopment programs; • the number of subjects required for clinical trials of our product candidates may be larger than we, or any future collaborators, anticipate,subject enrollment in these clinical trials may be slower than we, or any future collaborators, anticipate or participants may drop out of theseclinical trials at a higher rate than we, or any future collaborators, anticipate; - 14 -Table of Contents • the cost of planned clinical trials of our product candidates may be greater than we anticipate; • our third-party contractors or those of any future collaborators, including those manufacturing our product candidates or components oringredients thereof or conducting clinical trials on our behalf or on behalf of any future collaborators, may fail to comply with regulatoryrequirements or meet their contractual obligations to us or any future collaborators in a timely manner, or at all; • regulators or institutional review boards may not authorize us, any future collaborators or our or their investigators to commence a clinical trialor conduct a clinical trial at a prospective trial site; • we, or any future collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trialprotocols with prospective trial sites; • subjects that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol,resulting in the need to drop the subjects from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinicaltrial’s duration; • we, or any future collaborators, may have to delay, suspend or terminate clinical trials of our product candidates for various reasons, including afinding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of theproduct candidate; • regulators or institutional review boards may require that we, or any future collaborators, or our or their investigators suspend or terminateclinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that theparticipants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidateor findings of undesirable effects caused by a chemically or mechanistically similar drug or drug candidate; • the FDA or comparable regulatory authorities may disagree with our, or any future collaborators’, clinical trial designs or our or theirinterpretation of data from preclinical studies and clinical trials; • the FDA or comparable regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities ofthird-party manufacturers with which we, or any future collaborators, enter into agreements for clinical and commercial supplies; • the supply or quality of raw materials or manufactured product candidates or other materials necessary to conduct clinical trials of our productcandidates may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; and • the approval policies or regulations of the FDA or comparable regulatory authorities may significantly change in a manner rendering ourclinical data insufficient to obtain marketing approval.Product development costs for us, or any future collaborators, will increase if we, or they, experience delays in testing or pursuing marketingapprovals and we, or they, may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our productcandidates. We do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured, or will be completed onschedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we, or any future collaborators, may have theexclusive right to commercialize our product candidates or allow our competitors, or the competitors of any future collaborators, to bring products to marketbefore we, or any future collaborators, do and impair our ability, or the ability of any future collaborators, to successfully commercialize our productcandidates and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to thedenial of marketing approval of any of our product candidates. - 15 -Table of ContentsIf we, or any future collaborators, experience delays or difficulties in the enrollment of subjects in clinical trials, our or their receipt of necessaryregulatory approvals could be delayed or prevented.We, or any future collaborators, may not be able to initiate or continue clinical trials for any of our product candidates if we, or they, are unable tolocate and enroll a sufficient number of eligible subjects to participate in clinical trials as required by the FDA or comparable regulatory authorities. Forexample, we are developing elamipretide for the treatment of several rare diseases with small patient populations, such as Barth. Enrollment is a significantfactor in the timing of clinical trials, and is affected by many factors, including: • the size and nature of the patient population; • the severity of the disease under investigation; • the proximity of subjects to clinical sites; • the eligibility criteria for the trial; • the design of the clinical trial; • efforts to facilitate timely enrollment; • competing clinical trials; and • clinician and patient perception as to the potential advantages and risks of the drug being studied in relation to other available therapies,including any new drugs that may be approved for the indications we are investigating.Our inability, or the inability of any future collaborators, to enroll a sufficient number of subjects for our, or their, clinical trials could result insignificant delays or may require us or them to abandon one or more clinical trials altogether. For example, our Phase 2a clinical trial of elamipretide insubjects pre-treated prior to a renal angioplasty was terminated early due to recruitment challenges after enrolling only 14 subjects of the 28 originallyplanned. In our Phase 3 clinical trial of elamipretide for the treatment of primary mitochondrial myopathy, we aim to enroll 200 subjects. Although weenrolled over 400 subjects in a pre-trial registry, 69 of those subjects are located in Italy, where we have only recently received regulatory authorization tocommence enrollment. This regulatory delay may delay or otherwise adversely impact the enrollment in our Phase 3 clinical trial. Enrollment delays inclinical trials may result in increased development costs for our product candidates, delay or halt the development of and approval processes for our productcandidates and jeopardize our, or any future collaborators’, ability to commence sales of and generate revenues from our product candidates, which couldcause the value of our company to decline.If any of our product candidates receives marketing approval and we, or others, later discover that the drug is less effective than previously believed orcauses undesirable side effects that were not previously identified, our ability, or that of any future collaborators, to market the drug could becompromised.Clinical trials of our product candidates are conducted in carefully defined subsets of subjects who have agreed to enter into clinical trials.Consequently, it is possible that our clinical trials, or those of any future collaborator, may indicate an apparent positive effect of a product candidate that isgreater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. In particular, because our product candidates willrequire chronic dosing over the lifetime of the patient, there may be undesirable side effects as a result of long-term exposure to the drug that were notobserved in our clinical trials. If, following approval of a product candidate, we, or others, discover that the drug is less effective than previously believed orcauses undesirable side effects that were not previously identified, any of the following adverse events could occur: • regulatory authorities may withdraw their approval of the drug or seize the drug; • we, or any future collaborators, may be required to recall the drug, change the way the drug is administered or conduct additional clinical trials; - 16 -Table of Contents • additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular drug; • we may be subject to fines, injunctions or the imposition of civil or criminal penalties; • regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication; • we, or any future collaborators, may be required to create a medication guide outlining the risks of the previously unidentified side effects fordistribution to patients; • we, or any future collaborators, could be sued and held liable for harm caused to patients; • the drug may become less competitive; and • our reputation may suffer.Any of these events could have a material and adverse effect on our operations and business and could adversely impact the price of our ADSs.Even if one of our product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for the product candidate may besmaller than we estimate.We have never commercialized a product. Even if one of our product candidates is approved by the appropriate regulatory authorities for marketingand sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Forexample, physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenienttreatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their physiciansrecommend switching products or they are required to switch therapies due to lack of reimbursement for existing therapies.Efforts to inform the medical community and third-party payors on the benefits of our product candidates may require significant resources and maynot be successful. If any of our product candidates is approved but does not achieve an adequate level of market acceptance, we may not generate significantrevenues and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on anumber of factors, including: • the efficacy and safety of the product; • the potential advantages of the product compared to alternative treatments; • the prevalence and severity of any side effects; • the clinical indications for which the product is approved; • whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy; • limitations or warnings, including distribution or use restrictions, contained in the product’s approved labeling; • our ability, or the ability of any future collaborators, to offer the product for sale at competitive prices; • the product’s convenience and ease of administration compared to alternative treatments; • the willingness of the target patient population to try, and of physicians to prescribe, the product; • the strength of sales, marketing and distribution support; • the approval of other new products for the same indications; - 17 -Table of Contents • changes in the standard of care for the targeted indications for the product; • the timing of market introduction of our approved products as well as competitive products; • availability of coverage and the adequacy of reimbursement from government payors, managed care plans and other third-party payors; • adverse publicity about the product or favorable publicity about competitive products; and • potential product liability claims.The potential market opportunities for our product candidates are difficult to estimate precisely. Our estimates of the potential market opportunitiesare predicated on many assumptions, including industry knowledge and publications, third-party research reports and other surveys. While we believe thatour internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherentlyuncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions proves to be inaccurate,the actual markets for our product candidates could be smaller than our estimates of the potential market opportunities.If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution arrangements with thirdparties, we may not be successful in commercializing any product candidates that we develop if and when those product candidates are approved.We do not have a sales, marketing or distribution infrastructure and have no experience in the sale, marketing or distribution of pharmaceuticalproducts. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functionsto third parties. We plan to use a combination of focused in-house sales and marketing capabilities and third-party collaboration, licensing and distributionarrangements to sell any of our products that receive marketing approval.We generally plan to retain rights to participate in commercialization in the United States, particularly for products that we can commercialize with aspecialized sales force and by building a focused sales and marketing organization in the United States to sell our products. The development of sales,marketing and distribution capabilities will require substantial resources, will be time-consuming and could delay any product launch. If the commerciallaunch of a product for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, wecould have prematurely or unnecessarily incurred these commercialization costs. This may be costly, and our investment could be lost if we cannot retain orreposition our sales and marketing personnel. In addition, we may not be able to hire or retain a sales force that is sufficient in size or has adequate expertisein the medical markets that we plan to target. If we are unable to establish or retain a sales force and marketing and distribution capabilities, our operatingresults may be adversely affected. If a potential partner has development or commercialization expertise that we believe is particularly relevant to one of ourproducts, then we may seek to collaborate with that potential partner even if we believe we could otherwise develop and commercialize the productindependently.We hope to collaborate with third parties for commercialization in the United States of any products that require larger sales, marketing and productdistribution infrastructure. We plan to commercialize our products outside the United States through collaboration, licensing and distribution arrangementswith third parties. As a result of entering into arrangements with third parties to perform sales, marketing and distribution services, our product revenues orthe profitability of these product revenues may be lower, perhaps substantially lower, than if we were to directly market and sell products in those markets.Furthermore, we may be unsuccessful in entering into the necessary arrangements with third parties or may be unable to do so on terms that are favorable tous. In addition, we may have little or no control over such third parties, and any of them may fail to devote the necessary resources and attention to sell andmarket our products effectively.If we do not establish sales, marketing and distribution capabilities, either on our own or in collaboration with third parties, we will not be successfulin commercializing any of our product candidates that receive marketing approval. - 18 -Table of ContentsWe have recently modified our manufacturing processes so that we will be able to produce sufficient quantities of elamipretide for commercialdistribution. Interruptions in this process could delay anticipated marketing authorization applications.We previously used solid-phase peptide synthesis to produce elamipretide acetate batches for all completed and certain ongoing preclinical andclinical trials. Due to a lack of scalability, we deemed this process undesirable for production of commercial quantities of elamipretide and implemented anew solution-phase process. It is typical during the years prior to gaining approval for new drugs to continue to develop manufacturing processes to achievelarger scale production with a typical goal of implementing essentially the commercial process prior to supplying pivotal clinical trials. However, ourtransition to a solution-phase process is recent, and any interruption in continued production of supply needed to meet potential commercial demands coulddelay anticipated marketing authorization applications, including NDAs, and/or significantly impact the anticipated cost of commercial production, if ourproduct candidates are approved for sale.To simplify the daily injection of elamipretide for patients, we have recently developed a multi-dose cartridge suitable for use in a pen injector, but weare still evaluating whether the cartridge will meet performance specifications after prolonged storage.For Phase 1/2 clinical trials, we developed a ready-to-use sterile solution drug product suitable for subcutaneous administration. Thisready-to-use solution drug product consists of 1.5 mL of a simple sterile solution of elamipretide acetate containing sodium chloride for tonicity, packagedin a single-use 5-mL vial. This product has been administered clinically using a disposable needle and syringe. To simplify the daily injection ofelamipretide for patients with primary mitochondrial myopathy, a multi-dose cartridge, suitable for use in a pen injector, has been developed for use in themost recent clinical trials, including the pivotal clinical trial for primary mitochondrial myopathy, and for commercial distribution, if elamipretide isapproved for sale for this indication. Development of this multi-dose cartridge has necessitated that a preservative be added to the formulation to inhibitbacterial growth during the five-day intended-use period, and a buffer has been added to maintain a pH suitable for injection; these formulation changes alsoapply to the multi-use vial which will be supplied to Barth patients if elamipretide is approved for sale for Barth. We are continuing to evaluate whether thecartridge will meet performance expectations after prolonged storage. If our evaluation determines that the cartridge will not meet performanceexpectations, we may need to develop an alternate method of administration, which may delay our clinical trials or otherwise adversely impact our ability tocommercialize elamipretide for patients with primary mitochondrial myopathy.In addition, we have limited experience with the cartridge as a primary container for the drug product and have not demonstrated that the packagedproduct is stable for extended periods or that the cartridge meets the performance specifications in the pen injector after prolonged storage of both thecartridge and the pen. Failure in any of these key stability measures could limit the shelf-life of elamipretide. The pen injector has not been submitted forapproval in the United States or certain other markets that are key to the projected commercial value of the product, if it is approved for sale. However, wehave discussed the pen injector with the FDA and other regulatory authorities and we have received authorization to utilize the pen injector and multi-usecartridge in our Phase 3 clinical trial in countries including the United States, Canada, Denmark, Germany, Hungary, the United Kingdom and Italy. Withrespect to FDA, the comments received to date have been primarily to address human factors testing (ease of use), which we have addressed in ourresponses.We face substantial competition from other pharmaceutical and biotechnology companies, and our operating results may suffer if we fail to competeeffectively.The development and commercialization of new drug products is highly competitive. We expect that we, and any future collaborators, will facesignificant competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respectto any of our product candidates that we, or they, may seek to develop or commercialize in the future. Specifically, there are a number - 19 -Table of Contentsof large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates for thetreatment of the key indications of our most advanced programs.We are initially developing elamipretide for the treatment of rare primary mitochondrial diseases and common diseases of aging in whichmitochondrial function is impaired. There are several companies developing treatments that target mitochondria or mitochondria-associated diseases. Themajority of these efforts are in preclinical or early clinical development, are focused on gene therapy or are proposing the use of generic compounds. To ourknowledge, none of these is focused on cardiolipin remodeling. Our competitors include: NeuroVive Pharmaceutical AB, Reata Pharmaceuticals, Inc.,BioElectron Technology Corporation (formerly Edison Pharmaceuticals Inc.), LumiThera, Inc., Reneo Pharmaceuticals, Inc. and Santhera PharmaceuticalsHolding. In addition to competition from competitors who are developing treatments that seek to improve mitochondrial function or otherwise target themitochondria, we also face competition from therapies that target the indications we are studying, particularly for diseases of aging such as dry AMD. Suchcompetitors who are developing or who have developed competing therapies include Allegro Ophthalmics, LLC, Apellis Pharmaceuticals, Inc., AstellasPharma Inc., Hemera Biosciences Inc., Ionis Pharmaceuticals, Inc. and Ophthotech Corporation.Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective, have fewer or moretolerable side effects or are less costly than any product candidates that we are currently developing or that we may develop, which could render our productcandidates obsolete and noncompetitive.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective,have fewer or less severe side effects, are more convenient or are less expensive than any products that we, or any future collaborators, may develop. Ourcompetitors also may obtain FDA or other marketing approval for their products before we, or any future collaborators, are able to obtain approval for ours,which could result in our competitors establishing a strong market position before we, or any future collaborators, are able to enter the market.Many of our existing and potential future competitors have significantly greater financial resources and expertise in research and development,manufacturing, preclinical testing, conducting clinical trials, obtaining marketing approvals and marketing approved products than we do. Mergers andacquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of ourcompetitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large andestablished companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishingclinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.If the FDA or comparable regulatory authorities approve generic versions of any of our products that receive marketing approval, or such authoritiesdo not grant our products appropriate periods of data exclusivity before approving generic versions of our products, the sales of our products could beadversely affected.Once an NDA is approved, the product covered thereby becomes a “reference-listed drug” in the FDA’s publication, “Approved Drug Products withTherapeutic Equivalence Evaluations.” Manufacturers may seek approval of generic versions of reference-listed drugs through submission of abbreviatednew drug applications, or ANDAs, in the United States. In support of an ANDA, a generic manufacturer need not conduct clinical studies. Rather, theapplicant generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration and conditions of use orlabeling as the reference-listed drug and that the generic version is bioequivalent to the reference-listed drug, meaning it is absorbed in the body at the samerate and to the same extent. Generic products may be significantly less costly to bring to market than the reference-listed drug and companies that producegeneric products are generally able to offer them at lower prices. Thus, - 20 -Table of Contentsfollowing the introduction of a generic drug, a significant percentage of the sales of any branded product or reference-listed drug may be typically lost to thegeneric product.The FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference-listed drug hasexpired. The Federal Food, Drug, and Cosmetic Act, or FDCA, provides a period of five years of non-patent exclusivity for a new drug containing a newchemical entity, or NCE. Specifically, in cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration offive years unless the submission is accompanied by a Paragraph IV certification that a patent covering the reference-listed drug is either invalid or will notbe infringed by the generic product, in which case the applicant may submit its application four years following approval of the reference-listed drug. Wehave an issued composition of matter patent on elamipretide. As such, the active ingredient will be treated as an NCE and any products containingelamipretide will be granted exclusivity based on that patent expiry date and other contributing factors. It is unclear whether the FDA will treat the activeingredients in our other product candidates as NCEs and, therefore, afford them five years of NCE data exclusivity if they are approved. If any product wedevelop does not receive five years of NCE exclusivity, the FDA may approve generic versions of such product three years after its date of approval.Manufacturers may seek to launch these generic products following the expiration of the applicable marketing exclusivity period, even if we still havepatent protection for our product.Competition that our products, if any, may face from generic versions of our products could materially and adversely impact our future revenue,profitability and cash flows and substantially limit our ability to obtain a return on the investments we have made in those product candidates.Even if we, or any future collaborators, are able to commercialize any product candidate that we, or they, develop, the product may become subject tounfavorable pricing regulations, third-party payor reimbursement practices or healthcare reform initiatives that could harm our business.The commercial success of our product candidates in key potential markets will depend substantially on the extent to which the costs of our productcandidates will be paid by third-party payors, including government health administration authorities and private health coverage insurers. If coverage andreimbursement is not available, or reimbursement is available only to limited levels, we, or any future collaborators, may not be able to successfullycommercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or any futurecollaborators, to establish or maintain pricing sufficient to realize a sufficient return on our or their investments.There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing andreimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can bemarketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets,prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we, or any futurecollaborators, might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch ofthe product, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale of the product in thatcountry. Adverse pricing limitations may hinder our ability or the ability of any future collaborators to recoup our or their investment in one or moreproduct candidates, even if our product candidates obtain marketing approval. Moreover, in the United States, no uniform policy of coverage andreimbursement for products exists among third-party payors. Third-party payors often rely upon Medicare coverage policy and payment limitations insetting their reimbursement rates, but also have their own methods and approval process apart from Medicare determinations. Therefore, coverage andreimbursement for products in the United States can differ significantly from payor to payor.Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associatedwith their treatment. Therefore, our ability, and the ability of any - 21 -Table of Contentsfuture collaborators, to commercialize any of our product candidates will depend in part on the extent to which coverage and reimbursement for theseproducts and related treatments will be available from third-party payors. Third-party payors decide which medications they will cover and establishreimbursement levels. The healthcare industry is acutely focused on cost containment, both in the United States and worldwide. Government authorities andother third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which couldaffect our ability or that of any future collaborators to sell our product candidates profitably. These payors may not view our products, if any, as cost-effective, and coverage and reimbursement may not be available to our customers, or those of any future collaborators, or may not be sufficient to allow ourproducts, if any, to be marketed on a competitive basis. Cost-control initiatives could cause us, or any future collaborators, to decrease the price we, or they,might establish for products, which could result in lower than anticipated product revenues. If the prices for our products, if any, decrease or ifgovernmental and other third-party payors do not provide coverage or adequate reimbursement, our prospects for revenue and profitability will suffer.There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indicationsfor which the drug is approved by the FDA or comparable regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug willbe paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Reimbursement rates mayvary, by way of example, according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also be based onreimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and arechallenging the prices charged. We cannot be sure that coverage will be available for any product candidate that we, or any future collaborator,commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject toadditional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in theUnited States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our productcandidates for which we, or any future collaborator, obtain marketing approval could significantly harm our operating results, our ability to raise capitalneeded to commercialize products and our overall financial condition.Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of any products thatwe may develop.We face an inherent risk of product liability claims as a result of the clinical testing of our product candidates despite obtaining appropriate informedconsents from our clinical trial participants. We will face an even greater risk if we or any future collaborators commercially sell any product that we or theymay develop. 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 warnof dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts.If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization ofour product candidates. Regardless of the merits or eventual outcome, liability claims may result in: • decreased demand for our product candidates or products that we may develop; • injury to our reputation and significant negative media attention; • withdrawal of clinical trial subjects; • significant costs to defend resulting litigation; • substantial monetary awards to trial subjects or patients; - 22 -Table of Contents • loss of revenue; • reduced resources of our management to pursue our business strategy; and • the inability to commercialize any products that we may develop.Although we believe we maintain adequate general and clinical trial liability insurance for a company at our stage, this insurance may not fully coverpotential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. Wewill need to increase our insurance coverage if and when we begin selling any product candidate that receives marketing approval. In addition, insurancecoverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwiseprotect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidates,which could adversely affect our business, financial condition, results of operations and prospects.Risks Related to Our Dependence on Third PartiesWe expect to seek to establish collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter ourdevelopment and commercialization plans.Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fundexpenses. We expect to continue to seek one or more collaborators for the development and commercialization of one or more of our product candidates.For example, we hold worldwide rights for elamipretide and SBT-20 and we own our new pipeline compounds, including SBT-272. We expect to retainrights to control the commercialization of elamipretide in rare primary mitochondrial conditions in the United States, and we may explore partnerships fordevelopment of elamipretide, SBT-20 and one or more of our pipeline compounds, including SBT-272, in selected other indications and territories. Likelycollaborators may include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. Inaddition, if we are able to obtain marketing approval for any of our product candidates from foreign regulatory authorities, we intend to enter into strategicrelationships with international biotechnology or pharmaceutical companies for the commercialization of such product candidates outside of the UnitedStates.We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, amongother things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposedcollaborator’s evaluation of a number of factors. Those factors may include the potential differentiation of our product candidate from competing productcandidates, design or results of clinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities and the regulatorypathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product topatients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indicationsthat may be available for collaboration and whether such collaboration could be more attractive than the one with us for our product candidate.Collaborations are complex and time-consuming to negotiate and document. Further, there have been a significant number of recent businesscombinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail thedevelopment of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our otherdevelopment programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures andundertake development or commercialization activities at our own expense. If we elect to - 23 -Table of Contentsincrease our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not beavailable to us on acceptable terms, or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring themto market and generate product revenue.If we enter into collaborations with third parties for the development and commercialization of our product candidates, our prospects with respect tothose product candidates will depend in significant part on the success of those collaborations.We may enter into collaborations for the development and commercialization of certain of our product candidates. If we enter into suchcollaborations, we will have limited control over the amount and timing of resources that our collaborators will dedicate to the development orcommercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on any future collaborators’ abilities tosuccessfully perform the functions assigned to them in these arrangements. In addition, any future collaborators may have the right to abandon research ordevelopment projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms.Collaborations involving our product candidates pose a number of risks, including the following: • collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; • collaborators may not perform their obligations as expected; • collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew developmentor commercialization programs, based on clinical trial results, changes in the collaborators’ strategic focus or available funding or externalfactors, such as an acquisition, that divert resources or create competing priorities; • collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial or abandon a product candidate, repeator conduct new clinical trials or require a new formulation of a product candidate for clinical testing; • a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing anddistribution of such product or products; • disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course ofdevelopment, might cause delays or termination of the research, development or commercialization of product candidates, might lead toadditional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; • collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as toinvite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; • collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and • collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development orcommercialization of the applicable product candidates.Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. If anyfuture collaborator of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization ofany product candidate licensed to it by us. - 24 -Table of ContentsWe rely on third parties to conduct our clinical trials. If they do not perform satisfactorily, our business could be significantly harmed.We do not independently conduct clinical trials of any of our product candidates. We rely on third parties, such as contract research organizations,clinical data management organizations, medical institutions and clinical investigators, to conduct these clinical trials and expect to rely on these thirdparties to conduct clinical trials of any other product candidate that we develop. Any of these third parties may terminate their engagements with us undercertain circumstances. We may not be able to enter into alternative arrangements or do so on commercially reasonable terms. In addition, there is a naturaltransition period when a new contract research organization begins work. As a result, delays would likely occur, which could materially impact our abilityto meet our expected clinical development timelines and harm our business, financial condition and prospects.Further, our reliance on these third parties for clinical development activities limits our control over these activities, but we remain responsible forensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards. For example,notwithstanding the obligations of a contract research organization for a trial of one of our product candidates, we remain responsible for ensuring that eachof our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to complywith standards, commonly referred to as current Good Clinical Practices, or cGCPs, for conducting, recording and reporting the results of clinical trials toassure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDAenforces these cGCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and institutional review boards. If we or ourthird-party contractors fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA mayrequire us to perform additional clinical trials before approving our product candidates, which would delay the marketing approval process. We cannot becertain that, upon inspection, the FDA will determine that any of our clinical trials comply with cGCPs. Similar regulatory requirements apply outside theUnited States, including the International Council for Harmonization of Technical Requirements for the Registration of Pharmaceuticals for Human Use, orICH. We are also required to register clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov,within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.Furthermore, the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under ouragreements with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our ongoing development programs.These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinicaltrials or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If these third parties do notsuccessfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or ourstated protocols, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates. If that occurs, we will not beable to, or may be delayed in our efforts to, successfully commercialize our product candidates. In such an event, our financial results and the commercialprospects for any product candidates that we seek to develop could be harmed, our costs could increase and our ability to generate revenues could beimpaired.We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributorscould delay clinical development or marketing approval of our product candidates or commercialization of any resulting products, producing additionallosses and depriving us of potential product revenue. - 25 -Table of ContentsWe contract with third parties for the manufacture and distribution of our product candidates for clinical trials and expect to continue to do so inconnection with our future development and commercialization efforts. This reliance on third parties increases the risk that we will not have sufficientquantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development orcommercialization efforts.We currently have no manufacturing facilities and limited personnel with manufacturing experience. We rely on contract manufacturers to produceboth drug substance and drug product required for our clinical trials. We plan to continue to rely upon contract manufacturers, and potentially collaborationpartners, to manufacture commercial quantities of our product candidates and, if approved, products. Reliance on such third-party contractors entails risks,including: • manufacturing delays if our third-party contractors give greater priority to the supply of other products over our product candidates or otherwisedo not satisfactorily perform according to the terms of the agreements between us and them; • the possible termination or nonrenewal of agreements by our third-party contractors at a time that is costly or inconvenient for us; • the possible breach by the third-party contractors of our agreements with them; • the failure of third-party contractors to comply with applicable regulatory requirements; • the possible mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or active drug or placebo not beingproperly identified; • the possibility of clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies notbeing distributed to commercial vendors in a timely manner, resulting in lost sales; and • the possible misappropriation of our proprietary information, including our trade secrets and know-how.We currently rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical studies and clinicaltrials, as well as for commercial manufacture if our product candidates receive marketing approval. To date, we, or our partners on our behalf, have obtainedmaterials for elamipretide and SBT-20 from third party manufacturers. If any of our existing manufacturers should become unavailable to us for any reason,we may incur some delay in identifying or qualifying replacements.Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations, delay our clinical trials and, if our productsare approved for sale, result in lost sales. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials andreduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to future contract manufacture caused byproblems at suppliers could delay shipment of our product candidates, increase our cost of goods sold and result in lost sales.If any of our product candidates are approved by any regulatory agency, we plan to enter into agreements with third-party contract manufacturers forthe commercial production and distribution of those products. It may be difficult for us to reach agreement with a contract manufacturer on satisfactoryterms or in a timely manner. In addition, we may face competition for access to manufacturing facilities as there are a limited number of contractmanufacturers operating under current good manufacturing practices, or cGMPs, that are capable of manufacturing our product candidates. Consequently,we may not be able to reach agreement with third-party manufacturers on satisfactory terms, which could delay our commercialization efforts.Third-party manufacturers are required to comply with cGMPs and similar regulatory requirements outside the United States, such as the ICH.Facilities used by our third-party manufacturers must be approved by the - 26 -Table of ContentsFDA after we submit an NDA and before potential approval of the product candidate. Similar regulations apply to manufacturers of our product candidatesfor use or sale in foreign countries. We do not control the manufacturing process and are completely dependent on our third-party manufacturers forcompliance with the applicable regulatory requirements for the manufacture of our product candidates. If our manufacturers cannot successfullymanufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, and of any applicable foreign regulatoryauthority, we will not be able to secure the applicable approval for their manufacturing facilities. If these facilities are not approved for commercialmanufacture, we may need to find alternative manufacturing facilities, which could result in delays in obtaining approval for the applicable productcandidate.In addition, our manufacturers are subject to ongoing periodic inspections by the FDA and corresponding state and foreign agencies for compliancewith cGMPs and similar regulatory requirements both prior to and following the receipt of marketing approval for any of our product candidates. Some ofthese inspections may be unannounced. Failure by any of our manufacturers to comply with applicable cGMPs or other regulatory requirements could resultin sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions,interruptions in supply and criminal prosecutions, any of which could adversely affect supplies of our product candidates and significantly harm ourbusiness, financial condition and results of operations.Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profitmargins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.Risks Related to Our Intellectual PropertyIf we are unable to obtain and maintain sufficient patent protection for our product candidates, or if the scope of the patent protection is not sufficientlybroad, our competitors could develop and commercialize products similar or identical to ours, and our ability to commercialize our product candidatessuccessfully may be adversely affected.Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to ourproprietary product candidates. If we do not adequately protect our intellectual property, competitors may be able to erode or negate any competitiveadvantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applicationsin the United States and abroad related to our novel product candidates that are important to our business. The patent application and approval process isexpensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timelymanner.The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth ofclaims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, thedetermination of patent rights with respect to pharmaceutical compounds commonly involves complex legal and factual questions, which has in recent yearsbeen the subject of much litigation. As a result, the issuance, scope, validity, enforceability, term and commercial value of our patent rights are highlyuncertain.Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until apatent issues from such applications. Assuming the other requirements for patentability are met, currently, the first to file a patent application is generallyentitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in thescientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not publisheduntil 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patentsor pending patent applications, or that we were the first to file for patent protection of such inventions. - 27 -Table of ContentsMoreover, because the issuance of a patent is not conclusive as to its inventorship, scope, validity, term or enforceability, our patents or pendingpatent applications may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third-partypreissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in post-grant review procedures, oppositions,derivations, reexaminations, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patentrights of others. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or heldunenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products,or limit the duration of the patent protection of our technology and products. Moreover, if the breadth or strength of protection provided by our patents andpatent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercializecurrent or future product candidates. In addition, given the amount of time required for the development, testing and regulatory review of new productcandidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Furthermore, while it is our policyto require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigningsuch intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectualproperty that we regard as our own. As a result, the inventorship or ownership of our intellectual property may be challenged in the future.Our pending and future patent applications may not result in patents being issued which protect our product candidates, in whole or in part, or whicheffectively prevent others from commercializing competitive products. Our issued patents or any patents that may issue in the future may be invalidated orinterpreted narrowly, such that they fail to provide us with any significant competitive advantage. Changes in either the patent laws or interpretation of thepatent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, the lawsof foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, European patent lawrestricts the patentability of methods of treatment of the human body more than United States law does.Even if our patent applications have issued or do issue as patents, they may not issue in a form that will provide us with any meaningful protection,prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent ourpatents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may also seek approval to market theirown products similar to or otherwise competitive with our products. Alternatively, our competitors may seek to market generic versions of any approvedproducts by submitting ANDAs to the FDA in which they claim that patents owned or licensed by us are invalid, unenforceable or not infringed. In thesecircumstances, we may need to defend or assert our patents, or both, including by filing lawsuits alleging patent infringement. In any of these types ofproceedings, a court or other agency with jurisdiction may find our patents invalid or unenforceable, or that our competitors are competing in anon-infringing manner. Thus, even if we have valid and enforceable patents, these patents still may not provide protection against competing products orprocesses sufficient to achieve our business objectives.If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our businesswould be harmed.While we have obtained composition of matter patents with respect to our clinical-stage product candidates through an application family in-licensedfrom Cornell Research Foundation, Inc. (“Cornell”), a subsidiary of Cornell University, and Institut de recherches cliniques de Montréal (the “IRCM”), wealso rely on trade secret protection for certain aspects of our discovery platform. We seek to protect these trade secrets, in part, by entering intonon-disclosure and confidentiality agreements with parties who have access to them, such as our employees, consultants, independent contractors, advisors,contract manufacturers, suppliers and other third parties. We also enter into confidentiality and invention or patent assignment agreements with employees,certain consultants, contractors and collaborators. To our knowledge, such agreements have been entered into with all - 28 -Table of Contentsrelevant parties; however, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitorswill not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Any party with whom wehave executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be ableto obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive andtime-consuming, and the outcome is unpredictable. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by acompetitor, we would have no right to prevent such third-party, or those to whom they communicate such technology or information, from using thattechnology or information to compete with us. If any of our trade secrets were to be misappropriated or disclosed to, or independently developed by, acompetitor, our business and competitive position could be harmed.Certain aspects of our product candidates and technology are protected by patents exclusively licensed from academic institutions. If these third partiesterminate their agreements with us or fail to maintain or enforce the underlying patents, or we otherwise lose our rights to these patents, our competitiveposition and our market share in the markets for any of our approved products will be harmed.We are a party to license agreements and certain aspects of our business depend on patents and/or patent applications owned by third parties. Inparticular, we hold exclusive licenses from Cornell and the IRCM for elamipretide and SBT-20 as well as for other compounds and certain methods. Wemay enter into additional license agreements as part of the development of our business in the future. If we are unable to maintain these patent rights or ourlicense to these patent rights for any reason, or if we are unable to maintain any future material license we may enter into, our ability to develop andcommercialize our product candidates could be materially harmed.Our licensors may not successfully prosecute certain patent applications under which we are licensed and on which our business depends. Even ifpatents issue from these applications, our licensors may fail to maintain these patents, may decide not to pursue litigation against third party infringers, mayfail to prove infringement, or may fail to defend against counterclaims of patent invalidity or unenforceability. For example, under our license agreementwith Cornell, we have the first right to enforce the licensed patents against third party infringement. However, our first right to enforce is subject toCornell’s consent.Risks with respect to parties from whom we have obtained intellectual property rights may also arise out of circumstances beyond our control. Despiteour best efforts, our licensors might conclude that we have materially breached our license agreements and might therefore terminate the licenseagreements, thereby removing our ability to obtain regulatory approval and to market products covered by these license agreements. For example, under ourlicense agreements with Cornell and the IRCM, if we fail to commercialize a product by December 31, 2020, Cornell may terminate the license, subject tospecified exceptions for causes due to scientific and regulatory events that are common in drug development, such as institutional review board delays,clinical trial recruitment, clinical trial results and regulatory delays, and other events over which we cannot exert direct control. If our license agreementsare terminated, or if the underlying patents fail to provide the intended market exclusivity, competitors would have the freedom to seek regulatory approvalof, and to market, products similar or identical to ours. Moreover, if our license agreements are terminated, our former licensors and/or assignors may beable to prevent us from utilizing the technology covered by the licensed or assigned patents and patent applications. This could have a material adverseeffect on our competitive business position and our business prospects.Our license agreements with Cornell and the IRCM impose, and future license agreements we may enter into may impose, various diligence,milestone payment, royalty and other obligations on us. For example, our license agreements with Cornell and the IRCM include an obligation to payroyalties on the net sales of product candidates or related technologies to the extent they are covered by the agreement. If we fail to comply with ourobligations under our license agreement with Cornell and the IRCM or future license agreements, and if no such - 29 -Table of Contentsexceptions apply, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture ormarket any product that is covered by the agreement or face other penalties under the agreement, such as loss of exclusivity. Such an occurrence couldmaterially adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction orelimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms or cause us tolose our rights under these agreements, including our rights to important intellectual property or technology.Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including: • the scope of rights granted under the license agreement and other interpretation-related issues; • the extent to which our product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to thelicensing agreement; • the sublicensing of patent and other rights under our collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors andus and our partners; and • the priority of invention of patented technology.In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certainprovisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise couldnarrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial orother obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results ofoperations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our currentlicensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates,which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.Some of our intellectual property that was discovered through government-funded programs may be subject to federal regulation such as “march-in”rights, certain reporting requirements, and a preference for United States industry. Compliance with such regulations may limit our exclusive rights,subject us to expenditure of resources with respect to reporting requirements and limit our ability to contract with foreign manufacturers.Some of our intellectual property with respect to our product candidates has been funded, at least in part, by the U.S. government and, therefore,would be subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current orfuture product candidates pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act. For example, under the “march-in” provisions of the Bayh-Dole Act,the government may have the right under limited circumstances to require the patent owners to grant exclusive, partially exclusive or non-exclusive rights tothird parties for intellectual property discovered through the government-funded program. The government can exercise its march-in rights if it determinesthat action is necessary because the patent owner fails to achieve practical application of the new invention or because action is necessary to alleviate healthconcerns or address the safety needs of the public. Intellectual property discovered under the government-funded program is also subject to certain reportingrequirements, compliance with which may require us or our licensors to expend substantial resources. Such intellectual property is also subject to apreference for U.S. industry, which may limit our ability to contract with foreign product manufacturers for products covered by such intellectual property.We may apply for additional U.S. government funding, and it is possible that we may discover additional compounds or product candidates as a - 30 -Table of Contentsresult of such funding. Intellectual property under such discoveries would be subject to the applicable provisions of the Bayh-Dole Act. Similarly,intellectual property that we license in the future may have been made using government funding and may be subject to the provisions of the Bayh-DoleAct.We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming andunsuccessful.Competitors may infringe our patents, trademarks, copyrights or other intellectual property. We may be required to file infringement claims, whichcan be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceivedinfringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting thatour patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalidor unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that,even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the otherparty from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceedinginvolving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability toexclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive businessposition, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we haveasserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question.In this case, we could ultimately be forced to cease use of such trademarks.Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetarydamages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection withintellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There couldalso be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceivethese results to be negative, it could have a material adverse effect on the price of our ADSs. Moreover, there can be no assurance that we will havesufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if weultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel couldoutweigh any benefit we receive as a result of the proceedings.In addition, we may from time to time become involved in disputes, including litigation, with respect to intellectual property. For example, in August2013, a former vendor commenced an arbitration proceeding against us regarding a disputed license to the vendor’s technology. In July 2014, the vendorcommenced a lawsuit against one of our service providers, whom we had previously agreed to indemnify for certain liabilities. In February 2016, weentered into a settlement agreement that provided for mutual releases and dismissal with prejudice of each of the pending arbitration and litigation claims. Inconnection with the settlement, we paid $725,000 to the vendor and agreed to withdraw and/or not refile certain pending patent applications in satisfactionof all of our obligations under the settlement agreement.If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time-consuming and could prevent or delayus from developing or commercializing our product candidates.Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates without infringing theintellectual property and other proprietary rights of third parties. Third parties have U.S. and non-U.S. issued patents and pending patent applicationsrelating to compounds and - 31 -Table of Contentsmethods of use for the treatment of key indications for our priority programs, and we may be subject to claims that our research, development andcommercialization activities infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. If any third-partypatents or patent applications are found to cover our product candidates or their methods of use, we may not be free to manufacture or market our productcandidates as planned without obtaining a license, which may not be available on commercially reasonable terms, or at all.There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, orthreatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our products candidates, includingderivation or interference proceedings, post grant and inter partes reviews, opposition proceedings, and the like in the United States and in otherjurisdictions. Third parties may assert infringement claims against us based on existing or future intellectual property rights. The outcome of intellectualproperty litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries haveproduced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types ofproducts or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were suedfor patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of therelevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in theUnited States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel couldbe diverted in pursuing these proceedings, which could significantly harm our business and operating results. In addition, we may not have sufficientresources to bring these actions to a successful conclusion. Furthermore, because of the substantial amount of discovery required in connection withintellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure.In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our ability to raiseadditional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing,manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third-partyin order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not beable to obtain any required license on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, therebygiving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including trebledamages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing ourproduct candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated theconfidential information or trade secrets of third parties could have a similar negative impact on our business.Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability toprotect our products.As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining andenforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherentlyuncertain. Patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or the Leahy-Smith Act,signed into law in September 2011, could increase those uncertainties and costs. The Leahy-Smith Act includes a number of significant changes to U.S.patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective - 32 -Table of Contentsavenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a “first to file”system. The first-to-file provisions, however, only became effective in March 2013. Accordingly, it is not yet clear what, if any, impact the Leahy-SmithAct will have on the operation of our business. However, the Leahy-Smith Act and its implementation could make it more difficult to obtain patentprotection for our inventions and increase the uncertainties and costs surrounding the prosecution of our or our collaboration partners’ patent applicationsand the enforcement or defense of our or our collaboration partners’ issued patents, all of which could harm our business, results of operations and financialcondition.The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certaincircumstances or weakening the rights of patent owners in certain situations. Additionally, there have been recent proposals for additional changes to thepatent laws of the United States and other countries that, if adopted, could impact our ability to enforce our proprietary technology. Depending on futureactions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patentscould change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtainin the future.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, 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 USPTO and foreign patent agencies in several stages over the lifetime of thepatent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment andother similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by othermeans in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patentapplication, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment orlapse 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 feesand failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our product candidates, ourcompetitive position would be adversely affected.We may not be able to enforce our intellectual property rights throughout the world.Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. Therequirements for patentability may differ in certain countries, particularly in developing countries. Competitors may use our technologies in jurisdictionswhere we have not pursued and obtained patent protection to develop their own products and, further, may export otherwise infringing products to territorieswhere we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with ourproducts in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not beeffective or sufficient to prevent them from so competing.Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectualproperty laws. Additionally, laws of some countries outside of the United States and Europe do not afford intellectual property protection to the same extentas the laws of the United States and Europe. Many companies have encountered significant problems in protecting and defending intellectual property rightsin certain foreign jurisdictions. The legal systems of some countries, including China, India and other developing countries, do not favor the enforcement ofpatents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our otherintellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to thirdparties. Consequently, we may not be able to prevent third - 33 -Table of Contentsparties from practicing our inventions in certain countries outside the United States and Europe. Competitors may use our technologies in jurisdictionswhere we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where wehave patent protection, if our ability to enforce our patents to stop infringing activities is inadequate. These products may compete with our products, andour patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts andresources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in major markets for our products, wecannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our products. Accordingly, ourefforts to protect our intellectual property rights in such countries may be inadequate.Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 yearsfrom its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Evenif patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products,including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patentsprotecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfoliomay not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.If we do not obtain patent term extension and data exclusivity for any product candidates we may develop, our business may be materially harmed.Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of ourU.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years as compensation for patent term lost during theFDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of productapproval, only one patent may be extended and the extension only applies to those claims covering the approved drug, a method for using it, or a method formanufacturing it. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase orregulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfyapplicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable toobtain patent term extension or the term of any such extension is less than we request, our competitors may obtain approval of competing productsfollowing our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed. Furthermore, in theUnited States, only a single patent can be extended for each qualifying FDA approval, and any patent can be extended only once and only for a singleproduct. Laws governing analogous patent term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patentsfrom a single patent family. Because both elamipretide and SBT-20 compositions-of-matter are protected by a single family of patents and applications, wemay not be able to secure patent term extensions for both of these product candidates in all jurisdictions where these product candidates are or may beapproved, including the United States. - 34 -Table of ContentsWe may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownershipof what we regard as our own intellectual property.Many of our employees and our licensors’ employees, including our senior management, were previously employed by others, including universitiesand other biotechnology and pharmaceutical companies, some of which are our competitors or potential competitors. Some of these employees, includingeach member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connectionwith such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their workfor us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietaryinformation, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition topaying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could beawarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a licensemay not be available on commercially reasonable terms, or at all. Even if we are successful in defending against such claims, litigation could result insubstantial costs and be a distraction to management.In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property toexecute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact developsintellectual property that we regard as our own, which may result in claims by or against us related to the ownership of such intellectual property. If we failin prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we aresuccessful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management andscientific personnel.Risks Related to Regulatory Approval and Other Legal Compliance MattersEven if we complete the necessary preclinical and clinical studies, the marketing approval process is expensive, time consuming and uncertain and mayprevent us or any future collaborators from obtaining approvals for the commercialization of some or all of our product candidates. As a result, wecannot predict when or if, and in which territories, we, or any future collaborators, will obtain marketing approval to commercialize a productcandidate.The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of drug products are subject to extensiveregulation by the FDA and comparable foreign regulatory authorities, which regulations differ from country to country. We, and any future collaborators,are not permitted to market our product candidates in the United States or in other countries until we, or they, receive approval of an NDA from the FDA ormarketing approval from applicable regulatory authorities outside the United States. Our product candidates are in various stages of development and aresubject to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our productcandidates in the United States or in any other jurisdiction. We have limited experience in conducting and managing the clinical trials necessary to obtainmarketing approvals, including FDA approval of an NDA.The process of obtaining marketing approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take many years, ifapproval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidatesinvolved.In addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additionalstatutes, regulations or guidance or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of anapplication. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our dataare insufficient for approval and require additional preclinical, clinical or other studies. In - 35 -Table of Contentsaddition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a productcandidate. Any marketing approval we, or any future collaborators, ultimately obtain may be limited or subject to restrictions or post-approval commitmentsthat render the approved product not commercially viable.Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or that of any future collaborators togenerate revenue from the particular product candidate, which likely would result in significant harm to our financial position.Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad.In order to market and sell our products in key potential markets, we, and any future collaborators, must obtain separate marketing approvals andcomply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The timerequired to obtain approval may differ substantially from that required to obtain FDA approval. The marketing approval process outside the United Statesgenerally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that theproduct be approved for reimbursement before the product can be approved for sale in that country. We, and any future collaborators, may not obtainapprovals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatoryauthorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatoryauthorities in other countries or jurisdictions or by the FDA.On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly referred to as Brexit. On March 29,2017, the country formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. Since a significantproportion of the regulatory framework in the United Kingdom is derived from European Union directives and regulations, the referendum could materiallyimpact the regulatory regime with respect to the approval of our product candidates in the United Kingdom or the European Union. Any delay in obtaining,or an inability to obtain, any marketing approvals in the United Kingdom, as a result of Brexit or otherwise, would prevent us from commercializing ourproduct candidates in the United Kingdom and reduce our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur,we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom for our product candidates, which could significantly andmaterially harm our business.The United Kingdom has a period of a maximum of two years from the date of its formal notification to negotiate the terms of its withdrawal from,and future relationship with, the European Union. If no formal withdrawal agreement is reached between the United Kingdom and the European Union, thenit is expected the United Kingdom’s membership of the European Union will automatically terminate two years after the submission of the notification ofthe United Kingdom’s intention to withdraw from the European Union. Discussions between the United Kingdom and the European Union focused onfinalizing withdrawal issues and transition agreements are ongoing. However, limited progress to date in these negotiations and ongoing uncertainty withinthe UK Government and Parliament sustains the possibility of the United Kingdom leaving the European Union on April 12, 2019 without a withdrawalagreement and associated transition period in place, which is likely to cause significant market and economic disruption.Furthermore, other European countries may seek to conduct referenda with respect to continuing membership with the European Union. We do notknow to what extent Brexit or other comparable initiatives, or any resulting changes, would affect our ability to conduct clinical trials or obtain marketingapproval in these jurisdictions, and each could materially impact our ability to conduct clinical trials or obtain marketing approval on a timely basis, or atall. - 36 -Table of ContentsWe have obtained Fast Track designation from the FDA for elamipretide for the treatment of primary mitochondrial myopathy, Barth, LHON and dryAMD with geographic atrophy. However, Fast Track designation may not actually lead to a faster development, regulatory review or approval process.If a product is intended for the treatment of a serious or life-threatening condition and the product candidate demonstrates the potential to addressunmet needs for this condition, the treatment sponsor may apply for FDA Fast Track designation. If the Fast Track designation is obtained, the FDA mayinitiate review of sections of an NDA before the application is complete. This “rolling review” is available if the applicant provides, and the FDA approves,a schedule for submission of the individual sections of the application. In December 2015, the FDA notified us that we had obtained Fast Track designationfor elamipretide for the treatment of primary mitochondrial myopathy, in November 2017, the FDA notified us that we had obtained Fast Track designationfor elamipretide for the treatment of Barth and LHON and in November 2018, the FDA notified us that we had obtained Fast Track designation forelamipretide for the treatment of patients with geographic atrophy, an advanced form of dry AMD. Fast Track designation does not ensure that we willexperience a faster development, regulatory review or approval process compared to conventional FDA procedures or that we will ultimately obtainregulatory approval of elamipretide. Additionally, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supportedby data from our clinical development program.We have obtained orphan drug designation from the FDA for elamipretide for the treatment of primary mitochondrial myopathy, Barth and LHON.However, we, or any future collaborators, may not be able to obtain orphan drug designation or orphan drug exclusivity for our other productcandidates.Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan drugs.Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which isgenerally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in theUnited States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. We havereceived orphan drug designation for elamipretide for primary mitochondrial myopathy, Barth and LHON. We, or any future collaborators, may seek orphandrug designations for other product candidates or in other jurisdictions and may be unable to obtain such designations.Even for product candidates for which we, or any future collaborators, may obtain orphan drug designation, we, or they, may not be able to obtainorphan drug exclusivity for that product candidate. Generally, if a product candidate with an orphan drug designation receives the first marketing approvalfor the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes FDA from approvinganother marketing application for a product that constitutes the same drug treating the same indication for that marketing exclusivity period, except inlimited circumstances. If another sponsor receives such approval before we do (regardless of our orphan drug designation), we will be precluded fromreceiving marketing approval for our product for the applicable exclusivity period. The applicable period is seven years in the United States. The exclusivityperiod in the United States can be extended by six months if the sponsor submits pediatric data that fairly respond to a written request from FDA for suchdata. Orphan drug exclusivity may be revoked if any regulatory agency determines that the request for designation was materially defective or if themanufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.Even if we, or any future collaborators, obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product fromcompetition because different drugs can be approved for the same condition. In the United States, even after an orphan drug is approved, the FDA maysubsequently approve another drug for the same condition if the FDA concludes that the latter drug is not the same drug or is clinically superior in that it isshown to be safer, more effective or makes a major contribution to patient care. In the European Union, marketing authorization may be granted to a similarmedicinal product for the same orphan indication if: • the second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal product alreadyauthorized, is safer, more effective or otherwise clinically superior; - 37 -Table of Contents • the holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application;or • the holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of orphan medicinalproduct.Even if we, or any future collaborators, obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of ourproducts may limit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensiveregulation. We, and any future collaborators, must therefore comply with requirements concerning advertising and promotion for any of our productcandidates for which we or they obtain marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legaland regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we and any future collaborators will not beable to promote any products we develop for indications or uses for which they are not approved.In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements,including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and qualityassurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, any futurecollaborators and their contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance withcGMPs.Accordingly, assuming we, or any future collaborators, receive marketing approval for one or more of our product candidates, we, and any futurecollaborators, and our and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, includingmanufacturing, production, product surveillance and quality control.If we, or any of our future collaborators, are not able to comply with post-approval regulatory requirements, we, and any such future collaborators,could have the marketing approvals for our products withdrawn by regulatory authorities and our, or any future collaborators’, ability to market any futureproducts could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approvalregulations may have a negative effect on our operating results and financial condition.Any of our product candidates for which we, or any future collaborators, obtain marketing approval in the future could be subject to post-marketingrestrictions or withdrawal from the market and we, or any future collaborators, may be subject to substantial penalties if we, or they, fail to comply withregulatory requirements or if we, or they, experience unanticipated problems with our products following approval.Any of our product candidates for which we, or any future collaborators, obtain marketing approval in the future, as well as the manufacturingprocesses, post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject tocontinual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance andcorresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even ifmarketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may bemarketed or to the conditions of approval, including the requirement to implement a Risk Evaluation and Mitigation Strategy.The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of aproduct. The FDA and other agencies, including the Department of Justice, - 38 -Table of Contentsclosely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only forthe approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’communications regarding off-label use and if we, or any future collaborators, do not market any of our product candidates for which we, or they, receivemarketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation ofthe FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations orallegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws, which violations can result in theimposition of significant administrative, civil and criminal penalties.In addition, later discovery of previously unknown adverse events or other problems with our products or their manufacturers or manufacturingprocesses, or failure to comply with regulatory requirements, may yield various results, including: • restrictions on such products, manufacturers or manufacturing processes; • restrictions on the labeling or marketing of a product; • restrictions on product distribution or use; • requirements to conduct post-marketing studies or clinical trials; • warning letters or untitled letters; • withdrawal of the products from the market; • refusal to approve pending applications or supplements to approved applications that we submit; • recall of products; • restrictions on coverage by third-party payors; • fines, restitution or disgorgement of profits or revenues; • suspension or withdrawal of marketing approvals; • refusal to permit the import or export of products; • product seizure; or • injunctions or the imposition of civil or criminal penalties.Healthcare legislative reform measures may increase the difficulty and cost for us and any future collaborators to obtain marketing approval of andcommercialize our product candidates and affect the prices we, or they, may obtain.In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regardingthe healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approvalactivities and affect our ability, or the ability of any future collaborators, to profitably sell any products for which we, or they, obtain marketing approval.We expect that current laws, as well as other healthcare reform measures that will be adopted in the future, may result in more rigorous coverage criteriaand in additional downward pressure on the price that we, or any future collaborators, may receive for any approved products.For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively theAffordable Care Act, became law in 2010 and includes the following provisions of potential importance to our product candidates: • an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; - 39 -Table of Contents • an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; • a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs andbiologics that are inhaled, infused, instilled, implanted or injected; • expansion of federal healthcare fraud and abuse laws, including the False Claims Act and the federal healthcare Anti-Kickback Statute, newgovernment investigative powers and enhanced penalties for noncompliance; • a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (and 70% commencing January 1,2019) point-of-sale discounts off negotiated prices; • extension of manufacturers’ Medicaid rebate liability; • expansion of eligibility criteria for Medicaid programs; • expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; • new requirements to report financial arrangements with physicians and teaching hospitals; • a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; • a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,along with funding for such research; • establishment of a Center for Medicare Innovation at the Centers for Medicare and Medicaid Services, or CMS, to test innovative payment andservice delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending; and • establishment a licensure framework for follow on biologic products.Some of the provisions of the Affordable Care Act have yet to be implemented, and there have been judicial and Congressional challenges to certainaspects of the Affordable Care Act, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act.Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions ofthe Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. Congress hasconsidered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeallegislation, two bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Cuts and Jobs Act of2017 (the “Tax Act”), includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the AffordableCare Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individualmandate”. On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation ofcertain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual feeimposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The BipartisanBudget Act of 2018, or the BBA, among other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in mostMedicare drug plans, commonly referred to as the “donut hole”. In July 2018, CMS published a final rule permitting further collections and payments to andfrom certain Affordable Care Act qualified health plans and health insurance issuers under the Affordable Care Act risk adjustment program in response tothe outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a U.S. DistrictCourt Judge in the Northern District of Texas ruled that the individual mandate is an inseverable feature of the - 40 -Table of ContentsAffordable Care Act, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the Affordable Care Act are invalid as well.While the Trump Administration and CMS have both stated that the ruling will have no immediate effect, it is unclear how this decision and subsequentappeals, if any, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.The timing and scope of any potential future legislation to repeal and replace Affordable Care Act provisions is highly uncertain in many respects.Such reforms, if enacted, could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which wemay obtain marketing approval and may affect our overall financial condition and ability to develop or commercialize product candidates. We expect thatthe Affordable Care Act, if retained in its current form, as well as other healthcare reform measures that may be adopted in the future, may result inadditional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downwardpressure on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any approved productwe might bring to market. Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products areprescribed or administered by physicians. Any reduction in reimbursement from Medicare or other government programs may result in a similar reductionin payments from private payors.In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. In August 2011, the BudgetControl Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, taskedwith recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, therebytriggering the legislation’s automatic reduction to several government programs. These changes included aggregate reductions to Medicare payments toproviders of up to 2% per fiscal year, which went into effect in April 2013 and due to legislative amendments to the statute, including the BBA, will remainin effect through 2027 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, reduced Medicarepayments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to fiveyears. These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any ofour product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.Moreover, there has been heightened governmental scrutiny recently over pharmaceutical pricing practices in light of the rising cost of prescriptiondrugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to,among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reformgovernment program reimbursement methodologies for products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example,measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices underMedicaid, and to eliminate cost sharing for generic drugs for low-income patients. Further, the Trump administration released a “Blueprint” to lower drugprices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power ofcertain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug productspaid by consumers. The U.S. Department of Health and Human Services has already started the process of soliciting feedback on certain of these measuresand, additionally, is immediately implementing others under its existing authority. For example, in September 2018, CMS announced that it will allowMedicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule thatwould require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or underMedicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product. Although a numberof these, and other potential, proposals - 41 -Table of Contentswill require authorization through additional legislation to become effective, Congress and the executive branch have each indicated that it will continue toseek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation andimplemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts,restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation fromother countries and bulk purchasing.Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 was signedinto law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that havecompleted a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatmentwithout enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drugmanufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.Legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities forpharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance orinterpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition,increased scrutiny by the United States Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject usand any future collaborators to more stringent product labeling and post-marketing testing and other requirements.Our relationships with customers and third-party payors, among others, will be subject to applicable anti-kickback, fraud and abuse and otherhealthcare laws and regulations, which could expose us to penalties, including criminal sanctions, civil penalties, contractual damages, reputationalharm and diminished profits and future earnings.Healthcare providers and third-party payors will play a primary role in the recommendation and prescription of any products for which we obtainmarketing approval. Our arrangements with third-party payors, healthcare providers and customers, if any, will subject us to broadly applicable fraud andabuse and other healthcare laws and regulations. These laws and regulations may constrain the business or financial arrangements and relationships throughwhich we market, sell and distribute any products for which we obtain marketing approval. These include the following:Anti-Kickback Statute. The federal healthcare Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfullysoliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral ofan individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federalhealthcare program such as Medicare and Medicaid;False Claims Laws. The federal civil and criminal false claims laws, including the False Claims Act, and civil monetary penalties laws, whichprovides for civil whistleblower or qui tam actions, prohibit, among other things, individuals and entities from knowingly presenting, or causing to bepresented false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claimor avoiding, decreasing or concealing an obligation to pay money to the federal government;HIPAA. The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among otherthings, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters, and, as amended by theHealth Information Technology for Economic and Clinical Health Act and their implementing regulations, also imposes obligations, including mandatorycontractual terms and physical, administrative and technical safeguards, with respect to maintaining the privacy, security and transmission of individuallyidentifiable health information; - 42 -Table of ContentsTransparency Requirements. The federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs, biologics, devicesand supplies to report payments and other transfers of value to physicians and teaching hospitals and ownership and investment interests by physicians; andAnalogous State and Foreign Laws. Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claimslaws, which may be broader in scope, can apply to our business activities, including sales or marketing arrangements, and claims involving healthcare itemsor services reimbursed by non-governmental third party payors, including private insurers, and are generally broad and are enforced by many differentfederal and state agencies as well as through private actions. Some state laws require pharmaceutical companies to comply with the pharmaceuticalindustry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require drug manufacturers toreport information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Certain state andlocal laws require the registration of pharmaceutical sales representatives. State and foreign laws also govern the privacy and security of health informationin some circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating complianceefforts.Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations involve substantial costs. Itis possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case lawinvolving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any othergovernmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement,individual imprisonment, exclusion of products from government-funded healthcare programs, such as Medicare and Medicaid, additional reportingrequirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance withthese laws, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect todo business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusionsfrom government-funded healthcare programs.Regulatory or legislative developments regarding privacy and data security matters could adversely affect our ability to conduct our business.We are subject to data privacy and security regulation in the jurisdictions in which we conduct our business, particularly in light of increasedregulatory scrutiny of and user expectations regarding the processing, collection, use, storage, dissemination, transfer and disposal of user data. Theregulatory frameworks regarding privacy issues in many jurisdictions are constantly evolving and can be subject to significant changes from time to time,and therefore we may not be able to comprehensively assess the scope and extent of our compliance responsibility at a global level. In addition, state lawsgovern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicatingcompliance efforts. Data privacy concerns may result in increased costs of operations and threats of lawsuits, enforcement actions and related liabilities,including financial penalties.Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which couldresult in a material disruption of our product development programs.Our internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damagefrom computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such systems may bevulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees, third-party vendors and/or businesspartners, or from cyber-attacks by malicious third parties. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have becomeincreasingly difficult to detect. Cyber-attacks could include the - 43 -Table of Contentsdeployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten theconfidentiality, integrity and availability of information. Cyber-attacks also could include phishing attempts or e-mail fraud to cause payments orinformation to be transmitted to an unintended recipient.While we have not experienced a system failure, accident, cyber-attack or security breach that has resulted in a material interruption in our operationsto date, if such an event were to occur, it could result in a material disruption of our development programs and our business operations, whether due to aloss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or futureclinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.Additionally, any such event that leads to unauthorized access, use or disclosure of personal information, including personal information regardingour patients or employees, could harm our reputation, cause us not to comply with federal and/or state breach notification laws and foreign law equivalentsand otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. Security breaches and otherinappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we haveimplemented security measures to protect our information technology systems and infrastructure, there can be no assurance that such measures will preventservice interruptions or security breaches that could adversely affect our business and the further development of our product candidates could be delayed.The collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the European Union, including personal healthdata, is subject to the EU General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scopeand imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data,obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, respondingto data subject requests, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, andtaking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside theEU, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of upto €20.0 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumerassociations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of theGDPR. Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change ourbusiness practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection withany European activities.We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anticorruption laws, and anti-money laundering laws andregulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminalliability and other serious consequences for violations, which can harm our business.We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations,various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. ForeignCorrupt Practices Act of 1977, as amended, or FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USAPATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruptionlaws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering,or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. - 44 -Table of ContentsWe may engage third parties to sell our products outside the United States, to conduct clinical trials, and/or to obtain necessary permits, licenses, patentregistrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents,contractors, and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws andregulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges,debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that couldsignificantly harm our business.We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling,use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardousand flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Although we contract with thirdparties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from thesematerials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resultingdamages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failureto comply with such laws and regulations.We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from theuse of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance forenvironmental liability or toxic tort claims that may be asserted against us.In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current orfuture environmental laws and regulations may impair our research, development or production efforts, which could adversely affect our business, financialcondition, results of operations or prospects. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or othersanctions.In the future, if we decide to market our products outside of the United States, such as in the European Union or China, we would need to obtainadditional approvals and comply with additional regulatory requirements.Our primary regulatory strategy is to apply first for approvals in the United States for our rare disease programs. We intend to seek approvals in Chinacommencing in 2019. We may in the future apply for approvals in Europe, or clinical trial waivers in China, following receipt of marketing authorization inthe United States. However, as we also plan to consider collaboration for commercialization efforts in Europe and China, we anticipate that potentialcommercialization partners may have input into regulatory strategies in those jurisdictions. To date, we have focused our regulatory efforts primarily onachieving approvals and marketing authorization in the United States. In order to market any product outside of the United States, we will need to complywith numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among otherthings, clinical trials, marketing authorization, commercial sales and distribution of products. Whether or not we obtain FDA approval for a product, we orour collaborators would need to obtain the necessary approvals by the comparable foreign regulatory authorities before marketing the product in thosecountries or jurisdictions. We cannot be sure whether and when we would be able to obtain the necessary approvals, which could adversely affect ourbusiness and prospects. - 45 -Table of ContentsGovernments outside the United States may impose strict price controls, which may adversely affect our revenues, if any.In some countries, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations withgovernmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval insome countries, we, or any future collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our product to otheravailable therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our businesscould be materially harmed.Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, whichcould cause significant liability for us and harm our reputation.We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similarregulations of comparable regulatory authorities, provide accurate information to the FDA or comparable regulatory authorities, comply with manufacturingstandards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations establishedand enforced by comparable regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. Employeemisconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions andserious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent thisactivity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions orlawsuits stemming from a failure to be in compliance with such laws, standards or regulations. If any such actions are instituted against us, and we are notsuccessful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, includingthe imposition of significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion of products fromgovernment-funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if subject to a corporate integrityagreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations.Risks Related to Employee Matters and Managing GrowthOur future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.We are highly dependent on Reenie McCarthy, our Chief Executive Officer and a Director, as well as the other principal members of our managementand scientific teams. Ms. McCarthy is employed “at will,” meaning we or she may terminate the employment relationship at any time. In the future, we maybe dependent on other members of our management, scientific and development team. Our ability to compete in the highly competitive biotechnology andpharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. Our industry hasexperienced a high rate of turnover of management personnel in recent years. If we lose one or more of our executive officers or other key employees, ourability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers or other key employees may bedifficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experiencerequired to develop, gain marketing approval of and commercialize products successfully. Competition to hire from this limited pool is intense, and we maybe unable to hire, train, retain or motivate these additional key employees on acceptable terms given the competition among numerous pharmaceutical andbiotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities andresearch institutions. - 46 -Table of ContentsWe rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development andcommercialization strategy. Our consultants and advisors may be employed by other entities and may have commitments under consulting or advisorycontracts with those entities that may limit their availability to us. If we are unable to continue to attract and retain highly qualified personnel, our ability todevelop and commercialize our product candidates will be limited.We expect to grow our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drugmanufacturing, regulatory affairs and sales, marketing and distribution. To manage these growth activities, we must continue to implement and improve ourmanagerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Our management mayneed to devote a disproportionate amount of its attention to managing these growth activities. Due to our limited financial resources and the limitedexperience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of ouroperations or identify, recruit and train additional qualified personnel. Our inability to manage the expansion of our operations effectively may result inweaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity amongremaining employees. Our expected growth could also require significant capital expenditures and may divert financial resources from other projects, suchas the development of additional product candidates. If we are unable to effectively manage our expected growth, our expenses may increase more thanexpected, our ability to generate revenues could be reduced and we may not be able to implement our business strategy, including the successfulcommercialization of our product candidates.Risks Related to Ownership of ADSsMorningside Venture (I) Investments Limited has a controlling ownership interest in our ordinary shares and the ability to substantially control allmatters submitted to shareholders for approval.Morningside Venture (I) Investments Limited (“MVIL”) beneficially owns 63.4% of our ordinary shares. In addition, certain entities associatedwithin MVIL beneficially own an additional 14% of our ordinary shares. As a result, MVIL and such entities will be able to control any matter submitted toour shareholders for approval that requires an ordinary resolution or special resolution, as well as our management and affairs. For example, MVIL wouldcontrol the election of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration ofownership control may: • delay, defer or prevent a change in control; • entrench our management or the board of directors; or • impede a merger, consolidation, takeover or other business combination involving us that other shareholders may desire.MVIL owns a controlling portion of our ordinary shares and may have conflicts of interest with us and other shareholders in the future.The interests of MVIL may not always be consistent with the interests of our company or of our other shareholders. Accordingly, MVIL could causeus to enter into transactions or agreements of which other holders of our ordinary shares would not approve or make decisions with which such holderswould disagree. Gerald L. Chan, one of our directors, is a co-founder of the Morningside group, a private investment group with venture, private equity andproperty investments. In addition, Reenie McCarthy, our Chief Executive Officer and a director, served as a member of the investment team at MorningsideTechnology Advisory, LLC (and affiliates) from 1993 through 2016, and remains a director of Morningside Technology Advisory, LLC, which providesadvisory services to entities associated with the Morningside group. - 47 -Table of ContentsAlthough Dr. Chan is not an officer, director or employee of MVIL and has neither voting nor dispositive control over the ordinary shares held byMVIL and does not otherwise beneficially own such shares, as a result of his ongoing relationship with the Morningside group, transactions between us andMVIL may present an actual or perceived conflict of interest. Although Ms. McCarthy is not an officer, director or employee of MVIL, and has neithervoting nor dispositive control over our ordinary shares held by MVIL and does not otherwise beneficially own such shares, as a result of her historicrelationship with the Morningside group and her ongoing relationship with Morningside Technology Advisory, LLC, transactions between us and MVILmay present an actual or perceived conflict of interest. Any actual or perceived conflicts of interest may lead Dr. Chan and Ms. McCarthy to recusethemselves from actions of our board of directors with respect to transactions involving MVIL and its affiliates. For example, in a situation in which MVILis adverse to us, such as if it breaches an agreement with us, a conflict could arise. We may not be able to resolve any potential conflicts, and even if we do,the resolution may be less favorable than if we were dealing with an unaffiliated party.MVIL is in the business of making investments in companies and could from time to time acquire and hold interests in businesses that compete withus. MVIL may also pursue acquisition opportunities that may be complementary to our business, and as a result, desirable acquisitions may not be availableto us. So long as MVIL continues to own a significant amount of our equity, it will continue to be able to strongly influence or effectively control ourdecisions.The price of our ADSs is likely to be highly volatile.The price of our ADSs is likely to be highly volatile. The stock market in general and the market for smaller pharmaceutical and biotechnologycompanies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The marketprice for our ADSs may be influenced by many factors, including: • our ability to commercialize or obtain regulatory approval for our product candidates, or delays in commercializing or obtaining regulatoryapproval; • announcements relating to our clinical trials, including any periodic updates relating to enrollment of trial subjects, adverse events, siteinitiation, and timing of release of interim analyses and final trial results; • commencement or termination of collaborations for our development programs; • failure or discontinuation of any of our development programs; • results from, or any delays in, clinical trials relating to our product candidates, including our clinical trials for elamipretide; • any need to suspend or discontinue clinical trials due to side effects or other safety risks, or any need to conduct studies on the long-term effectsassociated with the use of our product candidates; • manufacturing issues related to our product candidates for clinical trials or future products for commercialization; • commercial success and market acceptance of our product candidates following regulatory approval; • undesirable side effects caused by product candidates after they have entered the market; • ability to discover, develop and commercialize additional product candidates; • announcements relating to collaborations that we may enter into with respect to the development or commercialization of our productcandidates; • success of our competitors in discovering, developing or commercializing products; • strategic transactions undertaken by us; - 48 -Table of Contents • additions or departures of key personnel; • product liability claims related to our clinical trials or product candidates; • business disruptions caused by earthquakes or other natural disasters; • disputes concerning our intellectual property or other proprietary rights; • FDA, EMA, NMPA or other regulatory actions affecting us or our industry; • healthcare reform measures in the United States; • future sales or issuances of equity or debt securities by us; • fluctuations in our semi-annual operating results; • the issuance of new or changed securities analysts’ reports or recommendations regarding us; • announcement or expectation of additional financing efforts; • sales of our ordinary shares by us, our insiders or other shareholders; • actual and anticipated variations in our results of operations; • changes in securities analysts’ estimates or market perception of our financial performance; • announcements by us of significant acquisitions, disposals, strategic alliances or joint ventures; • recruitment or loss of key personnel by us or our competitors; • market developments affecting us or the markets in which we operate; • regulatory or legal developments, including litigation; • the operating and share price performance of companies that investors consider to be comparable to us; • the depth and liquidity of the market for our ADSs; • the release or expiry of lock-up or other transfer restrictions on our ordinary shares and ADSs; • general economic, political and stock market conditions in the United States and the countries in which we operate and elsewhere in the world;and • the other factors described in this “Risk Factors” section.Additionally, in the past, securities class action litigation has often been brought against a company following a decline in the market price of itssecurities. This risk is especially relevant for us in light of the significant stock price volatility pharmaceutical companies have experienced in recent years.If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our ADSs lessattractive to investors.We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain anemerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptionsfrom certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include notbeing required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX Section 404, not beingrequired to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotationor a supplement to the auditor’s report providing additional information about the audit and the financial statements, - 49 -Table of Contentsreduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote onexecutive compensation and shareholder approval of any golden parachute payments not previously approved. In this annual report, we have not includedall of the executive compensation related information that would be required if we were not an emerging growth company and a foreign private issuer. Wecannot predict whether investors will find our ADSs less attractive if we rely on these exemptions. If some investors find our ADSs less attractive as aresult, there may be a less active trading market for our ADSs and the price of our ADSs may be more volatile.In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new orrevised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards wouldotherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, wewill not be subject to the same new or revised accounting standards as other public companies. As a result, our financial statements may not be comparableto the financial statements of reporting companies that are required to comply with the effective dates for new or revised accounting standards that areotherwise applicable to public companies.As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with theSecurities and Exchange Commission than U.S. companies. This may limit the information available to holders of our ADSs.We are a “foreign private issuer,” as defined in the rules and regulations of the Securities and Exchange Commission, or the “SEC,” and,consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the United States. For example, we areexempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies,consents or authorizations applicable to a security registered under the Exchange Act. In addition, our senior management and supervisory board membersare exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to theirpurchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or aspromptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. publiccompanies.In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S.domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreignprivate issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information.As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.We intend to rely on Nasdaq Stock Market rules that permit us to comply with applicable Cayman Islands corporate governance practices, rather thanthe corresponding domestic U.S. corporate governance practices, and therefore your rights as a shareholder will differ from the rights you would haveas a shareholder of a domestic U.S. issuer.As a foreign private issuer whose ADSs are listed on The Nasdaq Global Market, we are permitted in certain cases to follow Cayman Islandscorporate governance practices instead of the corresponding requirements of the Nasdaq Stock Market rules. A foreign private issuer that elects to follow ahome country practice instead of Nasdaq requirements must submit to Nasdaq in advance a written statement from an independent counsel in such issuer’shome country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in itsannual reports filed with the SEC each such requirement that - 50 -Table of Contentsit does not follow and describe the home country practice followed instead of any such requirement. In accordance with Cayman Islands law: • we do not require a remuneration committee to have entirely independent directors; • we do not require an independent director oversight of director nominations; and • we do not require the board of directors to have regularly scheduled meetings at which only independent directors are present.For further information upon the differences between Delaware law and Cayman Islands law, please see “Description of Share Capital and Articles ofAssociation—Differences in Corporate Law” in our prospectus dated February 14, 2019, filed with the SEC pursuant to Rule 424(b), which information isincorporated by reference in this annual report.We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause usto incur significant legal, accounting and other expenses.As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and currentreporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s mostrecently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our ordinary shares are directlyor indirectly held by residents of the United States and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If welose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domesticissuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S.federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recoveryprovisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirementsunder the Nasdaq listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting andother expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S.securities exchange. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors andmore expensive to procure director and officer liability insurance.A significant portion of our total outstanding shares may be sold into the market in the near future, which could cause the market price of our ADSs todecline significantly, even if our business is doing well.Sales of a substantial number of ADSs in the public market could occur at any time. These sales, or the perception in the market that the holders of alarge number of ordinary shares intend to sell ADSs, could reduce the market price of our ADSs. Ordinary shares totaling 335.3 million are currentlyrestricted under securities laws or as a result of lock-up or other agreements, but will be able to be sold, subject to any applicable volume limitations underfederal securities laws with respect to affiliate sales beginning August 4, 2019, or sooner with the consent of Jefferies LLC and Evercore Group L.L.C. intheir sole discretion. Sales of a substantial number of such securities upon early release or expiration of the lock-up period or the perception that such salesmay occur could cause the market price of ADSs to decline or make it more difficult to sell ADSs at a time and at a price that our ADS holders deemappropriate. We have also registered 63.5 million ordinary shares that we may issue under our equity compensation plans. These shares can be freely sold inthe public market upon issuance and once vested, subject to volume limitations applicable to affiliates and the lock-up agreements described above.We do not anticipate paying any cash dividends on our ADSs in the foreseeable future. Accordingly, holders of ADSs must rely on capital appreciation,if any, for any return on their investment.We have never declared nor paid cash dividends on our share capital. We currently plan to retain all of our future earnings, if any, to finance theoperation, development and growth of our business. In addition, the terms - 51 -Table of Contentsof our existing loan and security agreement preclude us from paying cash dividends without the consent of our lender. As a result, capital appreciation, ifany, of our ADSs will be the sole source of gain for holders of our ADS for the foreseeable future. However, if we do pay a cash dividend on our ordinaryshares in the future, we may only pay such dividend out of our profits or share premium (subject to applicable solvency requirements) under CaymanIslands law.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and tradingvolume could decline.The trading market for our ADSs will likely depend, in part, on the research and reports that securities or industry analysts publish about us or ourbusiness. We do not have any control over these analysts. There can be no assurance that analysts will cover us, or provide favorable coverage. If one ormore analysts downgrade our ADSs or change their opinion of our ADSs, our share price would likely decline. In addition, if one or more analysts ceasecoverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of ourADSs or trading volume to decline.We may be classified as a passive foreign investment company for any taxable year, which may result in adverse U.S. federal income tax consequence toU.S. holders.Based on our estimated gross income and average value of our gross assets, taking into account the price of our ADSs, and the nature of our business,we do not believe that we were a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for our tax year endedDecember 31, 2018. A corporation organized outside the United States generally will be classified as a PFIC for U.S. federal income tax purposes in anytaxable year in which at least 75% of its gross income is passive income or on average at least 50% of the gross value of its assets is attributable to assetsthat produce passive income or are held for the production of passive income. Passive income for this purpose generally includes dividends, interest,royalties, rents and gains from commodities and securities transactions. Our status in any taxable year will depend on our assets and activities in each year,and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFICfor the current taxable year or any future taxable year. The market value of our assets may be determined in large part by reference to the market price ofour ADSs, which may fluctuate considerably given that market prices of biotechnology companies have been especially volatile. If we were to be treated asa PFIC for any taxable year during which a U.S. holder held our ADSs, however, certain adverse U.S. federal income tax consequences could apply to theU.S. holder.We may choose to list our ordinary shares on another securities exchange outside of the United States, which may adversely affect the liquidity andvalue of our ADSs and subject us to additional obligations.We have in the past considered, and may in the future seek to, list our ordinary shares on another exchange outside of the United States. If we decideto pursue a cross or dual listing of our ordinary shares, we cannot predict the effect any such listing would have on the value of our ordinary shares andADSs. However, the cross listing of our ordinary shares and our ADSs may dilute the liquidity of these securities in one or both markets and may adverselyaffect the development of an active trading market for our ADSs in the United States. The price of our ADSs could also be adversely affected by trading inour ordinary shares on any other exchange. Furthermore, a listing on any other exchange could subject us to additional requirements and/or obligations,including financial and other reporting requirements, and could restrict our ability to undertake certain activities that would be beneficial for ourshareholders and holders of our ADSs.Holders of our ADSs have fewer rights than our shareholders and must act through the depositary to exercise their rights.Holders of our ADSs do not have the same rights as our shareholders and may only exercise their voting rights with respect to the underlying ordinaryshares in accordance with the provisions of the deposit agreement. - 52 -Table of ContentsHolders of our ADSs have appointed the depositary or its nominee as their representative to exercise the voting rights attaching to the ordinary sharesrepresented by our ADSs. When a general meeting is convened, if you hold ADSs, you may not receive sufficient notice of a shareholders’ meeting topermit you to withdraw the ordinary shares underlying your ADSs to allow you to vote directly with respect to any specific matter. We will make allcommercially reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receivevoting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other thirdparties, will not have the opportunity to exercise a right to vote. Furthermore, the depositary will not be liable for any failure to carry out any instructions tovote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you maylack recourse if your ADSs are not voted as you request. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.Holders of our ADSs may face limitations on transfer and withdrawal of underlying ordinary shares.Our ADSs, which may be evidenced by American Depositary Receipts, or ADRs, are transferable on the books of the depositary. However, thedepositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositarymay refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or thedepositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the depositagreement, or for any other reason subject to our ADS holders’ right to cancel their ADSs and withdraw the underlying ordinary shares. Temporary delaysin the cancellation of their ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we haveclosed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinaryshares. In addition, holders of our ADSs may not be able to cancel their ADSs and withdraw the underlying ordinary shares when they owe money for fees,taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSsor to the withdrawal of ordinary shares or other deposited securities.ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomesto the plaintiff(s) in any such action.The deposit agreement governing our ADSs representing our ordinary shares provides that holders and beneficial owners of ADSs irrevocably waivethe right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement or our ADSs, including in respect of claims underfederal securities laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited byapplicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of ajury trial waiver under the federal securities laws has not been finally adjudicated by a federal court. However, we believe that a jury trial waiver provisionis generally enforceable under the laws of the State of New York, which govern the deposit agreement, by a court of the State of New York or a federalcourt, which have non-exclusive jurisdiction over matters arising under the deposit agreement, applying such law. In determining whether to enforce a jurytrial waiver provision, New York courts and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement issufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the depositagreement and our ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim soundingin fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tortclaim (as opposed to a contract dispute), none of which we believe are applicable in the case of the deposit agreement or our ADSs. No condition,stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary ofcompliance with any provision of the federal securities laws. If any holder or beneficial owner of ADSs brings a claim against us or - 53 -Table of Contentsthe depositary in connection with such matters, such holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which mayhave the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under thedeposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil proceduresand may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action,depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.Holders of our securities may face difficulties in protecting their interests, and their ability to protect their rights through U.S. courts may be limited,because we are incorporated under Cayman Islands law and many of our directors reside outside of the United States.We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our Amended and RestatedMemorandum and Articles of Association, referred to as our Articles of Association, the Companies Law (2018 Revision) of the Cayman Islands, referredto as the Companies Law, and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minorityshareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the CaymanIslands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from thecommon law of England and Wales, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands.Similarly, the rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would beunder statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities lawsthan the United States, and some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than theCayman Islands. As a Cayman Islands exempted company, we may not have standing to initiate a derivative action in a federal court of the United States.As a result, our securityholders may be limited in their ability to protect their interests if they are harmed in a manner that would otherwise enable them tosue in a United States federal court. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative actionin U.S. federal courts.Shareholders of Cayman Islands exempted companies like us have very limited statutory rights under Cayman Islands law to inspect the corporaterecords of Cayman Islands exempted companies into which they are invested and have no statutory rights to obtain copies of registers of shareholders ofCayman Islands exempted companies. Although our shareholders may request access to our books and records, our directors have discretion under ourArticles of Association to determine whether or not, and under what conditions, certain of our corporate records may be inspected by our shareholders.Under the Companies Law, shareholders are entitled to view our Articles of Association. This may make it more difficult for you to obtain the informationneeded to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.Certain corporate governance practices in the Cayman Islands, which is the jurisdiction of our incorporation, differ significantly from requirementsfor companies incorporated in other jurisdictions such as the United States. To the extent we choose to follow practice in the Cayman Islands with respect tocorporate governance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S.domestic issuers.The Cayman Islands has no legislation specifically dedicated to the rights of investors in securities or statutorily defined private causes of action toinvestors in securities such as those found under the Securities Act of 1933, or the Securities Act, or the Exchange Act. Subject to limited exceptions, underCayman Islands law, a shareholder is not entitled to bring a derivative action against the board of directors. U.S.-style class action lawsuits are notrecognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings in a similar fashion. - 54 -Table of ContentsAs a result of all of the above, our shareholders may have more difficulty in protecting their interests in the face of actions taken by management, ormembers of the board of directors than they would as public shareholders of a company incorporated in the United States. For a discussion of significantdifferences between the provisions of the Companies Law of the Cayman Islands and the laws applicable to companies incorporated in the United Statesand their shareholders, see “Description of Share Capital and Articles of Association—Material Differences in Corporate Law” in our prospectus datedFebruary 14, 2019, filed with the SEC pursuant to Rule 424(b), which information is incorporated by reference in this annual report.The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.Our corporate affairs and the rights of holders of ordinary shares are governed by our Articles of Association, the Companies Law, and the commonlaw of the Cayman Islands. Certain rights and responsibilities of our shareholders, ADS holders and members of our board of directors under CaymanIslands law are different from those that apply to a Delaware corporation.Directors of Cayman Islands exempted companies are required to observe certain fiduciary duties. These fiduciary duties are owed to the CaymanIslands company and include the duty to act in the best interests of the company and the shareholders as a whole. However, the fiduciary duties of a directorof a Cayman Islands exempted company may not be the same as the fiduciary duty of a director of a U.S. corporation.In addition, controlling shareholders of U.S. corporations owe fiduciary duties to minority shareholders, while shareholders (including controllingshareholders) of Cayman Islands companies generally owe no fiduciary duties to the company or other shareholders.The rights of our shareholders to bring shareholders’ suits against us or our board of directors under Cayman Islands law are much more limited thanthose of shareholders of a U.S. corporation. For example, under Cayman Islands law, a shareholder who wishes to bring a claim against a director wouldgenerally need to obtain permission from the Grand Court of the Cayman Islands, or Cayman Islands Court, to bring a derivative action, in the name of thecompany, against the director. This is because the director of a Cayman Islands exempted company owes duties to the company and not to individualshareholders. As a result, our shareholders, including holders of ADSs, may have more difficulty protecting their rights in connection with actions taken byour directors than they would as shareholders of a U.S. corporation.Minority shareholders in a Cayman Islands exempted company have more limited rights than minority shareholders in a U.S. corporation in relationto mergers and similar transactions that the company may carry out. For example, if a merger under the Companies Law involving a Cayman Islandsexempted company is approved by the requisite majority of shareholders, a dissenting minority shareholder would have the right to be paid the fair value oftheir shares (which, if not agreed between the parties, will, following the course of legal proceedings, be determined by the Cayman Islands Court) if theshareholders follow the statutorily prescribed procedure for initiating such proceedings, subject to certain exceptions. Such dissenter rights differsubstantially from the appraisal rights, which would ordinarily be available to dissenting shareholders of Delaware corporations. Further, if a takeover offeris made to the shareholders of a Cayman Islands exempted company and accepted by holders of 90% of the shares affected, the offeror may require theholders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Cayman Islands Court, but this is unlikelyto succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion. A minority shareholder in thisscenario would have no rights comparable to the appraisal rights which would generally be available to a dissenting shareholder of a U.S. corporation insimilar circumstances. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands and the lawsapplicable to companies incorporated in the United States and their shareholders, see “Description of Share Capital and Articles of Association—MaterialDifferences in Corporate Law” in our prospectus dated February 14, 2019, filed with the SEC pursuant to Rule 424(b), which information is incorporated byreference in this annual report. - 55 -Table of ContentsItem 4. Information on the CompanyA. History and development of the company.Our registered office is located at c/o Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman, KY1-9005Cayman Islands. We have three wholly-owned subsidiaries: Stealth BioTherapeutics Inc., a Delaware company, which we refer to as Stealth Delaware;Stealth BioTherapeutics (HK) Limited, a company incorporated with limited liability under the laws of Hong Kong; and Stealth BioTherapeutics (Shanghai)Limited, a limited liability company established in the People’s Republic of China. Our agent for service of process in the United States is Stealth Delaware,and the executive offices of Stealth Delaware are located at 275 Grove Street, Suite 3-107, Newton, MA 02466, and the telephone number there is (617)600-6888. Our website address is www.stealthbt.com. We have included our website address in this annual report as an inactive textual reference only. Theinformation contained in, or accessible through, our website does not constitute part of this annual report on Form 20F. The SEC maintains a website(www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as us, that file electronically withthe SEC.Stealth BioTherapeutics Corp was incorporated in Grand Cayman, Cayman Islands as Stealth Peptides International, Inc. in April 2006. Its whollyowned subsidiary, Stealth BioTherapeutics Inc., was incorporated in Delaware as Stealth Peptides Inc. in October 2007. In addition, a wholly ownedsubsidiary, Stealth BioTherapeutics (HK) Limited, was incorporated in Hong Kong in September 2017. In May 2018, Stealth BioTherapeutics (Shanghai)Limited was formed as a wholly foreign owned enterprise in China.We conduct our operations in the United States through Stealth Delaware. All of our employees are employed by Stealth Delaware. We are a clinicalstage biotechnology company focused on the discovery and development of novel pharmaceutical agents to treat patients suffering from diseases involvingmitochondrial dysfunction through our mitochondrial medicine platform. Since inception, we have devoted substantially all of our efforts to research anddevelopment, business planning, acquiring operating assets, seeking intellectual property protection for our technology and product candidates, and raisingcapital.We closed our IPO of 6,500,000 ADSs, each representing 12 ordinary shares, on February 20, 2019. We issued an additional 588,232 ADSs onMarch 4, 2019 in connection with our underwriters’ partial exercise of their over-allotment option. Prior to our IPO, we entered into numerous debt andequity issuances with MVIL and other investors, and financed our operations from the issuance of preferred shares, ordinary shares, convertible debt andterm debt. Since inception, we have incurred net losses and negative cash flows from operations and had an accumulated deficit of $426.3 million and$329.6 million as of December 31, 2018 and 2017, respectively.Our capital expenditures for the years ended December 31, 2018, 2017 and 2016 amounted to $0.01 million, $0.2 million and $0.3 million,respectively. In the three-year period ended December 31, 2018, we have invested a total of $0.5 million in equipment and facilities. We anticipate ourcapital expenditures in 2019 to be financed from the proceeds from our existing cash and cash equivalents, including the net proceeds from our IPO.B. Business overview.OverviewWe are a clinical-stage biotechnology company focused on the discovery, development and commercialization of novel therapies for diseasesinvolving mitochondrial dysfunction. Mitochondria, found in nearly every cell in the body, are the body’s main source of energy production and are criticalfor normal organ function. Dysfunctional mitochondria characterize a number of rare genetic diseases, collectively known as primary mitochondrialdiseases, and are also involved in many common age-related diseases. We believe our - 56 -Table of Contentslead product candidate, elamipretide, has the potential to treat both rare genetic and common age-related mitochondrial diseases. We are studyingelamipretide in the following primary mitochondrial diseases: primary mitochondrial myopathy, Barth and LHON. We are also studying elamipretide in dryAMD. Our other pipeline candidates include SBT-20, which we are evaluating for rare peripheral neuropathies, and SBT-272, which we are evaluating forrare neurodegenerative disease indications. We have optimized our discovery platform to identify novel mitochondrial targeted compounds, which may benominated as therapeutic product candidates or utilized as scaffolds to deliver other compounds to mitochondria. Our mission is to be the leader inmitochondrial medicine, and we have assembled a highly experienced management team, board of directors and group of scientific advisors to help usachieve this mission.Elamipretide is a small peptide that targets and binds reversibly to cardiolipin, an essential structural element of mitochondria, stabilizing it underconditions of oxidative stress. This novel mechanism of action has shown potential clinical benefit in both rare genetic and common age-relatedmitochondrial diseases. We are studying elamipretide in the following indications: • primary mitochondrial myopathy, for which we are conducting a Phase 3 pivotal clinical trial in North America and in Europe; • Barth, for which we have conducted a Phase 2/3 clinical trial in the United States; • LHON, for which we have conducted a Phase 2 clinical trial in the United States; and • dry AMD, for which we have conducted a Phase 1 clinical trial in the United States and in March 2019 initiated a Phase 2b clinical trial in the UnitedStates for geographic atrophy, an advanced form of dry AMD.Elamipretide has been generally well-tolerated in over 900 subjects exposed to it systemically and 53 subjects exposed to it topically as ofDecember 31, 2018.In addition to our clinical development programs for elamipretide, we plan to evaluate SBT-20, our second clinical-stage product candidate, for whichwe have completed two Phase 1 clinical safety trials in healthy volunteers, for rare peripheral neuropathies. We are developing SBT-272, a preclinical-stageproduct candidate, for rare neurodegenerative diseases. In addition, our in-house discovery platform has generated a library of over 100 proprietary,differentiated compounds that could have clinical benefit for diseases related to mitochondrial dysfunction and from which we plan to designate potentialproduct candidates. We may also utilize certain of these compounds as part of our carrier platform, in which they could potentially serve as scaffolds todeliver other beneficial compounds to the mitochondria.As of December 31, 2018, we held exclusive world-wide rights or an option for exclusive world-wide rights under 374 issued patents and 298 patentapplications to protect our platform and product candidates. Since licensing elamipretide and SBT-20, we and our collaborators have publishedapproximately 100 peer-reviewed articles highlighting the activity of our compounds in several disease models, including heart failure, kidney disease,skeletal muscle weakness, diabetic retinopathy and neurodegenerative diseases. Our compounds have been evaluated in preclinical and clinical studies atacademic and clinical institutions, including Charité Berlin, Children’s Hospital of Philadelphia, Columbia University, Cornell University, Duke University,Massachusetts General Hospital, Mayo Clinic, Stanford University, University of California Los Angeles, University of California San Diego andUniversity of Washington. - 57 -Table of ContentsOur PipelineThe following table summarizes our development pipeline, including preclinical studies and ongoing and planned clinical trials of our productcandidates we have advanced, or expect to advance in the next year, to clinical development. We previously completed a Phase 1/2 clinical trial for the evaluation of SBT-20 in subjects with early-stage Huntington’s disease and a Phase 1healthy volunteer study. We are currently evaluating preclinical disease models for the selection of an indication ahead of planning for a Phase 2 clinicaltrial.Our StrategyWe aim to continue the development of mitochondrial medicine to improve the lives of patients with unmet medical needs. There are no treatmentsapproved by the FDA, the EMA or the NMPA for primary mitochondrial myopathy, Barth or dry AMD, and there are no FDA or the NMPA approvedtreatments for LHON. We are pioneering the development of treatments for these diseases with unmet medical needs and believe we are well-positioned tobe among the first to address these largely untapped markets in the United States, Europe and China. Although our initial development focus is on rareprimary mitochondrial diseases, we believe that over the longer term there could be significant opportunities with regard to common age-related diseases,including dry AMD. Our strategies include:Rapidly advance the clinical development of elamipretide in rare mitochondrial diseasesWe are developing elamipretide for rare mitochondrial diseases, including primary mitochondrial myopathy, Barth and LHON. We have received FastTrack and Orphan Drug designations in the United States for each of these indications. We are enrolling subjects into our ongoing Phase 3 clinical trial forthe treatment of primary mitochondrial myopathy, which we expect to have fully enrolled during the first half of 2019. We have completed the placebo-controlled portion of a Phase 2/3 clinical trial for the treatment of Barth, which did not meet its primary efficacy endpoints, and are continuing to evaluateefficacy endpoints during an open-label extension, in which all subjects are eligible to continue receiving elamipretide. Eight subjects are continuing in theopen-label extension phase. We plan to meet with the FDA regarding this program during the first half of - 58 -Table of Contents2019 to discuss a potential NDA submission. We have completed the placebo-controlled portion of a Phase 2 clinical trial for the treatment of LHON, whichdid not meet its primary efficacy endpoints, and are continuing to evaluate efficacy endpoints during an open-label extension trial, in which all subjects areeligible to continue receiving the study drug. We plan to meet with the FDA for an end-of-phase meeting regarding this program during mid-2019. We willcontinue to evaluate development of elamipretide for additional rare disease indications.Accelerate the clinical development of elamipretide for dry AMDWe are advancing development of elamipretide for dry AMD, an age-related disease, which is the leading cause of blindness among older adults inthe developed world. Dry AMD is estimated to impact approximately 10 million individuals in the United States. We received Fast Track designation in theUnited States for dry AMD with geographic atrophy in November 2018. Dry AMD would provide a significantly larger potential market size than our raredisease indications if we are able to successfully develop and commercialize elamipretide or one of our pipeline compounds for this indication. In our Phase1 clinical trial of elamipretide, we observed evidence of clinical benefit for patients with dry AMD. We initiated a Phase 2b placebo-controlled clinical trialfor the treatment of patients with geographic atrophy, an advanced form of dry AMD in March 2019.Expand clinical development efforts in China under new regulatory pathwaysThe prevalence of primary mitochondrial diseases, such as primary mitochondrial myopathy, Barth and LHON, is thought to be comparable in Chinato that in the United States because evidence suggests that prevalence does not vary by race or ethnicity for mitochondrial diseases. China has recentlyimplemented policies to expedite regulatory pathways for rare diseases, including publication of a list of rare diseases that includes mitochondrial relateddiseases such as LHON. For primary mitochondrial myopathy, with respect to which we are currently conducting a pivotal trial in the United States andEurope, and Barth, we may apply to the NMPA for clinical trial waivers and expedited approval if and when we receive FDA approval for these indications.Advance the development of pipeline mitochondrial medicines in rare diseasesWe believe that our mitochondrial targeted product candidates may be beneficial in rare diseases involving mitochondrial dysfunction and hope tonominate compounds from our pipeline for select rare disease indications. We plan to evaluate our second clinical product candidate, SBT-20, for which wehave completed two Phase 1 clinical safety trials in healthy volunteers, for rare peripheral neuropathies. We are evaluating our lead pipeline compound,SBT-272, for rare neurodegenerative diseases, such as amyotrophic lateral sclerosis, or ALS. We expect to initiate a Phase 1 clinical safety trial forSBT-272 by the end of 2019.Advance the development of pipeline mitochondrial medicines in common age-related diseasesWe believe that mitochondrial medicine may be a promising approach for many common age-related diseases beyond AMD, includingneurodegenerative diseases. We believe that the United States, Europe and China are important markets for the clinical development of age-related diseases,and we are evaluating further development of our product candidates and pipeline compounds for age-related indications in these markets.Expand our carrier platformWe have extensive experience in optimizing delivery of our compounds to mitochondria, which has been a challenge for other drug deliverytechnologies. We have demonstrated capability to deliver beneficial payloads to mitochondria by conjugating them with our proprietary compounds, whichserve as vectors or carriers to the mitochondria, conferring organelle specificity to promising therapies. These payloads could include small molecules,proteins, oligonucleotides and complex formulations, such as DNA, siRNA and miRNA, nanoparticles and liposomes. This delivery platform, which we callour carrier platform, could enable delivery of missing proteins or even gene therapy to address inherited mitochondrial disorders. - 59 -Table of ContentsExplore potential strategic partnerships and alliances to maximize the value of our development programsWe hold worldwide exclusive rights for our two clinical-stage assets, elamipretide and SBT-20, from Cornell and the IRCM. We have full ownershipof our preclinical compound library, including SBT-272. We may explore select strategic partnerships and alliances to support our drug developmentprograms, while preserving significant development and commercialization rights, if we believe that such alliances may allow us to leverage the financialsupport and therapeutic area expertise and resources of a strategic partner to accelerate the development and commercialization of our drug candidates,particularly in common disease indications. We plan to retain rights to lead the development and commercialization of elamipretide for primarymitochondrial myopathy, Barth, LHON and dry AMD in the United States but will consider collaborating in Europe and China.Expand our intellectual property portfolio in the field of mitochondrial medicineWe continue to invest in our mitochondrial medicine discovery platform to identify new approaches to improve absorption, distribution, metabolismand excretion of active mitochondrial compounds. We have an active discovery and development program focused on novel compounds targetingmitochondria. We believe the differentiated mitochondrial targeting characteristics of our compounds, our development of proprietary assays to screen newcompounds for mitochondrial targeting and activity characteristics, and our experience working with various models of mitochondrial dysfunction positionus to be a leader in next generation development of mitochondrial product candidates that are improved relative to elamipretide and SBT-20. We intend touse our insight into mitochondrial biology to continue developing additional intellectual property as we pursue additional novel therapeutic compounds thattarget mitochondrial disease. As of December 31, 2018, our intellectual property portfolio included 374 issued patents and 298 patent applications relatingto mitochondrial medicine, either wholly-owned or in-licensed, in select commercially relevant jurisdictions, including the United States, key Europeancountries, China, Japan and Canada.Our TeamWe have assembled a highly experienced leadership team with decades of experience leading drug discovery and development programs, including atGlaxoSmithKline, Novo Nordisk, Pfizer and Sanofi Genzyme. Our largest shareholder is a member of the Morningside group, a worldwide investmentgroup.BackgroundMitochondriaMitochondria, found in almost all human cells, are the “powerhouse of the cell.” Mitochondria produce 90% of our energy by converting food intoadenosine triphosphate, or ATP, a molecule that carries energy within cells. Mitochondria produce approximately our body weight in ATP daily, providingthe energy that allows cardiac muscles, for example, to beat an estimated 100,000 times every 24 hours, or 2.5 billion times by age 70, without stopping.Our skeletal muscle, heart, kidney, eyes and brain are among the highest producers and users of mitochondrial ATP in our bodies, as ATP is required fortheir critical functions such as the contraction of skeletal, cardiac, vasculature and lung muscle, maintenance of cell membrane potential, cellular transportand - 60 -Table of Contentssecretion of hormones and neurotransmitters. Normal mitochondrial function is essential for human life and for the proper functioning of many systems inour bodies, as illustrated below. Mitochondria are highly specialized structures. They have their own DNA, called mitochondrial DNA, or mtDNA, which is inherited only from ourmothers and is separate and distinct from nuclear DNA, or nDNA. Mitochondria are located within the cell, which is protected by the cell membrane, andthey also have their own inner and outer membrane, which create further barriers to the effective delivery of therapeutics to these specialized organelles. Innormal mitochondria, the inner mitochondrial membrane, or IMM, is highly folded, creating curves, called cristae. The cristae house the electron transportchain, or ETC, which is composed of five protein complexes responsible for mitochondrial ATP production through a process known as oxidativephosphorylation. The curved architecture of the cristae in the IMM is essential to keep the electron transport chain complexes in optimal close configurationfor normal oxidative phosphorylation. Our product candidates target and bind to cardiolipin, an important structural component of the cristae and the IMM,stabilizing it from degradation due to dysfunction caused by inherited or acquired mutations in mtDNA or nDNA. An illustration of a healthy mitochondriaand its curved cristae structure is shown below. Mitochondrial Dysfunction, Aging and Human DiseaseMitochondrial dysfunction most often arises from mutations in mtDNA or nDNA, that can either be inherited or, in the case of mtDNA mutations, canoccur as we age. Dysfunctional mitochondria not only produce less ATP, which impairs the normal functioning of our major organ systems, but they alsogenerate unhealthy levels of reactive oxygen species, or ROS, which damages cardiolipin. ROS-mediated damage of cardiolipin can - 61 -Table of Contentslead to pathological oxidative stress, causing the inflammation, fibrosis and cell death which are causal or contributory to the process of human aging, asillustrated below. Mitochondrial diseases arising from inherited genetic defects, called primary mitochondrial diseases, are typically rare diseases which can impactmultiple organ systems within the body and may lead to reduced lifespan. Symptoms of primary mitochondrial disease, including chronic pain, visionproblems, cardiovascular problems and kidney problems, may be compared to “accelerated aging” as described by individuals with the disease and theircaregivers.Although mtDNA is originally inherited from our mothers, it is replicated within cells as mitochondria reproduce and is highly susceptible tomutation within specific cells and organ systems as we age. Mitochondrial diseases arising from these spontaneous mutations in our mtDNA, calledsecondary mitochondrial diseases, include senescence, neurodegenerative diseases (such as Alzheimer’s, Parkinson’s and amyotrophic lateral sclerosis),heart disease (such as heart failure and atherosclerosis), diabetes, ophthalmic conditions (such as age-related macular degeneration, glaucoma, diabeticretinopathy and diabetic macular edema), cancer, diabetes, skeletal muscle dysfunction (such as sarcopenia) and kidney diseases.Mitochondrial dysfunction, whether inherited or acquired, often impacts high energy-demanding organs such as the skeletal muscle, cardiac, renal,visual, neurological, central nervous, circulatory or endocrine systems.Targeting Mitochondrial Dysfunction: Role of CardiolipinOur product candidates target cardiolipin in the IMM, stabilizing it under conditions of oxidative stress.Cardiolipin is a conically shaped phospholipid that plays an important role in establishing the cristae architecture within the IMM and optimizing thefunction of the ETC. Reduced and damaged cardiolipin content has been observed in many diseases, and a deficiency of normal cardiolipin is thought to becentrally involved in mitochondrial dysfunction.Cardiolipin is essential for normal oxidative phosphorylation, the process by which ATP is made. Cardiolipin congregates in and around the cristae ofthe IMM. Cardiolipin’s conical shape is responsible for creating the curved architecture of the cristae. This curvature helps to keep the electron transportchain - 62 -Table of Contentscomplexes in close association with one another, increasing the efficiency of ATP production and minimizing the electron leak that leads to oxidative stress,as illustrated below. Cardiolipin is embedded within the complexes of the ETC, as can be seen above, and its interaction with the ETC complexes facilitates super-complex association, a process by which electron transport chain complexes selectively associate with, or merge with, one another, to optimize theefficiency of the oxidative phosphorylation process.Correct mitochondrial morphology is also essential for mitochondrial network connectivity and function. Mitochondrial networks exhibit coordinationof inner mitochondrial membrane cristae at inter-mitochondrial junctions, as illustrated below. Mitochondrial network connectivity is associated with cellular signaling pathways, including: • fusion, in which mitochondria join to spread metabolites, enzymes, and mitochondrial gene products through the mitochondrial network, optimizingmitochondrial function and counteracting the accumulation of mitochondrial mutations during aging; • fission, or the division of mitochondria, which plays an important role in the removal of damaged organelles; • mitophagy, a mechanism to remove damaged mitochondria; • ROS-mediated pathways, including the PI3K/Akt pathway, an intracellular signaling pathway important in regulating the cell cycle, and the tumornecrosis factor alpha (“TNF”) signaling pathway, a proinflammatory pathway involved in various biological processes including regulation of cellproliferation, differentiation, apoptosis and immune response; • calcium regulation, entailing the transfer of calcium from the endoplasmic reticulum to the mitochondrial to facilitate mitochondrial respiration; - 63 -Table of Contents • various transcription factors, which are proteins that control the rate of transcription of genetic information from DNA to messenger RNA; and • certain protein kinase C (PKC) signaling pathways that can affect cardiomyocyte function and are involved in the induction of mitophagy.Cardiolipin is susceptible to peroxidation, or degradation, by oxidative stress produced by dysfunctional mitochondria. When cardiolipin is degraded,it can lose its conical shape, compromising the structural integrity of the IMM by leading to a relaxation of the cristae and a drifting apart of the electrontransport chain complexes. Shuttling of electrons through the electron transport chain becomes less efficient with the complexes further apart from oneanother, resulting in lower ATP production and higher ROS generation. Disruption of mitochondrial morphology also impairs fission and fusion, impactingsignaling pathways including mitophagy. This can trigger the cellular and extra-cellular cascades involving inflammation, fibrosis and cell death thatunderlie many diseases. The images below show healthy mitochondria, on the left, with normal cardiolipin content and cristae structure, and unhealthymitochondria, on the right, with reduced cardiolipin content and collapsed cristae. Various diseases alter cardiolipin composition and reduce cardiolipin content within the mitochondria. Biopsies from patients with primarymitochondrial disease arising from mitochondrial encephalitis, lactic acidosis and stroke-like episodes, or MELAS, and multiple mitochondrial DNAdeletions were found to have approximately 15% less normal cardiolipin composition than normal. Experiments in Barth patient-derived lymphoblastoidcell lines showed 50%-60% less cardiolipin than control cell lines, and work done in Barth patient-derived cardiomyocytes showed up to 75% lesscardiolipin than control cardiomyocytes. Aging has also been shown to decrease cardiolipin content in high energy-demanding organs, such as the heart,brain, liver and kidney, as well as the epidermis. Studies suggest that oxidative stress and peroxidation of cardiolipin may contribute to the overall loss ofcardiolipin content in these diseases.Our Approach to Mitochondrial MedicineWe have exclusive worldwide rights to elamipretide and SBT-20, both of which we licensed from Cornell and the IRCM, in 2006. The uniquemitochondrial activity of elamipretide was first published in The Journal of Biological Chemistry in August 2004. Since licensing elamipretide andSBT-20, we and our collaborators have published approximately 100 peer-reviewed articles highlighting the activity of our compounds in several diseasemodels, including heart failure, kidney disease, skeletal muscle weakness, diabetic retinopathy and neurodegenerative diseases. We have discovered andown over 100 compounds that also target the mitochondria and form the basis of our broad proprietary pipeline of mitochondrial targeted productcandidates. We have focused our development efforts on diseases and conditions that affect the organs in the body that generate significant energy becauseof the high mitochondrial content found in the cells comprising these organs. - 64 -Table of ContentsOur lead product candidate, elamipretide, along with several of our pipeline compounds, target and bind reversibly to cardiolipin, stabilizing it underconditions of oxidative stress, thereby preserving the curved architecture of the IMM, as illustrated below. In preclinical studies or clinical trials, we have observed that elamipretide normalized function in dysfunctional mitochondria, including as outlined inthe table below. The below table references p-values, which is a conventional statistical method for measuring the statistical significance of clinical trialresults. A p-value of 0.05 or less represents statistical significance, meaning that there is a 1-in-20 or less statistical probability that the observed resultsoccurred by chance. Functional finding PRECLINICAL STUDYReduced peroxidation of, or damageto, cardiolipin In a study of dogs with induced heart failure published in Circulation: Heart Failure in February2016, researchers at Henry Ford Health System observed that cardiolipin content was restored tonear-normal levels in seven dogs treated with elamipretide versus seven dogs treated with placeboonce daily subcutaneous injections for three months (p<0.05).Increased mitochondrial respiration,the process in which mitochondriaproduce energy In a study of human heart tissue explanted from 21 heart transplant subjects with heart failureconducted by researchers at the University of Colorado and presented in 2017, researchers observedthat elamipretide significantly improved mitochondrial respiration and increased it to levelscomparable to those measured in healthy heart tissue levels, as compared to placebo (p<0.0005).Improved ATP levels In a preclinical study at the University of Washington published in Aging Cell in October 2013, twogroups of between five and seven 27-months old (equivalent to 80-year-old human) and five-monthold (equivalent to 30-year-old human) mice were injected with a single dose of 3 mg/kg ofelamipretide or placebo. In the older mice, researchers observed that a single dose of elamipretidesignificantly increased the maximum capacity of the mitochondria to produce ATP, calledATPmax, to near normal levels, as compared to placebo (p<0.01).Reduced formation of ROS, oroxidative stress Researchers at the University of Florida conducted a study, published in the Journal of AppliedPhysiology in August 2011, of 72 mice, 24 of which received no treatment, 24 of which receivedplacebo and hind limb immobilization to induce muscle atrophy (cast), and 24 of which received1.5 mg/kg subcutaneous once daily elamipretide and hind limb immobilization (cast), in each casefor 14 days. Researchers observed that elamipretide-treated immobilized mice had significantlylower levels of mitochondrial ROS production than the placebo-treated - 65 -Table of ContentsFunctional finding PRECLINICAL STUDY immobilized mice (p<0.05), as well as significantly reduced levels of H2O2, a precursor of ROS, inthe soleus and plantaris calf muscles as compared to placebo (p<0.05).Reduced inflammation, fibrosis andcell death In a preclinical study at the Mayo Clinic, published in the Journal of the American HeartAssociation in May 2016, two groups of seven pigs—each with unilateral renal artery stenosis—were injected with a 0.1 mg/kg dose of elamipretide for five consecutive days per week for fourweeks or placebo, following percutaneous transluminal renal angioplasty, or PRTA. Four weekslater, researchers observed that elamipretide treated animals demonstrated significantly improveddiastolic function, mitochondrial biogenesis improvement and oxidative stress and fibrosisreduction relative to placebo. In a separate preclinical study of pigs with unilateral renal arterystenosis published in the Journal of Hypertension in January 2014, researchers at the Mayo Clinicobserved improvements in cardiac function and oxygenation and reductions in apoptosis, oxidativestress, inflammation (p<0.05) and fibrosis (P<0.05), each as compared to placebo, four weeksfollowing PTRA concurrent with a continuous 0.05 mg/kg intravenous infusion of elamipretide.No observed effect on normalmitochondria An important safety aspect of elamipretide is that it has not had any observed effect on normalmitochondria. In the study of explanted human heart tissue described above, mitochondrialrespiration in the normal donor heart tissue was unchanged following exposure to elamipretide. Inthe study of young and old mice described above, ATPmax levels in the young mice wereunchanged following treatment with elamipretide.Following treatment with elamipretide and SBT-20, we observed normalization of mitochondrial morphology across various disease models,including models of diabetic retinopathy, as illustrated by the electron microscopic images below, and kidney reperfusion injury, each of which werepublished in Clinical Pharmacology & Therapeutics in December 2014. - 66 -Table of ContentsOur Product CandidatesWe believe that our product candidates have significant potential to address the various diseases associated with mitochondrial dysfunction. Inaddition to our focus on rare diseases, including primary mitochondrial myopathy, Barth and LHON, we have conducted preclinical studies and Phase 1clinical trials on common diseases and conditions that affect the organs in the body that have significant mitochondrial content to meet their high energyneeds; these include the heart, the kidney, the brain (inclusive of the visual system), and active skeletal muscle. We believe that our product candidates maybe most relevant for these organs, which are highly dependent on mitochondrial bioenergetics, and we expect these to be key focus areas with respect tosome of our pipeline compounds.We believe that there is significant potential for mitochondrial medicine beyond the indications we are currently studying, including with respect tocommon diseases associated with aging. In addition to our lead product candidate, we have a growing pipeline of over 100 compounds in preclinical testingthat have been screened for mitochondrial activity, including in some cases preferential mitochondrial targeting characteristics and improved tissuedistribution in targeted tissues, such as the heart and brain. Some of these compounds, including SBT-272, may be suitable for oral formulations, and webelieve they may be more appropriate for development for common diseases associated with aging. We have also designed proprietary compounds, whichwe refer to as carriers, that can potentially deliver beneficial payloads to mitochondria; for example, if genetic mutations impact the production of certainproteins necessary for proper mitochondrial function, this proprietary technology might help us deliver those missing proteins to mitochondria.ElamipretideElamipretide is a small peptide that targets and binds reversibly to cardiolipin, stabilizing mitochondrial structure and function under conditions ofoxidative stress. Elamipretide has been reported to be well-tolerated in over 900 people exposed to it systemically and 53 subjects exposed to it topically asof December 31, 2018. See “ Elamipretide Safety Data ” below. We are evaluating elamipretide in primary mitochondrial diseases where there is a geneticbasis for the underlying mitochondrial dysfunction and where we have the potential for expedited regulatory review, including primary mitochondrialmyopathy, Barth and LHON, for which we have received Fast Track and Orphan Drug designations from the FDA. We also believe that elamipretide andour pipeline compounds may be able to address the significant unmet medical needs of larger populations affected by common diseases associated withaging. We are progressing our development of elamipretide for dry AMD with geographic atrophy, for which we have received Fast Track designation fromthe FDA, and we plan to evaluate clinical trials for other common age-related disease indications in conjunction with our pipeline compounds.Elamipretide Clinical Programs—Primary Mitochondrial DiseasesWe are studying the effect of elamipretide in an ongoing Phase 3 pivotal trial for the treatment of primary mitochondrial myopathy. We plan to meetwith the FDA to discuss the treatment of Barth, and to discuss data from our Phase 2 clinical trial for the treatment of LHON. Individuals with these primarymitochondrial diseases are born with a genetic mutation that causes mitochondrial dysfunction, leading to clinical signs and symptoms of disease. Thesediseases can result in reduced lifespan, as in Barth and, in some cases, mitochondrial myopathy, and can impair vital organ functions, such as vision, in thecase of LHON, skeletal muscle function, in the case of primary mitochondrial myopathy and Barth, and cardiac function, in the case of Barth.Primary mitochondrial myopathy (MMPOWER Trials)We estimate that approximately 40,000 individuals in the United States have mitochondrial myopathy. There are no therapies approved by the FDA,EMA or NMPA for the treatment of primary mitochondrial myopathy. We have received Fast Track designation and Orphan Drug designation from theFDA for the development of elamipretide in this indication. - 67 -Table of ContentsPrimary mitochondrial myopathy is characterized by debilitating skeletal muscle weakness, exercise intolerance and fatigue accompanied by aconfirmed molecular genetic diagnosis of primary mitochondrial disease. Individuals with this disease may experience muscle pain, muscle wasting, musclecramps, rhabdomyolysis, or breakdown of muscle, progressive external ophthalmoplegia characterized by slowly progressing inability to move the eyelidsor eyes, which often impairs vision, abnormal tilting of the head due to shortening of the neck muscles, difficulty swallowing, low muscle tone (also knownas floppy infant syndrome), respiratory insufficiency and reduced deep tendon reflexes. These symptoms can result in significant deterioration of quality oflife, such that routine activities of daily living (such as walking, climbing stairs, vacuuming, reaching, driving, reading or carrying out normal job functions)are limited by poor endurance and easy fatigue. Severely impacted individuals can lose their ability to walk entirely.Morphology of mitochondria in individuals with primary mitochondrial myopathy is abnormal, and, unlike mitochondria in normal skeletal musclecells, as shown below on the left, can be characterized by inclusion of abnormal rectangular-shaped, crystal-like structures, as shown below on the right. Normal skeletal muscle mitochondria Mitochondrial myopathy mitochondriaWe are assessing elamipretide in subjects with primary mitochondrial myopathy irrespective of their specific primary mitochondrial disease genotype.This strategy offers us the potential to treat all individuals with genetic mitochondrial disease who experience myopathic symptoms, estimated at greaterthan 90% of the primary mitochondrial disease population, which is a much larger target market than any specific genetic mutation or syndrome within it.We are currently enrolling subjects with primary mitochondrial myopathy in MMPOWER-3, a Phase 3 clinical trial, in which we have enrolled 162out of a targeted 202 subjects in the United States, Canada and Europe as of March 22, 2019. We established a pre-trial registry for MMPOWER-3 at ourPhase 3 sites, and have registered over 400 subjects who have been pre-screened for eligibility for MMPOWER-3. We expect that this registry will expeditetimely enrollment of MMPOWER-3 because many eligible subjects are already identified.We have completed two clinical trials in this indication, MMPOWER, completed in April 2016, and MMPOWER-2, completed in March 2017. InMMPOWER, we observed an improvement in the distance walked in six minutes (the six-minute walk test, or 6MWT) in subjects treated with elamipretide—a primary efficacy endpoint of the study and a standard accepted test of functional exercise capacity. In MMPOWER-2, we observed an improvement inthe 6MWT in subjects treated with elamipretide, a primary efficacy endpoint of the study, and in secondary efficacy endpoints, including several endpointsmeasuring fatigue, a hallmark symptom of primary mitochondrial myopathy. Twenty-four subjects remain enrolled in an ongoing open-label extension trial,in which they continue to receive once daily elamipretide and during which we continue to collect safety and select efficacy data, primarily to add to oursafety database. - 68 -Table of ContentsMMPOWER-3MMPOWER-3 is a Phase 3, double-blind, placebo-controlled, parallel group trial enrolling an estimated 202 subjects ranging from 16 to 80 years old,with primary mitochondrial myopathy at up to 28 sites in North America and Europe, including the United States, Canada, Denmark, Hungary, Italy,Germany and the United Kingdom to evaluate the efficacy and safety of once daily subcutaneous injections of elamipretide. Subjects are randomized in aone-to-one ratio to either 40 mg once daily subcutaneous elamipretide or placebo injection for an initial treatment period of 24 weeks, following whichsubjects will be eligible to participate in an open-label extension trial.The objectives of the trial are to evaluate the safety, tolerability and efficacy of once daily subcutaneous elamipretide injections in individuals withprimary mitochondrial myopathy. Subjects will complete assessments including the 6MWT, at initial screening, at baseline (prior to receiving the firstdose), at week four, at week 12 and at week 24, which is the end of treatment. In addition, the primary mitochondrial myopathy symptom assessment, orPMMSA, a patient reported outcome questionnaire developed based upon interviews of individuals with primary mitochondrial disease to measure thefatigue and muscle weakness that are hallmark symptoms of the disease, will be completed daily. Based on observations from our MMPOWER-2 clinicaltrial and post-hoc observations from our MMPOWER clinical trial, which suggest that subjects walking more than 100 meters (because lesser distances maybe indicative of co-morbidities in this population) and less than 450 meters (because an above 500 meter 6MWT distance is not indicative of impairment) atbaseline on the 6MWT are more likely to improve in meters walked following elamipretide treatment, we have endeavored to enrich our Phase 3 populationby excluding individuals who walk less than 100 meters or more than 450 meters at their screening or baseline visits.The primary efficacy analysis will compare mean changes as between the elamipretide and placebo treatment groups in: (i)distance walked on the 6MWT from baseline to the week 24 visit, and (ii)PMMSA Total Fatigue score, measuring tiredness at rest, tiredness during activities, muscle weakness at rest and muscle weakness duringactivities, from baseline to the week 24 visit.The 6MWT and PMMSA Total Fatigue score together comprise a family of primary endpoints. The trial design contemplates a statistical analysisunder which we will meet our primary endpoint if both endpoints are met at the p < 0.05 level of significance, or if one of the two is met at the p < 0.025level of significance. The PMMSA Total Fatigue score not only measures improvements in the fatigue and weakness, which are the hallmark clinicalsymptoms of the disease, but it was also highly sensitive to change (p=0.0006) in our prior 30-patient Phase 2 clinical trial, MMPOWER-2.Secondary endpoints include the following, listed in order of interest: ASSESSMENT DESCRIPTIONNeuro-QoL Fatigue Short-Form(Neuro-QoL Fatigue) A standard questionnaire developed by the National Institutes of Health to assess fatiguein neuromuscular indications, with respect to which a reduction in score indicates reducedfatigue.PMMSA Most Bothersome Symptom The first-time subjects complete the PMMSA, they are asked to identify which of the 10items on the questionnaire is the “most bothersome” symptom of their disease; this is thenassessed at trial completion to ascertain any changes in this symptom of interest. A similarendpoint approach is endorsed in the FDA’s Guidance on Developing Drugs for AcuteTreatment of Migraine (2014). By focusing on the most severe symptoms for each subject,there is inherent clinical relevance in the individualized symptom endpoint. - 69 -Table of ContentsASSESSMENT DESCRIPTIONPatient global impression scale of change A single question allowing the patient to assess his or her general health.Clinical global impression scale of change A single question allowing the physician or caregiver to assess the patient’s generalhealth.PMMSA Total Fatigue During Activities Comprised of two questions from the PMMSA, assessing tiredness during activities andmuscle weakness during activities.Neuro-QoL Activities of Daily Living Specific questions from the Neuro-QoL Fatigue long-form questionnaire, a 19-questionquestionnaire developed by the National Institutes of Health, which assess the impact offatigue on subjects’ activities of daily living. The FDA requested that we include activitiesof daily living questions in MMPOWER-3, and indicated that it would be appropriate forus to utilize the activities of daily living questions from the Neuro-QoL which wereresponsive to change in MMPOWER-2, including questions 4 (I was too tired to do myhousehold chores), 6 (I was frustrated by being too tired to do the things I wanted to do), 8(I had to limit my social activity because I was tired), 9 (I needed help doing my usualactivities because of my fatigue), 12 (I had trouble finishing things because I was tootired), 13 (I was too tired to take a short walk), 18 (I had to limit my social activitybecause of weakness) and 19 (I had to force myself to get up and do things because I wasphysically too weak).We have registered over 400 subjects with signs and symptoms of primary mitochondrial myopathy in a multi-national pre-trial registry. As ofMarch 22, 2019, 162 subjects were enrolled in MMPOWER-3, and 14 sites in the United States, two sites in Canada and 12 sites in Europe, out of ananticipated 28 sites, were initiated for enrollment. Our goal is to achieve full enrollment in the trial in the first half of 2019.MMPOWER-2We initiated MMPOWER-2, our second clinical trial for the treatment of individuals with primary mitochondrial myopathy, with the goals ofunderstanding whether subjects with primary mitochondrial myopathy would tolerate once daily subcutaneous dosing of elamipretide, and exploringefficacy endpoints in addition to the 6MWT that we could use to assess potential benefit in our Phase 3 pivotal trial.MMPOWER-2 was a Phase 2, double-blind, placebo-controlled crossover trial to evaluate the safety and efficacy of once daily subcutaneousadministration of elamipretide in subjects previously enrolled in MMPOWER. The trial was conducted at Massachusetts General Hospital, University ofCalifornia-San Diego, University of Pittsburgh Medical Center and Akron Children’s Hospital. Thirty of the 36 MMPOWER subjects enrolled inMMPOWER-2, although one subject discontinued the trial in the second four-week treatment period due to injection site pain. Subjects were randomized ina one-to-one ratio to either 40 mg once daily subcutaneous elamipretide, which produces slightly higher exposures than the average dose exposure achievedin the high dose cohort in MMPOWER and equivalent to the dose we are testing in MMPOWER-3, or placebo injection for an initial treatment period offour weeks. After treatment period one, treatment was discontinued for a four-week wash-out period. The subjects were then crossed over to the othertreatment arm for a second four-week treatment period. After finishing both treatment periods, subjects were eligible to continue on elamipretide during anopen-label extension trial, in which we continue to assess safety to support a potential regulatory submission and conduct limited efficacy assessments. - 70 -Table of ContentsThe objectives of the trial were to evaluate the safety, tolerability and efficacy of once daily subcutaneous elamipretide injections in individuals withprimary mitochondrial myopathy. Subjects completed assessments, including the 6MWT, at initial screening, at baseline (prior to receiving the first dose) atweek four, the last visit for the first treatment period at week eight, the beginning of the second treatment period at week 12, the end of the second treatmentperiod and at week 14.Efficacy endpoints were assessed by comparing values for subjects randomized to elamipretide at the end of each treatment period to values forsubjects randomized to placebo at the end of each treatment period; exploratory biomarkers and activity counts were also evaluated. Although the primaryefficacy endpoint was difference in the 6MWT from end of treatment on elamipretide to end of treatment on placebo, an important objective in conductingthis trial was to identify other efficacy endpoints which might be sensitive to change, which we have now brought forward into MMPOWER-3.We observed statistically significant results for elamipretide across multiple endpoints, as shown in the table below.MMPOWER-2 Summary of Data ENDPOINT LEAST SQUARED MEAN (CONFIDENCE INTERVAL) P-VALUE 6MWT (meter) 19.8 (-2.8, 42.5) 0.0833 6MWT Treatment Period 1 (meter)* 45.3 (3.7, 85.9) 0.0340 3TUG (seconds) -0.2 (-2.7, 2.2) 0.8423 Neuro-QoL (T-score) -4.0 (-7.0, -1.0) 0.0115 PMMSA Total Fatigue (mean score) -1.7 (-2.6, -0.8) 0.0006 PMMSA Fatigue During Activity (mean score) -0.8 (-1.2, -0.3) 0.0018 PMMSA Muscle Pain (mean score) -0.4 (-0.6, -0.1) 0.0079 PMMSA Muscle Weakness During Activity (mean score) -0.4 (-0.7, -0.2) 0.0019 PMMSA Subject Reported Most Bothersome Symptom -0.3 (-0.5, -0.1) 0.0111 Patient Global Assessment (mean score) -0.3 (-0.6, 0.0) 0.0421 Physician Global Assessment (mean score) -0.3 (-0.5, 0.0) 0.0638 *Post-hoc sequence effect among subjects walking <450 meters at baseline (p=0.047 6MWT; p=0.0006 3TUG), triggered post-hoc Treatment Period 1analysis.Regulatory agencies such as the FDA recommend that sponsors present data sets in forest plots, in which the treatment effect across various endpointsis rescaled to a common standard error unit of one and we utilized the forest plot construct in our FDA submissions. We believe this presentation to theFDA is useful to demonstrate whether there is alignment of benefit across endpoints, since concordance of benefit across multiple endpoints may providemore persuasive evidence of a treatment effect.In the elamipretide-treated group, we observed a 19.8-meter improvement on the distance walked on the 6MWT relative to the placebo-treated group,although this was not statistically significant (p=0.0833).We observed that the subjects who were more impaired on the 6MWT at baseline, walking under 450 meters, may derive greater benefit fromelamipretide treatment, as shown below. We incorporated this observation into our MMPOWER-3 trial by excluding subjects who walk 450 meters or moreon the 6MWT at - 71 -Table of Contentsscreening or baseline, which we believe may enrich MMPOWER-3 trial for subjects more likely to respond on this endpoint. BASELINE WALK DISTANCE CHANGE (LEAST- SQUARED-MEANS DIFFERENCE) ELAMIPRETIDE VS. PLACEBO Low Walker (under 450m) (n=22) 24.3 meters High Walker (at/over 450m) (n=8) 8.6 meters The PMMSA Total Fatigue score was designed to assess the fatigue and weakness that are the hallmark symptoms of primary mitochondrialmyopathy. The worst (most fatigued) possible score was 16; the best (least fatigued) possible score was four. Subjects treated with elamipretide reported aclinically meaningful reduction in total fatigue from their baseline values (2.2 point, or 19%, reduction relative to baseline) and as compared to placebo (1.7point reduction relative to placebo)(p=0.0006). Notably, subjects did not report meaningful changes in their fatigue while on placebo (0.1 points) and, forsubjects on elamipretide, their fatigue levels increased toward baseline levels after withdrawal of elamipretide, as shown below. Our interpretation of the other secondary endpoints is summarized below. Endpoint P-value InterpretationNeuro-QoL Fatigue 0.0115 The Neuro-QoL Fatigue Short-Form showed a reduction in fatigue in the elamipretide-treated population, with a least-squared-means difference T-score, a convertedstandardized score, of (-4) (p=0.0115) relative to placebo.PMMSA Fatigue During Activities 0.0018 The worst (most fatigued) possible score was an 8; the best (least fatigued) possiblescore was a 2. Comparing the values from the final week of treatment period 1 and thefinal week of treatment period 2, elamipretide-treated subjects reported lower TotalFatigue During Activities relative to placebo- treated subjects, scoring a least-squared-means difference of (-0.8).PMMSA MostBothersome Symptom 0.0111 We observed an improvement in the subjects’ “most bothersome” symptom of theirdisease. - 72 -Table of ContentsEndpoint P-value InterpretationTriple Time Up and GoTest (TUG) 0.8423 The TUG showed no difference between those treated with elamipretide and thosereceiving placebo; however, subjects were not found to be significantly impaired onthis assessment at baseline relative to healthy historic controls. This assessment wasalso completed in less than one-minute, which may be sub-optimal for measuringendurance-related skeletal muscle weakness and fatigue.Patient global impressionscale 0.0421 Elamipretide-treated subjects reported a least-squared-means (-0.28) improvement intheir general health relative to placebo.Physician globalimpression scale 0.0636 Physicians reported a least-squared means (-0.26) improvement in subject’s generalhealth, however this was not statistically significant.Based on FDA feedback, we developed our Phase 3 secondary endpoint, the Neuro-QoL Activities of Daily Living, consisting of the followingactivities of daily living questions from the Neuro-QoL questionnaire developed by the National Institutes of Health which were responsive to change inMMPOWER-2, as shown below. QUESTION ELAMIPRETIDE(N =30) PLACEBO(N = 30) P-VALUE I was too tired to do my household chores 2.6 3.2 0.0025 I was frustrated by being too tired to do the things I wanted to do 2.8 3.3 0.0296 I had to limit my social activity because I was tired 2.6 2.9 0.1652 I needed help doing my usual activities because of my fatigue 2.3 2.7 0.0520 I had trouble finishing things because I was too tired 2.5 3.0 0.0189 I was too tired to take a short walk 2.4 3.0 0.0025 I had to limit my social activity because of weakness 2.2 2.7 0.0145 I had to force myself to get up and do things because I was physicallytoo weak 2.2 2.8 0.0260 Twenty-eight of the 36 subjects who completed MMPOWER and/or MMPOWER-2 enrolled in MMPOWER-OLE, an open-label extension trial weare conducting which will contribute to our safety database in this population and includes periodic efficacy assessments to support the durability of anyeffects observed in the controlled phase of the trial. While we have not observed meaningful changes in 6MWT during ongoing assessments, we haveobserved maintenance of the reduced PMMSA Total Fatigue Score through 12 months of therapy (which 24 subjects have now completed) during this open-label extension trial. We have also observed improvements on the Neuro-QoL Fatigue Short Form scale and the EQ-5D, a standardized measure of healthoutcome to assess health across the domains of mobility, self-care, usual activities, pain or discomfort and anxiety or depression.MMPOWERMMPOWER was a Phase 1/2, multiple ascending dose, double-blind, placebo-controlled trial with 36 subjects between the ages of 16 and 65 withgenetic confirmation of mitochondrial disease and a clinical diagnosis of primary mitochondrial myopathy. The trial was conducted at MassachusettsGeneral Hospital, University of California-San Diego, University of Pittsburgh Medical Center and Akron Children’s Hospital. Nine subjects received a lowdose of elamipretide (0.01 mg/kg hour, for an average actual drug exposure of - 73 -Table of Contents1.4 mg), nine subjects received a mid-dose of elamipretide (0.10 mg/kg hour, for an average actual drug exposure of 12.7 mg), nine subjects received a highdose of elamipretide (0.25 mg/kg hour, for an average actual drug exposure of 29.6 mg) and nine subjects received a placebo dose once daily by two-hourIV infusion over a treatment period of five days. The high dose of elamipretide tested in MMPOWER is slightly lower than the 40mg subcutaneous dose wetested in MMPOWER-2 and are testing in MMPOWER-3.The objectives of the trial were to evaluate the safety, tolerability and efficacy of elamipretide in individuals with primary mitochondrial myopathy.Subjects completed efficacy assessments, including the 6MWT (the primary efficacy endpoint) at initial screening, at baseline (prior to receiving the firstdose), on the fifth day (after the last dose), and on the seventh day (two days after the last dose).We observed a dose-dependent increase in six-minute walk distance (p=0.0142 by linear trend test) after five days of treatment. The data showed thatsubjects who received the high dose of elamipretide, which was the primary dose of interest, walked an average of 64.5 meters further after five days oftreatment with elamipretide than they walked before receiving elamipretide. As adjusted for the 20.4 meter improvement observed in the placebo-treatedgroup, this represents a 44.1-meter least-squares mean improvement relative to placebo (p=0.053). A post-hoc adjustment for gender and baseline distancewalked, the factors most responsible for variability within the data, as published in Neurology in March 2018 by our principal investigators, demonstrated a51.2-meter least-squares mean improvement relative to placebo (p=0.03), as depicted below. As noted above, a post-hoc analysis of the data revealed that subjects’ performance on the 6MWT at baseline was predictive of how much they mayimprove after elamipretide treatment (a treatment by baseline interaction, with an R-squared value of 0.42, meaning approximately 42% of the variability inthe data as a whole is explained by the model). This analysis demonstrated that the more impaired subjects, walking less than 450 meters at baseline, weremore likely to improve with elamipretide, whereas less impaired subjects, walking more than 450 meters at baseline, had less potential for improvement. Ahealthy individual can typically walk between 500 and 600 meters on the 6MWT, which may suggest that those walking over 450 meters at baseline are notsubstantially impaired in their ability to perform this assessment. As discussed above, we observed similar preferential benefit for more impaired subjects inMMPOWER-2 and have accordingly enriched our MMPOWER-3 trial population by excluding subjects who walk more than 450 meters on the 6MWT atscreening or baseline.We explored other secondary and exploratory efficacy endpoints in MMPOWER, including questionnaires and biomarkers, but we did not observemeaningful findings in these other endpoints. - 74 -Table of ContentsElamipretide Clinical Programs—Barth SyndromeBarth is estimated to affect between one in 300,000 to one in 400,000 births in the United States and there are estimated to be less than 200 knownliving patients worldwide with Barth. There are no therapies approved by the FDA, EMA or NMPA for the treatment of Barth. We have received Fast Trackdesignation and Orphan Drug designation from the FDA for the development of elamipretide in Barth.Barth typically presents in infancy or early childhood. The disease is characterized by reduced muscle tone, muscle weakness, undeveloped skeletalmuscles, delayed growth, fatigue, varying degrees of physical disability, heart muscle weakness, or cardiomyopathy, which makes it harder for the heart topump blood to the rest of the body, and low white blood cell count, or neutropenia, which can compromise the body’s ability to fight off infections. Someindividuals with Barth require one or more heart transplants, including during infancy. Implantable cardioverter defibrillators may be used to preventsudden death due to life-threatening ventricular arrhythmias, and other heart failure medications including ACE-inhibitors and beta blockers may also beused to help manage cardiac symptoms. In addition to medical and surgical intervention, individuals with Barth may require physiotherapists andoccupational therapists, speech and language therapists, psychologists and educational support workers. Barth can be a lethal infantile and early childhooddisease, and mortality is highest in the first four years of life. Although improvements in the management of the disease have increased survival for somepatients, with reports of individuals with Barth living into their late 40s and a single individual with Barth reported as surviving to age 51, the diseasenevertheless is associated with premature death.Barth is caused by a genetic mutation in the TAZ gene that leads to decreased production of tafazzin, an enzyme required to assemble cardiolipin; as aresult there is an abnormal composition of cardiolipin, particularly in the heart and skeletal muscle mitochondria in individuals with Barth. Barth patientshave less tetralinoleylcardiolipin, or L4-CL, and increased amounts of monolysocardiolipin, or MLCL, than healthy subjects, and the disease can bediagnosed by the ratio of MLCL to L4-CL, called the MLCL:CL ratio, or genetic testing. MLCL, a phospholipid found in the inner mitochondrialmembrane, is considered to be an immature form of cardiolipin. As illustrated below, MLCL is structurally differentiated from L4-CL due to its lack of afourth acyl chain, which alters the typical conical structure of the lipid causing alterations to mitochondrial morphology. These morphological alterationsresult in destabilization of respiratory chain supercomplexes and increased oxidative stress. Studies have shown increased susceptibility of cardiolipin toperoxidation in Barth patient derived pluripotent stem cells, leading to increased accumulation of MLCL. - 75 -Table of ContentsThe images of lymphoblast mitochondria below indicate that, compared to normal mitochondria, the mitochondria of individuals with Barth haveunhealthy morphology, including a lack of inner membranes, a poor alignment of cristae, which are the curves of the IMM, and swollen or collapsedsegments of cristae. The Barth Syndrome Foundation, an advocacy group for Barth awareness and research, asked us to conduct a clinical trial of elamipretide forBarth. As the mechanism of elamipretide is to bind reversibly to cardiolipin, which is deficient in individuals with Barth, we undertook preclinical work tobetter characterize the safety profile of elamipretide for Barth as well as to gain insight into whether there would be adequate target engagement forelamipretide given the severe depletion of cardiolipin that characterizes this disease. Analyses of cardiolipin levels in Barth patient-derived lymphoblastshave shown up to 60% lower levels of cardiolipin than in - 76 -Table of Contentshealthy control cells, as shown below; this cardiolipin deficit has been found to range to up to 95% in other Barth cell lines or animal models. Preliminary preclinical results from a study in mice in which the TAZ gene was “knocked down” did not indicate any safety concerns.Additionally, as shown below, ex vivo studies of elamipretide in cardiomyocytes, or heart cells, derived from individuals with Barth demonstratedelamipretide’s potential to improve Barth oxygen consumption rate, or OCR, an indicator of mitochondrial respiration, despite an approximate 80%reduction in cardiolipin levels. In this study, the ‘resting’ period, which represents a ‘basal’ state, is when substrates required for ATP production are presentand respiration and ATP production is occurring. Then, oligomycin, an ATP synthase inhibitor, is added to block ATP production. At this stage, respirationrepresents requirements to keep the mitochondrial membrane potential in place without energy required to synthesize ATP. Next, inhibitors (Antimycin andRotenone) are added to block respiration completely. Maximal respiration was achieved by the addition of carbonilcyanide p-triflouromethoxyphenylhydrazone, or FCCP, an uncoupler of mitochondrial oxidative phosphorylation which stimulates increased respiration. In laboratory experiments, elamipretide interacted with the abnormal MLCL found in Barth cardiac and skeletal muscle tissue in a similar ratio as itinteracted with normal cardiolipin, which is believed to be a two - 77 -Table of Contentscardiolipin to one elamipretide molar ratio. In another experiment, lipid vesicles that model the IMM were synthesized, and the effect of membrane lipidcomposition on membrane structure (area) was determined. Cardiolipin comprises approximately 20% of inner membrane lipids, and the addition ofcardiolipin was observed to increase membrane area, consistent with the cone-shaped structure of cardiolipin. Losses of cardiolipin were modeled based onchanges typically seen in diseases including heart failure and renal disease and the loss of cardiolipin was associated with decreased membrane area. Weobserved that elamipretide-mediated aggregation of cardiolipin ameliorated the loss by acutely restoring the membrane area, as shown below. In diseasescharacterized by pronounced loss of cardiolipin such as Barth, there is a profound decrease in membrane structure that was attenuated withelamipretide. These observations suggest that elamipretide’s therapeutic benefit may be more pronounced or more rapidly observed in subjects with moremoderate cardiolipin loss. While Barth patients have some normal cardiolipin, the ratio of abnormal MLCL to normal cardiolipin (the MLCL:CL ratio) may vary from patient topatient. For example, in the study we conducted with Barth patient-derived cardiomyocytes, described above, we observed an approximate 80% reduction innormal cardiolipin, whereas other studies of patient-derived lymphoblasts have shown an approximate 60% reduction in normal cardiolipin, as discussedabove. Up to 95% reduction has, at times, been reported in the literature.The MLCL:CL ratio has been observed to correlate with functional impairment; patients with a lower MLCL:CL ratio are typically less impaired thanthose with a higher MLCL:CL ratio. For example, a prior observational study of 34 Barth patients suggests that the MLCL:CL ratio is inversely correlatedwith performance on the 6MWT (p=0.00014). Accordingly, if elamipretide’s reaction to normal cardiolipin is critical to therapeutic effect, such therapeuticeffect may also vary among patients, and as a result may only benefit a subset of such patients.We initiated TAZPOWER, a clinical trial of elamipretide for individuals diagnosed with Barth, in the third quarter of 2017 at Johns Hopkins.TAZPOWER is a double-blind, placebo-controlled cross-over trial to evaluate the efficacy of once daily subcutaneous administration of elamipretide in 12individuals who are 12 years of age or older and have been diagnosed with Barth. Subjects were randomized in a one-to-one ratio to either 40 mgelamipretide administered daily by subcutaneous injection or placebo for an initial 12-week treatment period. After this initial treatment period, treatment isdiscontinued for a four-week wash-out period, following which the subjects cross over to the other treatment arm for a second 12-week treatment period.Subjects enrolled in TAZPOWER are eligible for participation in an optional open-label extension trial that will contribute to our safety database andmay include periodic efficacy assessments to support the durability of any effects observed in the controlled phase of the trial. We have completed theplacebo-controlled portion of - 78 -Table of ContentsTAZPOWER, and are continuing to assess efficacy endpoints during the open-label extension phase, in which eight subjects are currently enrolled.The objectives of the trial were to evaluate the safety, tolerability and efficacy of once daily subcutaneous elamipretide injections in individuals withBarth. During each of treatment periods one and two, subjects completed assessments including the 6MWT at the beginning of each treatment period, fourweeks into each treatment period, and at the end of each treatment period; certain assessments were also conducted at initial screening, and at a follow-upvisit, four weeks following the end of the second treatment period. In addition, the Barth Syndrome Symptom Assessment, or BTHSA, a patient reportedoutcome questionnaire developed based upon interviews of individuals with Barth to measure the fatigue and muscle weakness associated with the disease,was completed by subjects daily, and assessed based on the average of seven days of daily values preceding the assessment date.Elamipretide was reported to be well-tolerated by patients with Barth. Other than injection site reactions, which were experienced in both groups butwith higher frequency in the elamipretide treatment group, there were overall less events reported during the elamipretide treatment periods of the trial, ascompared to the placebo treatment periods.TAZPOWER did not meet its primary efficacy endpoints of (i) change in the 6MWT between end of treatment on elamipretide and end of treatmenton placebo or (ii) change in Total Fatigue on the BTHSA, which is composed of three questions from the BTHSA, assessing tiredness at rest and duringactivities and muscle weakness during activities, between end of treatment on elamipretide and end of treatment on placebo. With respect to the ClinicalGlobal Impression of Change, a secondary endpoint involving an overall assessment by the investigator of each subject’s Barth symptoms, we observed animprovement between end of treatment on elamipretide and end of treatment on placebo, with the investigator reporting positive change for nine out of the12 patients over the elamipretide treatment period. Additionally, eight of 11 caregivers completing the Caregiver’s Global Impression of Change alsoreported positive changes in Barth symptoms during the elamipretide treatment period.We conducted a prespecified subgroup analysis intended to assess whether elamipretide’s association with normal cardiolipin is related to therapeuticeffect, that is, whether elamipretide may provide greater benefit to a subset of Barth patients who have lower MLCL:CL ratios. This entailed an assessmentof the six patients above (“high ratio subjects”) and six patients below (“low ratio subjects”) the median MLCL:CL ratio of the subjects enrolled inTAZPOWER, which was 17.3. In this subgroup analysis, we observed a correlation between - 79 -Table of Contentsimprovements in 6MWT and baseline ratios, as shown below. We believe this suggests that elamipretide therapy may preferentially affect low ratiosubjects. We assessed performance between high ratio and low ratio subjects on other key efficacy endpoints. From this analysis, we observed that low ratiosubjects showed overall greater improvement on elamipretide therapy than on placebo, particularly as compared to high ratio subjects, as reflected below.We believe these signals, coupled with data from the ongoing open-label extension portion of the trial, may support submission of an NDA for thisindication. We plan to discuss a potential NDA submission with the FDA during the first half of 2019. The 21st Century Cures Act, or the Cures Act, elevates the role of the patient in the development of drugs, giving patients a greater voice whendeveloping treatments for their diseases. Under this Act, sponsors are encouraged to incorporate the patient experience in their regulatory submissions.Accordingly, all subjects participating in the TAZPOWER trial were eligible to participate in a qualitative study in which we conducted videotapedinterviews with trial participants through a smartphone application to explore their experiences during - 80 -Table of Contentsand after the trial and to better understand the treatment outcomes that are meaningful to them. For subjects participating in open-label extension, interviewswere conducted after three-months of open-label extension therapy, unless sooner terminated. Nine of the 12 TAZPOWER subjects and/or their caregivershave participated in this study. Interview questions addressed life before elamipretide injections (shots), daily life today (i.e., as of the date of eachparticipant’s interview), fatigue and weakness today, other aspects of Barth today, shots: round 1, stopping the shots, and shots: round 2. Eight of the nineparticipating subjects reported improvement while on elamipretide therapy during open-label extension, and six of those eight subjects correctly identifiedduring which of the two double-blind treatment periods they were receiving elamipretide.Subjects characterized the improvement in fatigue in relation to their activities of daily living and quality of life. For example, one subject was able togo swimming and hiking with his friends at Boy Scout camp, which he had not previously been able to do. Another subject was able to walk his dog withoutstopping to rest and required less recovery time from that exertion. Two subjects reported being able to participate in physical education class at schoolinstead of having to sit out. Several subjects reported increased appetite.Two of the four study participants randomized to elamipretide in the placebo-controlled portion of the TAZPOWER trial reported reversion to theirbaseline symptoms quickly after withdrawal of therapy during the washout period. One reported a perceived decline in quality of life less than 48 hoursfrom stopping therapy, which he characterized as depressing. Another reported that his grades declined because he found it harder to focus and was fallingasleep at school again.We are observing continued improvement in distance walked on the 6MWT during the open-label extension portion of the TAZPOWER trial, inwhich eight subjects are enrolled and seven subjects have completed 36 weeks of treatment, and all subjects have completed 24 weeks of treatment. We areconducting a review of the natural history of Barth to evaluate this and any other longitudinal trends we may observe during open-label treatment.We plan to request a meeting with the FDA, which we expect to have during the first half of 2019. The objective of the meeting will be to discuss ourplan to submit an NDA for elamipretide for the treatment of Barth and to seek alignment regarding our regulatory path forward. We believe the data fromour MMPOWER program may be supportive of our Barth development efforts. We also believe our development efforts in Barth may support thedevelopment of elamipretide in primary mitochondrial myopathy, given that patients with Barth have even lower levels of cardiolipin and we have still seenevidence of target engagement. We also believe that our experience from a compassionate use protocol for an infant with Sengers syndrome may providefurther support.Elamipretide Compassionate Use—Sengers syndromeSengers syndrome (“Sengers”) is an autosomal recessive mitochondrial disorder characterized by early onset hypertrophic cardiomyopathy,congenital cataracts and hypotonia. The prevalence of Sengers is unknown, however, according to Orphanet, a European reference portal for information onrare diseases, approximately 40 cases had been reported worldwide as of June 2014. Approximately half of the patients diagnosed with Sengers die withinthe first year of life due to cardiac failure associated with a fatal neonatal form of the disease. Sengers and Barth are thought to have overlapping phenotypessince both lead to depletion of mitochondrial cardiolipin and both are known to cause severe hypertrophic cardiomyopathy.In June 2018, we collaborated with doctors at the Department of Pediatrics, Barnaspitali Hringsins and the Department of Genetics and MolecularMedicine, Landspitali University Hospital, both in Reykjavik, Iceland, and the McKusick-Nathans Institute of Genetics Medicine at Johns HopkinsUniversity to implement an elamipretide compassionate care protocol for a 3-month old infant diagnosed with the neonatal form of Sengers being treated atthe neonatal intensive care unit at Landspitali University Hospital. In the first few months of life, the child was noted to have severe hypertrophiccardiomyopathy, bilateral cataracts and significant hypotonia. Average published survival of children presenting at this age is approximately 4.2 months. - 81 -Table of ContentsThe child received 0.25 mg/kg/day of elamipretide intravenously for the first six weeks, and thereafter received 0.5 mg/kg/day elamipretide therapyonce daily. The patient’s cardiac function improved in the first few weeks of treatment and remained stable through November 30, 2018, with a 53%increase in left ventricular internal dimension in end-diastole and stabilization of left ventricle septal and posterior wall thickness despite a 40% weight gaindue to normal growth. After approximately six months of elamipretide therapy, the patient improved from markedly ill to borderline ill as reported by aclinical global impression of severity of illness assessment, as shown below. This assessment, which is based on weekly evaluations, suggests that thepatient improved at over 60% of the evaluations conducted since starting elamipretide therapy and was only thought to worsen on one occasion. The patientwas subsequently discharged to home. Elamipretide appeared to be well-tolerated by this patient with no obvious associated side effects. The treatingphysician expressed a belief that elamipretide contributed to the patient’s disease stabilization.After a surgical procedure in December 2018, prior to which the patient had been stable, the patient experienced severe cardiac decompensation andmulti-organ failure and succumbed to his disease at approximately nine months of age. Elamipretide Clinical Programs—LHONWe estimate that approximately 10,000 individuals in the United States have LHON. Currently, there are no treatments approved by the FDA or theNMPA for the treatment of LHON. Raxone (idebenone), a synthetic form of Coenzyme Q10, has been approved by the EMA for the treatment of LHON,although actual availability varies by country. Raxone has orphan designation, and its marketing authorization was granted by the EMA under its authorityto grant marketing authorization under “exceptional circumstances” due to the lack of comprehensive data on efficacy and safety.We have received Fast Track status and Orphan Drug designation from the FDA for the development of elamipretide for this indication. China hasrecently included LHON as an orphan disease on its published list of orphan diseases.We have conducted a Phase 2 clinical trial of elamipretide topical ophthalmic drops for this indication, in which we observed some trends in responserates suggestive of therapeutic effect, for which we are continuing to - 82 -Table of Contentsassess efficacy data in an ongoing open-label extension trial. We plan to expand the open-label portion of this trial to include additional patients in theUnited States and China.LHON is a mitochondrially inherited genetic disorder passed from a mother carrying the mutation to her children. LHON causes degeneration of theoptic nerve in the back of the eye and leads to bilateral blindness, and primarily affects young men between the ages of 18 and 30, although it can affectwomen as well as younger children. The initial clinical expression of LHON is often a sudden, painless, acute or sub-acute central vision loss, oftenaccompanied by loss of color vision and reduced visual acuity. A typical presentation involves a young man experiencing increased oxidative stress,sometimes from increased alcohol and/or tobacco consumption, leading to sudden vision loss in one eye that typically progresses within six months of onsetto bilateral blindness. The disease has a substantial impact on day-to-day functioning, making it difficult to read and perform every day activities, includingemployment-related activities and driving. The disease has a severe negative impact on quality of life and LHON individuals may require social services,occupational rehabilitation and visual aids.A subclass of LHON patients also present symptoms, including muscle weakness, poor coordination, and numbness, tremors and abnormalities of theelectrical signals that control the heartbeat (cardiac conduction defects). Some families have particularly severe manifestations, including ataxia, juvenileonset encephalopathy, spastic dystonia and psychiatric disturbances. These phenotypes have been called “LHON plus syndromes.”Mitochondria are central to retinal cell function and survival and dysfunctional mitochondria may lead to death of retinal ganglion cells, which areneurons located near the inner surface of the retina. Mitochondrial dysfunction is a key factor in LHON and other genetic optic neuropathies characterizedby loss of visual function resulting from impaired cellular energetics within retinal ganglion cells and the optic nerve.Electron microscopy imaging of mitochondria from LHON subjects shows abnormal morphology suggestive of dysfunctional mitochondria. Thisabnormal mitochondrial morphology has also been observed in the retinal ganglion cells in a mouse model of LHON. The images below show retinalganglion cells from a wild-type mouse, left, and an LHON mutant mouse model, middle. The image on the right shows an enlarged image of themitochondria in the retinal ganglion cells of the mutant mouse. We believe based on preclinical and early clinical findings that systemic elamipretide may be beneficial for subjects with LHON and LHON plus, inwhich the mitochondrial dysfunction is the result of a mutation in a subunit of Complex I of the electron transport chain which impacts the retinal ganglioncells and the optic nerve. Preclinically, elamipretide has been observed to improve mitochondrial function under oxidative stress conditions in mouse-derived retinal ganglion cells, the type of cells most affected by LHON, by dose-dependently reducing ROS production, mitochondrial depolarization,cytochrome c release, morphological change, apoptosis and cell death. Ongoing experiments in a mouse model of acute traumatic optic neuropathy alsosuggest that systemic administration of elamipretide post-trauma may improve retinal ganglion cell survival and visual function, supporting the plausibilityof therapeutic benefit in the presence of LHON associated, oxidative-stress mediated damage of the optic nerve. - 83 -Table of ContentsIn our MMPOWER and MMPOWER-2 clinical trials, in which most subjects are believed to have had some degree of Complex I dysfunction, weobserved clinical benefit following systemic elamipretide administration. One LHON plus subject who enrolled in both studies and continues to receiveelamipretide during the open-label extension trial experienced improvement in various disease symptoms, including improvement in vision such that thesubject received medical clearance to drive for the first time in seven years. In addition, we believe we are observing trends suggestive of potential clinicalbenefit in our ReSIGHT Phase 2 clinical trial of topical ophthalmic drops for patients with the G11778A mutation of LHON, in which subjects arecontinuing treatment with elamipretide during an open-label extension trial.ReSIGHT, our first clinical trial of elamipretide for the treatment of LHON, was a 52-week, randomized, double-masked, vehicle-controlled clinicaltrial of elamipretide topical ophthalmic drops in 12 subjects with LHON. Subjects were randomized to a single drop of elamipretide 1.0% ophthalmicsolution or placebo, twice daily, with four subjects receiving elamipretide dosed in both eyes and eight subjects receiving elamipretide in one eye andplacebo in the other eye. The endpoints were safety, tolerability and efficacy. The primary efficacy endpoint was change in best corrected visual acuity, orBCVA, during the period from week 20 through the end of treatment at week 52; secondary endpoints included changes in color vision, changes in photopicnegative response electroretinography, a biomarker measuring the response of the retinal ganglion cells to light, changes in the retinal nerve fiber layer andretinal ganglion layer thickness, and changes in visual field, or field of vision, as measured by the Humphrey visual field score, which is the expanse ofspace visible at a given instant without moving the eyes. Subjects enrolled in ReSIGHT were eligible for participation in an optional open-label extensiontrial that will both contribute to our safety database and include periodic efficacy assessments to support the durability of any effects observed in thecontrolled phase of the trial. Ten of the 12 subjects are currently participating in the open-label extension trial.ReSIGHT enrolled individuals with the G11778A LHON genetic mutation who experienced loss of vision in both eyes of greater than one year andless than ten years, because the degree of visual impairment in these patients was expected to remain stable absent therapeutic intervention. It is consideredunlikely that individuals with the G11778A genetic mutation will experience visual recovery spontaneously, meaning without any therapeutic intervention;the partial recovery rate, most commonly occurring within the first year following vision loss, has been reported to be between 4% and 33% for theseindividuals.We observed trends suggestive of therapeutic effect in ReSIGHT, but the trial did not meet its primary endpoint of change in BCVA as the averagechange over week 20 to 52 from baseline. We believe this was largely due to unexpected variability in the placebo group, in which two subjects experiencedgains in BCVA of more than 20 letters on a standard eye chart and one subject experienced a loss of more than 20 letters, resulting in no change overallbetween elamipretide and placebo treated groups. However, improvement in elamipretide-treated eyes was observed across a number of other endpointsover the treatment period, as shown below.The following table sets out certain data with respect to the ReSIGHT clinical trial measuring the endpoints from baseline to week 52 (averaged, inthe case of BCVA, Humphrey Visual Field and Color Discrimination, - 84 -Table of Contentsover the entire treatment period). We plan to utilize a forest plot construct in our submission of the ReSIGHT data to the FDA.ReSIGHT Summary of Data ENDPOINT LEAST SQUAREDMEAN (CONFIDENCE INTERVAL) P-VALUE BCVA (letters) 0.6 (-0.9, 2.1) 0.4370 Humphrey Visual Field (mean deviation) 0.8 (0.1, 1.4) 0.0173 Color Discrimination 0.2 (0.0, 0.4) 0.0826 Retinal Nerve Fiber Layer Thickness 1.9 (-3.3, 7.0) 0.4390 Retinal Ganglion Cell Layer Thickness 1.6 (-0.5, 3.7) 0.1274 Visual Function Questionnaire Composite* 6.0 (2.1, 9.9) 0.0063 *Post-hoc analysis of change from baseline (all subjects).The below further summarizes certain post hoc analysis of the data from ReSIGHT, which was conducted with a central field analysis. All subjects participating for at least three months in the open-label extension part of the ReSIGHT trial were eligible to participate in a qualitativestudy in which we conducted videotaped interviews with trial participants through a smartphone application to explore their vision experiences during andafter the trial and to better understand the treatment outcomes that are meaningful to them. Nine of the 12 ReSIGHT subjects participated in this study.Interviews addressed aspects of changes in vision with respect to general vision, testing their eyes, screens and magnification, daily living, color and lightand summary. A number of subjects reported improvements in visual function as well as quality of life, as summarized in the charts below, which wereprepared by external evaluators who analyzed written transcripts of the interviews pursuant to pre-identified conceptual frameworks. With respect toimprovements in activities of daily living, one subject reported being able to see the denomination of money better, another remarked that he can see facesbetter and now has the vision he needs to get to his classes independently, another remarked that he does not rely upon accessibility devices such as CCTVas much as he used to, and is able to see street crossing signs now. Another advised that he can now see when to cross the street from the distance of acrossthe street, another reported he does not rely upon friends for help cooking or doing laundry as much as he used to, and another mentioned he can now ridehis - 85 -Table of Contentsbike again and has experienced improvement in his activities of daily living. We believe these interviews help qualify the clinical relevance andmeaningfulness of changes in endpoints observed during the ReSIGHT trial. - 86 -Table of ContentsWe also observed continued improvement in parameters of visual function, including BCVA, color sensitivity, contrast sensitivity and visual field,particularly central visual field, as illustrated below. Our original discussions with the FDA presumed we would conduct a pivotal Phase 3 trial following ReSIGHT. We plan to discuss the results of theReSIGHT trial with the FDA to inform next steps with respect to the regulatory path forward in the United States, including whether a second trial will berequired to support approval and the design of any such trial. We may consider increasing the dose or frequency of administration of topical ophthalmicdrops or administering elamipretide subcutaneously based upon the results of our discussions with the FDA. If we decide to conduct a Phase 3 clinical trial,we expect it would include sites in the United States and China as we believe the inclusion of sites in China may help expedite enrollment.Patient-focused Drug Development and 21 st Century Cures Act in the Context of Primary Mitochondrial Myopathy, Barth and LHONThe FDA’s Patient-Focused Drug Development initiative is an FDA commitment under the fifth authorization of the Prescription Drug User Fee Actto more systematically gather patients’ perspectives on their condition and available therapies to treat their condition. As part of this commitment, the FDAis holding a series of public meetings, each focused on a specific disease area. Pursuant to this initiative, the FDA met with Barth patients and advocates inJuly 2018 and with primary mitochondrial myopathy patients and advocates in March 2019, in each case to hear directly from patients, patient caretakersand other patient representatives about their experiences with their debilitating conditions, including the disease symptoms and daily impacts that mattermost to patients. At the Barth meeting, for example, patients and their caretakers spoke about the severe impact that fatigue has upon the quality of life forBarth patients. We believe these meetings are important to educate the FDA about the significant clinical burden of these diseases and their devastatingimpact on patient’s activities of daily living, and we have supported advocacy groups’ efforts to prepare for these meetings. Other than educating regulatorsabout the burden of these diseases in which we are studying elamipretide as a potential therapy, these meetings have no direct impact on our clinicaldevelopment efforts.The video protocols we conducted or are conducting as part of our MMPOWER-3, TAZPOWER and ReSIGHT programs will enable us toincorporate the patient experience in our regulatory submissions as encouraged by the Cures Act. The video protocol will be open during the open-labelextension for subjects that participated in MMPOWER-3 at U.S. sites. Our approach to incorporate the patient voice under the Cures Act in this manner wasinformed by prior experience in our MMPOWER and MMPOWER-2 programs. In MMPOWER, certain of our clinical trial sites collected videotapedinterviews of consenting subjects at baseline, before treatment commenced, at day five, which was the end of treatment, and at day seven, which was twodays - 87 -Table of Contentsafter treatment stopped. Our review of those interviews revealed important anecdotal learnings about certain subjects’ perceptions of changes in theirsymptoms over the course of the trial, as described in several examples below: • one subject reported that following five days of high dose elamipretide, he no longer needed to use his walker for support while ambulating and hewas able to complete more daily activities, such as shaving, due to his increased strength; his clinician observed increases in his muscle tone; • one subject reported that following five days of mid-dose elamipretide, she experienced more energy and felt more sensations, such as being able tofeel the air she inhaled when taking a deep breath, which she had not realized she was unable to feel before she received elamipretide treatment; • one subject reported improved ability to walk, including being able to go up hills without her legs burning and her heart racing, and to see, includingimprovements in her double vision and ability to read; and • one subject sent us videos chronicling her disease manifestation, diagnostic journey and perceived improvement during (i) MMPOWER, in which sheprogressed from needing a wheelchair or scooter to walk, at the beginning of the trial, to being able to walk without assistance, after five days ofmid-dose elamipretide, (ii) MMPOWER-2, after which she was able to dance, was cleared to drive for the first time in seven years due to visualimprovement and was able to reduce her pain medications, and (iii) the open-label extension trial, during which she reported continued improvement.Although reports of this nature are anecdotal and not all subjects report improvements following treatment with elamipretide, we do think accounts ofthis nature will help encapsulate the patients’ perspective on any benefits they experience in our MMPOWER-3, TAZPOWER and ReSIGHT programsconsistent with the Cures Act.Elamipretide Clinical Programs—Diseases Associated with AgingWe believe that there is significant potential for mitochondrial medicine in diseases related to aging. We are evaluating the potential clinical utility ofelamipretide in dry AMD, a disease associated with aging. We have also evaluated the potential clinical utility of elamipretide in proof-of-concept clinicaltrials in aging skeletal muscle weakness, acute kidney injury and heart failure, which are also associated with aging. Although we saw signs of clinicalbenefit in some of these studies, we do not plan to progress development of elamipretide for age-related indications other than dry AMD in the UnitedStates. We may consider development of certain of these indications for other territories, including China, and we also believe that certain of theseindications may be suitable for new pipeline compounds.Ophthalmic DiseasesNormal mitochondria play a critical role for ocular function, and dysfunctional mitochondria are implicated in several common diseases of the eye,many of which are associated with aging. Ophthalmologic diseases that have not traditionally been considered to have obvious mitochondrial origins areincreasingly recognized to result in part from impaired mitochondrial function, increased oxidative stress and increased apoptosis. As a high energy-demandorgan, the eye is particularly susceptible to the consequences of mitochondrial damage. Oxidative damage that results over time from mtDNA instabilityleads to cumulative mitochondrial damage, which is recognized to be an important pathogenic factor in age-related ophthalmologic disorders such asdiabetic retinopathy, glaucoma and dry AMD.Delivery of therapeutic compounds to various sections of the human eye can be challenging. The eye has evolved to protect itself by washing foreignsubstances such as eye drops from the surface, with tears capable of removing as much as 95% of an eye drop. The vitreous in the interior of the eye alsoposes a barrier to delivery of therapies from the front of the eye to the retina. For systemic delivery, the blood-retinal barrier can prevent substances,particularly large molecules, from entering the tissue of the retina. We have evaluated both systemic and topical delivery of elamipretide in both preclinicalstudies and clinical trials. - 88 -Table of ContentsDry AMDWe are advancing development of elamipretide for dry AMD, an ophthalmic disease associated with aging and the leading cause of blindness amongolder adults in the developed world. Dry AMD is estimated to impact approximately 10 million individuals in the United States.. There are no treatmentsapproved by the FDA, the EMA or the NMPA for the disease.The earliest clinical manifestation of dry AMD is often a reduction in low luminance, or low light, visual acuity, which can make it challenging toconduct normal daily activities such as reading in artificial light, driving at dusk or at night and navigating indoors in low light. The disease may progress toentail blurred vision and loss of central vision, which can impair facial recognition, mobility, watching television and computer use, and can eventually leadto blindness. These limitations may impair the independence of older adults and have been associated with increased depression.The pathophysiology of dry AMD includes the formation of cellular debris, called drusen, which disrupt the retinal pigment epithelium, a layer ofcells between the retina, which collects light and converts it into neural signals to transmit to the brain, and the choroid, or vascular membrane, at the backof the eye. The disease may also involve the gradual deterioration, or geographic atrophy, of the central part of retina, known as the macula. The retinalpigment epithelium provides nutrition to the retina, which has a very active metabolism and rids the eye of waste by phagocytosis of photoreceptor outersegments. The eye is the highest consumer of mitochondrial ATP in the central nervous system, due to the intensive bioenergetics required to support visualfunction. Preclinical studies suggest that diseases of the retinal pigment epithelium, such as dry AMD, may be exacerbated by light- induced mitochondrialdysfunction, and that mitochondrial DNA mutations appear to accumulate over time in diseased retinal pigment epithelium as a consequence of chronic andongoing oxidative stress. Cigarette smoking and high fat diets, both of which contribute to mitochondrially deleterious oxidative stress, are known to beenvironmental risk factors for dry AMD onset and progression. These findings suggest a key role for mitochondrial dysfunction in the pathology of thedisease.The table below provides a summary of our completed and planned trials for dry AMD. TRIAL INDICATION STAGE; STATUS TRIAL DESIGNReCLAIM dry AMD Phase 1;completedin March2018 Open-label, single-center clinical trial involving 19 subjects with non-centralgeographic atrophy, which occurs when the photoreceptors no longer work and thepatients develop a blind spot or spot of poor vision in the macula, and 21 subjectswith high risk drusen, which are large deposits of debris located between the retinaand the Bruch’s membrane, that can interfere with waste products getting removedfrom the macula. Subjects received once daily subcutaneous injections ofelamipretide for 24 weeks.ReCLAIM-2 dry AMD Phase 2b;initiatedMarch 2019 Double-blind, placebo controlled, multi-center clinical trial involving approximately180 subjects with non-central geographic atrophy, receiving once daily subcutaneousinjections of either elamipretide or placebo for ~48 weeks.In preclinical models of dry AMD, published in Retina Today in May/June 2015, researchers at Duke Eye Center observed that elamipretideprevented disease progression and reversed symptoms of disease. This study utilized hydroquinone, a toxic chemical in tobacco tar, to induce dryAMD-like symptoms in mice over a two-week course of exposure. Concurrent treatment with 3 mg/kg subcutaneous elamipretide during hydroquinoneexposure protected against these symptoms, as evidenced by a reduction of the drusen-like deposit formation and maintenance of normal membranethickness, mitochondrial morphology and ultrastructure of the retinal pigment endothelium cells in treated mice. - 89 -Table of ContentsIn another preclinical model of a 24-month old Alzheimer’s disease mouse (roughly equivalent to a human octogenarian) which, when fed a high fatdiet, accumulated drusen-like deposits, one month of subcutaneous administration of elamipretide eliminated the drusen-like deposits and restored normalmitochondrial morphology and the ultrastructure of the retinal pigment endothelium cells. In addition, the animals treated with elamipretide were observedto have normalization of b-wave amplitudes on electroretinograms, which suggests an improvement in photoreceptor function reflecting improved visualacuity.We conducted our ReCLAIM Phase 1 open-label clinical trial at Duke Eye Center to evaluate the safety, tolerability and efficacy of dailysubcutaneous injections of 40 mg elamipretide given over 24 weeks to 40 individuals with intermediate characteristics of dry AMD. We enrolled 21subjects who have high-risk drusen, the most common early signs of dry AMD, and 19 subjects who have non-central geographic atrophy, or areas ofdysfunctional macula. Individuals with high-risk drusen typically have difficulty seeing in low light conditions and mild to moderate deficits in visual acuityunder normal light condition, while those with non-central geographic atrophy have more advanced symptoms but are not yet blind. The primary endpointwas safety and tolerability, evaluated based on review of adverse events, or AEs, and compliance of self-administration of subcutaneous elamipretide,measured at 24 weeks compared to baseline. Secondary endpoints for both high-risk drusen subjects and subjects with non-central geographic atrophyincluded change from baseline in visual acuity in low light conditions, or low luminance visual acuity, or LLVA, a five-letter deficit in which was requiredfor inclusion in the trial, visual acuity in standard light conditions, BCVA, reading speed and acuity in low light conditions and standard light conditions,drusen volume and patient reported outcome assessments. Assessments for most secondary endpoints occurred at baseline, week four, week eight, week 12and week 16.We analyzed the data for subjects in each cohort who completed 24 weeks of therapy, which included 19 subjects with high-risk drusen and 15subjects with non-central geographic atrophy. We observed improvements in functional assessments across both cohorts, as summarized below. As notedabove, a five-letter deficit in LLVA, which is among the first clinical symptoms of the disease, was a required inclusion criterion for the trial, andimprovements in this endpoint were statistically significant across both the drusen (p=0.0055) and geographic atrophy (p=0.0186) cohorts. ENDPOINT DRUSEN COHORT (N=19) GEOGRAPHICATROPHY COHORT (N=15) Best corrected visual acuity (regular light) mean letters gained/p value 3.58 4.60 (p=0.0253) (p=0.0034) Low luminance visual acuity mean letters gained/p value 5.63 5.40 (p=0.0055) (p=0.0186) Reading speed (regular light) mean reduction in time/p value (0.11) (0.02) (p=0.0054) (p=0.5501) Low luminance reading speed mean reduction in time/p value (0.28) (0.52) (p<0.0001) p=0.0172 Visual function questionnaire composite score 9.25 6.59 (p=0.0004) (p=0.0125) Low luminance questionnaire general dim light vision score 20.75 10.32 (p=0.0003) (p=0.027) Since we did not have a placebo, or control group, in this study, we evaluated natural history data and prior placebo-controlled trials of subjects withsimilar disease burden to understand the likelihood that we would observe a learning or placebo effect in this study. In a number of other reportedinterventional studies conducted by others, including Chroma, Spectri and Filly (combined n>700), as well as in several natural history studies conducted byothers, including Proxima, Holz and Ladd (combined n>250), BCVA was observed to decline in similar patient groups by four to six letters over an up toone-year period, and LLVA was observed to decline in - 90 -Table of Contentssimilar patient groups by approximately two letters over a six-month to one-year period. This supports our belief that the improvements observed in theReCLAIM trial are unlikely to be due to the natural variability of the disease.While each subject in ReCLAIM had one eye designated as a study eye, which met the inclusion criteria for the trial, the other eye was not required tomeet inclusion criteria. Fourteen subjects in the trial had neovascular age-related macular degeneration, or wet AMD, that was at the quiescent stage,meaning that it was stable on standard-of-care anti-vascular endothelial growth factor, or anti-vegF, therapy. While there is an improvement in visual acuitywhen some subjects are first dosed with anti-vegF therapy, improvement typically plateaus and even declines slightly when the disease reaches thequiescent state. We observed that subjects with wet AMD experienced similar improvements in vision as was observed in the study eyes, with a 5.6 lettermean gain from baseline in BCVA, which was statistically significant at p=0.0027, and a 6.1 letter mean gain from baseline in LLVA, which wasstatistically significant at p=0.0012.We also assessed the rate of progression of geographic atrophy in the non-central geographic atrophy cohort relative to what has been observed inother studies. The typical rate of geographic atrophy progression in dry AMD is well-understood from prior studies and the natural history, and we believeslowing of geographic atrophy progression could be a meaningful endpoint as we pursue approval by the FDA. This analysis was conducted using severaltypes of imaging technologies including fundus auto-fluorescence, or FAF, an advanced imaging technique for observing the fundus, which is the interiorsurface of the eye opposite the lens including the retina, optic disk, macula, fovea and posterior pole, FAF squared, or FAF SQRT, a calculation performedto eliminate dependence of growth rates on lesion measurements, and optical coherence tomography, or OCT, a non-invasive imaging test which uses lightwaves to take cross-sectional pictures of the retina, also squared, or OCT SQRT, to eliminate dependence of growth rates on lesion measurements. Each ofthese imaging technologies showed that six months’ treatment with elamipretide was associated with slower progression of geographic atrophy than wasobserved in prior published studies conducted by others (assuming, for prior studies which were completed over a longer time period, a linear progression ofgeographic atrophy enabling calculation at the 6-month time point). FAF demonstrated mean growth of 0.50 mm 2 , versus 0.91 mm 2 mean observationfrom ten prior studies over a similar time period (assuming linear progression), FAF SQRT demonstrated mean growth of 0.14 mm, versus 0.19 mm meanobservation from five prior studies over a similar time period (assuming linear progression), and OCT SQRT demonstrated mean growth of 0.11 mm, versus0.18 mm mean observation from five prior published studies over a similar time period (assuming linear progression).We initiated ReCLAIM 2, a Phase 2b placebo-controlled clinical trial with once daily subcutaneous dosing in subjects with non-central geographicatrophy in March 2019. ReCLAIM 2 is designed to enroll up to 180 subjects, of whom 120 will be treated with an elamipretide 40 mg once dailysubcutaneous injection, and the remainder will receive placebo for a 48-week period. Eligible subjects are required to have a geographic atrophy areagreater than or equal to 0.05mm 2 and less than 10.16 mm 2 , BCVA greater than or equal to 55 letters and greater than 5 letters low luminance deficit.Efficacy endpoints in ReCLAIM 2 include BCVA, FAF, OCT, low-luminance best-corrected visual acuity, low-luminance reading acuity, National EyeInstitute Visual Function Questionnaire-39 score, visual function by the Low-luminance Questionnaire and conversion to choroidal neovascularization.Although we believe that individuals experiencing a progressive decline in visual activity will be compliant with daily subcutaneous injections, wemay consider a second Phase 2b placebo-controlled clinical trial using the drop formulation because it may be commercially advantageous to utilize atopical drop formulation. We observed signs of clinical benefit with elamipretide topical ophthalmic drops in our ReVEAL Phase 1/2 clinical trial enrollingsubjects with Fuchs’ corneal endothelial dystrophy, or Fuchs, as well as in our ReSIGHT trial, and we are continuing to assess open-label efficacy data fromour ReSIGHT study to inform the decision whether to pursue further development of the drop formulation. - 91 -Table of ContentsFuchs’ corneal endothelial dystrophyFuchs’ affects the endothelium, the thin layer of cells that line the back part of the cornea in the front of the eye. Endothelial cells are key to pumpingexcess water from the cornea, where it otherwise accumulates and results in corneal damage and cell death. When endothelial cells die, they cannot beregenerated. As more cells are lost, fluid builds up in the cornea and the tissue gradually thickens, resulting in a swollen and cloudy cornea. Fuchs’ isthought to be caused by oxidative stress in the endothelial cells, which in turn causes mtDNA damage and leads to morphological changes in the cells of thecorneal epithelium. There are no non-surgical therapies approved for Fuchs’. In 2016, there were an estimated 28,000 corneal transplants in the UnitedStates for treatment of Fuchs’.Our ReVEAL Phase 1/2 clinical trial was a randomized, double-masked, vehicle-controlled, two-part trial, with two separate 12-week treatmentperiods measuring two doses of elamipretide, intended to enroll 27 subjects at two sites in the United States. We completed the first part of ReVEAL, inwhich 16 individuals diagnosed with Fuchs’ and experiencing mild to moderate corneal edema received elamipretide 1.0% ophthalmic solution twice dailyfor up to 12 weeks in a randomly selected eye and a single drop of placebo twice daily to the control eye. We were unable to identify sufficient subjects tomeet the enrollment criteria for the second part, in which an intended eight subjects were to receive elamipretide 3.0% ophthalmic solution twice daily inboth eyes for up to 12 weeks, and three patients were to receive a single drop of placebo twice daily to each eye. We terminated the study early due to theseenrollment challenges, enrolling only four of the intended 11 subjects in the second part.In the fully enrolled, completed first part of the ReVEAL study, we observed significant differences in the primary efficacy endpoint of interest,which was central corneal thickness, in elamipretide-treated subjects relative to placebo-treated subjects (p=0.0293). This suggests that elamipretide mayhave reduced the degree of edema, or swelling, which contributes to corneal damage and endothelial cell death in this disease. We will evaluate this data inthe context of our ongoing development of elamipretide for age-related diseases, but we do not currently plan to continue development of elamipretide forFuchs based on our evaluation of the market potential in this indication.Elamipretide Safety DataWe have a significant amount of clinical trial data indicating that elamipretide is generally well tolerated. As of September 30, 2018, 22 clinical trialshad been completed with single and multiple intravenous and subcutaneous administrations of elamipretide at dose levels ranging from approximately 0.7mg/day to 300 mg/day. These included 14 clinical pharmacology studies enrolling approximately 276 healthy subjects in which the primary objective wasto assess safety rather than to treat a disease state, and 10 clinical trials enrolling approximately 498 subjects across multiple patient populations, includingsubjects with primary mitochondrial myopathy, skeletal muscle mitochondrial dysfunction, stable chronic heart failure, acute coronary syndrome and acutekidney injury. Additionally, data from two open-label clinical trials with the subcutaneous formulation in 49 subjects with primary mitochondrial myopathyand 40 subjects with dry AMD are available.The following table summarizes, by dosing duration, the meaningful differences in systemic treatment-emergent adverse events reported inelamipretide-treated subjects versus placebo-treated subjects. For this purpose, we considered a difference of at least 2% to be meaningful. In addition,injection site reactions were - 92 -Table of Contentsreported in the majority of subjects receiving elamipretide by subcutaneous injection; most commonly these entailed mild redness, swelling and itchinesswhich usually resolved within four hours of dosing.SUMMARY OF SYSTEMIC TREATMENT EMERGENT ADVERSE EVENTS (“TEAEs”) REPORTED IN GREATER FREQUENCY( ³ 2% difference) in Elamipretide-treated Subjects Compared to Placebo-Treated Subjects ELAMIPRETIDE PLACEBO DISCUSSIONSingle dose n=356 n=220 Headache 4.5% 2.3% Repeat dose £ 8 days n=186 n=46 Dizziness 2.2% 0.0% Repeat dose > 8 days (TEAEs ³ 5%) n=70 n=30 Increased eosinophils/eosinophilia 48.6% 0.0% Mild to moderate increase in eosinophils, avariety of white blood cells that combatparasites and infections and controlmechanisms associated with allergy andasthma, were observed in longer-termdosing regimens, with no associated clinicalsigns and symptoms. These appear todecrease to within normal limits with longerduration of elamipretide administration andreturn to pre-treatment levels after the endof elamipretide treatment.Upper respiratory tract infection 15.7% — All 10 events of upper respiratory tractinfection occurred in one open-label trial inan elderly population where there was noplacebo-control group.Increased blood immunoglobulin E 10.0% 0.0% No associated clinical signs and symptoms.Dizziness 8.6% 1.4% Headache 8.6% 2.9% Urinary tract infection 7.1% 0.0% Viral gastroenteritis 5.7% 0.0% We have completed three clinical trials with topical ophthalmic elamipretide: ReSIGHT for the treatment of LHON, ReVEAL for the treatment ofFuchs’, and ReVIEW for the treatment of either diabetic macular edema, or DME, or dry AMD. In the ReSIGHT clinical trial, 12 subjects were treated with1.0% ophthalmic solution twice daily for 52 weeks. There were no discontinuations in the ReSIGHT clinical trial. Ocular related TEAEs were reported in56.3% of the elamipretide-treated and half of the placebo-treated eyes. In our ReVEAL clinical trial, 22 subjects were enrolled in one of two dosing cohorts,1.0% ophthalmic solution or 3.0% ophthalmic solution, administered in the eye twice daily for 12 weeks. In this trial, there were two discontinuations, oneof - 93 -Table of Contentswhich was due to failure to meet inclusion criteria and one of which was due to a reported allergic reaction. Two unrelated systemic TEAEs were reported.In the 3.0% dose arm, two subjects reported ocular TEAEs of itching, foggy vision, redness and/or allergic conjunctivitis that led to discontinuation, each ofwhich was deemed likely related to study drug. In the REVIEW clinical trial, 20 subjects were enrolled in one of two dosing cohorts, 0.3% ophthalmicsolution or 1.0% ophthalmic solution, administered to one eye twice daily for 28 days. A total of four TEAEs were reported in the ReVIEW clinical trialand none were considered related to elamipretide by the investigator. There were no local tolerability issues reported, and there were no significant findingson physical examinations, ophthalmic examinations, vital signs or laboratory measurements.Earlier Clinical Trials of ElamipretideWe have studied elamipretide in clinical trials in several diseases associated with aging, including studies enrolling subjects with reduced skeletalmuscle mitochondrial function, subjects with heart failure with reduced ejection fraction, or HFrEF, subjects with heart failure with preserved ejectionfraction, or HFpEF, subjects undergoing percutaneous transluminal renal angioplasty and subjects with acute coronary syndrome. These trials weredesigned as small proof-of-concept studies to inform our decision whether to progress later stage development in these indications, and as such weregenerally not well-powered to achieve statistical significance. Although we have decided not to independently progress development of elamipretide forthese common disease indications, we saw signs of clinical benefit from treatment with elamipretide in several of these indications, which may help informour future development of pipeline compounds for age-related diseases.In April 2010, we submitted an investigational new drug application, or IND, to the FDA for purposes of conducting clinical trials of elamipretide forthe prevention and treatment of ischemia reperfusion injury. In October 2014, we submitted an IND to the FDA for the purpose of conducting clinical trialsof elamipretide for the treatment of primary mitochondrial myopathy. Although this IND was also intended to cover our Barth clinical trial, when the FDAgranted Fast-Track Status to this program they recommended we file a new IND covering Barth, which we have done. Additionally, in October 2014, wesubmitted an IND for purposes of conducting clinical trials of elamipretide for the treatment of DME and dry AMD; this IND also covers our clinical trialsof Fuchs’ and LHON. The initial study under this IND was a Phase 1/2 safety study in 15 patients with diabetic macular edema and 5 patients with dryAMD, in which elamipretide topical ophthalmic drops at concentrations of 0.3% and 1% were well-tolerated over four weeks of dosing. We were thesponsor for each of those INDs.MOTION—reduced skeletal muscle mitochondrial function . Our Phase 2 MOTION clinical trial was a double-blind, placebo-controlled trialinvolving 38 elderly subjects with reduced mitochondrial function in the thenar muscle group, between the thumb and pointer finger, as measured bynuclear magnetic resonance technology, or P31 NMR, a magnet that can measure phosphorous peaks as it associates and de-associates with adenosine, apurine nucleoside found in every human cell, during the oxidative phosphorylation process. Subjects were randomized one-to-one to a single two-hour IV of0.25 mg/kg elamipretide or placebo. We measured the maximum capacity of the mitochondria to produce ATP in vivo using P31 NMR on the infusion dayand seven days post- infusion. A sustained hand fatigue test determined the effect of increasing ATPmax on exercise tolerance.Although our pre-specified analysis did not show a statistically significant benefit in this population, our investigator conducted a post-hoc sensitivityanalysis excluding one subject in the placebo group whose ATPmax value was believe to be an erroneous measurement that did not meet the quality controlcriteria. The post-hoc analysis excluding this subject showed that two hours after the start of a single IV, elamipretide-treated subjects experienced a 30%improvement in ATPmax compared to a 12.5% improvement in the placebo-treated subjects (p=0.0555). This improvement was reduced to near baselinelevels seven days following treatment. The increase in ATPmax was statistically significantly correlated with functional improvement measured by forcetime integral (p=0.0041), a test of muscle endurance, two hours after the start of the infusion, with mean increases approximately two to four times greaterin subjects treated with elamipretide compared to placebo. This post hoc finding suggests that increasing skeletal muscle mitochondrial capacity mayincrease skeletal muscle function. - 94 -Table of ContentsPREVIEW-HF—heart failure . PREVIEW-HF was a Phase 1/2 randomized, double-blind, placebo-controlled, single ascending dose trial ofelamipretide in 36 subjects aged 45 to 80 years with stable Class 2/3 chronic heart failure, or mild to moderate symptoms of heart failure, who werereceiving concomitant standard of care pharmacologic therapy. The trial evaluated the safety, tolerability, pharmacokinetics, pharmacodynamics and theeffect on heart function assessed by serial two dimensional echocardiograms of a single four-hour IV of elamipretide (0.005 mg/kg/hour, or low dose (n=8),0.05 mg/kg/hr, or mid-dose (n=8), 0.25 mg/kg/hour, or high-dose (n=8)) or placebo (n=12). We observed that the highest dose of elamipretide significantlyreduced mean left ventricular end-systolic volume (absolute change from baseline -11 mL versus 2.8 mL for placebo; mean difference = -13.7 mL; p=0.005)and mean left ventricular end-diastolic volume (absolute change from baseline -15 mL versus 2.9 mL for placebo; mean difference = -17.9 mL; p=0.009) atthe end of a four- hour infusion. Volume measurements such as end-systolic volume and end-diastolic volume are viewed as the best predictor of animprovement in morbidity and mortality in heart failure subjects.We also observed that, as compared to subjects in the placebo cohort, subjects in the high-dose arm had reduced left atrial volume at all time points,as well as an increase in right ventricular fractional area change at all time points. Finally, right-ventricular systolic pressure appeared to be reduced at mosttime points in both the medium and high-dose elamipretide-treated subjects, as compared to placebo. We also observed reductions in urinary8-OH-2-deoxyguanosine and urinary 8-isoprostane, production of both of which is well-documented to increase in direct proportion to oxidative stress, sixhours after the start of a four-hour infusion of elamipretide.PROGRESS-HF—heart failure with reduced ejection fraction . PROGRESS-HF was a Phase 2 randomized, double-blind, placebo-controlled trial,involving 71 subjects with Stage C heart failure with reduced ejection fraction, or HFrEF, randomized to receive 28-days of once daily subcutaneousinjections of 4mg elamipretide (low dose) (n=23) or 40mg elamipretide (high dose) (n=24) or placebo (n=24) injections. The trial evaluated the safety,tolerability, pharmacokinetics, pharmacodynamics and the effect on heart function of elamipretide assessed by cardiac magnetic resonance imaging, orMRI. The trial did not meet its primary efficacy endpoints of change from baseline in left ventricular ejection fraction and change from baseline in leftventricular end systolic volume, both assessed by cardiac MRI. NT-proBNP levels appeared to be consistently reduced in the elamipretide-treated subjectsthat received 40mg versus the placebo-treated group, an effect that appeared to be more pronounced in the subgroup where the NT-proBNP levels werehighest at baseline. Although these values did not reach statistical significance, it may be suggestive of preferential benefit for more impaired subjects.IDDEA-HF—acute heart failure with reduced ejection fraction. IDDEA-HF was a Phase 2 randomized, double-blind, placebo-controlled trial,involving 308 subjects with acute decompensated heart failure, which affects patients with advanced heart failure with HFrEF and is associated with severecongestion of multiple organs by fluid that is inadequately circulated by the failing heart. Subjects were randomized to receive 20 mg elamipretide innormal saline or placebo, dosed once daily over seven days by intravenous administration.The trial evaluated the safety, tolerability, pharmacokinetics, pharmacodynamics and the effect on heart function of elamipretide assessed byNT-pro-BNP, a marker in the blood for brain natriuretic peptide, or BNP, which is a biomarker of cardiac function. Although NT-pro-BNP levels weresignificantly reduced from baseline in the elamipretide treated group (p<0.0001), when adjusted for reductions from baseline in the placebo treated groupthe change was not significant and so the trial did not meet its primary efficacy endpoint. We observed trends toward improvement in biomarkers of kidneyfunction in patients who received elamipretide relative to placebo, and we also observed that fewer patients who received elamipretide relative to placebodied or were readmitted to the hospital during the 40-day follow-up period.ReSTORE-HF—heart failure with preserved ejection fraction. ReSTORE-HF was a Phase 2 randomized, double-blind, placebo-controlled trial,involving 47 subjects ranging between 45 and 80 years of age presenting with symptomatic HFpEF, randomized to receive 28 days of once dailysubcutaneous injections of 40 mg elamipretide or placebo. - 95 -Table of ContentsThe trial evaluated the safety, tolerability, pharmacokinetics, pharmacodynamics and the effect on heart function of elamipretide assessed byechocardiogram. Although ReSTORE-HF failed to meet its primary efficacy endpoint of change in left ventricular filling pressures at rest (placebo adjustedchange of (-1.13) favored elamipretide, but failed to meet statistical significance (p=0.31)), trends favoring elamipretide were observed across variousendpoints, particularly on assessments conducted during sub maximal exercise when clinical symptoms most commonly present in this patient population.A key secondary endpoint of change in left ventricular filling pressures during submaximal exercise improved (-2.44; p=0.09), as did the change duringsubmaximal stress in left ventricular systolic global longitudinal strain (-3.63; p=0.09). Notably, left ventricular end systolic volume, an importantfunctional parameter in this disease in which the heart is not filling to its full potential, also improved (p=0.06).EVOLVE—percutaneous transluminal renal angioplasty. EVOLVE was a Phase 2a randomized, double-blind, placebo-controlled trial, involving 14subjects pre-treated with elamipretide or placebo prior to undergoing percutaneous transluminal renal angioplasty. We initiated EVOLVE in January 2013.In January 2014, the CORAL trial, a 947-subject clinical trial sponsored by the Baim Institute for Clinical Research, concluded that renal-artery stenting didnot confer a significant benefit with respect to the prevention of clinical events when added to comprehensive, multifactorial medical therapy in people withatherosclerotic renal-artery stenosis and hypertension or chronic kidney disease. This made recruitment in our EVOLVE trial challenging, and weterminated the trial in 2016 after enrolling only 14 of the anticipated 28 subjects. Although the primary endpoint of improvement in glomerular filtrationrate assessed by iothalamate clearance did not show statistical significance when comparing elamipretide- and placebo-treated subjects, possibly because thetrial was underpowered due to early termination, treatment with elamipretide was suggestive of other beneficial effects.Subjects who received elamipretide were protected from a temporary lack of oxygen to kidney tissue, known as transient hypoxia. In contrast,subjects in the placebo group developed hypoxia 24 hours after the procedure (p<0.05). We observed a statistically significant improvement in kidney bloodflow at three-months post procedure (261 mL/min ± 115.0 as compared to baseline 202 mL/min ± 129.0; p<0.05), and a statistically significantimprovement in cortical perfusion at three-months post procedure (2.9 mL/ min/tissue ± 1.04 at three months as compared to 1.99 mL/min/tissue ± 0.8 atbaseline; p<0.05) in the elamipretide-treated group, as opposed to the placebo-controlled group where differences from baseline were not statisticallysignificant for kidney blood flow at three months post procedure (234 mL/min ± 133.0 as compared to baseline 234 mL/min ± 99.0; p<0.05) or for corticalperfusion at three- months post procedure (2.66 mL/min/tissue ± 0.9 at three months as compared to 2.4 mL/min/tissue ± 0.4 at baseline; p<0.05). Theseresults suggest a potential renal protective effect of elamipretide.EMBRACE—acute coronary syndrome. EMBRACE was a Phase 2 double-blind placebo- controlled trial evaluating elamipretide in subjects withacute coronary syndrome. EMBRACE failed to meet its primary efficacy endpoint, intended to determine whether elamipretide could protect the heart frommuscle damage that can occur when a previously blocked vessel is opened abruptly, as determined by measuring creatine-kinase-MB, or CK-MB, areaunder the curve, (“AUC”), a cardiac marker of variants of the enzyme phosphocreatine kinase which is used to assist diagnoses of an acute myocardialinfarction. Although CK-MB AUC in elamipretide-treated subjects was lower than placebo (6582 ng.h/mL versus 6738 ng.h/mL for placebo), thisdifference did not achieve statistical significance in the pre-specified primary analysis population of 118 subjects. We believe that, due to a higher thananticipated exclusion rate in our primary analysis population attributable to absence of complete arterial blockage in 179 of the 297 subjects enrolled,EMBRACE was not properly powered to achieve statistical significance on the primary endpoint in the treatment population. It is also possible that, giventhe exigency of interventional treatment in this patient population, around which there is ongoing debate regarding clinically appropriate speed ofintervention relative to pretreatment modalities, it was challenging to implement the per-protocol timelines between dosing with elamipretide andintervention in a clinical setting. - 96 -Table of ContentsSBT-20Our second product candidate, SBT-20, is a small peptide that also targets and binds reversibly to cardiolipin, stabilizing mitochondrial structure andfunction under conditions of oxidative stress. SBT-20 has been generally well-tolerated in 75 people exposed to it systemically as of December 31, 2018.We plan to evaluate SBT-20 for rare peripheral neuropathies.Based on preclinical studies, we believe that SBT-20 readily penetrates cell membranes and targets and binds reversibly to the inner membrane ofmitochondria.SBT-20 has been observed to protect the normal morphology of the mitochondria from injury in a preclinical ischemic reperfusion model. In apreclinical study of rats treated with SBT-20 or placebo prior to occlusion and reperfusion of renal blood flow, published in the American Journal ofPhysiology—Renal Physiology in October 2014, researchers at Weill Cornell Medical College observed that SBT-20 preserved normal mitochondrialstructure and function, including mitochondrial density, mitochondrial matrix density, mitochondrial respiration and ATP levels. In the images below, theleft shows kidney mitochondria prior to the insult, the center shows kidney mitochondria of the placebo-treated animals post-insult and the right showskidney mitochondria of the SBT-20-treated animals post-insult. We plan to evaluate SBT-20 for rare diseases entailing mitochondrial dysfunction, including rare peripheral neuropathies associated withmitochondrial dysfunction. Mitochondrial dysfunction is thought to be involved in peripheral neuropathies including chemotherapy-induced peripheralneuropathy, neuropathies associated with mitochondrial myopathy, neuropathy, and gastrointestinal encephalopathy, or MNGIE, and both the axonal anddemyelinating forms of Charcot-Marie-Tooth disease, or CMT, the most common inherited neuromuscular disorder.SBT-20 was observed to have a protective effect against the development of chemotherapy-induced peripheral neuropathy in a mouse model, inwhich the mitotoxic effects of cancer chemotherapeutic agents are believed to contribute to dysregulation of primary afferent sensory neurons resulting inpain. In an experiment in which nine mice were treated with SBT-20 5 mg/kg/day, 10 mice were treated with SBT-20 10 mg/kg/day (the high dose cohort)and six mice were treated with vehicle, or normal saline, for two days prior to and for a three-week period during which oxaliplatin, a mitotoxicchemotherapy agent, was administered once-weekly, SBT-20 treated mice in the high dose cohort exhibited significantly decreased neuropathic painmeasured by paw sensitivity to mechanical stimuli (p=0.009 relative to vehicle) and cold stimuli (p<0.001 relative to vehicle). Additionally, the loss ofintraepidermal nerve fibers in the hind paw was observed to be significantly reduced in SBT-20 treated mice in the high dose cohort (p=0.006 relative tovehicle).We expect to initiate preclinical studies in animal models of CMT during the first half of 2019, with data expected by year-end, which will inform ourfurther development plans for this indication. - 97 -Table of ContentsSBT-20 Clinical DataWe have conducted two clinical safety studies of SBT-20, one of which, our CHALLENGE-HD trial, was a Phase 1/2 clinical trial for the treatmentof subjects with early stage Huntington’s, and the other of which was a Phase 1 clinical trial involving healthy volunteers.CHALLENGE-HD was a Phase 1/2 double-blind, placebo-controlled, multiple ascending dose trial evaluating the safety, tolerability and efficacy ofdaily subcutaneous injections of SBT-20 compared to placebo in 24 subjects with early stage Huntington’s. Subjects were randomized six to SBT-20compared to two to placebo in three dose cohorts of 5mg, 15mg and 25mg SBT-20 for an initial seven days during part one of the study. Subjects weresubsequently randomized on a double-blind one-to-one basis to 25mg SBT-20 or placebo administered by subcutaneous injection once daily over afollow-on four-week course of treatment, or part two of the study. One subject who received placebo in part one of the study was randomized to receiveSBT-20 in part two of the study. The primary endpoints of the trial was safety and tolerability; the secondary objectives included efficacy assessmentsincluding improvements in mitochondrial membrane potential, a standard battery of neurological assessments and assessment of function of brainmitochondria by magnetic resonance spectroscopy. In part one of the study, we observed an improvement in mitochondrial membrane potential in the25mg, or high dose, cohort relative to placebo (p=0.0356). An improvement in mitochondrial membrane potential was also observed in part two of thestudy. However, this did not reach statistical significance relative to placebo (p=0.1693).In addition to our CHALLENGE-HD trial, we completed a Phase 1 clinical trial of SBT-20 in healthy volunteers. In this trial, 24 healthy adults wereexposed to single subcutaneous doses of SBT-20 and 32 healthy adults were exposed to multiple subcutaneous doses of SBT-20, ranging from 5 mg to30 mg. In the single ascending dose portion of the trial, the incidence of AEs increased slightly with dose; however, there was no apparent dose-relatedtrend in the multiple ascending dose portion of the trial. Injection site reactions, such as erythema, swelling, itching, or pain, were the most frequentlyreported AEs. No subject experienced injection site reactions that were assessed as severe with one exception, which was also reported as clinicallysignificant, although there were eight clinically significant injection site reactions reported as moderate experienced in six subjects.We did not observe any clinically significant findings in any laboratory assessments, vital signs or ECGs. Although not clinically significant, we didobserve a mean increase in liver enzymes alanine aminotranferease, or ALT, in five of eight subjects, and/or aspartate aminotransferase, or AST, in three ofeight subjects, in each case from baseline to day eight (after seven days of dosing) in subjects administered SBT-20 at the highest dose of 30 mg per day.Three of the subjects with elevated ALT had greater than two times baseline at day eight, and two had 1.5 times baseline at day eight. Although two of eightsubjects still had ALT levels above the reference range at the follow-up visits, these values were trending toward baseline levels. Two of the subjects withelevated AST had greater than two times baseline at day eight and one had approximately 1.5 times baseline at day eight. Three of five subjects withincreased AST levels on day eight demonstrated a return towards baseline at the follow-up assessment. We did not observe increased ALT or AST levels inthe 5, 10 or 20 mg/day dose cohorts in this study. We did not observe increased ALT levels in nonclinical toxicology studies.Discovery CompoundsWe have an active discovery and development program focused on novel compounds targeting mitochondria. Mitochondria have been an extremelychallenging therapeutic target, due in part to difficulty in targeting delivery of drugs to mitochondria. Successful delivery requires traversing not only thecell membrane, which may have reduced membrane potential in disease states, but also achieving intracellular diffusion/transport to mitochondria andsubsequent electrical potential across outer and IMM. We believe the differentiated mitochondrial targeting characteristics of our compounds, ourdevelopment of proprietary assays to screen new compounds for mitochondrial targeting and activity characteristics, and our experience working withvarious - 98 -Table of Contentsmodels of mitochondrial dysfunction position us to lead next generation development of mitochondrial product candidates that are improved relative toelamipretide and SBT-20.We have developed multiple series of novel compounds with improved pharmacokinetic properties. These include over 100 different compounds,including peptidomimetics, small molecules and novel peptides, that we are actively screening to broaden our existing mitochondrial product candidateportfolio. We are focused on producing agents with mitochondrial therapeutic potential with improved properties over our first-generation compounds, byaltering the rate and extent of absorption, the bio-distribution and the routes of metabolism and excretion.SBT-272SBT-272, our lead pipeline compound, is among our novel peptides and peptidomimetics, which target the mitochondria and potentially improvemitochondrial function relative to our current product candidates as observed in early experiments. For example, SBT-272 and an analog have shown signsof biological activity in a rat model of kidney reperfusion injury, in which elamipretide, SBT-272, an analog of SBT-272 or vehicle is administered to a rat,the renal artery is clamped, restricting blood flow, and then released, permitting blood to flow back into the kidney. As illustrated below, treatment withSB-272 or its analog compounds resulted in greater reduction in plasma creatinine and blood urea nitrogen, biomarkers of kidney dysfunction, thantreatment with vehicle or treatment with elamipretide. In the graph below, the sham columns represent rats that were not subjected to kidney reperfusioninjury and not treated with any of the four alternatives.Protection from acute ischemia reperfusion kidney injury in rats SBT-272 has shown greater than six times higher mitochondrial uptake relative to elamipretide in cell-based assays of isolated mitochondria, and hasalso demonstrated improved oral bioavailability in early animal studies, suggesting it may be a promising candidate for oral dosing. SBT-272 hasdemonstrated approximately three times greater maximum concentration in the brain of rats relative to elamipretide, in each case dosed 10 mg/kgsubcutaneously. SBT-272 has demonstrated more than 25 times greater area under the drug concentration-time curve in the brain of rats relative toelamipretide, in each case dosed 10 mg/kg subcutaneously, suggesting significantly higher brain exposure and residence time.We have commenced preclinical toxicology studies and other IND-enabling studies with SBT-272 in preparation for filing an IND application in2019. Subject to FDA review, this would enable us to commence Phase 1 clinical trials in healthy volunteers by the end of 2019.SBT-20 has shown signs of benefit in a mouse model of Parkinson’s disease. Based on SBT-272’s preferential concentration and residence time in thecerebrospinal fluid we are evaluating SBT-272 for - 99 -Table of Contentsneurodegenerative indications characterized by mitochondrial dysfunction. Increasing evidence suggests that mitochondria are involved in age-relatedneurodegenerative diseases, including Alzheimer’s disease and Parkinson’s disease, as well as ALS. Age-related, mitochondrial-generated ROS ispostulated to be one factor in the development and progression of late-onset neurodegenerative diseases. Moreover, mitochondrial dysfunction is a commoncellular change observed during the disease process in inherited neurodegenerative diseases, including Parkinson’s, in which mtDNA mutations areimplicated as a factor, and Huntington’s. We have initiated preclinical studies in an ALS animal model and expect to receive data in the first half of 2019 toinform our further development plans for this indication.Carrier programWe have also conducted experiments in our carrier program in which we observed that we can use our proprietary compounds as vectors or carriers toselectively deliver various therapeutic payloads to mitochondria, conferring organelle specificity to promising therapies. Many individuals diagnosed withprimary mitochondrial disease, for which there are no therapies approved by the FDA, take a so-called “mito cocktail” of vitamins and supplements, usuallyin high doses and comprising up to 50 pills per day if not compounded. These may typically include co-enzyme Q-10, or Co Q-10, or its analogs,L-carnitine, B vitamins and antioxidants. The reason these are taken in such high doses is because delivery to the mitochondria is likely confounded bypermeability challenges traversing the cell and outer mitochondrial membranes. By contrast, we have observed mitochondrial targeting capabilities of ourproprietary compounds, and have also observed that we can conjugate payloads to our compounds and direct the conjoined carrier/payload to themitochondria.For example, idebenone is a Co Q-10 analog that introduces electrons into the electron transport chain downstream of complexes I and II, a promisingmechanism for bypassing defective complexes in genetic diseases. Because idebenone is poorly absorbed and does not specifically target mitochondria, ithas demonstrated limited pharmacologic activity even at high doses. Preliminary preclinical data shows that our idebenone-conjugated peptide was effectiveat stimulating complex III enzyme activity at a concentration of approximately 100 times lower than standard idebenone. We believe this is promising datasupporting the potential of our carrier program, and we are actively evaluating other mitochondrial beneficial payloads for evaluation in this program.ManufacturingWe do not have any manufacturing facilities. We currently rely, and expect to continue to rely, on third parties for the manufacture of our productcandidates for preclinical studies and clinical trials, as well as for commercial manufacture if our product candidates receive marketing approval. We havealso obtained key raw materials for elamipretide and SBT-20 from third-party manufacturers. For both elamipretide and SBT-20, we intend to identify andqualify a single manufacturer to provide the active pharmaceutical ingredient and fill-and-finish services prior to submission of an NDA to the FDA. Thisallows us to reduce the risk to NDA approval by preparing only one manufacturing site for active pharmaceutical ingredient and one for drug product forpre-approval inspections. We can sufficiently reduce the supply risk usually associated with a single source of product based on our capability to buildpre-launch inventory and the relatively small demand for material projected for our rare disease indications.All of our product candidates are small molecules and are manufactured in reliable and reproducible synthetic processes from readily availablestarting materials. The chemistry is amenable to scale up and does not require unusual equipment in the manufacturing process. Elamipretide has beenproduced historically by a solid-phase manufacturing process that has been commonly used to produce commercial peptides. Due to a lack of scalability, wedeemed this process undesirable for production of commercial quantities of elamipretide. A new solution-phase process for producing elamipretide as ahydrochloride salt has been developed and implemented at a contract manufacturing site at a scale sufficient for supply of near-term clinical trials andprojected commercial demand. The solution-phase process for manufacturing is proprietary to us, and the equipment and - 100 -Table of Contentsthe unit operations used in the process are not unique to any particular contract manufacturer. We have transferred this process to contract manufacturingsites capable of using such processes to manufacture large quantities of similar drug substances, and we have completed the drug supply for pivotal clinicaltrials and are now progressing into commercial production. Manufacturing at a higher production scale has led to a significant reduction in ourcost-of-goods and provided us with the ability to respond to any need to supply large clinical trials or unanticipated commercial demand in the future.Following FDA review of test results demonstrating the same/similar identity, quality, purity and strength of product from the two processes, the FDA hasstated that non-clinical and clinical trials with drug substance from the former process can be used to support further development and registration ofelamipretide. As a result, we have filed the newly developed process with regulatory authorities and introduced drug substance batches from that processinto our clinical trials.We have active clinical programs for which our Contract Manufacturing Organizations (“CMOs”) are routinely manufacturing a sterile solutionproduct for subcutaneous injection or intravenous infusion and a solution product for topical administration to the eye. Our CMOs have successfullyproduced these products on a scale of tens of thousands of units and shown, using validated stability-indicating methods, that these products would meetspecifications over a shelf-life typical of commercial products. We believe we are well-positioned to validate our manufacturing processes at one or moreCMOs and support a commercial launch of these products. We have successfully filed regulatory applications to supply multi-use cartridges and pens forsubcutaneous self-administration in our Phase 3 clinical trial for primary mitochondrial myopathy. We believe, based on these clinical cartridge and peninjector designs, that we can commercialize similar products successfully.Intellectual PropertyWe strive to protect the proprietary technologies that we believe are important to our business, including seeking and maintaining patent protectionintended to cover our lead product candidates, elamipretide and SBT-20, and related compositions, our core clinical applications and other know-how, tooperate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary or intellectual property rights worldwide.Our patent portfolio, which includes patents and patent applications that we own, as well as those that we have exclusively in-licensed, is structured toprovide layers of protection for the proprietary technologies central to our business. Our portfolio includes claims to the elamipretide and SBT-20 peptides,compositions comprising the same, and use of the peptides for our core clinical applications. As of December 31, 2018, the patent portfolio included 374granted patents (38 U.S., 336 foreign, which include individual national patents based on granted European patents) and 298 pending applications, includingprovisional applications (79 U.S., 214 foreign, five Patent Cooperation Treaty).We also rely on trade secret protection, technical knowledge, and continuing technological innovation to develop and maintain our proprietary andintellectual property position. We seek to protect our proprietary information, in part, using confidentiality agreements with our collaborators, scientificadvisors, employees and consultants, and invention assignment agreements with our employees.We also have agreements with selected consultants, scientific advisors and collaborators requiring assignment of inventions or, in limited cases, thegrant of an exclusive, worldwide license or option to license intellectual property rights developed in the course of their work with or for us. As with otherbiotechnology and pharmaceutical companies, our capacity to obtain, maintain and protect our proprietary and intellectual property positions for ourproducts and technologies depends on our continued ability to obtain relevant patent rights and to enforce those patent rights, if necessary. However, patentapplications that we may file or license from third parties may not necessarily result in the grant of rights. We also cannot predict the scope of rights thatmay be granted to us in the future, our desire or ability to seek enforcement of any granted rights, or the willingness of courts or other administrative bodiesto uphold or enforce our rights.In addition, any currently issued patents or any future patents, should they issue, may be challenged, invalidated, or circumvented, such as throughdistrict court proceedings or inter partes review. For example, we - 101 -Table of Contentscannot be certain of the priority of inventions covered by pending third-party patent applications, and proceedings to establish our rights could result insubstantial costs, even if the eventual outcome is favorable. Due to the extensive time required for clinical development and regulatory review, it is possiblethat, before any of our product candidates can be commercialized, any related patent may expire or its term may have substantially run, leaving itsremaining term in force for only a short period following commercialization. To the extent that occurs, the possible commercial advantage conferred bysuch patents would be reduced. Accordingly, we have attempted to design a patent portfolio with both breadth and depth of potential protection, with thegoal of maximizing coverage for elamipretide and related peptides and their uses in commercially relevant countries.ElamipretidePatent rights relating to elamipretide peptide and compositions comprising elamipretide have been granted in Australia, Canada, China, Europe, HongKong, Japan and the United States. The U.S. patent has an adjusted statutory expiration date in 2026, which includes 717 days of patent term adjustment, orPTA, granted by the USPTO upon issue of the patent. The foreign patents have a statutory expiration date in 2024. We hold an exclusive license to theserights from Cornell and the IRCM.Patent rights to the use of elamipretide as a carrier for the transport of therapeutic molecules into a cell as well as related compositions have beengranted or allowed in Australia, Canada, China, Europe, Hong Kong, Japan, the United States and six other countries. The U.S. patent has an adjustedstatutory expiration date in 2027, which includes 1,215 days of PTA granted by the USPTO upon issue of the patent. The foreign patents have a statutoryexpiration date in 2024. We hold an exclusive license to these patent rights from Cornell.Patent rights related to compositions including elamipretide and a second therapeutic compound have also been granted. For example, claims directedto elamipretide-cyclosporine conjugates have been granted in the United States and are pending in Europe. The U.S. patent has a statutory expiration date in2031, and any patent that may issue from the pending European application will similarly have a statutory expiration date in 2031. Each of these patentrights are owned exclusively by us. Additional patent rights related to compositions including elamipretide and glucagon-like peptide-1 are pending inapplications filed in Canada, China, Europe, Japan and the United States and, if granted, these will have statutory expiration dates in 2033.Patents directed to methods of treating or preventing various diseases and medical conditions by administering elamipretide have been granted to us,or have been in-licensed by us, in a number of countries. Where possible, the scope of granted claims has been tailored to provide broad generic supportencompassing a wide range of conditions as well as specific disease states. By way of example, there are granted patents related to the use of elamipretide totreat basic, adverse cellular events that contribute to disease, such as mitochondrial permeability transition (MPT), and oxidative damage associated with aneurodegenerative disease.Patents related to MPT have been granted in Australia, Canada, China, Europe, Hong Kong, Japan and the United States. The U.S. patent has anadjusted statutory expiration date in 2026, and is the same patent referred to above as covering the composition of elamipretide. The foreign patents havestatutory expiration dates in 2024. We hold exclusive rights to these patents by way of a license agreement with Cornell and the IRCM.Our patent portfolio also protects or aims to protect the use of elamipretide to treat or prevent specific clinical indications. By way of example, ourportfolio includes granted claims drawn to the use of elamipretide to treat diabetes, metabolic syndrome, renal diseases, certain cardiovascular diseases,ocular diseases, and neurodegenerative diseases (including Alzheimer’s disease, Huntington’s disease and ALS) that are in patents owned by us orin-licensed to us. Claims relating to the use of elamipretide to treat Barth, LHON, primary mitochondrial myopathy and mitochondrial diseases associatedwith certain gene mutations are pending in applications owned by us. Furthermore, our portfolio includes granted and pending claims drawn to the processwe use to produce elamipretide, as well as certain critical elements of the process that are necessary for purification of the drug substance. Our portfolio alsoincludes granted and pending claims that disclose similar - 102 -Table of Contentsprocesses that we have conceived that could be used to compete with our preferred process to produce commercial quantities of elamipretide.SBT-20Claims drawn to the SBT-20 peptide and compositions comprising the SBT-20 peptide have been granted in Australia, Canada, Japan and the UnitedStates, and are pending in Europe. Claims drawn to a composition comprising SBT-20 together with a cargo molecule are granted in China. The U.S. patenthas an adjusted statutory expiration date in 2026, which includes 717 days of PTA granted by the USPTO upon issue of the patent, and is the same patentdescribed above as related to elamipretide peptide. The foreign patents have statutory expiration dates in 2024. We hold exclusive rights to the patents andapplications by way of an exclusive agreement with either Cornell alone or Cornell in conjunction with the IRCM.Patent rights directed to the use of the SBT-20 peptide as a carrier for the transport of therapeutic molecules into cells, as well as related compositions,have been granted or allowed in Australia, Canada, China, Europe, Hong Kong, Japan, the United States and six other countries. The U.S. patent has anadjusted statutory expiration date in 2027, which includes 1,215 days of PTA granted by the USPTO upon issue of the patent, and is the same patentdescribed above as related to the use of elamipretide as a carrier. The foreign patents have a statutory expiration date in 2024. We hold exclusive rights tothese patents by way of our license agreements with Cornell and the IRCM.Patent rights related to compositions comprising SBT-20-cyclosporine conjugates have been granted in the United States and are pending in Europe.The U.S. patent has a statutory expiration date in 2031, and any patent that may issue from the pending European application will similarly have a statutoryexpiration date in 2031. Each of these patent rights are owned exclusively by us.Our patent portfolio also protects or aims to protect the use of SBT-20 to treat or prevent specific clinical indications. By way of example, ourportfolio includes granted claims drawn to the use of SBT-20 to treat complications of diabetes, renal diseases, ocular diseases, and neurodegenerativediseases that are owned by us or in-licensed. Claims relating to the use of SBT-20 to treat Parkinson’s disease, Alzheimer’s disease, Huntington’s, and ALSare granted in Australia, in a patent in-licensed to us with a statutory expiration date in 2024.We hold patent rights to additional pipeline compounds in the portfolio, and are continuing to expand coverage in the United States and commerciallyrelevant foreign jurisdictions. Subject matter for new filings is expected to include, but will not necessarily be limited to, the use of peptides to treatadditional disease indications, new combination therapies, new peptide formulations, new compositions and uses of the same.The term of a patent depends upon the legal length of the term of patents in the jurisdiction in which it is issued. In most countries in which we file,the patent term is 20 years from the earliest date of filing of a non-provisional patent application. Patent term adjustment is a process of extending the termof a United States patent beyond the 20 year statutory patent term to accommodate for delays caused by the USPTO during prosecution. By contrast, apatentee or applicant may file a terminal disclaimer which disclaims or dedicates to the public the entire term or any terminal part of the term of a patent orpatent to be granted.In the United States, the term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent termrestoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension ofup to five years beyond the regularly scheduled expiration of a patent. The length of the patent term extension is related to the length of time the drug isunder regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval by theFDA, only one patent applicable to an approved drug may be extended, and a given patent can only be extended based on one approved drug. Similarprovisions are available in Europe and certain other jurisdictions to extend the term of a patent that covers an approved drug. - 103 -Table of ContentsWe anticipate that we will apply for patent term extensions for relevant U.S. patents, if and when our pharmaceutical products receive FDA approval. Wealso anticipate seeking patent term extensions for issued patents in any jurisdiction where patent term extension is available, however, there is no guaranteethat the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and ifgranted, the length of such extensions. Unless specifically indicated, the above statutory patent terms refer to the 20-year base statutory term and do notinclude any patent term adjustment or extension that may be available in any jurisdiction.Cornell License AgreementsWe have entered into several license agreements with Cornell and the IRCM, pursuant to which Cornell granted us specified exclusive, worldwiderights under patents related to elamipretide, SBT-20, and other technology described below, which we refer to collectively as the licensed patents. Theoriginal Cornell agreement was entered into in with Cornell and the IRCM in April 2006, and subsequently amended in October 2010. Concurrent with ourexecution of the original Cornell agreement, we entered into a sponsored research agreement with Cornell in which we agreed to fund specified research atCornell for three years. We retained the right to license inventions arising under such sponsored research agreement, as well as certain material transferagreement entered into between us and Cornell, through entry into license agreements on substantially the same terms as the original Cornell agreement.Such subsequent agreements under which we obtained rights under additional patent families, which we refer to as other Cornell license agreements, andcollectively with the original Cornell agreement as the Cornell license agreements, were entered into in November 2010, November 2011, December 2012and August 2013. In each of the Cornell license agreements, Cornell granted us an exclusive, worldwide license under specified patents and patentapplication families claiming certain inventions, including inventions related to elamipretide, SBT-20, certain other peptides and/or specified uses of theforegoing, which we refer to collectively as the licensed patents, to make, use, sell, lease, import, export or otherwise dispose of products or services thatincorporate, utilize or are otherwise described and claimed in the licensed patents, which we refer to as the licensed products, in any and all fields. Ourrights under the Cornell license agreements are subject to the rights of the United States government and other applicable restrictions imposed by the Bayh-Dole Act and its implementing regulations, and the rights of Cornell, and in some cases certain other specified institutions, to practice the inventionsclaimed in the licensed patents for educational and research purposes.We have agreed to use best efforts (as defined in each of the Cornell license agreements) to commercialize licensed products, and to achieve specifieddiligence milestones by specified target dates. We are also required to periodically set forth additional milestones until first commercial sale of a specifiedlicensed product. We believe that to date we have met each diligence milestone with respect to our licensed products and the specific licensed indicationsand/or formulations which we are developing. If however we fail in the future to meet any diligence milestone within a specified period after thecorresponding target date, our exclusive license under the applicable Cornell license agreement will convert to a non-exclusive license and, in the case ofthe original Cornell agreement, such conversion will occur only with respect to the peptide, indication and/or formulation that is subject of the unachievedmilestone.In connection with the licenses granted under the original Cornell agreement, we issued Cornell 666,667 ordinary shares and Cornell agreed toprovide us with a right of first refusal in the event Cornell sought to sell its equity position at any time prior to an IPO. With respect to the other Cornelllicense agreements, we paid Cornell upfront license fees of $60,000 and royalties on net sales, if any, by us and our sublicensees of any licensed product, ona product-by-product and country-by-country basis. Subject to specified reductions and royalty offsets, such royalties are calculated as a tiered,low-to-mid single digit percentage of net sales of licensed products under each of the Cornell license agreements, except that for licensed products under theoriginal Cornell agreement, such royalties are calculated as a tiered, low single-digit to sub-teen percentage of net sales, depending on patent coverage,amount of net sales and type of licensed product. Our obligation to pay royalties as to any licensed product extends until the later of the expiration of thelast-to-expire valid claim of any licensed - 104 -Table of Contentspatent covering such licensed product or 15 years after the date of our first commercial sale of such licensed product. If a licensed product is covered bylicenses granted under the original Cornell agreement and another Cornell license agreement, then, for each unit of product, royalties will only be due underthe original Cornell agreement.We are obligated to pay Cornell a low double-digit percentage of specified payments we receive in connection with granting a sublicense under theCornell license agreements. We have also agreed to reimburse Cornell for its out-of-pocket expenses incurred in preparing, filing, prosecuting andmaintaining the licensed patents, except for any licensed patents as to which we elect to waive our licensed rights. We also have agreed to pay Cornellannual license maintenance fees in the mid-five-digits for the original Cornell agreement, and mid four-digits for each of the other Cornell licenseagreements starting on a date specified in each such agreement, in all cases until the first commercial sale of a specified type of licensed product under suchagreement.If Cornell identifies any licensed product that we are not actively developing or commercializing and we do not elect within a specified period todevelop or commercialize such licensed product ourselves or through a sublicensee, or, if we do so elect, we do not then agree on reasonable diligence goalswith Cornell or enter into an agreement with such a sublicensee within specified periods as to such licensed product, then Cornell may terminate our rightsunder the applicable Cornell license agreement for such licensed product.Unless earlier terminated, each of the Cornell license agreements will remain in effect until the expiration or invalidation of the last of all licensedpatents and as long as no licensed patent applications remain pending. Cornell (together with the IRCM in the case of the original Cornell agreement) canterminate a Cornell license agreement if we are in material breach of such license agreement or if we intentionally provide false reports, or if we are indefault in our payment obligations, and fail to cure such breach, false report or default within a specified period. In addition, Cornell can terminate theoriginal Cornell agreement and certain of the other Cornell license agreements if we fail to achieve first commercial sale of a therapeutic licensed productby the date specified in the respective agreement (which, with respect to the original Cornell agreement, is December 31, 2020); however, there are anumber of exceptions to Cornell’s termination right, including: • delays due to clinical development, including clinical trial enrollment challenges or data read outs; • delays due to regulatory matters; or • delays due to other events over which we cannot exert direct control.We can terminate any of the Cornell license agreements in its entirety or on a patent-by-patent, licensed product-by-licensed product orcountry-by-country basis if we have a reasonable basis for doing so by giving Cornell a specified number of days’ prior notice. We can transfer each of theCornell license agreements with Cornell’s prior written approval (not to be unreasonably withheld) in the event of a sale of the company, sale of assets orsale of shares, provided that such sale is not primarily for the benefit of creditors. If we fail to obtain Cornell’s prior written approval for such transfer,Cornell can terminate the respective agreement and require that the transfer of such agreement be voided. We cannot assign the Cornell license agreementswithout Cornell’s (and in the case of the original Cornell agreement, IRCM’s) written consent.CompetitionThe biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis onproprietary products. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, weface potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academicinstitutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercializewill compete with existing therapies and new therapies that may become available in the future. - 105 -Table of ContentsWe are initially developing elamipretide for the treatment of rare primary mitochondrial diseases and common diseases of aging in whichmitochondrial function is impaired. There are several companies developing treatments that target mitochondria or mitochondria-associated diseases. Themajority of these efforts are in preclinical or early clinical development, are focused on gene therapy or are proposing the use of generic compounds. To ourknowledge, none of these are focused on cardiolipin remodeling. Our competitors include NeuroVive Pharmaceutical AB, Reata Pharmaceuticals, Inc.,BioElectron Technology Corporation (formerly Edison Pharmaceuticals Inc.), LumiThera, Inc., Reneo Pharma Ltd and Santhera Pharmaceuticals Holding.In addition to competition from competitors who are developing treatments that seek to improve mitochondrial function or otherwise target themitochondria, we also face competition from therapies that target the indications we are studying, particularly for diseases of aging such as dry AMD. Suchcompetitors who are developing or who have developed competing therapies include Allegro Ophthalmics, LLC, Apellis Pharmaceuticals, Astellas PharmaInc., Hemera Biosciences Inc., Ionis Pharmaceuticals, Inc. and Ophthotech Corporation.Many of the companies against which we are competing or against which we may compete in the future may have significantly greater financialresources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals andmarketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even moreresources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors,particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retainingqualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiringtechnologies complementary to, or necessary for, our programs.The key competitive factors affecting the success of all of our therapeutic product candidates, if approved, are likely to be their efficacy, safety,tolerability, convenience and price and the availability of reimbursement from government and other third-party payors.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective,have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtainFDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing astrong market position before we are able to enter the market.Government Regulation and Product ApprovalsGovernment authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the EuropeanUnion, extensively regulate, among other things, the research, development, testing, manufacture, pricing, quality control, approval, packaging, storage,recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export ofbiopharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along withcompliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and associated implementing regulations.The failure to comply with the FDCA and other applicable U.S. requirements at any time during the product development process, approval process or afterapproval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pendingapplications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures,total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil orcriminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities. - 106 -Table of ContentsAn applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following: • completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP,regulations; • submission to the FDA of an IND, which must take effect before human clinical trials may begin in the United States; • approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated; • performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety andefficacy of the proposed drug product for each indication; • preparation and submission to the FDA of an NDA; • review of the product candidate by an FDA advisory committee, where appropriate or if applicable; • satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, areproduced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods andcontrols are adequate to preserve the product’s identity, strength, quality and purity; • satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data; • payment of user fees and securing FDA approval of the NDA; and • compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, where applicable, and post-approvalstudies required by the FDA.Preclinical StudiesPreclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or active pharmaceutical ingredient andthe formulated drug or drug product, as well as in vitro and animal studies to assess the safety and activity of the drug for initial testing in humans and toestablish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations.The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinicaltrials, among other things, are submitted to the FDA as part of an IND. Additional preclinical testing, such as animal tests of reproductive adverse eventsand carcinogenicity, may continue after the IND is submitted.Human Clinical Trials in Support of an NDAClinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators inaccordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writingbefore their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of thetrial, inclusion and exclusion criteria, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for eachclinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 daysafter receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold.In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve the planfor any clinical trial before it commences at that institution, and - 107 -Table of Contentsthe IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the studyprotocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information aboutcertain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.govwebsite.Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined: • Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease (e.g., cancer) or condition and tested forsafety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and todetermine optimal dosage. • Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate theefficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. • Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlledclinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefitprofile of the product, and to provide adequate information for the labeling of the product. • Phase 4. Post-approval studies may be conducted after initial marketing approval. These studies are used to gain additional experience from thetreatment of patients in the intended therapeutic indication.Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse eventsoccur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findingsfrom other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the caseof a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not becompleted successfully within any specified period, or at all. Furthermore, the FDA or the sponsor or the data monitoring committee may suspend orterminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk.Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not beingconducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typicallyinspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.In general, the FDA accepts foreign safety and efficacy studies that were not conducted under an IND provided that they are well designed, wellconducted, performed by qualified investigators, and conducted in accordance with ethical principles acceptable to the world community. The conduct ofthese studies must meet at least minimum standards for assuring human subject protection. Therefore, for studies submitted in support of an NDA that wereconducted outside the United States and not under an IND, the agency requires demonstration that such studies were conducted in accordance with GCP.Submission of an NDA to the FDAAssuming successful completion of required clinical testing and other requirements, the results of the preclinical studies and clinical trials, togetherwith detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA aspart of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission of most NDAs is additionallysubject to an application user fee and the sponsor of an approved NDA is also subject to annual program user fees. Certain exceptions and waivers areavailable for some of these fees, such as an exception from the application fee for drugs with orphan designation. - 108 -Table of ContentsThe FDA conducts a preliminary review of an NDA within 60 calendar days of its receipt and strives to inform the sponsor by the 74th day after theFDA’s receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may requestadditional information rather than accepting an NDA for filing. In this event, the application must be resubmitted with the additional information. Theresubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins anin-depth substantive review.The FDA has agreed to specified performance goals in the review process of NDAs. Under that agreement, 90% of applications seeking approval ofNew Molecular Entities, or NMEs, are meant to be reviewed within ten months from the date on which FDA accepts the NDA for filing, and 90% ofapplications for NMEs that have been designated for “priority review” are meant to be reviewed within six months of the filing date. For applicationsseeking approval of drugs that are not NMEs, the ten-month and six-month review periods run from the date that FDA receives the application. The reviewprocess may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address anoutstanding deficiency identified by the FDA following the original submission.Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approvalinspections cover all facilities associated with an NDA submission, including drug component manufacturing (such as active pharmaceutical ingredients),finished drug product manufacturing and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturingprocesses and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within requiredspecifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond theprofessional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will considerthe size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness ofknown or potential adverse events and whether the product is a new molecular entity. REMS can include medication guides, physician communication plansfor healthcare professionals and elements to assure safe use, or ETASU. ETASU may include, but are not limited to, special training or certification forprescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The FDA may require a REMSbefore approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affectthe potential market and profitability of a product.The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, anadvisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides 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.Fast Track, Breakthrough Therapy, Priority Review and Regenerative Advanced Therapy DesignationsThe FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of aserious or life-threatening disease or condition. These programs are Fast Track designation, breakthrough therapy designation, priority review designationand regenerative advanced therapy designation.Specifically, the FDA may designate a product for Fast Track review if it is intended, whether alone or in combination with one or more other drugs,for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease orcondition. For Fast Track - 109 -Table of Contentsproducts, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a Fast Track product’s NDA before theapplication is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor,that a Fast Track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaininginformation and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a Fast Track application does not begin untilthe last section of the NDA is submitted. In addition, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation isno longer supported by data emerging in the clinical trial process.Second, in 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act, or FDASIA. This law established a new regulatoryscheme allowing for expedited review of products designated as “breakthrough therapies.” A product may be designated as a breakthrough therapy if it isintended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinicalevidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, suchas substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, includingholding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development andapproval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to designthe clinical trials in an efficient manner.Third, the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a significantimprovement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed drug represents a significant improvementwhen compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of acondition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead toimprovement in serious outcomes and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overallattention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months tosix months.Finally, with passage of the Cures Act in December 2016, Congress authorized the FDA to accelerate review and approval of products designated asregenerative advanced therapies. A product is eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse orcure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug has the potential to address unmet medicalneeds for such disease or condition. The benefits of a regenerative advanced therapy designation include early interactions with FDA to expeditedevelopment and review, benefits available to breakthrough therapies, potential eligibility for priority review and accelerated approval based on surrogate orintermediate endpoints.Accelerated Approval PathwayThe FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage topatients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinicalbenefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can bemeasured earlier than an effect on irreversible morbidity or mortality and that is reasonably likely to predict an effect on irreversible morbidity or mortalityor other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. Drugsgranted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval. - 110 -Table of ContentsFor the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, orother measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easilyor more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely topredict the clinical benefit of a drug, such as an effect on irreversible morbidity or mortality. The FDA has limited experience with accelerated approvalsbased on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effectmeasured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect isreasonably likely to predict the ultimate clinical benefit of a drug.The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required tomeasure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, acceleratedapproval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generallyto improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to demonstrate a clinicalor survival benefit.The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approvalconfirmatory studies to verify and describe the drug’s clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint.Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drugfrom the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review bythe FDA.The FDA’s Decision on an NDAOn the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturingfacilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product withspecific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may requiresubstantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to theFDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two orsix months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that theapplication does not satisfy the regulatory criteria for approval.If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions beincluded in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety afterapproval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distributionrestrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. TheFDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many typesof changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testingrequirements and FDA review and approval.Post-Approval RequirementsDrugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among otherthings, requirements relating to recordkeeping, periodic reporting, - 111 -Table of Contentsproduct sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to theapproved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annualuser fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees forsupplemental applications with clinical data.In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register theirestablishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliancewith cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented.FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon thesponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effortin the area of production and quality control to maintain cGMP compliance.Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or ifproblems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events ofunanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to theapproved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distributionor other restrictions under a REMS program. Other potential consequences include, among other things: • restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market orproduct recalls; • fines, warning letters or holds on post-approval clinical trials; • refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals; • product seizure or detention, or refusal to permit the import or export of products; or • injunctions or the imposition of civil or criminal penalties.The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only forthe approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulationsprohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, as well as the DrugSupply Chain Security Act, or DSCA, which regulate the distribution and tracing of prescription drugs and prescription drug samples at the federal level,and set minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution ofprescription pharmaceutical product samples and impose requirements to ensure accountability in distribution. The DSCA imposes requirements to ensureaccountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.Abbreviated New Drug Applications for Generic DrugsIn 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to approve generic drugs that are the same asdrugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit anabbreviated new drug application, - 112 -Table of Contentsor ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for adrug product previously approved under an NDA, known as the reference listed drug, or RLD.Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the activeingredients, the route of administration, the dosage form and the strength of the drug. At the same time, the FDA must also determine that the generic drugis “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do notshow a significant difference from the rate and extent of absorption of the listed drug.”Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “ApprovedDrug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeuticequivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, theFDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribingphysician or patient.Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD hasexpired. The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing a new chemical entity or NCE. An NCE is adrug that contains no active moiety that has previously been approved by the FDA in any other NDA. An active moiety is the molecule or ion responsiblefor the physiological or pharmacological action of the drug substance. In cases where such exclusivity has been granted, an ANDA may not be filed with theFDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit itsapplication four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includesreports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and areessential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a newdosage form, route of administration, combination or indication.Hatch-Waxman Patent Certification and the 30-Month StayUpon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’sproduct or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA or505(b)(2) applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference productin the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval.Specifically, the ANDA or 505(b)(2) applicant must certify with respect to each patent whether: • the required patent information has not been filed; • the listed patent has expired; • the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or • the listed patent is invalid, unenforceable or will not be infringed by the new product.A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable iscalled a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method ofuse, the application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involvingindications for which the ANDA applicant is not seeking approval). - 113 -Table of ContentsIf the ANDA or 505(b)(2) applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IVcertification to the NDA and patent holders once the ANDA or 505(b)(2) application has been accepted for filing by the FDA. The NDA and patent holdersmay then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or 505(b)(2) application until the earlierof 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the ANDAapplicant.Pediatric Studies and ExclusivityUnder the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety andeffectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for eachpediatric subpopulation for which the product is safe and effective. With enactment of the FDASIA in 2012, sponsors must also submit pediatric study plansprior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including studyobjectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA and the FDA’s internal reviewcommittee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request anamendment to the plan at any time.The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approvalof the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferralrequests and requests for extension of deferrals are contained in the FDASIA. Unless otherwise required by regulation, the pediatric data requirements donot apply to products with orphan designation.Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of anadditional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. Thissix-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. Thedata do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’srequest, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory timelimits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent termextension, but it effectively extends the regulatory period during which the FDA cannot approve another application.Orphan Drug Designation and ExclusivityUnder the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition (generallymeaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost ofdeveloping and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). Acompany must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeuticagent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approvalprocess.If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation or for a select indicationor use within the rare disease or condition for which it was designated, the product generally will receive orphan product exclusivity. Orphan productexclusivity means that the FDA - 114 -Table of Contentsmay not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitorsmay receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product butfor a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader thanwhat was designated in its orphan product application, it may not be entitled to exclusivity.Patent Term Restoration and ExtensionA patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-Waxman Amendments, which permit apatent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted istypically one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDAand the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’sapproval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submittedprior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection withone of the approvals. The U.S. Patent and Trademark Office reviews and approves the application for any patent term extension or restoration inconsultation with the FDA.Review and Approval of Drug Products in the European UnionIn order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of othercountries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercialsales and distribution of drug products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals from thecomparable foreign regulatory authorities before we can commence clinical trials or marketing of any products in those countries or jurisdictions. Theapproval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative reviewperiods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval.Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval inone country or jurisdiction may negatively impact the regulatory process in others.Clinical Trial Approval in the European UnionRequirements for the conduct of clinical trials in the European Union including Good Clinical Practice, or GCP, are set forth in the Clinical TrialsDirective 2001/20/EC and the GCP Directive 2005/28/EC. Pursuant to Directive 2001/20/EC and Directive 2005/28/EC, as amended, a system for theapproval of clinical trials in the European Union has been implemented through national legislation of the European Union member states. Under thissystem, approval must be obtained from the competent national authority of each European Union member state in which a study is planned to beconducted. To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier, or IMPD, and further supportinginformation prescribed by Directive 2001/20/EC and Directive 2005/28/EC and other applicable guidance documents. Furthermore, a clinical trial may onlybe started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.In April 2014, the European Union passed the new Clinical Trials Regulation, (EU) No 536/2014, which will replace the current Clinical TrialsDirective 2001/20/EC. To ensure that the rules for clinical trials are identical throughout the European Union, the new European Union clinical trialslegislation was passed as a regulation that is directly applicable in all European Union member states. All clinical trials performed in the European Unionare required to be conducted in accordance with the Clinical Trials Directive 2001/20/EC until - 115 -Table of Contentsthe new Clinical Trials Regulation (EU) No 536/2014 becomes applicable. According to the current plans of EMA, the new Clinical Trials Regulation willbecome applicable in October 2018. The Clinical Trials Directive 2001/20/EC will, however, still apply three years from the date of entry into applicationof the Clinical Trials Regulation to (i) clinical trials applications submitted before the entry into application and (ii) clinical trials applications submittedwithin one year after the entry into application if the sponsor opts for old system.The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trial in the European Union. The main characteristics ofthe regulation include: a streamlined application procedure via a single entry point, the European Union portal; a single set of documents to be prepared andsubmitted for the application as well as simplified reporting procedures that will spare sponsors from submitting broadly identical information separately tovarious bodies and different member states; a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. PartI is assessed jointly by all member states concerned. Part II is assessed separately by each member state concerned; strictly defined deadlines for theassessment of clinical trial applications; and the involvement of the ethics committees in the assessment procedure in accordance with the national law ofthe member state concerned but within the overall timelines defined by the Clinical Trials Regulation.Marketing Authorization in the European UnionTo obtain marketing approval of a drug under European Union regulatory systems, an applicant must submit a marketing authorization application, orMAA, either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization by theEuropean Commission that is valid for all European Union member states. The centralized procedure is compulsory for specific products, including formedicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products witha new active substance indicated for the treatment of certain diseases. For products with a new active substance indicated for the treatment of other diseasesand products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at the EMA, is responsible forconducting the initial assessment of a drug. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessmentof modifications or extensions to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe forthe evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by the applicantin response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of majorinterest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures thatthe opinion of the CHMP is given within 150 days.The decentralized procedure is available to applicants who wish to market a product in various European Union member states where such producthas not received marketing approval in any European Union member states before. The decentralized procedure provides for approval by one or more other,or concerned, member states of an assessment of an application performed by one member state designated by the applicant, known as the referencemember state. Under this procedure, an applicant submits an application based on identical dossiers and related materials, including a draft summary ofproduct characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member stateprepares a draft assessment report and drafts of the related materials within 210 days after receipt of a valid application. Within 90 days of receiving thereference member state’s assessment report and related materials, each concerned member state must decide whether to approve the assessment report andrelated materials.If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputedpoints are subject to a dispute resolution mechanism and may eventually be referred to the European Commission, whose decision is binding on all memberstates. - 116 -Table of ContentsData and Market ExclusivityIn the European Union, NCEs qualify for eight years of data exclusivity upon marketing authorization and an additional two years of marketexclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from assessing a generic (abbreviated) application foreight years, after which generic marketing authorization can be submitted but not approved for two years. The overall ten-year period will be extended to amaximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more newtherapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison withexisting therapies. Even if a compound is considered to be an NCE and the sponsor is able to gain the prescribed period of data exclusivity, anothercompany nevertheless could also market another version of the drug if such company can complete a full MAA with a complete human clinical trialdatabase and obtain marketing approval of its product.Orphan Drug Designation and ExclusivityRegulation 141/2000 provides that a drug shall be designated as an orphan drug if its sponsor can establish: that the product is intended for thediagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in theEuropean Community when the application is made, or that the product is intended for the diagnosis, prevention or treatment of a life-threatening, seriouslydebilitating or serious and chronic condition in the European Community and that without incentives it is unlikely that the marketing of the drug in theEuropean Community would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstratethat there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EuropeanCommunity or, if such method exists, the drug will be of significant benefit to those affected by that condition.Regulation 847/2000 sets out criteria and procedures governing designation of orphan drugs in the European Union. Specifically, an application fordesignation as an orphan product can be made any time prior to the filing of an application for approval to market the product. Marketing authorization foran orphan drug leads to a ten-year period of market exclusivity. This period may, however, be reduced to six years if, at the end of the fifth year, it isestablished that the product no longer meets the criteria for orphan drug designation, for example because the product is sufficiently profitable not to justifymarket exclusivity. Market exclusivity can be revoked only in very selected cases, such as consent from the marketing authorization holder, inability tosupply sufficient quantities of the product, demonstration of “clinically relevant superiority” by a similar medicinal product, or, after a review by theCommittee for Orphan Medicinal Products, requested by a member state in the fifth year of the marketing exclusivity period (if the designation criteria arebelieved to no longer apply). Medicinal products designated as orphan drugs pursuant to Regulation 141/2000 shall be eligible for incentives made availableby the European Community and by the member states to support research into, and the development and availability of, orphan drugs.Brexit and the Regulatory Framework in the United KingdomOn June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly referred to as Brexit. On March 29,2017, the country formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. Since the regulatoryframework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketingauthorization, commercial sales and distribution of pharmaceutical products is derived from European Union directives and regulations, Brexit couldmaterially impact the future regulatory regime which applies to products and the approval of product candidates in the United Kingdom. It remains to beseen how, if at all, Brexit will impact regulatory requirements for product candidates and products in the United Kingdom. - 117 -Table of ContentsPharmaceutical Coverage, Pricing and ReimbursementSignificant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Salesof any approved products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including governmenthealth programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process fordetermining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payorwill pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity andreviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may also limit coverage tospecific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Third-party payors often relyupon Medicare coverage policy and payment limitations in setting their reimbursement rates, but also have their own methods and approval process apartfrom Medicare determinations. Therefore, coverage and reimbursement for products in the United States can differ significantly from payor to payor.In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensivepharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product. A payor’s decision to provide coverage for adrug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain pricelevels high enough to realize an appropriate return on investment in product development.The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of drugs have been a focus inthis effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions onreimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of morerestrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approvedproducts. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attainedfor one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement ratesmay be implemented in the future.In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may bemarketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies, or so called health technology assessments, in order to obtain reimbursement orpricing approval. For example, the European Union provides options for its member states to restrict the range of drug products for which their nationalhealth insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states mayapprove a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drugproduct on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits.The downward pressure on health care costs in general, particularly prescription drugs, has become intense and there are high barriers to the entry ofnew products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within acountry. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricingarrangements. - 118 -Table of ContentsHealthcare Law and RegulationHealthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of drug products that are grantedmarketing approval. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse and otherhealthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations, include the following: • the federal healthcare Anti-Kickback Statute prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering,receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or thepurchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare programsuch as Medicare and Medicaid; • the federal civil and criminal false claims laws, including the False Claims Act, and civil monetary penalties laws, which provide for civilwhistleblower or qui tam actions, prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to thefederal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to paymoney to the federal government; • the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things,executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their respective implementing regulations,including the Final Omnibus Rule published in January 2013, also imposes obligations, including mandatory contractual terms, with respect tosafeguarding the privacy, security and transmission of individually identifiable health information; • the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materiallyfalse statement in connection with the delivery of or payment for healthcare benefits, items or services; • the federal transparency requirements under the Affordable Care Act, known as the federal Physician Payments Sunshine Act, require manufacturersof drugs, devices, biologics and medical supplies to report to the Centers for Medicare & Medicaid Services, or CMS, within the Department ofHealth and Human Services, or HHS, information related to payments and other transfers of value to physicians and teaching hospitals and physicianownership and investment interests held by physicians and their immediate family members; and • analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements andclaims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevantcompliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments tophysicians and other health care providers or marketing expenditures. State and local laws require the registration of pharmaceutical sales representativesand state and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other insignificant ways and often are not preempted by HIPAA, thus complicating compliance efforts.Efforts to ensure that current and future business arrangements with third parties comply with applicable healthcare laws and regulations involvessubstantial costs. If operations are found to be in violation of any of these laws or any other governmental regulations that may apply to a business, thebusiness may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, - 119 -Table of Contentsexclusion of products from government-funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight ifsubject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment orrestructuring of operations.Healthcare ReformA primary trend in the United States healthcare industry and elsewhere is cost containment. There have been a number of federal and state proposalsduring the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and othermedical products, government control and other changes to the healthcare system in the United States.By way of example, the United States and state governments continue to propose and pass legislation designed to reduce the cost of healthcare. InMarch 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively theAffordable Care Act, was enacted which, among other things, includes changes to the coverage and payment for products under government health careprograms. Among the provisions of the Affordable Care Act of importance to potential drug candidates are: • an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned amongthese entities according market share in certain government healthcare programs, although this fee would not apply to sales of certain productsapproved exclusively for orphan indications; • expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals withincome at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; • expansion of manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded andgeneric drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatientprescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicare Advantage plans; • a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled,infused, instilled, implanted or injected; • expanded types of entities eligible for the 340B drug discount program; • establishment of the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50% (and 70% commencing January 1,2019) point-of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a conditionfor the manufacturers’ outpatient drugs to be covered under Medicare Part D; • establishment of a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectivenessresearch, along with funding for such research; • establishment of the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lowerMedicare and Medicaid spending, potentially including prescription drug spending; and • a licensure framework for follow on biologic products.Some of the provisions of the Affordable Care Act have yet to be implemented, and there have been judicial and Congressional challenges to certainaspects of the Affordable Care Act, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act.Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions ofthe Affordable Care Act or otherwise circumvent some of the requirements for health - 120 -Table of Contentsinsurance mandated by the Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of theAffordable Care Act. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under theAffordable Care Act have been signed into law. The Tax Act includes a provision repealing, effective January 1, 2019, the tax-based shared responsibilitypayment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that iscommonly referred to as the “individual mandate”. On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax onnon-exempt medical devices. The Bipartisan Budget Act of 2018, or the BBA, among other things, amends the Affordable Care Act, effective January 1,2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. In July 2018, CMS published a final rule permittingfurther collections and payments to and from certain Affordable Care Act qualified health plans and health insurance issuers under the Affordable Care Actrisk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. OnDecember 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual mandate is an inseverable feature of theAffordable Care Act, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the Affordable Care Act are invalid as well.While the Trump Administration and CMS have both stated that the ruling will have no immediate effect, it is unclear how this decision and subsequentappeals, if any, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act.Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, in August2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on DeficitReduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach requiredgoals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments toproviders of up to 2% per fiscal year, which went into effect in April 2013 and due to legislative amendments to the statute, including the BBA, and willremain in effect through 2027 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American TaxpayerRelief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancertreatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.Moreover, there has been heightened governmental scrutiny recently over pharmaceutical pricing practices in light of the rising cost of prescriptiondrugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to,among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reformgovernment program reimbursement methodologies for products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example,measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices underMedicaid, and to eliminate cost sharing for generic drugs for low-income patients.Further, the Trump administration released a “Blueprint” to lower drug prices and reduce out-of-pocket costs of drugs that contains additionalproposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lowerthe list price of their products and reduce the out of pocket costs of drug products paid by consumers. HHS has already started the process of solicitingfeedback on certain of these measures and, additionally, is immediately implementing others under its existing authority. For example, in September 2018,CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October2018, CMS - 121 -Table of Contentsproposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment isavailable through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biologicalproduct. Although a number of these, and other potential, proposals will require authorization through additional legislation to become effective, Congressand the executive branch have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the statelevel, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing,including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparencymeasures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 was signedinto law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that havecompleted a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatmentwithout enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drugmanufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.EmployeesAs of December 31, 2018, we had 57 full-time employees, 36 of whom were primarily engaged in research and development activities and 17 ofwhom had a Ph.D. or Pharm.D. degree. All of our full-time employees are based in the United States.C. Organizational structure.Stealth BioTherapeutics Corp was incorporated in Grand Cayman, Cayman Islands as Stealth Peptides International, Inc. in April 2006. Its whollyowned subsidiary, Stealth BioTherapeutics Inc., was incorporated in Delaware as Stealth Peptides Inc. in October 2007. In addition, a wholly ownedsubsidiary, Stealth BioTherapeutics (HK) Limited, was incorporated in Hong Kong in September 2017. In May 2018, Stealth BioTherapeutics (Shanghai)Limited was formed as a wholly foreign owned enterprise in China. Stealth BioTherapeutics Corp, Stealth BioTherapeutics Inc., Stealth BioTherapeutics(HK) Limited, and Stealth BioTherapeutics (Shanghai) Limited are referred to herein as the “company.”D. Property, plants and equipment.Our operations are conducted at Stealth Delaware, which is located in Newton, Massachusetts, where we occupy 14,446 square feet of office space. InFebruary 2019, we amended our lease to include an additional 3,102 square feet of office space at the same address beginning on May 1, 2019. The leaseexpires November 30, 2020. Item 4A.Unresolved Staff CommentsNone. Item 5.Operating and Financial Review and ProspectsA. Operating results.The following discussion and analysis of our financial condition and results of operations should be read together with Item “3.A.—SelectedFinancial Data” and our audited financial statements and the related notes - 122 -Table of Contentsincluded elsewhere in this annual report on Form 20-F. Some of the information contained in this discussion and analysis or set forth elsewhere in thisannual report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements thatinvolve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.” As a result of many factors, including those factorsset forth under Item “3.D.—Risk Factors”, our actual results could differ materially from the results described in or implied by the forward-lookingstatements contained in the following discussion and analysis.OverviewWe are a clinical-stage biotechnology company focused on the discovery, development and commercialization of novel therapies for diseasesinvolving mitochondrial dysfunction. Mitochondria, found in nearly every cell in the body, are the body’s main source of energy production and are criticalfor normal organ function. Dysfunctional mitochondria characterize a number of rare genetic diseases, collectively known as primary mitochondrialdiseases, and are also involved in many common age-related diseases. We believe our lead product candidate, elamipretide, has the potential to treat bothrare genetic and common age-related mitochondrial diseases. Our mission is to be the leader in mitochondrial medicine, and we have assembled a highlyexperienced management team, board of directors and group of scientific advisors to help us achieve this mission.We are studying elamipretide in the following indications:Primary mitochondrial myopathy. We believe primary mitochondrial myopathy, characterized by debilitating skeletal muscle weakness, exerciseintolerance and fatigue, affects an estimated 40,000 diagnosed individuals in the United States. There are no therapies approved by the FDA, the EMA orthe NMPA for the treatment of primary mitochondrial myopathy. We have received Fast Track and Orphan Drug designation from the FDA for thedevelopment of elamipretide in this indication. We are conducting a Phase 3 pivotal trial of elamipretide for the treatment of primary mitochondrialmyopathy in North America and in Europe and expect to have top-line data from that trial by the end of 2019.Barth. Barth, characterized by heart muscle weakness, or cardiomyopathy, neutropenia, or low white blood cell count (which may lead to anincreased risk for infections), skeletal muscle weakness, delayed growth, fatigue and varying degrees of physical disability, is estimated to affect betweenone in 300,000 to one in 400,000 births in the United States, and there are estimated to be less than 200 known living patients worldwide with Barth. Thereare no therapies approved by the FDA, EMA or NMPA for the treatment of Barth. We have received Fast Track and Orphan Drug designation from theFDA for the development of elamipretide in this indication. In December 2018, we completed the placebo-controlled portion of a Phase 2/3 clinical trial inpatients with Barth. While the trial did not reach its primary endpoints, we observed trends toward improvement in the subset of patients with lower ratiosof monolysocardiolipin to tetralinoleylcardiolipin, which we believe are the patients most likely to respond to therapy. We plan to meet with the FDAduring the first half of 2019 to discuss a potential NDA submission.LHON. LHON is characterized by central vision loss. We estimate that LHON affects approximately 10,000 individuals in the United States, of whoman estimated 70% have the genetic mutation, G11778A, that we are studying. There are no therapies approved by the FDA or NMPA for the treatment ofLHON, and there is only one EMA-approved therapy. We have received Fast Track and Orphan Drug designation from the FDA for the development ofelamipretide in this indication. We completed the placebo-controlled portion of a Phase 2 clinical trial during the first half of 2018, and continue to followpatients in open-label extension. While the trial did not reach its primary endpoint of change in best corrected visual acuity, we observed trends favoringelamipretide across a number of endpoints, and we are continuing to observe improvements in an ongoing open-label extension. We plan to meet with theFDA for an end-of-Phase 2 meeting in mid-2019. - 123 -Table of ContentsDry AMD. Dry AMD, characterized by symptoms such as distorted vision, reduction in low light visual acuity, reduced overall visual acuity andblurred vision, is estimated to affect over 10 million individuals in the United States, representing 90% of all individuals with AMD in the United States,and is the leading cause of blindness among older adults in the developed world. There are no therapies approved by the FDA, EMA or NMPA for thetreatment of dry AMD. We completed a Phase 1 trial in patients with drusen, an early form of dry AMD, and geographic atrophy, an advanced form of dryAMD, in which we observed statistically significant improvement over baseline in various parameters of visual function in both the drusen and geographicatrophy cohorts. We received Fast Track designation from the FDA for the development of elamipretide for patients with dry AMD with geographic atrophyin November 2018. We launched a Phase 2b clinical trial for the treatment of patients with geographic atrophy in March of 2019.In addition to our clinical development programs for elamipretide, we plan to evaluate SBT-20, our second clinical-stage product candidate, for raredisease indications, such as peripheral neuropathies. We are developing SBT-272, a preclinical-stage product candidate, for rare neurodegenerative diseases.In addition, our internal discovery platform has generated a library of over 100 proprietary, differentiated compounds which could have clinical benefit fordiseases related to mitochondrial dysfunction and from which we plan to designate potential product candidates. We may also utilize certain of thesecompounds as part of our carrier platform, in which they could potentially serve as scaffolds to deliver other beneficial compounds to the mitochondria.Since our inception in 2006, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raisingcapital, acquiring and developing our proprietary technology, identifying potential product candidates and conducting preclinical and clinical studies of ourproduct candidates. We have not generated any product revenue. We closed our IPO of 6,500,000 ADSs, each representing 12 ordinary shares, onFebruary 20, 2019, in which we raised gross proceeds of $78.0 million. We issued an additional 588,232 ADSs on March 4, 2019 in connection with ourunderwriters’ partial exercise of their over-allotment option, pursuant to which we raised additional gross proceeds of $7.1 million. Our net proceeds fromthe IPO, after deducting underwriting discounts and commissions of $6.0 million and offering expenses of approximately $2.2 million, were $76.9 million.Prior to our IPO, we entered into numerous debt and equity issuances with MVIL and other investors, and financed our operations from the issuanceof Series A preferred shares, ordinary shares, convertible debt and term debt, and as of December 31, 2018, we had raised an aggregate of $387.6 million ingross proceeds. On February 20, 2019, upon the closing of our IPO, all outstanding Series A preferred shares converted into 91,600,398 ordinary shares andall convertible debt then outstanding converted into 175,210,373 ordinary shares.As of December 31, 2018, we had an accumulated deficit of $426.3 million. Our net loss was $96.7 million, $82.9 million and $61.0 million for theyears ended December 31, 2018, 2017 and 2016, respectively. We have incurred significant net operating losses in every year since our inception andexpect to continue to incur increasing net operating losses and significant expenses for the foreseeable future. Our net losses may fluctuate significantlyfrom quarter to quarter and year to year. We anticipate that our expenses will increase significantly as we: • continue to advance our clinical programs and initiate additional clinical programs; • continue our current research programs and development activities; • seek to identify additional research programs and additional product candidates; • initiate preclinical testing and clinical trials for any product candidates we identify; • develop, maintain, expand and protect our intellectual property portfolio; • hire additional research, clinical and scientific personnel; and • incur additional costs associated with operating as a public company, including expanding our operational, finance and management teams. - 124 -Table of ContentsWe believe that our existing cash and cash equivalents as of December 31, 2018, together with additional funding received in the first quarter of 2019and the amendment to the existing LSA providing an additional interest-only period of six months, will be sufficient to meet our cash commitments for thenext 12 months. We do not expect to generate revenues from product sales unless and until we successfully complete development and obtain regulatoryapproval for a product candidate, which is subject to significant uncertainty. We currently use contract research organizations, or CROs, and CMOs to carryout our preclinical and clinical development activities, and we do not yet have a commercial organization. If we obtain regulatory approval for our productcandidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, wemay seek to fund our operations through public or private equity or debt financings or other sources, including strategic collaborations. We may, however,be unable to raise additional funds or enter into such other arrangements when needed on favorable terms, if at all. Our failure to raise capital or enter intosuch other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current productcandidates, or any additional product candidates, if developed.Financial OverviewRevenueWe have not generated any revenue from product sales or otherwise and do not expect to do so in the near future. We expect that any revenue will beless than our expenses for the foreseeable future and that we will experience increasing losses as we continue our development of, and seek regulatoryapprovals for, our product candidates and begin to commercialize any approved products. Our ability to generate revenues for any product candidate forwhich we receive regulatory approval will depend on numerous factors, including competition, commercial manufacturing capability and market acceptanceof our products.Research and Development ExpensesResearch and development expenses consist primarily of costs incurred for our research activities, including development of our preclinical andclinical product candidates, which include: • employee-related expenses, including salaries, benefits and share-based compensation expense; • expenses incurred under agreements with CROs, CMOs and independent contractors that conduct research and development, preclinical and clinicalactivities on our behalf; • costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical study and clinical trialmaterials; • consulting, licensing and professional fees related to research and development activities; and • facility costs, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and othersupplies.We expense research and development costs as incurred. We recognize costs for certain development activities, such as preclinical studies and clinicaltrials, based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors such as patient enrollment orclinical site activations for services received and efforts expended.Research and development activities are central to our business model. We expect research and development costs to increase significantly for theforeseeable future as our current development programs progress and new programs are added.We track certain external research and development expenses for our lead product candidates. We manage certain activities, such as contract researchand manufacturing of our product candidates and our discovery - 125 -Table of Contentsprograms, through our third-party vendors and have captured the costs of these activities on an individual product basis from our financial records. We useour employee, consultant and infrastructure resources across our development programs and do not track and do not allocate the cost of these activities on aprogram-by-program basis. The following summarizes our research and development expenses: Year Ended December 31, 2018 2017 2016 (in thousands) Product expenses: Elamipretide $31,961 $40,530 $30,775 SBT-20 620 1,697 1,090 SBT-272 806 — — Total costs directly allocated to products 33,387 42,227 31,865 Expenses not directly allocated to products: Research and development programs 3,101 6,179 4,468 Consultants and professional expenses 5,756 4,457 3,921 Employee expenses including cash compensation, benefits and share-basedcompensation 10,819 10,357 8,191 Total expenses not directly allocated to products 19,676 20,993 16,580 Total research and development expenses $53,063 $63,220 $48,445 Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration andcompletion costs of the current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from thecommercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for any of our product candidates. Theduration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including: • successful completion of preclinical studies and investigational new drug-enabling studies; • successful enrollment in and completion of clinical trials; • receipt of marketing approvals from applicable regulatory authorities; • establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; • obtaining and maintaining patent and trade secret protection and non-patent exclusivity; • launching commercial sales of the product, if and when approved, whether alone or in collaboration with others; • acceptance of the product, if and when approved, by patients, the medical community and third-party payors; • effectively competing with other therapies and treatment options; • continued acceptable safety profile following approval; • enforcing and defending intellectual property and proprietary rights and claims; and • achieving desirable therapeutic properties for the intended indications.A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of ourcurrent and future preclinical and clinical product candidates. For example, if the FDA or other regulatory authority were to require us to conduct clinicaltrials beyond those that - 126 -Table of Contentswe currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment inany of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion ofpreclinical and clinical development.General and Administrative ExpensesGeneral and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and share-based compensation forpersonnel in executive, finance, pre-commercial, facility operations and administrative functions. Significant costs are incurred in our pre-commercialactivities including market research, public relations, patient advocacy, advisory boards and conferences and professional consulting. Other significant costsinclude facility costs not otherwise included in research and development expenses, legal fees relating to intellectual property and patent prosecution andmaintenance, other legal fees and fees for accounting, tax and consulting services.We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities,potential commercialization of our product candidates and increased costs of operating as a public company. These increases will likely include costsrelated to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among other expenses. We expect the increased costsassociated with being a public company to include expenses related to services associated with maintaining compliance with the requirements of Nasdaqand the SEC, director and officer insurance and investor and public relations costs.Other Income (Expense), NetOther income (expense), net, primarily consists of amortization of debt discount and interest expense incurred on convertible notes payable andincurred on our term loan facility, interest income earned on a shareholder demand note receivable and on cash and cash equivalents and changes in the fairvalue of our derivative liability as well as our warrant liability.Results of OperationsComparison of the Years Ended December 31, 2018, 2017 and 2016The following tables summarizes our results of operations for the years ended December 31, 2018, 2017 and 2016, together with the dollar change inthose items on a year over year basis: Year Ended December 31, Dollar 2018 2017 Change (in thousands) Operating expenses: Research and development $53,062 $63,220 $(10,158) General and administrative 22,217 16,500 5,717 Total operating expenses 75,279 79,720 (4,441) Loss from operations (75,279) (79,720) 4,441 Other expense (21,433) (3,190) (18,243) Net loss $(96,712) $(82,910) $(13,802) - 127 -Table of Contents Year Ended December 31, Dollar 2017 2016 Change (in thousands) Operating expenses: Research and development $63,220 $48,445 $14,775 General and administrative 16,500 13,403 3,097 Total operating expenses 79,720 61,848 17,872 Loss from operations (79,720) (61,848) (17,872) Other income/(expense) (3,190) 799 (3,989) Net loss $(82,910) $(61,049) $(21,861) Research and Development ExpensesResearch and development expenses decreased by $10.1 million to $53.1 million for the year ended December 31, 2018, from $63.2 million for theyear ended December 31, 2017. This decrease was primarily due to a $10.4 million decrease in clinical trial related costs as our cardiovascular clinical trialsended during early 2018, offset by an increase in costs of approximately $1.3 million for our primary mitochondrial myopathy studies, for which weincurred expenses for a full year in 2018. Manufacturing costs decreased $1.1 million as a result of the timing of production activities.Research and development expenses increased by $14.8 million to $63.2 million for the year ended December 31, 2017 from $48.4 million for theyear ended December 31, 2016. This increase was primarily due to a $10.2 million increase in clinical trial related costs, mainly relating to our primarymitochondrial myopathy program, which increased by $4.4 million due to initiation of our pre-Phase 3 trial registry and Phase 3 clinical trial; a $2.9 millionincrease in manufacturing costs for elamipretide and a $1.6 million increase in employee-related costs as we expanded our team to support later stageclinical development.General and Administrative ExpensesGeneral and administrative expenses increased by $5.7 million to $22.2 million for the year ended December 31, 2018, from $16.5 million for theyear ended December 31, 2017. The increase in administrative expenses was primarily attributable to an increase of $5.1 million as a result of financingefforts which were delayed due to market conditions and an increase in legal intellectual property costs of $0.6 million.General and administrative expenses increased by $3.1 million to $16.5 million for the year ended December 31, 2017, from $13.4 million for theyear ended December 31, 2016. The increase in administrative expenses was primarily attributable to an increase of $2.8 million in legal and professionalcosts related to a potential financing initiative that was deferred to 2018 due to market considerations, as well as an increase of approximately $0.3 millionin market research activities.Other Income (Expense)Other income (expense) was $21.4 million for the year ended December 31, 2018, consisting primarily of the amortization of the debt discount as aresult of the exchange note with MVIL and additional debt with new investors, and interest expense incurred on the additional debt obtained during the year.Other income (expense) was $3.2 million for the year ended December 31, 2017, consisting primarily of interest expense in connection with convertiblepromissory notes issued in 2017 and interest expense related to our term loan facility, which we entered into in June 2017. Other income (expense) was$0.8 million for the year ended December 31, 2016, consisting of interest received on a note receivable, which was repaid in full by the end of 2016. - 128 -Table of ContentsCritical Accounting Policies and Significant Judgments and EstimatesOur management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,which we have prepared in accordance with U.S. GAAP. We believe that several accounting policies are important to understanding our historical andfuture financial performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates aboutmatters that are uncertain at the time we make the estimate, and we could have used different estimates which also would have been reasonable. On anongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experienceand other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis formaking judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in thisannual report, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidatedfinancial statements.Accrued Research and Development ExpensesAs part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. This process involvesreviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed for us and estimating thelevel of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. Themajority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of ouraccrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Weperiodically confirm the accuracy of our estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued researchand development expenses include fees paid to: • CROs in connection with clinical trials; • CMOs with respect to clinical materials, intermediates, drug substance and drug product; • vendors in connection with research and preclinical development activities; and • vendors related to manufacturing, development and distribution of clinical supplies.We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with CROs thatconduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and mayresult in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in aprepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and thecompletion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of subjectsand the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, weadjust the accrual or prepaid expense accordingly. To date, there have been no material differences from our estimates to the amounts actually incurred.Share-based CompensationWe account for share-based compensation awards in the consolidated statements of operations based on their grant-date fair value. We recognizecompensation costs related to employees based on the estimated fair value of the awards on the date of grant and over the associated service periods, usingthe straight-line method. - 129 -Table of ContentsThe options vest in accordance with the terms of the applicable agreements and expire no later than ten years after the date of grant. Compensation expenseis recognized for the fair value of the consideration received, or the equity instruments issued, whichever is more reliably measurable. We measure share-based awards granted to non-employees based on the fair value of the award on the date on which the related service is complete. Compensation expense isrecognized over the period during which services are rendered by such non-employees until completed. At the end of each financial reporting period prior tocompletion of the service, the fair value of these awards is remeasured using the then-current fair value of our ordinary shares and updated assumptioninputs in the Black-Scholes option-pricing model (“Black-Scholes”).We estimate the fair value of our share-based awards to employees and non-employees using Black-Scholes, which requires the input of assumptions,some of which are highly subjective, including: • expected volatility of our ordinary shares; • expected term of the award; • risk-free interest rate; • expected dividends; and • estimated fair value of our ordinary shares on the measurement date.Prior to our IPO, due to the lack of a public market for the trading of our ordinary shares and a lack of company-specific historical and impliedvolatility data, we based our estimate of expected volatility on the historical volatility of a group of comparable companies that were publicly traded. Forthese analyses, we selected representative companies from the life sciences industry with characteristics similar to ours, including enterprise value, riskprofiles, position within the industry and historical share price information, sufficient to meet the expected life of the share-based awards. We computed thehistorical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of ourshare-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own share pricebecomes available. We use a dividend yield of 0% based on the fact that we have never declared cash dividends and have no current intention of payingcash dividends over the expected term of the option.The expected term of options granted represents the weighted average of previously transacted awards plus the minimum and maximum expected lifeof the outstanding awards based on vest and expiry. For non-employee options, we have determined the expected life based on the respective contractuallife. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period theoptions were granted and with maturity dates equivalent to the expected term of the options.We are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from theestimates. The estimation of the number of awards that will ultimately vest requires judgment and, to the extent actual results or updated estimates differfrom our current estimates, such amounts will be recorded as a cumulative adjustment in the period in which estimates are revised.Share-based compensation totaled $1.3 million, $1.3 million and $1.8 million, for the years ended December 31, 2018, 2017, and 2016, respectively.As of December 31, 2018, 2017 and 2016, unrecognized compensation expense related to non-vested options, net of related forfeiture estimates, was$2.0 million, $1.8 million and $0.8 million, respectively. We expect to recognize our remaining share-based compensation expense as of December 31,2018, over a weighted-average remaining vesting period of approximately 2.4 years. We expect our share-based compensation expense to increase in futureperiods due to the potential increase in the value of our ordinary shares and future option grants to new and current employees, directors and consultants. - 130 -Table of ContentsDetermination of the Fair Value of Ordinary Shares on Grant DatesFollowing our IPO, the fair value of our ordinary shares is be determined based on the quoted market price of our ADSs. We have historically grantedshare options at exercise prices not less than the fair value of our ordinary shares. Prior to the IPO, our board of directors has determined the fair value ofour ordinary shares considering, in part, the work of an independent valuation specialist. Prior to the IPO, our board of directors determined the estimatedper share fair value of our ordinary shares at various dates considering contemporaneous valuations performed in accordance with the guidance outlined inthe American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-held Company Equity Securities Issued as Compensation , or thePractice Aid.Prior to the IPO, our ordinary share valuations were prepared using the Hybrid Method. The Hybrid Method is a hybrid between the ProbabilityWeighted Expected Returns Method and the option-pricing method, or OPM. It is used to estimate the probability weighted value across multiple scenarios,but uses OPM to estimate the allocation of value within one or more of those scenarios. The market approach was selected to determine our enterprise valueunder various IPO, and merger and acquisition (“M&A”) scenarios, and OPM was utilized to allocate the value between the share classes under an M&Ascenario, resulting in a value for the ordinary shares.The ordinary share value is based on the probability-weighted present value of expected future investment returns considering each of the possibleoutcomes available, as well as the rights of each class of security. The estimated future value under each outcome is discounted back to the valuation date atan appropriate risk- adjusted discount rate and probability weighted to arrive at an indication of value for an ordinary share. OPM treats common andpreferred shares as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among thevarious holders of a company’s securities changes. Under this method, an ordinary share has value only if the funds available for distribution to equityholders exceeds the value of the preferred security liquidation preference at the time of the liquidity event, such as a strategic sale or a merger.Prior to the IPO, each valuation of our ordinary shares was dependent upon judgments and estimates. In conducting the valuations, the independentvaluation specialist considered objective and subjective factors that it believed to be relevant for each valuation conducted in accordance with the PracticeAid, including our best estimate of our business condition, prospects and operating performance at each valuation date. Other significant factors included: • the prices of our convertible preferred shares sold to investors and the rights, preferences and privileges of our preferred shares, including theliquidation preferences of our convertible preferred shares, as compared to those of our ordinary shares; • our stage of development and business strategy and the material risks related to our business and industry; • valuations of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed M&A of guideline companies; • our results of operations and financial position; • the composition of and changes to our management team and board of directors; • the lack of liquidity of our ordinary shares; • any external market conditions affecting the life sciences and biotechnology industry sectors; • the likelihood of achieving a liquidity event for the holders of our ordinary shares and share options, such as an IPO or M&A, given prevailing marketconditions; and • the state of the IPO market for similarly situated privately held life sciences companies.The dates of our contemporaneous valuations did not always coincide with the dates of our share option grants. In determining fair market value priorto the IPO, our board of directors considered, among other things, - 131 -Table of Contentsthe most recent valuation of our ordinary shares and their assessment of additional objective and subjective factors that were relevant as of the grant dates.The estimates of fair value of our ordinary shares were highly complex and subjective. There were significant judgments and estimates inherent in thedetermination of the fair value of our ordinary shares. These judgments and estimates include assumptions regarding our future operating performance, thetime to complete an IPO or other liquidity event, the related valuations associated with these events, and the determinations of the appropriate valuationmethods at each valuation date. The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertaintiesand the application of management judgment. If we had made different assumptions, our share-based compensation expense, net loss and net loss per shareapplicable to holders of ordinary shares could have been materially different.Contractual ObligationsWe enter into contracts in the normal course of business with CROs and clinical sites for the conduct of clinical trials, professional consultants andother vendors for clinical supply, manufacturing or other services.We have entered into several license agreements with Cornell and the IRCM, pursuant to which Cornell and IRCM granted us an exclusive,worldwide rights under patents related to elamipretide, SBT-20 and other technology. In connection with the licenses granted under the original Cornellagreement, we issued Cornell 666,667 ordinary shares. With respect to the other Cornell license agreements, we are obligated to pay Cornell upfront licensefees of $60,000 and royalties on net sales, if any, by us and our sublicensees of any licensed product. Subject to specified reductions and royalty offsets,such royalties are calculated as a tiered, low-to-mid single digit percentage of net sales of licensed products under each of the Cornell license agreements,except that for licensed products under the original Cornell agreement, such royalties are calculated as a tiered, low single-digit to sub-teen double-digitpercentage of net sales, depending on patent coverage, amount of net sales and type of licensed product. Our obligation to pay royalties as to any licensedproduct extends until the later of the expiration of the last-to-expire valid claim of any licensed patent covering such licensed product or 15 years after thedate of our first commercial sale of such licensed product. If a licensed product is covered by licenses granted under the original Cornell agreement andanother Cornell license agreement, then, for each unit of product, royalties will only be due under the original Cornell agreement.We are obligated to pay Cornell a low double-digit percentage of specified payments we receive in connection with granting a sublicense under theCornell license agreements. We have also agreed to reimburse Cornell for its out-of-pocket expenses incurred in preparing, filing, prosecuting andmaintaining the licensed patents, except for any licensed patents as to which we elect to waive our licensed rights. We also have agreed to pay Cornellannual license maintenance fees in dollars in the mid-five-digits for the original Cornell agreement, and mid-four-digits for each of the other Cornell licenseagreements starting on the date specified in each such agreement, in all cases until the first commercial sale of a specified type of licensed product undersuch agreement.Recent Accounting PronouncementsNote 2, “Summary of Significant Accounting Policies,” in the accompanying notes to the consolidated financial statements includes a discussion ofrecent accounting pronouncements. There were no new accounting pronouncements adopted during 2018 that had a material effect on our consolidatedfinancial statements.Emerging Growth Company StatusThe Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transitionperiod to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to privatecompanies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to - 132 -Table of Contentsthe same new or revised accounting standards as other public companies. As a result, our financial statements may not be comparable to the financialstatements of reporting companies that are required to comply with the effective dates for new or revised accounting standards that are otherwise applicableto public companies.Qualitative and Quantitative Disclosures about Market RiskWe are minimally exposed to market risk related to changes in interest rates. As of December 31, 2018, we had cash and cash equivalents of$10.9 million, consisting primarily of money market funds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes inthe general level of U.S. interest rates, particularly because our cash equivalents are held in short-term money market funds. We do not believe we arematerially at risk to sudden drops in interest rates based on the amounts subject to these potential changes. B.Liquidity and capital resources.OverviewWe have funded our operations from inception through December 31, 2018 primarily through gross proceeds of $387.6 million from the sale ofordinary shares, convertible preferred shares, the issuance of convertible promissory notes and a term loan. As of December 31, 2018, we had cash and cashequivalents of $10.9 million. On January 25, 2019, we raised $5.0 million from the issuance of convertible promissory notes to MVIL and raised anadditional $85.1 million in gross proceeds from our IPO. Upon the closing of our IPO, all outstanding Series A preferred shares converted into 91,600,398ordinary shares and all convertible debt then outstanding converted into 175,210,373 ordinary shares.IndebtednessTerm Loan FacilityOn June 30, 2017, we entered into a loan and security agreement providing for a $40.0 million term loan facility with Hercules, which we refer to asthe term loan facility. The loan and security agreement was amended in March 2018, July 2018, October 2018 and March 2019. As of December 31, 2018,we had borrowed $20.0 million under this facility and $19.3 million remained outstanding. We are eligible to borrow an additional $20.0 million, inminimum increments of $5.0 million, upon the approval of the lender.Borrowings under the term loan facility bear interest at a floating per annum rate equal to the greater of (i) the Wall Street Journal prime rate plus5.50% or (ii) 9.50%. In an event of default, as defined in the loan and security agreement, as amended to date, the interest rate applicable to borrowingsunder such agreement will be increased by 4.0%. Interest payments are due monthly in arrears. Under the term loan facility, we made interest onlypayments through November 30, 2018, at which time payments were made in equal monthly installments of principal and interest through March 31, 2019.From April 1, 2019 to September 30, 2019, we will make interest only payments. Commencing October 1, 2019, we will be required to make monthlyinstallments of principal and interest through scheduled maturity of January 1, 2021, unless certain milestones are met, in which case the interest-onlyperiod will be extended to April 1, 2020.We may voluntarily prepay all, but not less than all, of the outstanding principal at any time prior to the maturity date, subject to a prepayment fee,which ranges from 0.5% to 3.0% of the outstanding principal depending on when the prepayment is made. A final payment of $1.335 million is due uponthe earlier to occur of the maturity of the loan, the acceleration or prepayment of all outstanding principal or the termination of the term loan facility.Borrowings under the term loan facility are secured by a first priority lien on all of our assets, excluding our intellectual property. We have agreed to anegative pledge on our intellectual property. The term loan facility - 133 -Table of Contentscontains customary events of default and affirmative and negative covenants, including restrictions on our ability to pay dividends and incur additional debt,but does not contain any financial covenants. An event of default had not occurred as of December 31, 2018.In connection with our entry into the term loan facility, we issued to Hercules a warrant to purchase our ordinary shares.Convertible NotesDuring 2017, pursuant to a note purchase agreement with MVIL, as the same was amended and restated, we issued convertible promissory notes toMVIL in an aggregate principal amount of $50.0 million, or the 2017 Shareholder Notes. In January 2018, we entered into a note exchange agreement withMVIL pursuant to which MVIL exchanged the 2017 Shareholder Notes for a new convertible note in the principal amount of $52.4 million, representing theaggregate principal amount of the 2017 Shareholder Notes plus accrued interest, or the January 2018 Shareholder Note. The exchange terminated theexisting 2017 Shareholder Notes. The January 2018 Shareholder Note had substantially the same terms as the notes described in the following paragraph.In January 2018, we entered into a note purchase agreement with new investors, whereby we issued convertible promissory notes in the aggregateprincipal amount of $50.0 million, or the 2018 New Investor Notes. The 2018 New Investor Notes accrued interest at 7% per annum, which compoundedannually, and upon such compounding, was added to the outstanding principal amount. The 2018 New Investor Notes were convertible upon a qualifiedfinancing, which was defined as (i) the closing of an IPO or (ii) a subsequent financing occurring after January 10, 2019. Effective upon our IPO, theoutstanding principal and accrued interest plus a 25% premium, defined as the sum of principal plus interest multiplied by 25%, automatically convertedinto ordinary shares.In October 2018, we entered into an additional note purchase agreement with MVIL, under which we have borrowed an aggregate principal amountof $30.0 million pursuant to notes issued in October 2018, December 2018 and January 2019. The notes issued under the October 2018 note purchaseagreement were convertible upon a qualified IPO, in the United States at the qualified IPO price per share giving effect to any applicable ratio of ADS toordinary shares. A qualified IPO was defined under these notes as firm commitment underwritten public offering of ordinary shares or ADSs in whichaggregate gross proceeds equal or exceed $35 million pursuant to an effective registration statement under the Securities Act. Effective upon our IPO, theoutstanding principal and accrued interest plus a 25% premium of such principal and interest automatically converted into ordinary shares. These notesaccrued interest at 7% per annum and accrued interest compounds annually and, upon such compounding, was added to the outstanding principal amount.Cash FlowsThe following table provides information regarding our cash flows for each of the years presented: Year ended December 31, 2018 2017 2016 (in thousands) Net cash (used in) provided by: Operating activities $(72,078) $(69,836) $(54,020) Investing activities (12) (173) (183) Financing activities 78,826 64,418 50,292 Net increase (decrease) in cash and cash equivalents $6,736 $(5,591) $(3,911) - 134 -Table of ContentsNet Cash Used in Operating ActivitiesThe use of cash for operating activities in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in componentsof working capital.Net cash used in operating activities increased by $2.3 million to $72.1 million during the year ended December 31, 2018, from $69.8 million yearended December 31, 2017. Cash used in operating activities during the year ended December 31, 2018, consisted of our net loss of $96.7 million, partiallyoffset by non-cash charges of $21.3 million which includes $12.3 million in amortization of the debt discount as a result of the exchange note with MVILand additional debt with new investors, $7.1 million in non-cash interest expense, $1.3 million in share-based compensation and $0.6 million in othernon-cash charges. Changes in operating assets and liabilities included $4.1 million in increases in accounts payable, accrued expenses and other currentliabilities and a $0.6 million decrease in prepaid expenses and other current assets.Net cash used in operating activities was $69.8 million during the year ended December 31, 2017, compared to $54.0 million during the year endedDecember 31, 2016. Cash used in operating activities during the year ended December 31, 2017 consisted of our net loss of $82.9 million, partially offset bynon-cash charges including $2.5 million in non-cash interest expense and $1.3 million in share-based compensation, and changes in operating assets andliabilities including $8.2 million in increases in accounts payable, accrued expenses and other current liabilities. Cash used in operating activities during theyear ended December 31, 2016 consisted of our net loss of $61.0 million, partially offset by non-cash charges of $1.8 million in share-based compensationand $0.3 million in depreciation and amortization, and changes in operating assets and liabilities including $3.3 million in increases in accounts payable,accrued expenses and other current liabilities and $1.5 million in decreases in prepaid expenses and other current assets.Net Cash Used in Investing ActivitiesNet cash used in investing activities was $0.01 million during the year ended December 31, 2018 and $0.2 million during each of the years endedDecember 31, 2017 and 2016.Net Cash Provided by Financing ActivitiesNet cash provided by financing activities was $78.8 million during the year ended December 31, 2018, compared to $64.4 million during the yearended December 31, 2017. Cash provided by financing activities during the year ended December 31, 2018, was primarily attributable to net proceeds of$25.0 million in connection with the issuance of convertible promissory notes to MVIL, $50.0 million in connection with the issuance of convertible notespayable, as well as $5.0 million related to net proceeds from the term loan facility. These proceeds were partially offset by $1.2 million related to paymentson venture debt and deferred financing costs.Net cash provided by financing activities was $64.4 million during the year ended December 31, 2017, compared to $50.3 million during the yearended December 31, 2016. Cash provided by financing activities in the year ended December 31, 2017 was attributable to net proceeds of $50.0 million inconnection with the issuance of convertible promissory notes to MVIL, as well as $14.4 million related to net proceeds from the term loan facility. Cashprovided by financing activities in the year ended December 31, 2016 was attributable to net proceeds of $50.7 million related to a demand note receivableoffset by deferred public offering costs of $0.4 million.Funding RequirementsWe expect our expenses to increase in connection with our ongoing clinical activities, particularly as we continue to develop and conduct clinicaltrials with respect to elamipretide and new compounds, including our - 135 -Table of Contentsongoing and planned clinical trials; advance the development of pipeline programs; initiate new research and preclinical development efforts; and seekmarketing approval for any product candidates that we successfully develop. In addition, if we obtain marketing approval for any of our product candidates,we expect to incur significant commercialization expenses related to establishing sales, marketing, distribution and other commercial infrastructure tocommercialize such products. We expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtainsubstantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we wouldbe forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.We believe that our existing cash and cash equivalents as of December 31, 2018, together with additional funding received through March 2019 andthe amendment to the existing LSA providing an additional interest-only period of six months, will be sufficient to meet our cash commitments for the next12 months.We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of our availablecapital resources sooner than we expect. Because of the numerous risks and uncertainties associated with the research, development and commercializationof our product candidates, we are unable to estimate the exact amount of our operating capital requirements. Our future capital requirements will depend onmany factors, including: • the scope, progress, timing, costs and results of our current and future clinical trials; • research and preclinical development efforts for any future product candidates that we may develop; • our ability to enter into and the terms and timing of any collaborations, licensing agreements or other arrangements; • the number of future product candidates that we pursue and their development requirements; • the outcome, timing and costs of seeking regulatory approvals; • costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not theresponsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturingcapabilities; • subject to receipt of marketing approval, revenue, if any, received from commercial sales of our current and future product candidates; • our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure; • costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending againstintellectual property related claims; and • costs of operating as a public company.Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain processthat takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales.In addition, our product candidates, if approved, may not achieve commercial success. Accordingly, we will need to continue to rely on additional financingto achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.Until such time, if ever, that we can generate substantial revenues, we expect to finance our cash needs through a combination of equity offerings,debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity orconvertible debt securities, the ownership interests of existing investors will be diluted, and the terms of the securities we issue may include liquidation orother preferences that adversely affect the rights of holders of ADSs. Debt financing, if available, may involve agreements that include covenants limiting orrestricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. - 136 -Table of ContentsIf we raise funds through future collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuablerights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. Ifwe are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our productdevelopment or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop andmarket ourselves. C.Research and development, patents and licenses, etcFull details of our research and development activities and expenditures are given in “Item 4.B. —Business Overview” and “Item 5.A. —OperatingResults” within this annual report. D.Trend informationSee “Item 5.A. —Operating Results” and “Item 5.B. —Liquidity and Capital Resources” within this annual report. E.Off-balance sheet arrangementsWe did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the applicableregulations of the SEC. F.Tabular disclosure of contractual obligationsOur contractual obligations relate to convertible promissory notes, the lease of our office space, and a term loan facility. We have summarized in thetable below our fixed contractual cash obligations as of December 31, 2018. Total Less than1 year 1 to 3 years 3 to 5 years More than5 years (in thousands) Convertible promissory notes (1) $127,357 $— $127,357 $ — $ — Operating leases 1,205 622 583 — — Term loan facility (2) 20,564 8,701 11,863 — — Total $149,126 $9,323 $139,803 $— $— (1) Represents principal amount of convertible notes outstanding as of December 31, 2018. Effective upon closing of our IPO in February 2019, allprincipal and accrued interest under these notes converted into ordinary shares. (2) Represents principal amount of the outstanding term loan as of December 31, 2018 as well as an end of term charge of $1.3 million due underthe LSA. The loan is subject to variable interest that will be calculated as payments become due. G.Safe harborThis annual report on Form 20-F contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of theExchange Act and as defined in the Private Securities Litigation Reform Act of 1995. See the section titled “Cautionary Statement Regarding Forward-Looking Statements” at the beginning of this annual report. - 137 -Table of ContentsItem 6.Directors, Senior Management and Employees A.Directors and senior management.The following table sets forth the name and position of each of the directors of Stealth BioTherapeutics Corp and of the executive officers of StealthDelaware and their ages as of the date of this annual report. Stealth BioTherapeutics Corp does not have any executive officers other than Irene McCarthy,its Chief Executive Officer. Name Age PositionExecutive Officers Irene (Reenie) McCarthy 54 Chief Executive Officer, DirectorDaniel E. Geffken 62 Interim Chief Financial OfficerMark J. Bamberger, Ph.D. 66 Chief Scientific OfficerBrian D. Blakey, Pharm.D. 57 Chief Business OfficerJames R. Carr, Pharm.D. 56 Chief Clinical Development OfficerNon-Employee Directors Gerald L. Chan, Sc.D. 68 Director, Chairman of the BoardVincent Cheung (1) 38 DirectorLu Huang, M.D. (2) 45 DirectorFrancis W. Chen, Ph.D. (1)(3) 70 DirectorStephen Law (2)(3) 56 DirectorKevin F. McLaughlin (1)(3) 62 DirectorEdward P. Owens (2) 72 Director (1) Member of Nominating Committee(2) Member of Remuneration Committee(3) Member of Audit CommitteeExecutive OfficersIrene (Reenie) McCarthy has served as Chief Executive Officer of Stealth BioTherapeutics Corp since October 2018. She has served as ChiefExecutive Officer of Stealth Delaware since February 2016 and as President and Secretary of Stealth Delaware since August 2015. She was appointed as aDirector of Stealth BioTherapeutics Corp in June 2018. She has served as a director of Stealth Delaware since July 2009. Ms. McCarthy served as a memberof the investment team at Morningside Technology Advisory, LLC (and affiliates), a private advisory company, from January 2009 to April 2016.Ms. McCarthy remains a director of Morningside Technology Advisory, LLC. She has served as a director for numerous private biotechnology companiesdeveloping drugs across a broad spectrum of therapeutic focus areas. Ms. McCarthy was a director of Biovex Group, Inc., a biotechnology companydeveloping an oncolytic vaccine for melanoma and head and neck cancer, from 2009 to 2011, when it was acquired by Amgen Inc. Prior to joining theMorningside group, Ms. McCarthy spent five years as a corporate lawyer with Richards & O’Neil LLP. She holds a J.D. from the University ofPennsylvania Law School and a B.A. in English and Political Science from Bates College. We believe that Ms. McCarthy is qualified to serve on our boardof directors because of her extensive experience investing in life sciences companies, her service on several life science company boards and her almostdecade of service to our company, as an investor, board member and officer.Daniel E. Geffken has served as the interim Chief Financial Officer of Stealth Delaware since November 2016 through a consulting agreemententered into between the company and Danforth Advisors LLC, or Danforth, on November 21, 2016, as amended. Mr. Geffken is a founder and managingdirector at Danforth, a management consulting firm, where he has served since 2011. Through Danforth, Mr. Geffken currently serves as Chief FinancialOfficer for Apic Bio, Inc., a preclinical stage gene therapy company, starting in March 2018, and ProMIS Neurosciences, a biotechnology company focusedon the discovery and development of antibody - 138 -Table of Contentstherapeutics for neurodegenerative diseases and listed on the Toronto Stock Exchange, starting in March 2017, and served as Chief Financial Officer forHomology Medicines, Inc., a genetic medicines company, from April 2015 to June 2017, and Apellis Pharmaceuticals, Inc., a biotechnology companyfocused on neurodevelopmental disorders, from August 2015 to August 2017. From 2013 through 2017, Mr. Geffken served on the board of directors ofAlcobra Ltd., a Nasdaq-listed biotechnology company. Alcobra Ltd. later merged with Arcturus Therapeutics, Inc. and from November 2017 until May2018, Mr. Geffken served on the board of directors of Arcturus Therapeutics, Inc., a Nasdaq-listed biotechnology and pharmaceutical company.Mr. Geffken received an M.B.A from the Harvard Business School and a B.S. in economics from The Wharton School, University of Pennsylvania.Mark J. Bamberger, Ph.D. , has served as Chief Scientific Officer of Stealth Delaware since February 2014. Prior to joining us, Dr. Bambergerworked as an independent consultant from January 2008 to February 2014, including being a consultant for Stealth Delaware pursuant to a consultingagreement dated April 1, 2011, as amended, from April 2011 to February 2014. Mr. Bamberger was the Director of Cardiovascular and Metabolic DiseaseResearch at Pfizer, Inc., a pharmaceutical company, from January 2004 to January 2008. He holds a Ph.D. in biochemistry from the Medical College ofPennsylvania and a B.S. in biology from St. Joseph’s University.Brian D. Blakey, Pharm.D. , has served as Chief Business Officer of Stealth Delaware since February 2014. Previously, Dr. Blakey was the ChiefStrategy and Operations Officer of Element Marketing Group, a medical marketing agency, from June 2010 to February 2014, and was the Vice Presidentof Commercial Development at Salutria Pharmaceuticals, LLC (formerly AtheroGenics Inc.), a biotechnology company, from May 2006 to May 2010. Healso worked in multiple roles at GlaxoSmithKline, plc, a pharmaceutical company, beginning in March 1998, ultimately serving in the position of directorbetween July 2003 and February 2004. Dr. Blakey holds a Pharm.D. from the University of Florida.James R. Carr, Pharm.D . , has served as Chief Clinical Development Officer of Stealth Delaware since January 2017 and previously served as ourVice President, Clinical Development since March 2014. Previously, Dr. Carr was the Executive Director in the Cardiovascular Metabolic Franchise atGlaxoSmithKline plc, a pharmaceutical company, from October 2010 to March 2014 and the Vice President of Clinical Development at ARCA biopharma,Inc., a pharmaceutical company, from May 2008 to November 2010. Dr. Carr holds a Pharm.D. and a B.S. in pharmacy from the University of Minnesota.Non-Employee DirectorsGerald L. Chan, Sc.D. , was appointed as a Director of Stealth BioTherapeutics Corp and as Chairman of the Board in June 2018. He has served as adirector of Stealth Delaware since October 2007. Dr. Chan co-founded the Morningside group in 1986. He has been a member of the board of directors ofHang Lung Group Limited since 1986, and Apellis Pharmaceuticals, Inc., a Nasdaq-listed company, since July 2013. Dr. Chan was a director of AduroBiotech Inc. from 2014 to 2018. Dr. Chan received a B.S. and M.S. in engineering from the University of California, Los Angeles, and a M.S. in medicalradiological physics and an Sc.D. in radiation biology from Harvard University. He did his post-doctoral training at the Dana-Farber Cancer Institute as afellow of the Leukemia Society of America. We believe that Dr. Chan is qualified to serve on our board of directors because of his extensive experienceinvesting in and serving on the boards of directors of life sciences companies.Vincent Sai Sing Cheung was appointed as a Director of Stealth BioTherapeutics Corp in June 2018. Mr. Cheung is currently the Managing Directorand the Chief Operating Officer of the Nan Fung Group, an international business conglomerate with global interests in property, financial investments anda diverse range of business partnerships. Mr. Cheung was appointed as a Non-executive Director of Forterra Real Estate Pte. Ltd. in August 2013. ForterraReal Estate Pte. Ltd. was acquired by Nan Fung International Holdings Limited in 2015. He also served as a Non-executive Director and Executive Directorof Sino-Ocean Group Holding Limited from - 139 -Table of ContentsMarch 2011 to May 2014 and from May 2014 to August 2015, respectively. Mr. Cheung received a B.A. in molecular and cell biology from the Universityof California, Berkeley. We believe Mr. Cheung is qualified to serve on our board of directors because of his financial and business experience.Lu Huang, M.D ., was appointed as a Director of Stealth BioTherapeutics Corp in June 2018. Dr. Huang joined the Morningside group in October2003 and leads the Morningside life science investment team in China. She has led over a dozen healthcare and life sciences investments in China andserves as a director in a number of portfolio companies including MicuRx Pharmaceuticals, Inc. Dr. Huang obtained her M.D. from Shanghai Jiao TongUniversity School of Medicine (formerly known as Shanghai Second Medical University) in China and subsequently worked at the Clinical Medical Centreof Shanghai Second Medical University. She holds an M.B.A. from St. John’s University. We believe Dr. Huang is qualified to serve on our board ofdirectors because of her extensive experience serving on the boards of directors of life sciences companies and her medical insights.Francis W. Chen, Ph.D. , was appointed as a Director of Stealth BioTherapeutics Corp in June 2018. He has served as a director of Stealth Delawaresince April 2006. In November 2011, he founded, and currently serves as the chairman of, SinoAmerican Partners Limited, an advisory services firm thatspecializes in cross-border transactions involving natural resources, transportation-based assets and related financial services. Dr. Chen was also a venturepartner at WI Harper Group, an early-stage venture capital firm with investment activities in Silicon Valley and China from June 2009 to December 2012.He previously served on the board of directors of SPI Energy Co., Ltd. from November 2009 to August 2013. Dr. Chen has more than 20 years of priormanagement experience in the healthcare industry and has served on the board of directors of several private companies. Dr. Chen holds a Ph.D. inimmunology from Harvard University and an M.S. and a B.S. in chemistry from Tufts University. We believe Dr. Chen is qualified to serve on our board ofdirectors because of his extensive experience investing in and serving on the boards of directors of life science companies.Cheuk Kin Stephen Law was appointed as a Director of Stealth BioTherapeutics Corp in June 2018. Mr. Law has over 30 years of experience inaccounting, corporate finance and investment. He is currently the Managing Director of ANS Capital Limited, a company principally engaged in investmentand corporate finance. He also serves as an Independent Non-executive Director of Somerley Capital Holdings Limited since February 2019 and anIndependent Non-executive Director of China Everbright Limited since May 2018. Mr. Law served as an Independent Non-executive Director of AAGEnergy Holdings Limited, a clean energy company whose shares are listed on the Hong Kong Stock Exchange, between July 2016 and September 2018. Hehas been a board member of Hong Kong Business Accountants Association since August 2017. Since June 2016, Mr. Law has served as an expertconsultant for the Ministry of Finance of the Peoples Republic of China to advise on finance and management accounting. Mr. Law previously served as theFinance Director and an executive director of MTR Corporation Ltd., a railway company listed on the Hong Kong Stock Exchange, between July 2013 andJuly 2016, where he was responsible for overseeing finance, investment control, treasury and other matters. Prior to that, he served as Chief FinancialOfficer at Guoco Group Limited, an investment holding company whose shares are listed on the Hong Kong Stock Exchange, from October 2012 to June2013; as a principal and then a managing director of TPG Growth Funds, one of the largest global private equity funds, where he was responsible for privateequity investments in Asia, from July 2006 to September 2012; as a senior investment professional of Morningside Technologies Inc., a Cayman Islandscompany principally engaging in venture capital and private equity, from July 2000 to July 2006; and as an investment control manager of WheelockPacific Limited from February 1995 to July 1997 and worked in the corporate development and finance division of Wharf Cable Limited from July 1997 toJuly 2000. Mr. Law is a member of the Institute of Chartered Accountants in England and Wales, and of the Hong Kong Institute of Certified PublicAccountants. He was a council member of Hong Kong Institute of Certified Public Accountants from 2010 to 2017. Mr. Law received a B.Sc. (CivilEngineering) from the University of Birmingham in the United Kingdom in July 1984. Mr. Law has been an adjunct professor of the Hong KongPolytechnic University from October 2015 to August 2017. We believe Mr. Law is qualified to serve on our board of directors because of his significantinvesting experience, as well as his accounting and financial expertise. - 140 -Table of ContentsKevin F. McLaughlin was appointed as a Director of Stealth BioTherapeutics Corp in June 2018. He has served as a director of Stealth Delawaresince March 2017. Mr. McLaughlin is currently Senior Vice President, Chief Financial Officer and Treasurer of Acceleron Pharma, Inc., a biotechnologycompany, and has been since November 2010. Mr. McLaughlin has also served on the board of directors of Vericel Corporation, a biopharmaceuticalcompany, since January 2015. He previously served as Senior Vice President and Chief Financial Officer of Qteros, Inc., a cellulosic biofuels company,from 2009 through 2010 and as co-founder, Chief Operating Officer and director of Aptius Education, Inc., a publishing company, from 2007 through 2009.Mr. McLaughlin held several executive positions with PRAECIS Pharmaceuticals, Inc., a biopharmaceutical company, from 1996 through 2007, initially asChief Financial Officer, before becoming Chief Operating Officer and eventually President and Chief Executive Officer, and he served as a member of theboard of directors. Mr. McLaughlin began his career in senior financial roles at Prime Computer and Computervision Corporation. Mr. McLaughlinreceived a B.S. in business from Northeastern University and an M.B.A. from Babson College. We believe Mr. McLaughlin is qualified to serve on ourboard of directors because of his extensive experience managing and serving on the boards of directors of life science companies.Edward P. Owens was appointed as a Director of Stealth BioTherapeutics Corp in June 2018. He has served as a director of Stealth Delaware sinceMay 2017. Mr. Owens has been a Director of Ironwood Pharmaceuticals, Inc., a Nasdaq-listed pharmaceutical company, since March 2013. He is a retiredPartner of Wellington Management Company LLP and the founding portfolio manager of Vanguard Health Care Fund, which he managed from 1984 untilhis retirement at the end of 2012. Mr. Owens holds a B.S. in Physics from the University of Virginia and an M.B.A. from Harvard Business School. Webelieve Mr. Owens is qualified to serve on our board of directors because of his experience in serving on the board of directors of life sciences companies,as well as his investment expertise.Family RelationshipsThere are no family relationships among any of our directors or executive officers. B.Compensation.For the year ended December 31, 2018, the aggregate compensation accrued or paid to our executive officers for services in all capacities was$1.9 million plus option awards exercisable for 416,667 ordinary shares at an exercise price of $1.20 per ordinary share. Options for 416,667 ordinaryshares expire on February 27, 2028. Except for the grant of share options to Mr. Law upon his joining our board of directors in 2018, none of ournon-employee directors received any compensation from us in the fiscal year ended December 31, 2018.In the first quarter of 2019, we granted option awards to our executive officers exercisable for 9,382,500 ordinary shares at an exercise price of $1.02per ordinary share and to our directors exercisable for 725,000 ordinary shares at an exercise price of $1.02 per ordinary share. The compensation that wepay to Reenie McCarthy, who is also our Chief Executive Officer, is received solely in her capacity as Chief Executive Officer.Our non-employee director compensation policy provides to each non-employee director: • $40,000 per year for his or her service as a non-employee director; • $12,500 per year for his or her service as the audit committee chair; • $10,000 per year for his or her service as the remuneration committee chair; • $8,000 per year for his or her service as the nomination committee chair • $5,000 per year per committee for his or her service as an audit, remuneration and/or nomination committee member (other than for the committeechair); and • at the discretion of the board of directors, an annual grant of options or restricted share units in respect of ordinary shares. - 141 -Table of ContentsThe following table sets forth information concerning outstanding equity awards for each of our non-employee directors as of December 31, 2018: OPTION AWARDS NAME NUMBER OF SECURITIES UNDERLYING UNEXERCISEDOPTIONS EXERCISABLE(#) NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS UNEXERCISABLE(#) OPTION EXERCISEPRICE ($) OPTION EXPIRATIONDATE Gerald L. Chan, Sc.D. 2,500,000 — 0.84 8/26/2024 Francis W. Chen, Ph.D. 50,000 — 0.45 12/13/2022 Vincent Cheung — — — — Lu Huang, M.D. — — — — Stephen Law 6,250 43,750 1.53(1) 06/27/2028 Kevin F. McLaughlin 21,875 28,125 1.38 03/15/2027 Edward P. Owens 19,792 30,208 1.38 05/23/2027 (1) In October 2018, the exercise price per share of these options was reduced from $2.22 to $1.53 per share.We also reimburse our non-employee directors for reasonable travel and out-of-pocket expenses incurred in connection with attending our board ofdirector and committee meetings.Agreements with our Executive OfficersWe have entered into offer letters with each of our executive officers, other than Mr. Geffken, that set forth the terms of the executive officer’scompensation, including his or her initial base salary and an annual cash bonus target percentage. The offer letters provide that the executive officers areeligible to participate in company-sponsored benefit programs that are generally available to all of our employees.In addition, our offer letters with Dr. Blakey and Dr. Carr provide for the payment of six months base salary in the event that we terminate theiremployment without cause, subject to the execution of a release of claims. Under the letters, cause is defined as one or more of (i) willful malfeasant,dishonest or grossly negligent conduct that relates to us and causes us harm or damage, (ii) a continued breach of conduct required by the invention andnon-disclosure agreement, including a material breach of any non-competition, non-solicitation or confidentiality covenant or under any applicable legalprinciple, (iii) a material breach of duty of loyalty to us, (iv) a commission of an act of fraud, theft, misappropriation or embezzlement, (v) a commission ofan act of fraud, theft, misappropriation or embezzlement or (vi) a conviction of, or pleading nolo contendere to, a felony or any other crime involving moralturpitude. Severance payments to either of Dr. Blakey or Dr. Carr could be delayed for six months in certain circumstances for compliance withSection 409A of the Internal Revenue Code of 1986, as amended, or the Code.The services of Mr. Geffken as interim Chief Financial Officer are provided pursuant to a consulting agreement with Danforth. See “Item 7.B.Related Party Transactions—Consulting Agreement” for a further description of this agreement.Equity and Non-Equity Incentive PlansThe three equity incentive plans described in this section are our 2006 share incentive plan, as amended to date, or the 2006 plan, our 2019 shareincentive plan, or the 2019 plan and our 2019 employee share purchase plan, or ESPP. - 142 -Table of Contents2006 Share Incentive PlanIn 2010, our board of directors adopted, and our shareholders approved, the 2006 plan. The 2006 plan provides for the grant of options, restrictedshares and other awards that are valued in whole or in part by reference to, or are otherwise based on, ordinary shares or other property. Our employees,officers, directors, consultants and advisors are eligible to receive awards under our 2006 plan. Our board of directors administers the 2006 plan.The 2006 plan provides that a maximum of 25,544,054 ordinary shares are authorized for issuance under the plan. As of February 14, 2019, noawards may be granted under the 2006 plan. Our board of directors may amend or terminate the 2006 plan at any time.In the event of any share split, reverse share split, share dividend, recapitalization, combination of shares, reclassification of shares, spin-off or othersimilar change in capitalization or event, or any distribution to holders of ordinary shares other than an ordinary cash dividend, we shall appropriatelyadjust, to the extent determined by the board of directors: • the number and class of securities and exercise price per share of each outstanding option; • the repurchase price per share subject to each outstanding restricted share award; and • the terms of each other outstanding award under the 2006 plan.In the event of any merger or consolidation of our company with or into another entity as a result of which all of our ordinary shares are convertedinto or exchanged for the right to receive cash, securities or other property or are cancelled; an exchange of all of our ordinary shares for cash, securities orother property pursuant to a share exchange transaction; or a liquidation or dissolution of our company, our board of directors shall, on such terms as ourboard of directors determines, take any one or more of the following actions pursuant to the 2006 plan, as to some or all outstanding awards, except as torestricted share awards: • provide that awards shall be assumed, or substantially equivalent awards shall be substituted, by the acquiring or succeeding corporation (or anaffiliate thereof); • upon written notice to a plan participant, provide that the participant’s unexercised options or other awards shall be exercisable in full and willterminate immediately prior to the consummation of such event unless exercised by the participant within a specified period following the date ofsuch notice; • provide that outstanding awards shall become realizable, or deliverable, or restrictions applicable to an award shall lapse, in whole or in part prior toor upon such event; • if under the terms of such event, holders of ordinary shares will receive upon consummation thereof a cash payment for each share surrendered in theevent, make or provide for a cash payment to a plan participant in exchange for the termination of such awards; • provide that, in connection with a liquidation of dissolution of the company, awards shall convert into the right to receive liquidation proceeds; or • any combination of the foregoing.In regards to the restricted share awards, should one of the events described above occur, other than a liquidation or dissolution of our company, thenthe repurchase and other rights under the restricted share award shall inure to the benefit of our successor and shall apply to the cash, securities or otherproperty which the ordinary shares were converted into or exchanged for pursuant to such event in the same manner and to the same extent as they appliedto the ordinary shares subject to such restricted share award. Upon the occurrence of a liquidation or dissolution of our company, except to the extentspecifically provided to the contrary in such instrument evidencing any restrict share award or any other agreement between a plan participant and us, allrestrictions and conditions on all restricted share awards then outstanding shall automatically be deemed terminated or satisfied. - 143 -Table of ContentsOur board of directors is not obligated under the 2006 plan to issue all awards under identical terms or treat all plan participants uniformly. Our boardof directors may amend, modify or terminate any outstanding award either with the consent of the plan participant or if in the board of director’sdetermination such action would not materially and adversely affect the plan participant.2019 Share Incentive PlanIn January 2019 our board of directors adopted, and our shareholders approved, the 2019 plan, which became effective on February 14, 2019. The2019 plan provides for the grant of incentive share options, non-statutory share options, share appreciation rights, awards of restricted shares, restrictedshare units or other share-based awards. The number of our ordinary shares reserved for issuance under the 2019 plan will be the sum of 47,692,934 sharesplus (1) up to 15,794,199 ordinary shares subject to outstanding awards under our 2006 plan that expire, terminate or are otherwise surrendered, canceled,forfeited or repurchased by us and (2) an annual increase, to be added the first day of each fiscal year, beginning with the fiscal year ending December 31,2020 and continuing until, and including, the fiscal year ending December 31, 2029, equal to the lowest of 31,780,518 of our ordinary shares, 4.0% of thenumber of ordinary shares outstanding on the first day of the fiscal year and an amount determined by our board of directors. Our employees, officers,directors, consultants and advisors are eligible to receive awards under the 2019 plan; however, incentive share options may only be granted to ouremployees.Pursuant to the terms of the 2019 plan, our board of directors (or a committee delegated by our board of directors) administers the 2019 plan and,subject to any limitations set forth in the 2019 plan, will select the recipients of awards and determine: • the number of ordinary shares covered by options and the dates upon which those options become exercisable; • the type of options to be granted; • the exercise price of options, which price must be at least equal to the fair market value of our ordinary shares on the date of grant; • the duration of options, which may not be in excess of 10 years; • the methods of payment of the exercise price of options; and • the number of our ordinary shares subject to and the terms of any share appreciation rights, awards of restricted share, restricted share units or othershare-based awards and the terms and conditions of such awards, including the issue price, conditions for repurchase, repurchase price andperformance conditions (though the measurement price of share appreciation rights must be at least equal to the fair market value of our ordinaryshares on the date of grant and the duration of such awards may not be in excess of ten years), if any.In the event of any share split, reverse share split, share consolidation, share dividend, recapitalization, combination of shares, reclassification of shares,spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of our ordinary shares other than an ordinary cashdividend, we are required by the 2019 plan to make equitable adjustments (or make substitute awards, if applicable), in a manner determined by our board,to: • the number and class of securities available under the 2019 plan; • the share counting rules under the 2019 plan; • the number and class of shares and exercise price per share of each outstanding option; • the share and per-share provisions and measurement price of each outstanding share appreciation right; - 144 -Table of Contents • the number of shares and the repurchase price per share subject to each outstanding restricted share award; and • the share and per-share related provisions and purchase price, if any, of any outstanding restricted stock unit award and other share-based award.Upon a merger or other reorganization event (as defined in our 2019 plan), our board of directors, may, on such terms as our board determines (except to theextent specifically provided otherwise in an applicable award agreement or other agreement between the participant and us), take any one or more of thefollowing actions pursuant to the 2019 plan, as to some or all outstanding awards, other than restricted share awards: • provide that all outstanding awards will be assumed or substantially equivalent awards will be substituted by the acquiring or successor corporation(or an affiliate thereof); • upon written notice to a participant, provide that the participant’s unvested and/or unexercised awards will terminate or be forfeited immediately priorto the consummation of such transaction unless exercised by the participant; • provide that outstanding awards will become exercisable, realizable or deliverable, or restrictions applicable to an award will lapse, in whole or inpart, prior to or upon the reorganization event; • in the event of a reorganization event pursuant to which holders of our ordinary shares will receive a cash payment for each share surrendered in thereorganization event, make or provide for a cash payment to the participants with respect to each award held by a participant equal to (1) the numberof shares of our ordinary shares subject to the vested portion of the award (after giving effect to any acceleration of vesting that occurs upon orimmediately prior to such reorganization event) multiplied by (2) the excess, if any, of the cash payment for each share surrendered in thereorganization event over the exercise, measurement or purchase price of such award and any applicable tax withholdings, in exchange for thetermination of such award; • provide that, in connection with a liquidation or dissolution, awards convert into the right to receive liquidation proceeds (if applicable, net ofexercise, measurement or purchase price thereof and any applicable tax withholdings); or • any combination of the foregoing.Our board of directors is not obligated by the 2019 plan to treat all awards, all awards held by a participant, or all awards of the same type, identically.In the case of certain outstanding restricted share units, no assumption or substitution is permitted, and the restricted share units will instead be settledin accordance with the terms of the applicable restricted share unit agreement.Upon the occurrence of a reorganization event other than a liquidation, winding up or dissolution, the repurchase and other rights under eachoutstanding restricted share award will continue for the benefit of the successor company and will, unless our board of directors may otherwise determine,apply to the cash, shares, securities or other property which our ordinary shares are converted into or exchanged for pursuant to the reorganization event,unless our board of directors provided for the termination or deemed satisfaction of such repurchase or other rights under the restricted share awardagreement or any other agreement between the participant and us. Upon the occurrence of a reorganization event involving a liquidation, winding up ordissolution, all restrictions and conditions on each outstanding restricted share award will automatically be deemed terminated or satisfied, unless otherwiseprovided in the agreement evidencing the restricted share award or in any other agreement between the participant and us.Our board of directors may at any time provide that any award under the 2019 plan shall become immediately exercisable in whole or in part, free ofsome or all restrictions or conditions, or otherwise realizable in whole or in part, as the case may be. - 145 -Table of ContentsExcept with respect to certain actions requiring shareholder approval under the Nasdaq Listing Rules, the 2019 plan, and our Articles of Association,our board of directors may amend, modify or terminate any outstanding award under the 2019 plan, including but not limited to, substituting thereforanother award of the same or a different type, changing the date of exercise or realization, and converting an incentive share option into a nonstatutory shareoption, subject to certain participant consent requirements. Unless our shareholders approve such action, the 2019 plan provides that we may not (except asotherwise permitted in connection with a change in capitalization or reorganization event): • amend any outstanding share option or share appreciation right granted under the 2019 plan to provide an exercise or measurement price per sharethat is lower than the then-current exercise or measurement price per share of such outstanding award; • cancel any outstanding option or share appreciation right (whether or not granted under the 2019 plan) and grant in substitution therefor new awardsunder the 2019 plan (other than substitute awards permitted in connection with a merger or consolidation of an entity with us or our acquisition ofproperty or share of another entity) covering the same or a different number of our ordinary shares and having an exercise or measurement price pershare lower than the then-current exercise or measurement price per share of the cancelled award; • cancel in exchange for a cash payment any outstanding option or share appreciation right with an exercise or measurement price per share above thethen-current fair market value of our ordinary shares; or • take any other action that constitutes a “repricing” within the meaning of the Nasdaq Listing Rules.No award may be granted under the 2019 plan after February 14, 2029, but awards previously granted may extend beyond that date. Our board ofdirectors may amend, suspend or terminate the 2019 plan at any time, except that shareholder approval will be required to comply with applicable law or theNasdaq Listing Rules.2019 Employee Share Purchase PlanIn January 2019, our board of directors adopted, and our shareholders approved, the ESPP, which became effective on February 14, 2019. The ESPPis administered by our board of directors or by a committee appointed by our board of directors. The ESPP initially provides participating employees withthe opportunity to purchase up to an aggregate of 3,972,565 ordinary shares. The number of ordinary shares reserved for issuance under the ESPP willautomatically increase on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2020 and continuing until, and including, thefiscal year ending December 31, 2030, equal to the lowest of (i) 7,945,130 ordinary shares, (ii) 1.0% of the number of ordinary shares outstanding on thefirst day of the fiscal year and (iii) an amount determined by our board of directors. We have not commenced any offering periods under the ESPP.All of our employees or employees of any designated subsidiary, as defined in the ESPP, are eligible to participate in the ESPP, provided that: • such person is customarily employed by us or a designated subsidiary for more than 20 hours a week and for more than five months in a calendaryear; • such person has been employed by us or by a designated subsidiary for at least three months prior to enrolling in the ESPP; and • such person was our employee or an employee of a designated subsidiary on the first day of the applicable offering period under the ESPP.No employee may be granted an option which permits them to purchase ordinary shares under the ESPP and any of our other employee sharepurchase plans to accrue at a rate which exceeds $25,000 of the fair market value of our ordinary shares in any calendar year in which the option isoutstanding. In addition, no employee may purchase ordinary shares under the ESPP that would result in the employee owning 5% or more of the totalcombined voting power or value of our shares. - 146 -Table of ContentsWe expect to make one or more offerings to our eligible employees to purchase shares under the ESPP beginning at such time as our board ofdirectors or committee may determine. Each offering will consist of a six-month offering period during which payroll deductions will be made and held forthe purchase of our ordinary shares at the end of the offering period. Our board of directors may, at its discretion, choose a different period of not more than12 months for an offering.On the commencement date of each offering period, each eligible employee may authorize up to a maximum of 15% of his or her compensation to bededucted by us during the offering period. Each employee who continues to be a participant in the ESPP on the last business day of the offering period willbe deemed to have exercised an option to purchase from us the number of whole ordinary shares that his or her accumulated payroll deductions on such datewill pay for, not in excess of the maximum numbers set forth above. Under the terms of the ESPP, the purchase price shall be determined by our board ofdirectors for each offering period and will be at least 85% of the applicable closing price of our ordinary shares. If our board of directors does not make adetermination of the purchase price, the purchase price will be 85% of the lesser of the closing price of our ordinary shares on the first business day of theoffering period or on the last business day of the offering period.An employee may for any reason withdraw from participation in an offering prior to close of business on the fifteenth business day prior to the end ofan offering period and permanently draw out the balance accumulated in the employee’s account. If an employee elects to discontinue his or her payrolldeductions during an offering period but does not elect to withdraw his or her funds, funds previously deducted will be applied to the purchase of ordinaryshares at the end of the offering period. If a participating employee’s employment ends before the last business day of an offering period, no additionalpayroll deductions will be made and the balance in the employee’s account will be paid to the employee.We will be required to make equitable adjustments to the number and class of securities available under the ESPP, the share limitations under theESPP, and the purchase price for an offering period under the ESPP to reflect share splits, reverse share splits, share consolidation, share dividends,recapitalizations, combinations of shares, reclassifications of shares, spin-offs and other similar changes in capitalization or events or any dividends ordistributions to holders of our ordinary shares other than ordinary cash dividends.In connection with a merger or other reorganization event, as defined in the ESPP, our board of directors or a committee of our board of directors maytake any one or more of the following actions as to outstanding options to purchase ordinary shares under the ESPP on such terms as our board orcommittee determines: • provide that options shall be assumed, or substantially equivalent options shall be substituted, by the acquiring or succeeding corporation (or anaffiliate thereof); • upon written notice to employees, provide that all outstanding options will be terminated immediately prior to the consummation of suchreorganization event and that all such outstanding options will become exercisable to the extent of accumulated payroll deductions as of a datespecified by our board of directors or committee in such notice, which date shall not be less than ten days preceding the effective date of thereorganization event; • upon written notice to employees, provide that all outstanding options will be cancelled as of a date prior to the effective date of the reorganizationevent and that all accumulated payroll deductions will be returned to participating employees on such date; • in the event of a reorganization event under the terms of which holders of our ordinary shares will receive upon consummation thereof a cash paymentfor each share surrendered in the reorganization event, change the last day of the offering period to be the date of the consummation of thereorganization event and make or provide for a cash payment to each employee equal to (1) the cash payment for each share surrendered in thereorganization event times the number of ordinary shares that the employee’s accumulated payroll deductions as of immediately prior to thereorganization event could purchase at the applicable purchase price, where the acquisition price is treated as the fair market value of our ordinaryshares on the last day of - 147 -Table of Contents the applicable offering period for purposes of determining the purchase price and where the number of shares that could be purchased is subject to theapplicable limitations under the ESPP minus (2) the result of multiplying such number of shares by the purchase price; and/or • provide that, in connection with our liquidation or dissolution, options shall convert into the right to receive liquidation proceeds (net of the purchaseprice thereof).Our board of directors may at any time, and from time to time, amend or suspend the ESPP or any portion thereof. We will obtain shareholderapproval for any amendment if such approval is required by Section 423 of the Code. Further, our board of directors may not make any amendment thatwould cause the ESPP to fail to comply with Section 423 of the Code. The ESPP may be terminated at any time by our board of directors. Upontermination, we will refund all amounts in the accounts of participating employees.401(k) Retirement PlanWe maintain a 401(k) retirement plan that is intended to be a tax-qualified defined contribution plan under Section 401(k) of the Code. In general, allof our employees are eligible to participate. The 401(k) plan includes a salary deferral arrangement pursuant to which participants may elect to reduce theircurrent compensation by up to the statutorily prescribed limit and have the amount of the reduction contributed to the 401(k) plan. We contribute up to 3%of an employee’s salary, subject to statutory limits.Rule 10b5-1 Sales PlansOur directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sellordinary shares on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer whenentering into the plan, without further direction from the director or officer. The director or officer may amend or terminate the plan in some circumstances.Our directors and executive officers may also buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material,nonpublic information.Insurance and IndemnificationEvery director and officer is indemnified and secured harmless out of our assets and funds against all actions, proceedings, costs, charges, expenses,losses, damages or liabilities incurred or sustained by such director or officer (other than by reason of such director’s or officer’s own dishonesty, willfuldefault or fraud as determined by a court of competent jurisdiction) in or about the conduct of our affairs or in the execution of such director or officer’sduties, powers, authorities or discretions, including any costs, expenses, losses or liabilities incurred by such director or officer in defending (whethersuccessfully or otherwise) any civil proceedings concerning us or our affairs in any court whether Cayman Islands or elsewhereInsofar as indemnification of liabilities arising under the Securities Act may be permitted to our board, executive officers, or persons controlling uspursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed inthe Securities Act and is therefore unenforceable. C.Board practices.Board CompositionOur board of directors consists of Reenie McCarthy, Gerald L. Chan, Vincent Sai Sing Cheung, Dr. Lu Huang, Francis W. Chen, Cheuk Kin StephenLaw, Kevin F. McLaughlin and Edward P. Owens.Our board of directors currently consists of eight members. Our directors hold office until their successors have been elected and qualified or until theearlier of their resignation or removal. Our Articles of Association - 148 -Table of Contentsprovide that the minimum and maximum number of directors to be appointed shall be set by our board of directors. Our Articles of Association also providethat our directors may be removed by the affirmative vote of the holders of a majority of our ordinary shares present in person or by proxy and entitled tovote, and that our board of directors has the power to appoint a director, either as a result of a casual vacancy or as an additional director.In accordance with the terms of our Articles of Association, our board of directors is divided into three classes, class I, class II and class III, withmembers of each class serving staggered three-year terms. The members of the classes are divided as follows: • the class I directors are Vincent Sai Sing Cheung, Gerald L. Chan and Edward P. Owens, and their term will expire at the annual meeting ofstockholders to be held in 2020; • the class II directors are Stephen Cheuk Kin Law, Dr. Lu Huang and Francis W. Chen, and their term will expire at the annual meeting ofstockholders to be held in 2021; and • the class III directors are Kevin F. McLaughlin and Reenie McCarthy, and their term will expire at the annual meeting of stockholders to be held in2022.Upon the expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annualmeeting of stockholders in the year in which their term expires.As a foreign private issuer, under the listing requirements and rules of Nasdaq, we are not required to have independent directors on our board ofdirectors, except that our audit committee is required to consist fully of independent directors, subject to certain phase-in schedules. However, our board ofdirectors has determined that, of our eight directors, six do not have a relationship that would interfere with the exercise of independent judgment incarrying out the responsibilities of director and that each of these directors is “independent” as that term is defined under Nasdaq rules.Board CommitteesOur board of directors has established audit, remuneration and nominating committees.Audit CommitteeThe members of our audit committee are Stephen Law, Francis W. Chen, and Kevin F. McLaughlin, and Kevin F. McLaughlin serves as the chair ofour audit committee. Our board of directors has determined that Mr. McLaughlin is an “audit committee financial expert” as defined by applicable SECrules. Our audit committee assists our board of directors in its oversight of our accounting and financial reporting process and the audits of our financialstatements. Our audit committee’s responsibilities include: • appointing, approving the compensation of, and assessing the independence of our registered public accounting firm; • overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports from such firm; • reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements andrelated disclosures; • monitoring our internal control over financial reporting, disclosure controls and procedures, and code of business conduct and ethics; • overseeing our internal audit function, if any; • discussing our risk management policies; • establishing procedures for the receipt and retention of accounting-related complaints and concerns; - 149 -Table of Contents • meeting independently with our internal auditing staff, our independent registered public accounting firm, and management; • reviewing and approving or ratifying any related person transactions; and • preparing the audit committee report required by SEC rules.All audit services to be provided to us and all non-audit services, other than de minimis non-audit services, to be provided to us by our registeredpublic accounting firm must be approved in advance by our audit committee.All members of our audit committee are independent as defined under current Nasdaq Listing Rules and SEC rules and regulations.Remuneration CommitteeThe members of our remuneration committee are Edward P. Owens, Stephen Law and Dr. Lu Huang, and Edward P. Owens serves as the chair of ourremuneration committee. Our remuneration committee assists our board of directors in the discharge of its responsibilities relating to the compensation ofour executive officers. Our remuneration committee’s responsibilities include: • reviewing and approving, or making recommendations to our board of directors with respect to, the compensation of our Chief Executive Officer; • reviewing and approving, or making recommendations to our board of directors with respect to, the compensation of our other executive officers; • overseeing the evaluation of our senior executives; • reviewing and making recommendations to our board of directors with respect to our incentive compensation and equity-based compensation plans; • overseeing and administering our equity-based plans; • reviewing and making recommendations to our board of directors with respect to director compensation; • reviewing and discussing with management our “Compensation Discussion and Analysis” disclosure to the extent such disclosure is required by SECrules; and • preparing the remuneration committee report required by SEC rules.Nominating CommitteeThe members of our nominating committee are Francis W. Chen, Kevin F. McLaughlin and Vincent Cheung, and Francis W. Chen serves as the chairof our nominating committee. Our nominating committee’s responsibilities include: • identifying individuals qualified to become members of our board of directors; • recommending to our board of directors the persons to be nominated for election as directors and to each of our board of directors’ committees; • developing and recommending to our board of directors corporate governance principles; and • overseeing periodic evaluations of our board of directors.Agreements with our DirectorsThe Company does not have any service contracts with any of its directors providing for benefits upon termination of employment. - 150 -Table of ContentsCode of Business Conduct and EthicsOur board of directors has adopted a written code of business conduct and ethics that applies to our directors, officers, and employees, including ourprincipal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the codeis posted on the Corporate Governance section of our website, which is located at www.stealthbt.com under Investors & News. If we make any substantiveamendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of suchamendment or waiver on our website or in a current report on Form 6-K. D.Employees.As of December 31, 2018, we had 57 full-time employees, 36 of whom were primarily engaged in research and development activities and 17 ofwhom had a Ph.D. or Pharm.D. degree. All of our full-time employees are based in the United States.Our employees are not represented by any collective bargaining agreements. E.Share ownershipFor information regarding the share ownership of our directors and executive officers, see “Item 6.B. — Compensation” and “Item 7.A. —MajorShareholders.” Item 7.Major Shareholders and Related Party Transactions A.Major shareholders.The following table sets forth information with respect to the beneficial ownership of the ordinary shares, as of February 28, 2019, except asotherwise noted, by: • each of our directors; • each of our executive officers; • all of our directors and executive officers as a group; and • each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of the ordinary shares.The number of shares beneficially owned by each shareholder is determined under rules issued by the SEC and includes voting or investment powerwith respect to securities. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power orinvestment power. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, ordinaryshares subject to options or other rights held by such person that are currently exercisable or will become exercisable within 60 days of February 28, 2019are considered outstanding, although such shares subject to options or other rights are not considered outstanding for purposes of computing the percentageownership of any other person. Unless otherwise indicated, the address of all listed shareholders is c/o Stealth BioTherapeutics Inc., 275 Grove Street, Suite3-107, Newton, Massachusetts 02466. Each of the shareholders - 151 -Table of Contentslisted has sole voting and investment power with respect to the shares beneficially owned by the shareholder unless noted otherwise, subject to communityproperty laws where applicable. NAME OF BENEFICIAL OWNER SHARES BENEFICIALLYOWNED PERCENTAGE OFSHARES BENEFICIALLY OWNED 5% Shareholders Morningside Venture (I) Investments Limited (1) 266,701,555 63.4% Season Pioneer Investments Limited (2) 39,066,276 9.3% Executive Officers and Directors Reenie McCarthy (3) 2,993,403 *% Daniel E. Geffken (4) 231,989 *% Mark J. Bamberger, Ph.D. (5) 673,490 *% Brian D. Blakey, Pharm.D. (6) 1,067,972 *% James R. Carr, Pharm.D. (7) 646,304 *% Gerald L. Chan, Sc.D. (8) 2,504,028 *% Francis W. Chen, Ph.D. (9) 54,028 *% Vincent Chueng — *% Lu Huang, M.D. — *% Stephen Law (10) 13,438 *% Kevin F. McLaughlin (11) 29,063 *% Edward P. Owens (12) 26,979 *% All executive officers and directors as a group (12 persons) (13) 8,240,693 2.0% *Less than 1%.(1) Based on information set forth in Schedule 13 D/A filed with the SEC by Morningside Venture (I) Investments Limited (“MVIL”) et al., onMarch 22, 2019, reporting beneficial ownership as of March 20, 2019. Consists of (i) 266,101,555 ordinary shares and (ii) 600,000 ordinary sharesissuable upon the exercise of options exercisable within 60 days after February 28, 2019. Francis Ann Elizabeth Richards, Jill Marie Franklin, PeterStuart Allenby Edwards and Raymond Long Sing Tang, the directors of MVIL share voting and dispositive control over the shares held by MVIL. Asa result, Francis Ann Elizabeth Richards, Jill Marie Franklin, Peter Stuart Allenby Edwards and Raymond Long Sing Tang may be deemed to possessvoting and investment control over, and may be deemed to have indirect beneficial ownership with respect to, all shares held by MVIL. Each ofFrancis Ann Elizabeth Richards, Jill Marie Franklin, Peter Stuart Allenby Edwards and Raymond Long Sing Tang disclaims beneficial ownership ofsuch shares, except to the extent of their respective pecuniary interests therein MVIL is ultimately beneficially owned by a family trust established byMadam Chan Tan Ching Fen. The address for MVIL is 2nd Floor, Le Prince de Galles, 3-5 Avenue des Citronniers, MC 98000, Monaco.(2) Based on information set forth in a Schedule 13 D/A filed with the SEC by Season Pioneer Investments Limited (“SPIL”), et al., on March 22, 2019,reporting beneficial ownership as of March 20, 2019. Consists of 39,066,276 ordinary shares underlying 3,255,523 ADSs held by SPIL. Tracy GiaYunn Tsoi is the sole director of SPIL and has sole voting and dispositive power with respect to securities held by SPIL. SPIL is ultimately whollybeneficially owned by a trust over which Peter Stuart Allenby Edwards has sole authority to remove the trustee. Ms. Tsoi disclaims beneficialownership of the securities owned directly by SPIL, except to the extent of her pecuniary interest therein. The address for SPIL is c/o THCManagement Services S.A.M., 2nd Floor, Le Prince de Galles, 3-5 Avenue des Citronniers, MC 98000, Monaco. MVIL and SPIL may act togetherwith respect to the voting and disposition of the securities held by such entities.(3) Consists of 2,993,403 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.(4) Consists of 231,989 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019. - 152 -Table of Contents(5) Consists of 673,490 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.(6) Consists of 1,067,972 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.(7) Consists of 646,304 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.(8) Consists of 2,504,028 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.(9) Consists of 54,028 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.(10) Consists of 13,438 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.(11) Consists of 29,063 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.(12) Consists of 26,979 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.(13) Consists of 8,240,693 ordinary shares issuable upon the exercise of options exercisable within 60 days after February 28, 2019.In February 2019, we completed our IPO and listed our ADSs on the Nasdaq Global Market. In the IPO, we issued and sold 6,500,000 ADSs,representing 78,000,000 ordinary shares. We sold an additional 588,232 ADSs, representing 7,058,784 ordinary shares, in connection with the underwriters’partial exercise of their over-allotment option in March 2019. While none of our existing shareholders sold ordinary shares in the IPO, the percentageownership held by certain shareholders decreased as a result of the issuance of our ADSs sold by us in the IPO.See “Item 3.D. —Risk Factors—Risks Related to Ownership of ADSs” for a discussion of MVIL’s controlling interest in the company.Holdings by U.S. ShareholdersCitibank N.A., or Citibank, is the holder of record for the company’s American Depositary Receipt program, pursuant to which each ADS represents12 ordinary shares. As of February 28, 2019, Citibank held 78.0 million ordinary shares representing 18.9% of the issued share capital held at that date. Asof February 28, 2019, we had 13 holders of record with addresses in the United States, and such holders held 2% of our outstanding ordinary shares. As aresult, the number of holders of record or registered holders in the United States is not representative of the number of beneficial holders or of the residenceof beneficial holders. B.Related party transactionsSince January 1, 2018, we have engaged in the following transactions with our directors, executive officers or holders of more than 5% of ouroutstanding share capital and their affiliates, which we refer to as our related parties.Note IssuancesAs of February 28, 2019, MVIL, beneficially owned 64.4% of our outstanding ordinary shares.In January 2018, we entered into a note exchange agreement with MVIL pursuant to which MVIL exchanged the $50.0 million of convertiblepromissory notes for a new convertible note in the principal amount of $52.4 million representing the aggregate principal amount of the such notes plusaccrued interest (the “January 2018 Shareholder Note”). The January 2018 Shareholder Note accrued interest at 7% per annum, which compoundedannually, and upon such compounding, was added to the outstanding principal amount. - 153 -Table of ContentsIn October 2018, we entered into a note purchase agreement with MVIL pursuant to which we issued to MVIL three notes in the aggregate principalamount of $30.0 million in October 2018, December 2018 and January 2019. These notes had substantially the same terms as the January 2018 ShareholderNote except that a qualified financing is limited to a U.S. IPO and that there is no change of control conversion feature.The outstanding principal amount and accrued interest plus a 25% premium of the MVIL notes automatically converted into 108,821,182 ordinaryshares upon closing of our IPO on February 20, 2019.Investor AgreementsIn April 2006, we entered into a Subscription and Shareholders Agreement with MVIL and certain other shareholders pursuant to which we agreed toissue ordinary shares and Series A preferred shares and granted certain information rights and observer rights that remain in effect. The Subscription andShareholders Agreement terminated upon the closing of our IPO. In connection with the Subscription and Shareholders Agreement, we entered into aRegistration Rights Agreement with certain of our shareholders, including MVIL, in April 2006 that provided for customary registration rights to holders ofour ordinary shares. The Registration Rights Agreement was terminated immediately prior to the closing of our IPO.Consulting AgreementIn November 2016, we entered into a consulting agreement with Danforth, an affiliate of Mr. Geffken, our interim Chief Financial Officer. Pursuantto the agreement, Danforth provides us with the Chief Financial Officer services of Mr. Geffken in exchange for fees payable to Danforth. In accordancewith the consulting agreement, in January 2017, we issued Danforth a warrant to purchase up to 231,989 ordinary shares at an exercise price of $1.38 pershare, which warrant was amended in June 2018 to be an option granted to Mr. Geffken under the 2006 plan. The consulting agreement has been amendedto extend the agreement through November 2019.Indemnification of Officers and DirectorsAs more fully described in our Articles of Association, our Articles of Association provide that our board of directors and officers shall beindemnified from and against all liability which they incur in execution of their duty in their respective offices out of our assets and funds, except liabilityincurred by reason of such director’s or officer’s dishonesty, willful deceit or fraud. See the “Item 6.A.—Directors and senior management” section of thisannual report for a further discussion of these arrangements. We have entered into indemnification agreements with each of our directors. C.Interests of experts and counsel.Not applicable. Item 8.Financial Information A.Consolidated Statements and Other Financial Information.Our consolidated financial statements are appended at the end of this annual report, starting at page F-1, and incorporated herein by reference.Legal ProceedingsFrom time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.We are not currently involved in any legal proceedings. We may become involved in material legal proceedings in the future. - 154 -Table of ContentsDividendsWe have never declared or paid cash dividends to our shareholders and we do not intend to pay cash dividends in the foreseeable future. B.Significant Changes.During February 2019, we completed our IPO of 6,500,000 ADSs. No other significant changes have occurred since December 31, 2018, except asotherwise disclosed in this annual report. Item 9.The Offer and Listing. A.Offer and listing details.Our ADSs began trading on the Nasdaq Global Market under the symbol “MITO” on February 15, 2019. B.Plan of distribution.Not applicable. C.Markets.Our ADSs have been trading on the Nasdaq Global Market under the symbol “MITO” since February 15, 2019. D.Selling shareholders.Not applicable. E.Dilution.Not applicable. F.Expenses of the issue.Not applicable.Item 10. Additional Information. A.Share capital.Not applicable. B.Memorandum and articles of association.The information set forth in our prospectus dated February 14, 2019, filed with the SEC pursuant to Rule 424(b), under the headings “Description ofShare Capital and Articles of Association—General,” “Description of Share Capital and Articles of Association—Issued Share Capital,” “Description ofShare Capital and Articles of Association—Articles of Association,” “Description of Share Capital and Articles of Association—Differences in CorporateLaw,” and “Enforcement of Civil Liabilities” is incorporated herein by reference. C.Material contracts.Except as otherwise disclosed in this annual report (including the exhibits thereto), we are not currently, and have not been in the last two years, partyto any material contract, other than contracts entered into in the ordinary course of our business. - 155 -Table of Contents D.Exchange controls.There are no governmental laws, decrees, regulations or other legislation of the Cayman Islands which may affect the import or export of capital,including the availability of cash and cash equivalents for use by us, or which may affect the remittance of dividends, interest or other payments tononresident holders of our ordinary shares or ADSs. E.Taxation.Material U.S. Federal Income Tax Considerations for U.S. HoldersThe following is a discussion of the material U.S. federal income tax consequences relating to the ownership and disposition of our ordinary shares orADSs by U.S. Holders (as defined below). This discussion applies to U.S. Holders of our ADSs who hold such ADSs as a capital asset (generally, propertyheld for investment). This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, administrative pronouncements,judicial decisions, and final, temporary, and proposed U.S. Treasury Regulations, all as in effect on the date hereof and all of which are subject to change,possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to specific U.S.Holders in light of their particular circumstances, including state and local tax consequences, estate tax consequences, alternative minimum taxconsequences, and tax consequences applicable to U.S. Holders subject to special rules, such as: • banks, insurance companies, and certain other financial institutions; • U.S. expatriates and certain former citizens or long-term residents of the United States; • dealers or traders in securities who use a mark-to-market method of tax accounting; • persons holding ordinary shares or ADSs as part of a hedging transaction, “straddle,” wash sale, conversion transaction or integrated transaction orpersons entering into a constructive sale with respect to ordinary shares or ADSs; • persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar; • brokers, dealers or traders in securities, commodities or currencies; • tax-exempt entities or government organizations; • S corporations, partnerships or other entities or arrangements classified as partnerships for U.S. federal income tax purposes; • regulated investment companies or real estate investment trusts; • persons who acquired our ordinary shares or ADSs pursuant to the exercise of any employee share option or otherwise as compensation; • persons that own or are deemed to own ten percent or more of our shares, measured by either voting power or value; and • persons holding our ordinary shares or ADSs in connection with a trade or business, permanent establishment, or fixed base outside the United States.If an entity treated as a partnership for U.S. federal income tax purposes holds our ordinary shares or ADSs, the U.S. federal income tax consequencesrelating to an investment in such ordinary shares or ADSs will depend upon the status of the partner and the activities of the partnership.A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of ordinary shares or ADSs and is: • an individual who is a citizen or resident of the United States; - 156 -Table of Contents • a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof, or the Districtof Columbia; • an estate the income of which is subject to U.S. federal income tax regardless of its source; or • a trust if (i) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority tocontrol all substantial decisions of the trust or (ii) the trust has made a valid election to be treated as a U.S. person under applicable U.S. TreasuryRegulations.Holders of our ordinary shares or ADSs should consult their own tax advisors as to the particular tax consequences applicable to them relating to thepurchase, ownership and disposition of our ordinary shares or ADSs, including the applicability of U.S. federal, state and local tax laws and non-U.S. taxlaws.The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreementand any related agreement will be complied with in accordance with their terms. Generally, a holder of an ADS should be treated for U.S. federal incometax purposes as holding the ordinary shares represented by the ADS. Accordingly, no gain or loss will be recognized upon an exchange of ADSs for theunderlying ordinary shares represented by such ADSs. The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between theholder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of theunderlying security. Accordingly, the creditability of foreign taxes, if any, as described below, could be affected by actions taken by intermediaries in thechain of ownership between the holders of ADSs and our company if as a result of such actions the holders of ADSs are not properly treated as beneficialowners of the underlying ordinary shares.Passive Foreign Investment Company RulesWe are a foreign corporation, within the meaning of the Code. If we are classified as a passive foreign investment company, or PFIC, in any taxableyear, a U.S. Holder will be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that aU.S. Holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current basis.A non-U.S. corporation will be classified as a PFIC for any taxable year in which, after applying certain look-through rules, either: • at least 75% of its gross income is “passive income” (the “PFIC income test”); or • on average at least 50% of its assets, determined on a quarterly basis, are assets that produce passive income or are held for the production of passiveincome (the “PFIC asset test”).Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents, and gains from the sale or exchange ofproperty that gives rise to passive income. Assets that produce or are held for the production of passive income generally include cash, even if held asworking capital or raised in a public offering, marketable securities, and other assets that may produce passive income. Generally, in determining whether anon- U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25%interest (by value) is taken into account.Based on our estimated gross income and the average value of our gross assets, taking into account the IPO price of the ADSs in our IPO and theprice of our ADSs following our IPO, and the nature of our business, we do not believe that we were a PFIC for our tax year ended December 31, 2018, anddo not expect to be a PFIC during our tax year ending December 31, 2019. However, there can be no assurance that we will not be classified as a PFIC forthe current taxable year or any prior or future taxable year. The determination of whether we are a PFIC is a fact-intensive determination made on an annualbasis and the applicable law is subject to varying interpretation. - 157 -Table of ContentsA separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year. As a result, our PFIC status maychange from year to year. The total value of our assets for purposes of the PFIC asset test generally will be calculated using the market price of our ordinaryshares or ADSs, which may fluctuate considerably. Fluctuations in the market price of the ordinary shares or ADSs may result in our being a PFIC for anytaxable year.If we are a PFIC in any taxable year during which a U.S. Holder owns our ordinary shares or ADSs, the U.S. Holder could be liable for additionaltaxes and interest charges under the “PFIC excess distribution regime” upon (i) a distribution paid during a taxable year that is greater than 125% of theaverage annual distributions paid in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period for our ordinary shares or ADSs, and(ii) any gain recognized on a sale, exchange or other disposition, including a pledge, of our ordinary shares or ADSs, whether or not we continue to be aPFIC. Under the PFIC excess distribution regime, the tax on such distribution or gain would be determined by allocating the distribution or gain ratablyover the U.S. Holder’s holding period for our ordinary shares or ADSs. The amount allocated to the current taxable year (i.e., the year in which thedistribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will be taxed as ordinary income earned inthe current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates in effect for individuals or corporations, asapplicable, to ordinary income for each such taxable year, and an interest charge, generally applicable to underpayments of tax, will be added to the tax.If we are classified as a PFIC for any year during which a U.S. Holder holds our ordinary shares or ADSs, we must generally continue to be treated asa PFIC by that holder for all succeeding years during which the U.S. Holder holds such ordinary shares or ADSs, regardless of whether we continue to meetthe tests described above, unless we cease to be a PFIC and the U.S. Holder makes a “deemed sale” election under the PFIC rules with respect to ourordinary shares or ADSs. If the “deemed sale” election is made, the U.S. Holder will be deemed to have sold our ordinary shares or ADSs it holds at theirfair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain recognized from such deemed sale would be taxedunder the PFIC excess distribution regime. After the deemed sale election, the U.S. Holder’s ordinary shares or ADSs would not be treated as shares of aPFIC unless we subsequently become a PFIC. If we are a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares or ADSs, and oneof our non-U.S. subsidiaries is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by value) of theshares of the lower-tier PFIC and would be taxed under the PFIC excess distribution regime on distributions by the lower-tier PFIC and on gain from thedisposition of shares of the lower-tier PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions. Any of ournon-U.S. subsidiaries that have elected to be disregarded as entities separate from us or as partnerships for U.S. federal income tax purposes would not becorporations under U.S. federal income tax law and accordingly, cannot be classified as lower-tier PFICs. However, non-U.S. subsidiaries that have notmade such election may be classified as lower-tier PFICs if we are a PFIC during a U.S. Holder’s holding period and the subsidiary meets the PFIC incometest or PFIC asset test.If we are a PFIC, a U.S. Holder will not be subject to tax under the PFIC excess distribution regime on distributions or gain recognized on ourordinary shares or ADSs if a valid “mark-to-market” election is made by the U.S. Holder for our ordinary shares or ADSs, provided that the ordinary sharesor ADSs are “marketable.” Our ordinary shares or ADSs will be considered marketable if they are “regularly traded” on a “qualified exchange” within themeaning of applicable U.S. Treasury Regulations. A class of stock is regularly traded during any calendar year during which such class of stock is traded,other than in de minimis quantities, on at least 15 days during each calendar quarter. Our ADSs will be marketable as long as they remain listed on TheNasdaq Global Market and are regularly traded. A mark-to-market election will not apply to our ordinary shares or ADSs for any taxable year during whichwe are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will not apply to any ofour non-U.S. subsidiaries. Accordingly, a U.S. Holder may continue to be subject to tax under the PFIC excess distribution - 158 -Table of Contentsregime with respect to any lower-tier PFICs notwithstanding the U.S. Holder’s mark-to-market election for our ordinary shares or ADSs.An electing U.S. Holder generally must take into account as ordinary income each year an amount equal to the excess, if any, of the fair market valueof our ordinary shares or ADSs held at the end of such taxable year over the adjusted tax basis of such ordinary shares or ADSs. The U.S. Holder may alsoclaim an ordinary loss deduction for the excess, if any, of the U.S. Holder’s adjusted tax basis of such ordinary shares or ADSs over their fair market valueat the end of the taxable year, but only to the extent of any net mark-to-market gains for prior years. The U.S. Holder’s tax basis in our ordinary shares orADSs would be adjusted to reflect any income or loss recognized as a result of the mark-to-market election. Any gain from a sale, exchange or otherdisposition of our ordinary shares or ADSs in any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale,exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains for prior years) and thereafter as capitalloss. If, after having been a PFIC for a taxable year, we cease to be classified as a PFIC because we no longer meet the PFIC income or PFIC asset test, theU.S. Holder would not be required to take into account any latent gain or loss in the manner described above and any gain or loss recognized on the sale orexchange of the ordinary shares or ADSs would be classified as a capital gain or loss. Once made, the election cannot be revoked without the consent of theInternal Revenue Service, or the IRS, unless our ADSs cease to be marketable.The tax consequences that would apply if we are a PFIC would also be different from those described above if a U.S. Holder were able to make avalid qualified electing fund, or QEF, election. As we do not expect to provide U.S. Holders with the information necessary for a U.S. Holder to make aQEF election, U.S. Holders should assume that a QEF election will not be available.Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual report containing such information asthe U.S. Treasury may require. A U.S. Holder’s failure to file the annual report will cause the statute of limitations for such U.S. Holder’s U.S. federalincome tax return to remain open with regard to the items required to be included in such report until three years after the U.S. Holder files the annualreport, and, unless such failure is due to reasonable cause and not willful neglect, the statute of limitations for the U.S. Holder’s entire U.S. federal incometax return will remain open during such period.DistributionsWhile we do not expect to pay any dividends in the near future, in the event any dividends are paid, subject to the discussion above under “PassiveForeign Investment Company Rules,” a U.S. Holder that receives a distribution with respect to our ordinary shares or ADSs generally will be required toinclude the gross amount of such distribution in gross income as a dividend when actually or constructively received to the extent of the U.S. Holder’s prorata share of our current and/or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a distributionreceived by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of our current and accumulated earnings and profits, it willbe treated first as a tax-free return of capital and reduce (but not below zero) the adjusted tax basis of the U.S. Holder’s ordinary shares or ADSs. To theextent the distribution exceeds the adjusted tax basis of the U.S. Holder’s ordinary shares or ADSs, the remainder will be taxed as capital gain. Because wemay not account for our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions to bereported to them as dividends. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be taxable at preferential ratesapplicable to “qualified dividend income.” However, the qualified dividend income treatment may not apply if we are treated as a PFIC with respect to theU.S. Holder. Distributions on our ordinary shares or ADSs that are treated as dividends generally will constitute income from sources outside the UnitedStates for foreign tax credit purposes and generally will constitute passive category income. Such dividends will not be eligible for the “dividends received’’deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations. - 159 -Table of ContentsDividends will be included in a U.S. Holder’s income on the date of the depositary’s receipt of the dividend. The amount of any dividend income paidin foreign currency will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of actual or constructive receipt,regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holdershould not be required to recognize foreign currency gain or loss with respect to the dividend income. A U.S. Holder may have foreign currency gain or lossif the dividend is converted into U.S. dollars after the date of receipt.Sale, Exchange or Other Disposition of Our Ordinary Shares or ADSsSubject to the discussion above under “Passive Foreign Investment Company Rules,’’ a U.S. Holder generally will recognize capital gain or loss forU.S. federal income tax purposes upon the sale, exchange or other disposition of our ordinary shares or ADSs in an amount equal to the difference, if any,between the amount realized (i.e., the amount of cash plus the fair market value of any property received) on the sale, exchange or other disposition andsuch U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs. Such capital gain or loss generally will be long-term capital gain taxable at a reducedrate for non-corporate U.S. Holders or long-term capital loss if, on the date of sale, exchange or other disposition, the ordinary shares or ADSs were held bythe U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary income rates.The deductibility of capital losses is subject to limitations. Any gain or loss recognized from the sale or other disposition of our ordinary shares or ADSswill generally be gain or loss from sources within the United States for U.S. foreign tax credit purposes.Medicare TaxCertain U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to a 3.8% tax on all or aportion of their net investment income, which may include their gross dividend income and net gains from the disposition of our ordinary shares or ADSs.Information Reporting and Backup WithholdingU.S. Holders may be required to file certain U.S. information reporting returns with the IRS with respect to an investment in our ordinary shares orADSs, including, among others, IRS Form 8938 (Statement of Specified Foreign Financial Assets). As described above under “Passive Foreign InvestmentCompany Rules,” each U.S. Holder who is a shareholder of a PFIC must file an annual report containing certain information. U.S. Holders paying morethan $100,000 for our ordinary shares or ADSs may be required to file IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation)reporting this payment. Substantial penalties may be imposed upon a U.S. Holder that fails to timely comply with the required information reporting.Dividends on and proceeds from the sale or other disposition of our ADSs may be reported to the IRS unless the U.S. Holder establishes a basis forexemption. Backup withholding may apply to amounts subject to reporting if the holder (i) fails to provide an accurate U.S. taxpayer identification numberor otherwise establish a basis for exemption, or (ii) is described in certain other categories of persons. However, U.S. Holders that are corporations generallyare excluded from these information reporting and backup withholding tax rules.Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or acredit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished by the U.S. Holder on a timely basis to the IRS.Cayman Islands TaxationHolders should consult their professional advisors on the possible tax consequences of buying, holding or selling any ADSs under the laws of theircountry of citizenship, residence or domicile. - 160 -Table of ContentsThe following is a discussion on certain Cayman Islands income tax consequences of an investment in our ADSs. The discussion is a generalsummary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particularcircumstances, and does not consider tax consequences other than those arising under Cayman Islands law.No stamp duty, capital duty, registration or other issue or documentary taxes are payable in the Cayman Islands on the creation, issuance or deliveryof our ADSs. The Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. There arecurrently no Cayman Islands’ taxes or duties of any nature on gains realized on a sale, exchange, conversion, transfer or redemption of our ADSs. Paymentsof dividends and capital in respect of our ADSs or ordinary shares will not be subject to taxation in the Cayman Islands and no withholding will be requiredon the payment of interest and principal or a dividend or capital to any holder of our ADSs, nor will gains derived from the disposal of our ADSs be subjectto Cayman Islands income or corporation tax as the Cayman Islands currently have no form of income or corporation taxes.Pursuant to section 6 of the Tax Concessions Law (2018 Revision) of the Cayman Islands, we have obtained an undertaking from theGovernor-in-Cabinet: • that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to us or ouroperations; and • that no such tax or any tax in the nature of estate duty or inheritance tax shall be payable on or in respect of our ADSs or ordinary shares, debenturesor other obligations of ours.The undertaking for the company is for a period of twenty years from April 11, 2006. F.Dividends and paying agents.Not applicable. G.Statement by experts.Not applicable. H.Documents on display.We previously filed with the SEC our registration statement on Form F-1 (Registration No. 333-229097), as amended, including the prospectuscontained therein, to register our ordinary shares in relation to our IPO. We have also filed with the SEC a related registration statement on Form F-6(Registration No. 333-229509), as amended, to register our ADSs.We are subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers and file reports under thoserequirements with the SEC. Those reports may be inspected without charge at the locations described below. As a foreign private issuer, we are exemptfrom the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders areexempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required underthe Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities areregistered under the Exchange Act.We maintain a corporate website at www.stealthbt.com. Information contained in, or that can be accessed through, our website is not a part of, andshall not be incorporated by reference into, this annual report. We have included our website address in this annual report solely as an inactive textualreference. - 161 -Table of ContentsThe SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants,such as us, that file electronically with the SEC.With respect to references made in this annual report to any contract or other document of our company, such references are not necessarily completeand you should refer to the exhibits attached or incorporated by reference to this annual report for copies of the actual contract or document.I. Subsidiary Information.Not applicable.Item 11. Quantitative and Qualitative Disclosures About Market Risk.We are minimally exposed to market risk related to changes in interest rates. As of December 31, 2018, we had cash and cash equivalents of$10.9 million, consisting primarily of money market funds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes inthe general level of U.S. interest rates, particularly because our cash equivalents are held in short-term money market funds and U.S. Treasury securities.We do not believe we are materially at risk to sudden drops in interest rates based on the amounts subject to these potential changes.Item 12. Description of Securities Other than Equity Securities.A. Debt Securities.Not applicable.B. Warrants and RightsNot applicable.C. Other SecuritiesNot applicable.D. American Depositary Shares.Citibank, N.A., as depositary bank, registers and delivers our American Depositary Shares, also referred to as ADSs. Each ADS represents 12ordinary shares (or a right to receive 12 ordinary shares) deposited with Citibank, N.A.—Hong Kong, located at 9/F, Citi Tower, One Bay East, 83 Hoi BunRoad, Kwun Tong, Kowloon, Hong Kong, or any successor, as custodian for the depositary. Each ADS will also represent any other securities, cash or otherproperty which may be held by the depositary in respect of the depositary facility. The depositary’s corporate office at which our ADSs are administered islocated at 388 Greenwich Street, New York, New York 10013. A deposit agreement among us, the depositary and the ADS holders sets out ADS holderrights as well as the rights and obligations of the depositary. A form of the deposit agreement is incorporated by reference as an exhibit to this annual report.Fees and Charges Payable by ADS HoldersThe table below summarizes the fees and charges that a holder of our ADSs may have to pay, directly or indirectly, to our depositary, Citibank, N.A.,pursuant to the deposit agreement and the types of services and the amount of the fees or charges paid for such services. The actual fees payable by us andthe holders of ADSs are negotiated between the depositary and us. In connection with these arrangements, we have agreed to pay various fees and expensesof the depositary. Currently, ADS holders are responsible for paying a fee upon the delivery of ordinary shares against the surrender of ADSs. - 162 -Table of ContentsThe fees and charges that an ADS holder may be required to pay can be changed in the future upon mutual agreement between the depositary and usand may include: SERVICE FEEIssuance of ADSs (e.g., an issuance of ADS upon a deposit of ordinary sharesor upon a change in the ADS(s)-to-ordinary shares ratio), excluding ADSissuances as a result of distributions of ordinary shares Up to $0.05 per ADS issuedCancellation of ADSs (e.g., a cancellation of ADSs for delivery of depositedproperty or upon a change in the ADS(s)-to-ordinary shares ratio) Up to $0.05 per ADS cancelledDistribution of cash dividends or other cash distributions (e.g., upon a sale ofrights and other entitlements) Up to $0.05 per ADS heldDistribution of ADSs pursuant to (i) share dividends or other free sharedistributions, or (ii) exercise of rights to purchase additional ADSs Up to $0.05 per ADS heldDistribution of securities other than ADSs or rights to purchase additionalADSs (e.g., upon a spin-off) Up to $0.05 per ADS heldADS Services Up to $0.05 per ADS held on the applicable record date(s) established bythe depositaryIn addition, ADS holders are responsible for certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as: • transfer and registration fees of securities on our securities register to or from the name of the depositary or its agent when ADS holders depositor withdrawal securities; • expenses for cable, telex and fax transmissions and for delivery of securities; • expenses incurred for converting foreign currency into U.S. dollars; and • taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or withdrawn from deposit, other than taxes for whichwe are liable).Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients)receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering our ADSs to the depositary for cancellation.The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and thedepositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash(e.g., stock dividend, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSsregistered in the name of the investor, the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage andcustodian accounts (via DTC), the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder ofour ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs inDTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary. - 163 -Table of ContentsIn the event of refusal to pay taxes or other governmental charges by the holder of an ADS, the depositary may, under the terms of the depositagreement, refuse the requested service until payment is received or may set off the amount of such tax or other governmental charge from any distributionto be made to the ADS holder, and the ADS holder would remain liable for any deficiency.The disclosure under this heading “Fees and Charges Payable by ADS Holders” is subject to and qualified in its entirety by reference to the full textof the Deposit Agreement. - 164 -Table of ContentsPART IIItem 13. Defaults, Dividend Arrearages and Delinquencies.None.Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.A. Not applicable.B. Not applicable.C. Not applicable.D. Not applicable.E. Use of ProceedsThe information set forth in our prospectus dated February 14, 2019, filed with the SEC pursuant to Rule 424(b), under the headings “Use ofProceeds” is incorporated herein by reference.Item 15. Controls and Procedures.A. Disclosure Controls and ProceduresWe have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is definedin Rules 13a-15(e) and 15d-15(e) under the Exchange Act) under the supervision and the participation of the company’s management, which is responsiblefor the management of the internal controls, and which includes our Chief Executive Officer (our principal executive officer and principal financial officer).The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other proceduresof a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the ExchangeAct is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files orsubmits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financialofficers, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system ofdisclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon ourevaluation of our disclosure controls and procedures as of December 31, 2018, our Chief Executive Officer concluded that, as of such date, our disclosurecontrols and procedures were effective at a reasonable level of assurance.B. Management’s annual report on internal control over financial reporting.This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report ofthe company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.C. Attestation report of the registered public accounting firm.This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report ofthe company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. - 165 -Table of ContentsD. Changes in internal control over financial reporting.No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during thefiscal year ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Item 16. [Reserved]Item 16A. Audit committee financial expert.Our board of directors has determined that Mr. Kevin McLaughlin, an independent director and member of the Audit Committee, qualifies as an“audit committee financial expert,” as defined in Item 16A of Form 20-F.Item 16B. Code of Ethics.Our board of directors has adopted a code of business conduct and ethics, which is applicable to our directors, officers and employees. A copy of thecode is posted on the Corporate Governance section of our website, which is located at www.stealthbt.com under Investors & News. You may request acopy of our code of business conduct and ethics free of charge by writing to Legal Department, Stealth BioTherapeutics Inc., 275 Grove Street, , Suite3-107, Newton, Massachusetts 02466.Item 16C. Principal Accountant Fees and Services.The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte &Touche LLP, our principal external auditors, as well as Deloitte Touche Tohmatsu LLC and Deloitte Advisory Limited for the periods indicated. Year Ended December 31, 2018 2017 (in thousands) Audit fees (1) $2,388,844 $872,775 Audit-related fees — — Tax fees (2) — 3,640 All other fees — — Total $2,388,844 $876,415 (1) Audit fees totaled approximately $0.5 million, $1.7 million and $0.2 million for Deloitte & Touche LLP, Deloitte Touche Tohmatsu LLC and DeloitteAdvisory Limited, respectively, in 2018.(2) Tax fees consist of fees for professional services with respect to tax compliance.The policy of our audit committee or our board of directors is to pre-approve all auditing services and permitted non-audit services to be performedfor us by our independent auditor, Deloitte & Touche LLP, including the fees and terms thereof for audit services, audit-related services, tax services andother non-audit services as described in Section 10A(i)(l)(B) of the Exchange Act, other than those for de minimis services, which are approved by the auditcommittee or our board of directors prior to the completion of the audit.Item 16D. Exemptions from the Listing Standards for Audit Committees.Not applicable.Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.Not applicable.Item 16F. Change in Registrant’s Certifying Accountant.Not applicable. - 166 -Table of ContentsItem 16G. Corporate Governance.We are a “foreign private issuer,” as defined by the SEC. As a result, in accordance with the rules and regulations of Nasdaq, we will comply withhome country governance requirements and certain exemptions thereunder rather than complying with Nasdaq corporate governance standards. While wevoluntarily follow most Nasdaq corporate governance rules, we may choose to take advantage of the following limited exemptions afforded to foreignprivate issuers: • exemption from the requirement to have independent director oversight of director nominations; • exemption from the requirements that our board of directors have a compensation committee that is composed entirely of independent directors; and • exemption from the requirement that our board of directors shall have regularly scheduled meetings at which only independent directors are present asset forth in Nasdaq Rule 5605(b)(2).We intend to follow our home country practices in lieu of the foregoing requirements. Although we may rely on home country corporate governancepractices in lieu of certain of the rules in the Nasdaq Rule 5600 Series and Rule 5250(d), we must comply with Nasdaq’s Notification of Noncompliancerequirement (Rule 5625), the Voting Rights requirement (Rule 5640) and have an audit committee that satisfies Rule 5605(c)(3), consisting of committeemembers that meet the independence requirements of Rule 5605(c)(2)(A)(ii). Although we currently intend to comply with the Nasdaq corporategovernance rules applicable other than as noted above, we may in the future decide to use the foreign private issuer exemption with respect to some or all ofthe other Nasdaq corporate governance rules.In addition, as a foreign private issuer, we expect to take advantage of the following exemptions from SEC reporting obligations: • exemption from filing quarterly reports on Form 10-Q or provide current reports on Form 8-K, disclosing significant events within four days of theiroccurrence; and • exemption from Section 16 rules regarding sales of common shares by insiders, which will provide less data in this regard than shareholders of U.S.companies that are subject to the Exchange Act.Accordingly, our shareholders will not have the same protections afforded to shareholders of companies that are subject to all of the corporategovernance requirements of Nasdaq and the domestic reporting requirements of the SEC. We may utilize these exemptions for as long as we continue toqualify as a foreign private issuer.Item 16H. Mine Safety Disclosure.Not applicable. - 167 -Table of ContentsPART IIIItem 17. Financial Statements.See pages beginning on F-1 of this annual report on Form 20-F.Item 18. Financial Statements.The financial statements are filed as part of this annual report beginning on page F-1.Item 19. Exhibits. Exhibit Number Description 1.1 Amended and Restated Memorandum and Articles of Association of the Company (incorporated by reference to Exhibit 99.2 of ourReport on Form 6-K (File No. 001-38810), filed with the Securities and Exchange Commission on March 5, 2019) 2.1 Deposit Agreement among the Company, Citibank, N.A., as depositary, and all Owners and Holders of ADSs issued thereunder(incorporated by reference to Exhibit 99.3 of our Report on Form 6-K (File No. 001-38810), filed with the Securities and ExchangeCommission on March 5, 2019) 2.2 Form of American Depository Receipt (included in Exhibit 2.1) 4.1 Warrant Agreement, dated June 30, 2017, by and between the Company and Hercules Capital Inc., as amended and restated on June 7,2018 (incorporated by reference to Exhibit 4.3 of our Registration Statement on Form F-1 filed with the Securities and ExchangeCommission December 28, 2018) 4.2 2006 Share Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 of our Registration Statement on Form F-1 filed withthe Securities and Exchange Commission December 28, 2018) 4.3 Form of Incentive Option Agreement under 2006 Share Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 of ourRegistration Statement on Form F-1 filed with the Securities and Exchange Commission December 28, 2018) 4.4 Form of Nonstatutory Option Agreement under 2006 Share Incentive Plan, as amended (incorporated by reference to Exhibit 10.3 of ourRegistration Statement on Form F-1 filed with the Securities and Exchange Commission December 28, 2018) 4.5 2019 Share Incentive Plan (incorporated by reference to Exhibit 10.4 of our Registration Statement on Form F-1, as amended, filed withthe Securities and Exchange Commission January 30, 2019) 4.6 Form of Share Option Agreement under 2019 Share Incentive Plan (incorporated by reference to Exhibit 10.5 of our RegistrationStatement on Form F-1, as amended, filed with the Securities and Exchange Commission January 30, 2019) 4.7 Form of Share Option Agreement under 2019 Share Incentive Plan (incorporated by reference to Exhibit 10.6 of our RegistrationStatement on Form F-1, as amended, filed with the Securities and Exchange Commission January 30, 2019) 4.8 Form of Director and Officer Indemnification Agreement by and between the Registrant and each of its officers and directors(incorporated by reference to Exhibit 10.7 of our Registration Statement on Form F-1 filed with the Securities and Exchange CommissionDecember 28, 2018) - 168 -Table of ContentsExhibit Number Description 4.9† Exclusive License Agreement, dated April 20, 2006, among the Company, Cornell Research Foundation, Inc. and Institut de recherchescliniques de Montréal, as amended by First Amendment to Exclusive License Agreement dated October 7, 2010 (incorporated byreference to Exhibit 10.8 of our Registration Statement on Form F-1 filed with the Securities and Exchange Commission December 28,2018) 4.10† Exclusive License Agreement, dated November 22, 2010, between the Company and Cornell University (incorporated by reference toExhibit 10.9 of our Registration Statement on Form F-1 filed with the Securities and Exchange Commission December 28, 2018) 4.11† Exclusive License Agreement, dated November 3, 2011, by and between the Company and Cornell University (incorporated by referenceto Exhibit 10.10 of our Registration Statement on Form F-1 filed with the Securities and Exchange Commission December 28, 2018) 4.12† Exclusive License Agreement, dated December 27, 2012, by and between the Company and Cornell University (incorporated by referenceto Exhibit 10.11 of our Registration Statement on Form F-1 filed with the Securities and Exchange Commission December 28, 2018) 4.13† Exclusive License Agreement, dated August 12, 2013, by and between the Company and Cornell University (incorporated by reference toExhibit 10.12 of our Registration Statement on Form F-1 filed with the Securities and Exchange Commission December 28, 2018) 4.14 Office Lease Agreement, dated October 31, 2014, by and between the Company and Hines Global REIT Riverside Center, LLC(incorporated by reference to Exhibit 10.13 of our Registration Statement on Form F-1 filed with the Securities and Exchange CommissionDecember 28, 2018) 4.15 Amendment Agreement by and between the Company and Danforth Advisors, LLC, dated as of June 13, 2018 (incorporated by referenceto Exhibit 10.14 of our Registration Statement on Form F-1 filed with the Securities and Exchange Commission December 28, 2018) 4.16 Loan and Security Agreement, dated June 30, 2017, by and between the Company and Hercules Capital Inc., as amended on March 12,2018, July 26, 2018 and October 10, 2018 (incorporated by reference to Exhibit 10.15 of our Registration Statement on Form F-1 filedwith the Securities and Exchange Commission December 28, 2018) 4.17 2019 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.16 of our Registration Statement on Form F-1, as amended,filed with the Securities and Exchange Commission January 30, 2019) 4.18 First Amendment to Lease dated as of January 31, 2019 by and between the Company and Hines Global REIT Riverside Center LLC(incorporated by reference to Exhibit 10.17 of our Registration Statement on Form F-1, as amended, filed with the Securities and ExchangeCommission February 14, 2019) 4.19* Fourth Amendment to Loan and Security Agreement dated as of March 29, 2019, by and between Hercules Capital Inc. and the Company 8.1* Subsidiaries of the Registrant 12.1* Certification by the Principal Executive Officer and Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 13.1* Certification by the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15.1* Consent of Deloitte & Touche, LLP, independent registered public accounting firm - 169 -Table of ContentsExhibit Number Description101. INS XBRL Instance Document101. SCH XBRL Taxonomy Extension Schema Document101. CAL XBRL Taxonomy Extension Calculation Linkbase Document101. DEF XBRL Taxonomy Extension Definition Linkbase Document101. LAB XBRL Taxonomy Extension Label Linkbase Document101. PRE XBRL Taxonomy Extension Presentation Linkbase Document *Filed herewith. †Confidential treatment requested as to certain portions, which portions have been omitted and filed separately with the Securities and ExchangeCommission. - 170 -Table of ContentsSIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersignedto sign this annual report on its behalf. Stealth BioTherapeutics CorpDate: April 4, 2019 By: /s/ Irene P. McCarthy Name: Irene P. McCarthyTitle: Chief Executive Officer - 171 -Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTSIndex to Consolidated Financial Statements as of December 31, 2018 and 2017 and for the Years Ended December 31, 2018, 2017 and 2016 PAGE Independent Registered Public Accounting Firm Report F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Convertible Preferred Shares and Shareholders’ Deficit F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and Board of Directors of Stealth BioTherapeutics CorpOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Stealth BioTherapeutics Corp and subsidiaries (the “Company”) as of December 31,2018 and 2017, the related consolidated statements of operations, convertible preferred shares and shareholders’ deficit, and cash flows, for each of thethree years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financialstatements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operationsand its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in theUnited States of America.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (the“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, norwere we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding ofinternal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control overfinancial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Deloitte & Touche LLPBoston, MassachusettsApril 4, 2019We have served as the Company’s auditor since 2014. F-2Table of ContentsSTEALTH BIOTHERAPEUTICS CORPCONSOLIDATED BALANCE SHEETS December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $10,855,167 $4,118,804 Prepaid expenses and other current assets 2,438,152 1,801,203 Total current assets 13,293,319 5,920,007 Property and equipment, net 498,551 795,940 Deferred offering costs 1,325,339 — Other non-current assets 405,494 438,982 Total assets $15,522,703 $7,154,929 Liabilities, convertible preferred shares and shareholders’ deficit Current liabilities: Accounts payable $11,022,616 $7,454,569 Accrued expenses and other current liabilities 13,826,049 12,520,020 Accrued interest payable 7,297,347 2,525,685 Current portion of long-term debt 8,464,609 2,094,295 Total current liabilities 40,610,621 24,594,569 Convertible notes payable 103,257,129 50,000,000 Long-term debt, less current portion 10,317,297 11,956,867 Derivative liability 36,567,454 — Warrant liability 100,000 512,618 Total liabilities 190,852,501 87,064,054 Commitments and contingencies (Note 14) Series A convertible preferred shares, $0.0003 par value; 106,666,667 shares authorized; 91,600,398 issuedand outstanding at December 31, 2018 and 2017; liquidation preference of $211,376,929 at December 31,2018 and 2017 211,376,929 211,376,929 Shareholders’ deficit: Ordinary shares, $0.0003 par value; 203,333,333 shares authorized at December 31, 2018 and 2017 and68,487,948 and 68,474,614 shares issued and outstanding at December 31, 2018 and 2017,respectively 20,546 20,542 Additional paid-in capital 39,541,984 38,250,174 Accumulated deficit (426,269,257) (329,556,770) Total shareholders’ deficit (386,706,727) (291,286,054) Total liabilities, convertible preferred shares and shareholders’ deficit $15,522,703 $7,154,929 See the accompanying notes to these audited consolidated financial statements. F-3Table of ContentsSTEALTH BIOTHERAPEUTICS CORPCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2018 2017 2016 Operating expenses: Research and development $53,062,374 $63,219,537 $48,445,173 General and administrative 22,216,704 16,500,875 13,403,332 Total operating expenses 75,279,078 79,720,412 61,848,505 Loss from operations (75,279,078) (79,720,412) (61,848,505) Other income (expense): Interest income 195,087 56,843 799,023 Interest expense (21,357,196) (3,281,715) — Change in valuation of derivative liability (683,918) — — Change in valuation of warrant liability 412,618 35,457 — Total other income (expense), net (21,433,409) (3,189,415) 799,023 Net loss attributable to ordinary shareholders $(96,712,487) $(82,909,827) $(61,049,482) Net loss per share attributable to ordinary shareholders — basic and diluted $(1.41) $(1.21) $(0.90) Weighted average ordinary shares used in net loss per share attributable to ordinaryshareholders — basic and diluted 68,476,149 68,472,262 68,165,325 See the accompanying notes to these audited consolidated financial statements F-4Table of ContentsSTEALTH BIOTHERAPEUTICS CORPCONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ DEFICIT SERIES A CONVERTIBLE PREFERRED SHARES MVIL DEMAND NOTE ORDINARY SHARES ADDITIONALPAID-IN CAPITAL ACCUMULATEDDEFICIT TOTAL SHAREHOLDERS’DEFICIT SHARES AMOUNT RECEIVABLE SHARES AMOUNT Balance at January 1, 2016 91,600,398 $211,376,929 $(50,739,404) 68,125,142 $20,438 $34,952,859 $(185,597,461) $(150,624,164) Proceeds from MVILdemand notereceivable — — 50,739,404 — — — — — Exercise of warrant — — — 333,333 100 9,900 — 10,000 Share-basedcompensationexpense — — — — — 1,832,991 — 1,832,991 Net loss — — — — — — (61,049,482) (61,049,482) Balance at December 31,2016 91,600,398 211,376,929 — 68,458,475 20,538 36,795,750 (246,646,943) (209,830,655) Exercise of shareoptions — — — 16,139 4 10,471 — 10,475 Share-basedcompensationexpense — — — — — 1,286,970 — 1,286,970 Issuance of warrant forordinary shares — — — — — 156,983 — 156,983 Net loss — — — — — — (82,909,827) (82,909,827) Balance at December 31,2017 91,600,398 211,376,929 — 68,474,614 20,542 38,250,174 (329,556,770) (291,286,054) Exercise of shareoptions — — — 13,334 4 15,196 — 15,200 Share-basedcompensationexpense — — — — — 1,276,614 — 1,276,614 Net loss — — — — — (96,712,487) (96,712,487) Balance at December 31,2018 91,600,398 $211,376,929 $— 68,487,948 $20,546 $39,541,984 $(426,269,257) $(386,706,727) See the accompanying notes to these audited consolidated financial statements F-5Table of ContentsSTEALTH BIOTHERAPEUTICS CORPCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2018 2017 2016 Cash flows from operating activities: Net loss $(96,712,487) $(82,909,827) $(61,049,482) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 309,041 346,872 312,537 Change in fair value of derivative liability 683,918 — — Change in fair value of warrant liability (412,618) (35,457) — Issuance of warrant for ordinary shares — 156,983 — Amortization of debt discount 12,278,301 192,020 — Write-off of deferred offering costs — 457,652 — Non-cash interest expense 7,070,142 2,525,685 — Share-based compensation 1,276,614 1,286,970 1,832,991 Loss on disposal of asset — 17,670 — Changes in operating assets and liabilities: Prepaid expenses and other current assets (625,314) (72,810) 1,563,817 Accounts payable 3,568,047 4,545,322 767,838 Accrued expenses, accrued interest payable and other current liabilities 486,090 3,653,288 2,552,366 Net cash used in operating activities (72,078,266) (69,835,632) (54,019,933) Cash flows from investing activities: Purchase of property and equipment (11,652) (160,952) (287,883) Changes in other assets — (12,036) 105,362 Net cash used in investing activities (11,652) (172,988) (182,521) Cash flows from financing activities: Proceeds from issuance of convertible notes payable to MVIL 25,000,000 50,000,000 — Proceeds from issuance of convertible notes payable 50,000,000 — — Proceeds from venture debt issuance 5,000,000 14,633,000 — Payment of venture debt issuance costs — (225,783) — Payment of convertible debt issuance costs (55,826) — — Proceeds from repayment of MVIL demand note receivable — — 50,739,404 Payment of deferred financing costs (446,546) — (457,652) Principal payments on venture debt (686,547) — — Proceeds from exercise of share options and warrant 15,200 10,475 10,000 Net cash provided by financing activities 78,826,281 64,417,692 50,291,752 Net increase (decrease) in cash and cash equivalents 6,736,363 (5,590,928) (3,910,702) Cash and cash equivalents, beginning of period 4,118,804 9,709,732 13,620,434 Cash and cash equivalents, end of period $10,855,167 $4,118,804 $9,709,732 Supplemental disclosure of noncash investing and financing activity: Noncash items: Fair value of warrants issued in connection with term loan $— $548,075 $— Fair value of derivatives recorded in connection with the 2018 MVIL Note and 2018 New Investor Notes $35,883,535 $— $— Noncash conversion of accrued interest due to MVIL into new convertible notes payable to MVIL $2,357,333 $— $— Deferred offering costs included in accrued expenses $878,793 $— $— Supplemental cash flow information-cash paid for interest $1,949,896 $564,010 $— See the accompanying notes to these audited consolidated financial statements. F-6Table of ContentsSTEALTH BIOTHERAPEUTICS CORPNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the year ended December 31, 2018 and 2017 1.Organization and OperationsThe CompanyStealth BioTherapeutics Corp was incorporated in Grand Cayman, Cayman Islands as Stealth Peptides International, Inc. in April 2006. Its whollyowned subsidiary, Stealth BioTherapeutics Inc., was incorporated in Delaware as Stealth Peptides Inc. in October 2007. In addition, a wholly ownedsubsidiary, Stealth BioTherapeutics (HK) Limited, was incorporated in Hong Kong in September 2017. In May 2018, Stealth BioTherapeutics (Shanghai)Limited was formed as a wholly foreign owned enterprise in China. Hereinafter, Stealth BioTherapeutics Corp, Stealth BioTherapeutics Inc., StealthBioTherapeutics (HK) Limited, and Stealth BioTherapeutics (Shanghai) Limited are referred to as the “Company.” The Company is a clinical stagebiotechnology company focused on the discovery and development of novel pharmaceutical agents to treat patients suffering from diseases involvingmitochondrial dysfunction through its mitochondrial medicine platform. The consolidated financial statements include the assets and liabilities andoperating results of the Company and its wholly owned subsidiaries. Since inception, the Company has devoted substantially all of its efforts to research anddevelopment, business planning, acquiring operating assets, seeking intellectual property protection for its technology and product candidates, and raisingcapital.The Company has entered into numerous debt and equity issuances with Morningside Venture Investments Limited (“MVIL”). As of December 31,2018, MVIL held approximately 98% of the Company’s outstanding shares. The Company has incurred net losses and negative cash flows from operationsin each year since inception and had an accumulated deficit of $426.3 million as of December 31, 2018. The Company has financed its operations to datefrom the issuance of preferred shares, ordinary shares, convertible debt, as well as long term debt.On February 20, 2019, the Company closed its initial public offering (“IPO”), in which it issued and sold 6,500,000 American depositary shares(“ADS”), each representing 12 ordinary shares, for a total of 78,000,000 ordinary shares. The price to the public was $12.00 per ADS. The Companyreceived gross proceeds of $78.0 million from the IPO. On March 4, 2019, the Company issued an additional 588,232 ADSs in connection with theunderwriters’ partial exercise of their over-allotment option, pursuant to which the Company raised additional gross proceeds of $7.1 million. Net proceedsafter deducting underwriting discounts and commissions of $6.0 million and offering expenses of approximately $2.2 million were $76.9 million. Uponclosing of the IPO, all shares of the Company’s outstanding Series A convertible preferred shares (“Series A preferred shares”) automatically converted into91,600,398 ordinary shares and the outstanding convertible notes payable, including principal, interest and premium thereon, converted into 175,210,373ordinary shares. See Notes 8 and 9 regarding the terms of the convertible notes payable and Series A preferred shares.Liquidity and Going ConcernThese consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement ofliabilities in the normal course of business. Since its inception, the Company has incurred recurring losses, including net losses of $96.7 million for the yearended December 31, 2018. The Company expects to continue to incur operating losses in the foreseeable future.Management believes that cash and cash equivalents of $10.9 million at December 31, 2018, together with $5.0 million received in January 2019from the balance of the note purchase agreement (the “2018 MVIL Note”), net proceeds of $76.9 million received in 2019 through its IPO and theMarch 29, 2019, amendment to the existing Loan and Security Agreement (“LSA”) providing an additional interest-only period of six months (Note F-7Table of Contents18) will be sufficient to meet its cash commitments for the next 12 months after the date that the financial statements are issued.The process of drug development can be costly and the timing and outcomes of clinical trials is uncertain. The assumptions upon which the Companyhas based its estimates are routinely evaluated and may be subject to change. The actual amount of the Company’s expenditures will vary depending upon anumber of factors including, but not limited to the design, timing and duration of future clinical trials, the progress of the Company’s research anddevelopment programs, the infrastructure to support a commercial enterprise, the cost of a commercial product launch, and the level of financial resourcesavailable. The Company has the ability to adjust its operating plan spending levels based on the timing of future clinical trials, the timing of commerciallaunch activities and certain research and discovery programs which may be predicated upon adequate funding.The Company will need to raise additional capital in order to continue to fund operations and fully fund later stage clinical development programs.The Company believes that it will be able to obtain additional working capital through equity financings or other arrangements to fund future operations;however, there can be no assurance that such additional financing, if available, can be obtained on terms acceptable to the Company. If the Company isunable to obtain such additional financing, future operations would need to be scaled back or discontinued. 2.Summary of Significant Accounting PoliciesBasis of Presentation and Use of EstimatesThe accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the UnitedStates of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to authoritative GAAP, as found in the AccountingStandards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The preparation offinancial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates related to, but not limited to, estimatesrelated to fair value of ordinary share, share-based compensation expense, recoverability of the Company’s net deferred tax asset-related valuationallowances, and certain prepaid expenses and accrued expenses. The Company bases its estimates on historical experience and other market-specific orother relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ materially from those estimates orassumptions.The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), permits an “emerging growth company” such as the Company to take advantage ofan extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwiseapply to private companies. The Company has elected to avail itself of this exemption from new or revised accounting standards and, therefore, theCompany will not be subject to the same new or revised accounting standards as other public companies. As a result, the Company’s financial statementsmay not be comparable to the financial statements of reporting companies that are required to comply with the effective dates for new or revised accountingstandards that are otherwise applicable to public companies.The Company utilizes significant estimates and assumptions in determining the fair value of its ordinary shares. The Company utilized variousvaluation methodologies in accordance with the framework of the 2004 and 2014 American Institute of Certified Public Accountants Technical PracticeAids, Valuation of Privately-held Company Equity Securities Issued as Compensation, to estimate the fair value of its ordinary shares. Each valuationmethodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective andsubjective factors, including external market conditions affecting the biotechnology industry sector, the prices at which the Company sold preferred shares,the superior rights and preferences of securities senior to the Company’s ordinary shares at the time and the F-8Table of Contentslikelihood of achieving a liquidity event, such as an IPO or sale of the Company. Significant changes to the key assumptions used in the valuations couldresult in different fair values of ordinary shares at each valuation date and materially affect the consolidated financial statements.Principles of ConsolidationAll intercompany balances and transactions have been eliminated in consolidation.Segment InformationOperating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chiefoperating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. Management views the Company’soperations and manages its business as a single operating segment.Cash EquivalentsCash equivalents include highly liquid investments maturing within 90 days from the date of purchase. Cash equivalents consist primarily of U.S.government treasury funds at December 31, 2018 and 2017 and are valued at cost, which approximates fair value.Concentrations of Credit RiskFinancial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of money market funds and U.S.treasury funds. The Company places these investments in highly rated financial institutions and limits the amount of credit exposure to any one financialinstitution. These amounts at times may exceed federally insured limits. The Company has not experienced any credit losses in such accounts and does notbelieve it is exposed to any significant credit risk on these funds.Fair ValueFair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used tomeasure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs. The accountingstandard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that maybe used to measure fair value, which are the following:Level 1 —Quoted prices in active markets that are accessible at the market date for identical unrestricted assets or liabilities.Level 2 —Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices inmarkets that are not active; or other inputs for which all significant inputs are observable or can be corroborated by observable market data for substantiallythe full term of the assets or liabilities.Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.The Company’s financial instruments consist of cash equivalents, principally U.S. government securities, accounts payable, accrued expenses, termdebt, a derivative liability and a warrant liability. F-9Table of ContentsManagement believes that the carrying amounts of the Company’s cash equivalents, accounts payable and accrued expenses approximate the fairvalue due to the short term nature of those instruments. The Company has classified these financial instruments as Level I. Cash equivalents as ofDecember 31, 2018 and 2017 were $10.7 and $4.0 million, respectively.The Company believes that its debt obligations bear interest at rates which approximate prevailing market rates for instruments with similarcharacteristics and, accordingly, the carrying values for these instruments approximate fair value. The debt fair value measurements are considered Level 2in the fair value hierarchy.The Company’s warrant liability is carried at fair value determined according to the fair value hierarchy described above and classified as a Level 3measurement.The Company’s derivative liability is carried at fair value determined according to the fair value hierarchy described above and classified as a Level 3measurement.As of December 31, 2018, the Company had a term loan outstanding (see Note 7), the fair value of which is measured using Level 2 inputs and awarrant liability, which is measured using Level 3 inputs. The Company evaluates transfers between levels at the end of each reporting period. There wereno transfers of financial instruments between levels during the years ended December 31, 2018 and 2017. The change in fair value of the warrant is includedin other income (expense).Property and EquipmentProperty and equipment are stated at cost, net of accumulated depreciation and amortization. Major improvements are capitalized as additions toproperty and equipment, whereas expenditures for maintenance and repairs, which do not improve or extend the life of the respective assets, are charged tooperating expenses as incurred.Depreciation and amortization is recorded using the straight-line method over the estimated useful lives of the respective assets, which are as follows: Asset Estimated useful lifeComputer equipment and software 3 yearsFurniture, fixtures, and other 5 yearsLaboratory equipment 5 yearsLeasehold improvements Shorter of useful life or term of leaseImpairment of Long-lived AssetsThe Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assetmay not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to the undiscounted expected future cash flowsthe assets are expected to generate and recognizes an impairment loss equal to the excess of the carrying value over the fair value of the related asset. Forthe years ended December 31, 2018 and 2017, no impairments have been recorded.Operating LeasesThe Company leases facilities under a non-cancelable operating lease agreement. The lease agreement contains free or escalating rent paymentprovisions. The Company recognizes rent expense under such leases on a straight-line basis over the term of the lease with the difference between theexpense and the payments recorded F-10Table of Contentsas deferred rent on the consolidated balance sheets. Any reimbursements by the landlord for tenant improvements are considered lease incentives, thebalance of which is recorded as a lease incentive obligation within deferred rent on the consolidated balance sheets and amortized over the life of the lease.Lease renewal periods are considered in determining the lease term.Convertible Preferred SharesThe Company classifies convertible preferred shares as temporary equity in the consolidated balance sheets due to certain change in control clausesthat are outside of the Company’s control, including liquidation, sale, or transfer of control of the Company, as holders of the convertible preferred sharescould cause redemption of the shares in these situations.Research and Development CostsCosts incurred in connection with research and development activities are expensed as incurred. Research and development expenses include(i) employee-related expenses, including salaries, benefits, travel and share-based compensation expense; (ii) external research and development expensesincurred under arrangements with contract research organizations and contract manufacturing organizations, investigational sites and consultants, includingshare-based compensation expense for consultants; (iii) the cost of acquiring, developing and manufacturing clinical study materials; and (iv) costsassociated with preclinical and clinical activities and regulatory operations. Non-refundable advance payments for goods or services to be received in thefuture for use in research and development activities are capitalized and recorded in the accompanying consolidated balance sheets as prepaid research anddevelopment. The capitalized amounts are expensed as the related goods are delivered or the services are performed. If expectations change such that theCompany does not expect it will need the goods to be delivered or the services to be rendered, capitalized non-refundable advance payments would becharged to expense.The Company enters into consulting, research and other agreements with commercial entities, researchers, universities and others for the provision ofgoods and services. Under such agreements, the Company may pay for services on an hourly, monthly, quarterly, project or other basis. Such arrangementsare generally cancellable upon reasonable notice and payment of costs incurred. Costs are considered incurred based on an evaluation of the progress tocompletion of specific tasks under each contract using information and data provided by the Company’s clinical sites and vendors. These costs consist ofdirect and indirect costs associated with specific projects, as well as fees paid to various entities that perform certain research on behalf of the Company.Depending upon the timing of payments to the service providers, the Company recognizes prepaid expenses or accrued expenses related to thesecosts. These accrued or prepaid expenses are based on management’s estimates of the work performed under service agreements, milestones achieved andexperience with similar contracts. The Company monitors each of these factors and adjusts estimates accordingly.Share-based CompensationThe Company accounts for share-based compensation awards as compensation expense based on their grant date fair values. For share-based awardsgranted to employees, the Company allocates share-based compensation expense on a straight-line basis over the associated service or vesting period. Fornon-employees the compensation expense is generally recognized during the period in which services are rendered. At the end of each financial reportingperiod prior to completion of the service, the fair value of these awards is remeasured using the then current fair value of the Company’s ordinary shares andupdated assumption inputs in the Black-Scholes option-pricing model (“Black-Scholes”). The Company recognizes compensation expense for the portion ofawards that have vested each period. Share-based compensation is classified in the accompanying consolidated statements of operations within research anddevelopment or general and administrative operating expenses depending on where the related services are provided. F-11Table of ContentsThe Company estimates the fair value of its share options using Black-Scholes, which requires the input of subjective assumptions, including(a) expected share price volatility, (b) expected term of the award, (c) risk-free interest rate, (d) expected dividends and (e) estimated fair value of itsordinary shares on the measurement date. Due to the lack of a public market for the trading of its ordinary shares and a lack of Company specific historicaland implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies, which arepublicly traded. When selecting these public companies on which it has based its expected share price volatility, the Company selected companies withcomparable characteristics to it, including enterprise value, risk profiles, position within the industry and with historical share price information sufficient tomeet the expected term of the share-based awards. The Company computes historical volatility data using the daily closing prices for the selectedcompanies’ shares during the equivalent period of the calculated expected term of the share-based awards. The expected term of options granted representsthe weighted average of previously transacted awards plus the minimum and maximum expected life of the outstanding awards based on vesting and expiry.The expected term for nonemployee awards is the remaining contractual term of the option. The risk-free interest rates are based on the U.S. Treasurysecurities with a maturity date commensurate with the expected term of the associated award. The Company has never paid and does not expect to paydividends in the foreseeable future.The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from its estimates.The Company uses historical plan data to estimate forfeitures and records share-based compensation expense only for those awards that are expected tovest. Share-based compensation expense recognized in the consolidated financial statements is based on awards that are ultimately expected to vest.Income TaxesDeferred income taxes are recorded using an asset and liability approach. The Company records deferred tax assets and liabilities based on differencesbetween financial reporting and tax bases of assets and liabilities which are measured using the enacted tax rates and laws that will be in effect when thedifferences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of thedeferred tax asset will not be realized.When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not berealized, which is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. As of December 31,2018 and 2017, the Company does not have any material uncertain tax positions.Guarantees and IndemnificationThe Company indemnifies its officers and directors for certain events or occurrences that happen by reason of the relationship with, or position heldat, the Company. The Company has not experienced any losses related to these indemnification obligations, and no claims are outstanding.Comprehensive LossComprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstancesfrom non-owner sources. Comprehensive loss is equal to net loss for all periods presented.Net Loss Per Share Attributable to Ordinary ShareholdersBasic net loss per share attributable to ordinary shareholders is calculated by dividing net loss attributable to ordinary shareholders by the weightedaverage shares outstanding during the period, without consideration for F-12Table of Contentsordinary share equivalents. During periods of income, the Company allocates participating securities a proportional share of income determined by dividingtotal weighted average participating securities by the sum of the total weighted average ordinary shares and participating securities (the “two-classmethod”). The Company’s convertible preferred shares participate in any dividends declared by the Company and are, therefore, considered to beparticipating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. Duringperiods of loss, the Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company.Diluted net loss per share attributable to ordinary shareholders is calculated by adjusting weighted average shares outstanding for the dilutive effect ofordinary share equivalents outstanding for the period, determined using the treasury-share and if-converted methods. For purposes of the diluted net loss pershare attributable to ordinary shareholders’ calculation, convertible preferred shares, share options, warrants and convertible notes are considered to beordinary share equivalents, but have been excluded from the calculation of diluted net loss per share attributable to ordinary shareholders, as their effectwould be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share are the same for all periods presented.Deferred Offering CostsThe Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financingsas deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in shareholders’deficit as a reduction of proceeds generated as a result of the offering. Should a planned equity financing be abandoned, the deferred offering costs would beexpensed immediately as a charge to operating expenses in the consolidated statement of operations.During 2018, the Company deferred offering costs of $1.3 million related to the IPO that closed in 2019. Upon the closing of the IPO, these costswere recorded in shareholders’ equity as a reduction of additional paid-in capital.Recent Accounting PronouncementsRecently issued accounting pronouncements not yet adoptedIn February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new guidance most significantly impacts lesseeaccounting and disclosures but also requires enhanced disclosures for lessors. The guidance requires lessees to identify arrangements that should beaccounted for as leases. For lease arrangements exceeding a 12-month term, a right-of-use asset and lease obligation is recorded by the lessee for all leases,whether operating or financing, while the statement of operations reflects lease expense for operating leases and amortization and interest expense forfinancing leases. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The Company will adoptthe new standard effective January 1, 2020. The Company is evaluating the impact of this new standard on its consolidated financial statements and relateddisclosures.In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-BasedPayment Accounting (“ASU No. 2018-07”). These amendments expand the scope of Topic 718, Compensation—Stock Compensation (which currently onlyincludes share-based payments to employees) to include share-based payments issued to non-employees for goods or services. Consequently, the accountingfor share-based payments to non-employees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity—Equity-BasedPayments to Non-Employees. The Company will adopt the new standard effective January 1, 2020. The Company is evaluating the impact of this newstandard on its consolidated financial statements and related disclosures. F-13Table of ContentsRecently adopted accounting pronouncementsIn March 2016, the FASB issued ASU No. 2016-09 Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), whichsimplifies share-based payment accounting through a variety of amendments. The standard was effective for annual periods beginning after December 15,2016 and for interim periods within those fiscal years. The changes resulting from the adoption of this standard impact the accounting for income taxes,accounting for forfeitures, statutory tax withholding and the presentation of statutory tax withholding on the statement of cash flows. The Company adoptedthis standard on January 1, 2017. Under guidance within ASU 2016-09, excess tax benefits and deficiencies are to be recognized as income tax expense orbenefit in the statement of operations in the period in which they occur rather than as an increase or decrease in stockholders’ equity (deficit). Since theCompany maintains a full valuation allowance on its net deferred tax asset, there is no net impact to its accumulated deficit or its net loss resulting from theadoption of this standard. Also under the guidance in ASU 2016-09, an entity may elect to account for forfeitures as they occur or continue to estimate thetotal number of awards that are vested or expected to vest. The Company has elected to continue to estimate its forfeitures. The adoption of this standard didnot have a material impact on the Company’s financial position, results of operations or statement of cash flows.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”): Classification of Certain Cash Receiptsand Cash Payments . This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Companyadopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on its consolidated financial statements and relateddisclosures.In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting (“ASUNo. 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the newguidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changesas a result of the change in terms or conditions. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have amaterial impact on its consolidated financial statements and related disclosures. 3.Fair Value of Financial Assets and LiabilitiesFair Value HierarchyThe following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicatethe level of the fair value hierarchy utilized to determine such fair values as of December 31, 2018 and December 31, 2017: Fair Value Measurements as of December 31, 2018 using: Level 1 Level 2 Level 3 Total Assets: Short-term U.S. Treasury securities $10,709,767 $— $— $10,709,767 Total financial assets $10,709,767 $— $— $10,709,767 Liabilities: Derivative liability $— $— $36,567,454 $36,567,454 Warrant liability — — 100,000 100,000 Total financial liabilities $— $ — $36,667,454 $36,667,454 F-14Table of Contents Fair Value Measurements as of December 31, 2017 using: Level 1 Level 2 Level 3 Total Assets: Short-term U.S. Treasury securities $ 4,018,804 $ — $— $ 4,018,804 Total financial assets $4,018,804 $— $— $4,018,804 Liabilities: Warrant liability $— $— $512,618 $512,618 Total financial liabilities $— $— $ 512,618 $512,618 As of December 31, 2018 and 2017, the carrying amounts of cash, accounts payable, and accrued expenses approximated their estimated fair valuesbecause of the short-term nature of these financial instruments. The Company’s cash equivalents, which are in money market funds and U.S. treasurysecurities, are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices as of December 31, 2018 and 2017.As of December 31, 2018 and 2017, the outstanding debt from a LSA with a lender, which permitted the Company to borrow up to an aggregateprincipal amount of $40.0 million through a multiple tranche term loan (the “Loan”) (see Note 7), and convertible debt obligations (Note 8) bear interest atrates which approximate prevailing market rates for instruments with similar characteristics and, accordingly, the carrying values for these instrumentsapproximate fair value.Warrant LiabilityAs consideration for the Company’s Loan (see Note 7), the Company and the lender entered into a warrant agreement. The warrant was recorded as aliability at fair value upon issuance. The warrant is recorded at fair value on the Company’s consolidated balance sheet as a liability and discount to theLoan. It is subject to revaluation at each balance sheet date, and any changes in value are recorded as a component of gain or loss from valuation of warrantliability, until the earlier of their exercise or expiration or upon the completion of a liquidation event.The estimated fair value of the warrant (“Warrant”), was remeasured as of December 31, 2017 using a Black-Scholes model with the followingassumptions: volatility of 67.3%, expected term of 9.5 years, risk-free interest rate of 2.4%, fair value of Series A preferred shares of $2.28 and a zerodividend yield. The resulting estimated fair value of the warrant liability was $512,618.In December 2018, the Company revised its valuation model for the warrant to consider various liquidity scenarios. The scenarios were based on theprobability and estimated timing of a liquidity event including the following; short term IPO at 50%, long term IPO at 20%, equity financing at 10% or asale of the Company at 20%.The Company then used a Black-Scholes model which incorporates assumptions and estimates, to value the warrant under the various liquidityscenarios. The estimated fair value of the warrant as of December 31, 2018, used the following assumptions: average volatility of 65%, expected term of 7.1years, average risk-free interest rate of 2.6%, fair value of ordinary shares of $1.05, fair value of Series A preferred shares of $2.31 and a zero dividendyield. The resulting estimated fair value of the warrant liability was $100,000. F-15Table of ContentsThe following table presents our warrant liability measured at fair value using Level 3 inputs as of the years ended December 31, 2018 and 2017: Fair value at January 1, 2017 $— Issuance of warrant 548,075 Change in fair value of warrant liability (35,457) Fair value at December 31, 2017 512,618 Change in fair value of warrant liability (412,618) Fair value at December 31, 2018 $100,000 Significant increases or decreases in any of the probabilities of success or changes in expected timelines for achievement of any of these scenarioscould result in a significantly higher or lower fair value of the liability.Derivative LiabilityDuring 2018, the Company entered into a number of note purchase agreements (see Note 8) in which it concluded that certain of the redemption andconversion features within the agreements met the bifurcation criteria under ASC 815 , Derivatives and Hedging , and therefore should be accounted forseparately from the debt (“Derivative Liability”). The Derivative Liability is recorded at fair value on the Company’s consolidated balance sheet as aliability and subject to revaluation at each balance sheet date, and any changes in value are recorded as a component of gain or loss in the change invaluation of derivative liability on the statements of operations.In January 2018, upon the issuance of the first note in the amount of $15.0 million as well as the exchange note of $52.4 million, the identifiedembedded derivatives were initially valued using a Monte Carlo simulation. The simulation took into consideration the probability of four scenarios:subsequent financing at 10% probability, short term IPO at 20% probability, long term IPO at 50% probability, and change of control at a 20% probability.Other assumptions included a forecast horizon of 2.0 years, the present value of the Company’s equity, and expected volatility of 82%. The resulting fairvalue of the derivatives was $19.3 million.In April 2018, upon the issuance of the second note in the amount of $5.0 million, the embedded derivative was initially valued using a Monte Carlosimulation. The simulation took into consideration the probability of four scenarios: subsequent financing at 10% probability, short term IPO at 30%probability, long term IPO at 40% probability, and change of control at a 20% probability. Other assumptions included a forecast horizon of 1.8 years, thepresent value of the Company’s equity, and expected volatility of future equity of 83%. The resulting derivative fair value was $1.4 million.In May 2018, upon the issuance of additional notes in the amount of $30.0 million, the embedded derivatives were initially valued using a MonteCarlo simulation. The simulation took into consideration the probability of four scenarios: subsequent financing at 10% probability, short term IPO at 40%probability, long term IPO at 30% probability, and change of control at a 20% probability. Other assumptions included a forecast horizon of 1.6 years, thepresent value of the Company’s equity, and expected volatility of future equity of 79%. The resulting derivative fair value was $11.2 million.As of December 31, 2018, the fair value of the total Derivative Liability for the January through May notes totaling $102.4 million was re-measuredusing the Monte Carlo simulation. The simulation took into consideration the probability of four scenarios: subsequent financing at 10% probability, shortterm IPO at 50% probability, long term IPO at 20% probability, and change of control at a 20% probability. Other assumptions included the present value ofthe Company’s equity, the expected volatility of future equity at 64%, an annualized risk free rate of 2.7% and a forecast horizon of 1.75 years. Theresulting fair value of the derivative was $32.8 million. F-16Table of ContentsIn October 2018, upon the issuance of additional notes in the amount of $15.0 million, the embedded derivatives were initially valued using theordinary share value of the Company of $1.53. This alternative method was utilized because the new note did not contain subsequent financing or change ofcontrol conversion features. The probabilities and timing of three IPO scenarios were as follows: no IPO at 30% probability, short term IPO at 20%probability with time to IPO of 0.17 years and long term IPO at 50% probability with a time to IPO of 0.41 years. The resulting derivative fair value was$2.4 million.In December 2018, upon the issuance of additional notes in the amount of $10.0 million, the embedded derivatives were initially valued using theordinary share value of the Company of $1.05 and the probabilities and timing of three scenarios: no IPO at 30% probability, short term IPO at 40%probability with time to IPO of 0.16 years and long term IPO at 30% probability with time to IPO of 1.4 years. The resulting derivative fair value was$1.5 million.As of December 31, 2018, the fair value of the total Derivative Liability for the October through December notes totaling $25.0 million wasre-measured using the fair value of the Company’s ordinary shares of $1.05 and the probabilities and timing of three scenarios: no IPO at 30% probability,short term IPO at 50% probability with time to IPO of 0.16 years and a long term IPO at 20% probability with time to IPO of 1.40 years. The resulting fairvalue of the derivative was $3.8 million.The following table presents our Derivative Liability measured at fair value using Level 3 inputs as of the year ended December 31, 2018: Fair value at January 1, 2018 $— Issuance of debt 35,883,536 Change in fair value of derivative liability 683,918 Fair value at December 31, 2018 $36,567,454 Significant increases or decreases in any of the probabilities of success or changes in expected timelines for achievement of any of these scenarioscould result in a significantly higher or lower fair value of the liability.There have been no transfers between fair value measure levels during the years ended December 31, 2018 and 2017. 4.Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets consist of the following: As of December 31, 2018 2017 Research and development $2,085,609 $1,527,711 Prepaid insurance 94,662 49,013 Other 257,881 224,479 Total $2,438,152 $1,801,203 F-17Table of Contents5.Property and Equipment, NetProperty and equipment, net consists of the following: As of December 31, 2018 2017 Computer equipment and software $366,556 $354,903 Furniture, fixtures and other 718,955 718,955 Laboratory equipment 376,805 376,806 Leasehold improvements 374,097 374,097 1,836,413 1,824,761 Accumulated depreciation (1,337,862) (1,028,821) Property and equipment, net $498,551 $795,940 Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $309,041, $346,872 and $312,537, respectively. 6.Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consist of the following: As of December 31, 2018 2017 Research and development $7,829,748 $9,272,095 Employee compensation costs 2,485,516 2,060,991 Consulting and professional services 2,334,731 542,436 Legal expenses 741,598 407,923 Deferred rent 122,329 165,373 Other 312,128 71,202 Total $13,826,050 $12,520,020 7.DebtTerm LoanIn June 2017, the Company entered into a LSA with a lender which permits the Company to borrow up to an aggregate principal amount of$40.0 million through a multiple tranche Loan. The tranche advances are based on the Company achieving certain performance milestones as defined in theLSA. Upon closing of the Loan, the Company drew the first tranche less expenses, which resulted in net proceeds of $12.1 million. In September 2017, theCompany drew the second tranche advance of $2.5 million upon achieving the first milestone. In March 2018, the Company drew the third tranche advanceof $5.0 million upon achieving a second milestone, bringing the total gross amount borrowed to $20.0 million as of December 31, 2018.The Loan included a $200,000 facility charge, which was paid to the lender on the closing date. The Company paid a $30,000 due diligence fee priorto the Loan closing, and the Company incurred additional cash expenses of $362,783 related to the Loan. These three amounts were all recorded as a debtdiscount and are being amortized as interest expense using the effective interest method over the life of the Loan. The Loan also includes an end of termcharge equal to the greater of $750,000 or 5% of the aggregate principal amount of all advances. The end of term charge is being accrued and recorded tointerest expense over the life of the Loan using the effective interest method. F-18Table of ContentsThe Loan bears interest at the greater of (i) the prime rate plus 5.5% or (ii) 9.5%. As of December 31, 2018, the interest rate was 11.00%. Interestaccrues from the closing date and interest payments are due monthly in arrears on the first of the month. Payments under the Loan are interest only for thefirst 12 months after closing, followed by a 30-month amortization period of principal and interest that was initially scheduled to begin on August 1, 2018and continue through the scheduled maturity date of January 1, 2021. During 2018, the Loan was amended to, among other things, postpone the principalpayments to December 1, 2018 and possibly further to April 30, 2019 depending upon the achievement of certain milestones. These amendments to theLoan (Note 18) were accounted for as a debt modification. For consideration of the amendments, the Company agreed to pay an additional end of termcharge of $250,000 at maturity, which is being accrued and recorded to interest expense over the life of the loan using the effective interest method.The Company’s obligations to the lender are secured by a first priority security interest in substantially all of its assets, excluding intellectual property(“IP”). The lender maintains a negative pledge on IP with a security interest in the proceeds of the sale of the IP. The Loan contains certain covenantsrelated to restrictions on payments for certain investments, additional debt, distributions and transfers. In connection with the LSA, the Company wasrequired to enter into separate deposit account control agreements with the lender in order to perfect the lender’s security interest in the cash collateral in theCompany’s operating accounts. In the event of a default under the LSA, the lender would have the right to take control of the operating account(s) andrestrict the Company’s access to the operating account(s) and the funds therein.As consideration for the Loan, the Company and the lender entered into a warrant agreement pursuant to which the lender, as Warrant holder, has theright to purchase a quantity of shares equal to the quotient derived by dividing (a) the Warrant coverage by (b) the exercise price. Warrant coverage meansthe greater of (a) $312,500 plus 2.5% of future tranche advances in the event all or part of the tranches are funded or (b) $375,000. The exercise price is(a) the purchase price of Series A preferred shares, $2.30769 per share, or (b) the price per share paid in the next equity round of financing of ordinaryshares or preferred shares, which results in aggregate gross proceeds of at least $30 million. As of December 31, 2018, the exercise price, share type andamount of shares had not been fully defined. In February 2019, as a result of the closing of the Company’s IPO, the Warrant was defined at 500,000ordinary shares with an exercise price of $1.00 per share.The Warrant was exercisable beginning in June 2017, in whole or in part, and expires in 2027. The Warrant was recorded as a liability and a discountto the debt. The discount on the debt is being amortized through interest expense using the effective interest rate method over the remaining term of theLoan. See Note 3 for fair value considerations and disclosures.In addition, the lender can declare a material adverse effect while monitoring our business, operations, properties, assets or financial condition. Amaterial adverse effect is considered an event of default under the LSA. In the event of default, repayment of amounts due under the Loan may beaccelerated by the lender.Future principal payments under the Loan as of December 31, 2018 are as follows: 2019 $8,700,670 2020 9,716,371 2021 896,412 Total future principal payments 19,313,453 Less unamortized debt discount 531,547 Total balance, balance sheet $18,781,906 Term loan—current portion $8,464,609 Term loan—non-current portion 10,317,297 Total balance, balance sheet $18,781,906 Interest expense related to the Loan for the year ended December 31, 2018 and 2017 was $2,900,459 and $1,035,493, respectively. Accrued interestas of December 31, 2018 and 2017 was $806,323 and $279,463, respectively. F-19Table of Contents8.Convertible Notes Payable and MVIL Demand Note ReceivableFor the year ended December 31, 2016, the Company recorded $763,995 of interest income from a MVIL demand note receivable that was paid infull during 2016.During 2017, the Company issued six convertible promissory notes payable to MVIL, resulting in proceeds of $50.0 million (the “2017 MVILNotes”). The notes accrue interest at 8% per annum. Effective upon the closing of a qualified financing, as defined, the outstanding principal and accruedinterest will automatically convert into shares of the same class and series of our shares issued to other investors in the qualified financing. MVIL also hasthe right to convert some or all of the outstanding amount into shares of Series A preferred shares at a conversion price of $2.30769 after December 31,2018. In January 2018, the Company entered into a note exchange agreement with MVIL in the amount of $52.4 million, which represents the totalprincipal and accrued interest of the 2017 MVIL Notes at the time of the execution of the note exchange agreement. The exchange terminated the 2017MVIL Notes and created a new convertible note under substantially the same terms as the notes described in the following paragraph. The note exchangeagreement was accounted for as a debt extinguishment and resulted in no gain or loss upon recognition of the new debt.In January 2018, the Company entered into a note purchase agreement with investors (as amended, the “2018 Agreement”), whereby the Companymay borrow an aggregate principal amount of $30.0 million in exchange for notes convertible into ordinary shares of the Company. In April 2018, the notepurchase agreement was amended to allow the Company to borrow up to $65.0 million in the aggregate. Between January and May 2018, the Companyissued notes in an aggregate principal amount of $50.0 million (the “2018 New Investor Notes”). The 2018 New Investor Notes accrue interest at 7% perannum. Accrued interest on the 2018 New Investor Notes compounds annually. The 2018 New Investor Notes, as amended, are convertible upon (i) theclosing of an initial public offering or (ii) a subsequent financing occurring after January 10, 2019. Effective upon the closing of a qualified financing, asdefined, the outstanding principal and accrued interest plus a 25% premium, defined as the sum of principal plus interest multiplied by 25%, willautomatically convert into shares of the same class and series of our shares issued to other investors in the qualified financing. The 2018 Investor Notesconverted in accordance with their terms upon the closing of our IPO.The Company evaluated the 2018 New Investor Notes as well as the exchange agreement and concluded that certain of the redemption andconversion features met the bifurcation criteria under ASC 815, Derivatives and Hedging and should be accounted for separately from the debt.The derivative liability is recorded at fair value on the Company’s consolidated balance sheet as a liability and subject to revaluation at each balancesheet date, and any changes in value are recorded as a component of gain or loss in the change in valuation of derivative liability on the statements ofoperations. The initial values of the derivative, along with legal fees, were recorded as a debt discount and are being amortized as interest expense using theeffective interest method over the life of the note. See Note 3 for fair value considerations and disclosures.In October 2018, the Company entered into the 2018 MVIL Note, whereby the Company may borrow an aggregate principal amount of up to$30.0 million, of which it has borrowed $25.0 million as of December 31, 2018. The notes contain similar terms as the notes described in the paragraphabove describing the 2018 New Investor Notes except that a qualified financing is limited to a U.S. IPO and that there is no change of control conversionfeature. The 2018 MVIL Note is convertible upon a qualified initial public offering of the Company’s ordinary shares in the United States at the initialpublic offering price per share. Effective upon the closing of a qualified financing, the outstanding principal and accrued interest plus a 25% premium ofsuch principal and interest will automatically convert into shares of the same class and series of our shares issued to other investors in the qualifiedfinancing. The 2018 MVIL Note accrues interest at 7% per annum and accrued interest compounds annually, and upon such compounding, is added to theoutstanding principal amount. The 2018 MVIL Note converted in accordance with its terms upon the closing of our IPO. F-20Table of ContentsFuture principal payments under the notes as of December 31, 2018 are as follows: MVIL 2018 NewInvestor Notes Total 2021 77,357,333 50,000,000 127,357,333 Total future principal payments 77,357,333 50,000,000 127,357,333 Less unamortized debt discount 12,613,779 11,486,425 24,100,204 Total balance, balance sheet $64,743,554 $38,513,575 $103,257,129 Interest expense related to the principle on the convertible notes payable for the years ended December 31, 2018, 2017 and 2016, was $6,595,727,$2,246,222 and $0, respectively.Interest expense related to the debt discount amortization was $11,861,010 for the year ended December 31, 2018. 9.Convertible Preferred SharesAt December 31, 2018 and 2017, the Company had authorized 106,666,667 shares of Series A preferred shares, $0.0003 par value, and there were91,600,398 shares issued and outstanding.The rights and preferences of the Series A preferred shares are as follows:Conversion —At any time at the holder’s request and automatically upon the closing of a qualified IPO or sale of the Company, Series A preferredshares are convertible into ordinary shares at a ratio which is computed by dividing the original issue price by the applicable conversion price. A qualifiedIPO is defined under the Company’s Amended and Restated Memorandum and Articles of Association as a fully underwritten public offering of ordinaryshares in which aggregate gross proceeds equal or exceed $35 million pursuant to an effective registration statement under the Securities Act or in ajurisdiction outside of the United States. The initial conversion price of $2.30769 may be adjusted if and whenever the Company subsequently issues orsells ordinary shares or Series A preferred shares at a per share price that is less than the conversion price in effect at that time. At December 31, 2018, theapplicable conversion ratio was 1:1.Dividends —Series A preferred shares are entitled to receive, when and as declared by the board of directors, preferential cash dividends at a rate atleast equal to 8% of the original issue price. Such dividends are not cumulative. No dividends have been declared.Redemption Rights —Series A preferred shares do not have any stated redemption rights.Liquidation Rights —In the event of a liquidation, dissolution, or winding-up of the Company, Series A preferred shares shall be paid first out oflegally available funds available for distribution to holders of the Company’s capital share an amount equal to $2.30769 per share, plus all declared butunpaid dividends with respect to each such shares, as adjusted for any share dividend, share split, recapitalization, or other similar event. After payment ofall preferential amounts, any assets and funds of the Company that remain available shall be distributed on a pro rata basis among the holders of ordinaryshares.Voting Rights —Series A preferred shares are entitled to the number of votes equal to the number of ordinary shares into which the Series A preferredshares are convertible. Preferred and ordinary shareholders vote together as a single class except for the election of the Company’s board of directors. Forsuch election, holders of Series A preferred shares have the right to elect two directors and the holders of ordinary shares have a right to appoint onedirector. F-21Table of Contents10.Shareholders’ EquityOrdinary SharesAt December 31, 2018 and 2017, 203,333,333 ordinary shares, $0.0003 par value, were authorized for issuance, and 68,487,948 and 68,474,614ordinary shares were issued and outstanding, respectively.In January 2017, the Company issued a warrant to purchase 231,989 ordinary shares to an affiliate of the interim chief financial officer of StealthBioTherapeutics Inc. at an exercise price of $1.38 per share. The warrant was fully vested as of December 31, 2017 and expires in January 2022. TheCompany recorded an expense of $156,983 within general and administrative expenses in the accompanying consolidated statement of operations for theyear ended December 31, 2017. In June 2018, the warrant was amended and restated to be treated as an option agreement under the Company’s 2006 ShareIncentive Plan (the “2006 Plan).The voting, dividend and liquidation rights of holders of ordinary shares are subject to and qualified by the rights, powers and preferences of holdersof Series A preferred shares. The rights and preferences of ordinary shares are as follows:Voting —Holders are entitled to one vote for each ordinary share held at all meetings of shareholders and written action in lieu of meetings; there isno cumulative voting.Dividends —Holders are entitled to receive dividends, if and when declared by the board of directors. Cash dividends may not be declared or paid toholders until paid on Series A preferred shares in accordance with its terms. No dividends have been declared.Liquidation —After payment to the holders of Series A preferred shares of its liquidation preference, the holders of ordinary shares are entitled toshare in the Company’s assets available for distribution on a pro rata basis, in the event of any voluntary or involuntary liquidation, dissolution or windingup of the Company or upon the occurrence of a deemed liquidation event.The Company has reserved for future issuance the following number of ordinary shares as of December 31, 2018: 2006 Share Incentive Plan 25,502,748 Conversion of Series A preferred shares 91,600,398 Conversion of Series A preferred shares warrant 216,667 Total 117,319,813 11.Share Incentive PlanThe Company’s 2006 Plan provides for the grant of share options or other awards to employees, directors, advisors and consultants for the purchaseof up to 25,544,054 ordinary shares. Share options vest over varying schedules as determined by the Company’s board of directors and typically expire10 years from the date of grant. Certain options provide for accelerated vesting if there is a change in control, as defined in the 2006 Plan. At December 31,2018, there were 9,631,519 ordinary shares available for future grant under the 2006 Plan.In determining the exercise prices for options granted, the board of directors considered the fair value of ordinary shares as of the grant date, basedupon a variety of factors, including the results obtained from a third-party valuation, the Company’s financial position and financial performance, the statusof technological developments of the Company’s proposed products, the composition and ability of the current scientific and management team, anevaluation or benchmark of the Company’s competition, the illiquid nature of the ordinary shares, sales of capital share including convertible preferredshares, the effect of the rights and preferences of Series A preferred shares, and the prospects of a liquidity event. F-22Table of ContentsTotal share-based compensation expense is as follows: Year Ended December 31, 2018 2017 2016 Research and development $602,526 $722,277 $378,045 General and administrative 674,088 564,693 1,454,946 Total $1,276,614 $1,286,970 $1,832,991 As of December 31, 2018, total unrecognized compensation expense related to non-vested share options, net of related forfeiture estimates, was$1,984,027. The Company expects to recognize its remaining unrecognized share-based compensation expense over a weighted-average period ofapproximately 2.4 years.The fair value of each share option granted to employees and directors was estimated on the date of grant using the following assumptions: Year Ended December 31, 2018 2017 2016 Risk free interest rate 2.65% - 3.12% 1.89% - 2.83% 1.23% - 2.42% Expected dividend yield — — — Expected term (in years) 6.0 6.0 6.4 Expected volatility 59% 57% 50% Underlying fair value of ordinaryshares $1.05 $1.38 $1.14 The following table summarizes share option plan activity for the year ended December 31, 2018: Number of Shares Weighted- Average Exercise Price Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at December 31, 2017 14,789,031 $1.02 7.5 $3,580,527 Granted 2,091,572 $1.47 Exercised (13,333) $1.14 Cancelled or forfeited (996,042) $1.18 Outstanding at December 31, 2018 15,871,228 $1.06 6.7 $2,118,170 Exercisable at December 31, 2018 11,868,948 $0.94 6.1 $2,107,661 Vested and expected to vest at December 31, 2018 14,711,705 $1.03 6.5 $2,118,152 The weighted average grant date fair value per share for awards granted during the year ended December 31, 2018 and 2017, was $0.82 and $0.74,respectively. 12.401(k) Savings PlanIn 2014, the Company adopted a tax-qualified employee savings and retirement 401(k) Plan, covering all qualified employees. Eligible employeesmay make pretax contributions to the 401(k) Plan up to statutory limits. The Company contributes up to 3% of an employee’s annual salary, within statutorylimits. During the years ended December 31, 2018, 2017 and 2016, the Company contributed $300,747, $267,989 and $228,422, respectively. F-23Table of Contents13.License AgreementsIn 2006, the Company entered into a license agreement, as amended, with Cornell Research Foundation, Inc. (“Cornell”) and a research institute(collectively “licensor”) for certain intellectual property rights and, subsequently, entered into four additional license agreements with Cornell. Under theterms of the original license agreement, the Company issued an aggregate of 666,667 ordinary shares to Cornell between 2006 and 2009. The Company hasalso paid $60,000 in license fees. The Company is also required to pay royalties on the commercial sale of products that result from the licensed intellectualproperty, as well as a percentage of any sublicensing revenue. Subject to specified reductions and royalty offset, such royalties are calculated as a tiered,low-to-mid single digit percentage of net sales of licensed products under each of the license agreements, except that for licensed products under theoriginal agreement, such royalties are calculated as a tiered, low single-digit to sub-teen percentage of net sales, depending on patent coverage, amount ofnet sales and type of licensed product. Under this license agreement, if the Company fails to commercialize a product by December 31, 2020, the licensormay terminate the license, subject to specified exceptions for causes due to scientific, regulatory and other events over which the Company cannot exertdirect control. 14.Commitments and ContingenciesLease commitmentsThe Company’s U.S. subsidiary currently leases office space in Newton, Massachusetts under a lease that expires in November 2020 and has made asecurity deposit of $325,000, which is classified in other assets on the accompanying consolidated balance sheets.The Company has accounted for the lease as an operating lease. Rent expense was $564,895 for each of the years ended December 31, 2018, 2017and 2016. The expense is being recorded on a straight-line basis over the term of the lease. Incentives received from the landlord related to the operatinglease are recorded as deferred rent. As of December 31, 2018 and 2017, the Company recorded deferred rent of $122,329 and $165,373, respectively, whichis included in accrued expenses and other current liabilities on the accompanying consolidated balance sheet.Future minimum payments payable under all operating leases as of December 31, 2018 are as follows: Years Ending December 31, 2019 622,385 2020 582,659 Total minimum lease payments $1,205,044 15.Income TaxesAs a Cayman Islands entity, Stealth BioTherapeutics Corp is not currently subject to taxation. Stealth BioTherapeutics Inc. is subject to U.S. incometax and certain state income taxes.The following table presents domestic and foreign components of loss before income tax benefit for the periods presented: Year Ended December 31, 2018 2017 2016 Domestic $3,116,200 $1,598,933 $480,149 Foreign 93,596,287 81,310,894 60,569,333 Loss before income tax benefit $96,712,487 $82,909,827 $61,049,482 F-24Table of ContentsA reconciliation setting forth the differences between the Company’s effective tax rate and the U.S. statutory tax rate is as follows: Year Ended December 31, 2018 2017 2016 Income tax benefit at federal statutory rate $654,085 $557,206 $162,567 State and local income taxes net of federal tax benefit 521,854 254,703 334,773 Federal credits 1,267,306 1,298,890 881,381 Federal rate change — (280,090) — Nondeductible/nontaxable permanent items 76,615 (11,849) (15,353) Other (55,688) 1,406 21,169 Change in valuation allowance (2,464,172) (1,820,266) (1,384,537) Income tax benefit $— $— $— Effective tax rate 0.0% 0.0% 0.0% The significant components of the Company’s deferred tax assets are as follows: Year Ended December 31, 2018 2017 Deferred tax assets: Federal and state net operating loss carryforwards $663,213 $620,007 Credits 4,584,939 2,871,521 Deferred rent 29,444 39,817 Other accrued liabilities 754,442 55,961 Depreciation 21,685 2,245 Total deferred tax assets 6,053,723 3,589,551 Deferred tax liabilities: Other accrued liabilities — — Depreciation — — Total deferred tax liabilities — — Valuation allowance 6,053,723 3,589,551 Net deferred tax liability $— $— As of December 31, 2018, Stealth BioTherapeutics Inc. had federal and state net operating loss carryforwards of $2,978,866 and $715,508,respectively. The net operating loss carryforwards expire at various dates beginning in 2034 through 2038 for U.S. and state tax purposes.Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the netoperating loss carryforward period. As of December 31, 2018, the Company maintains a full valuation allowance for its deferred tax assets due touncertainty regarding their realization. Adjustments could be required in the future if the Company estimates that the amount of deferred tax assets to berealized is more or less than the net amount the Company has recorded. The valuation allowance increased $2,464,172 during the year ended December 31,2018 due primarily to the generation of net operating losses during the period and the recognition of potential research and development tax credits.The Company is not currently under any income tax examinations. Due to the Company’s net operating losses, all tax years generally remain open ineach jurisdiction. No interest or penalties have been recorded on F-25Table of Contentsany unrecognized tax benefits since its inception. The Company does not believe material uncertain tax positions have arisen to date.Under the provisions of Section 382 of the Internal Revenue Code of 1986, certain substantial changes in the Company’s ownership, including a saleof the Company, or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating losscarryforwards and tax credits, which could be used annually to offset future taxable income.On December 22, 2017, The Tax Cuts and Jobs Act (the “Act)” was enacted. The Act significantly revised the U.S. corporate income tax law bylowering the corporate Federal income tax rate from 35% to 21%. As of December 31, 2017, the Company has assessed the effects of the corporate ratereduction on its existing deferred tax balances which resulted in a $280,090 reduction in the deferred tax assets. Since the Company maintains a fullvaluation allowance on its deferred tax assets, a corresponding reduction in the valuation allowance equal to the effect of the rate reduction on the endingdeferred tax asset was also reflected. In addition to the rate reduction, the Act also requires companies with foreign subsidiaries to pay a one-time transitiontax on earnings that were previously tax deferred. As of December 31, 2018, the Company does not have previously deferred foreign earnings subject to thetransition tax. 16.Net Loss Per Share Attributable to Ordinary ShareholdersBasic and diluted net loss per ordinary share are calculated as follows: Year Ended December 31, 2018 2017 2016 Numerator: Net loss attributable to ordinary shareholders—basic anddiluted $(96,712,487) $(82,909,827) $(61,049,482) Denominator: Weighted-average ordinary shares used in net loss per shareattributable to ordinary shareholders—basic and diluted 68,476,149 68,472,262 68,165,325 Net loss per share attributable to ordinary shareholders—basicand diluted $(1.41) $(1.21) $(0.90) The following ordinary share equivalents, presented on an as converted basis, were excluded from the calculation of net loss per share for the periodspresented, as their effect is anti-dilutive: Year Ended December 31, 2018 2017 2016 Series A preferred shares 91,600,398 91,600,398 91,600,398 Series A preferred shares warrants 216,667 162,500 — Ordinary share warrants — 231,989 — Convertible notes payable and accrued interest from MVIL — 22,640,052 — Outstanding share options 15,871,228 14,789,031 10,953,667 Total 107,688,293 129,423,970 102,554,065 F-26Table of Contents17.Related PartyFor the years ended December 31, 2018, 2017 and 2016, the Company paid $234,108, $193,523 and $2,868, respectively, for consulting servicesprovided by an entity affiliated with its interim Chief Financial Officer.Except as disclosed elsewhere in the notes to the accompanying consolidated financial statements, there were no other material transactions withrelated parties. 18.Subsequent EventsIn connection with the closing of the Company’s IPO in February 2019, the board of directors approved a new equity compensation plan, the 2019Share Incentive Plan.In March 2019, the Company entered into an amendment to the existing LSA with the Lender providing, among other things, an additional interest-only payment period of six months beginning April 1, 2019. Additional performance milestones may allow for an extended interest-only period of up to sixadditional months.Except as disclosed above and elsewhere in the notes to the accompanying consolidated financial statements, the Company has concluded that nofurther subsequent events have occurred that require disclosure. F-27Exhibit 4.19Execution VersionFOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENTTHIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “ Fourth Amendment”), dated as of March 29, 2019 (the “Fourth Amendment Effective Date”), is made among STEALTH BIOTHERAPEUTICS CORP, an exempted company incorporated with limited liabilityunder the laws of the Cayman Islands with registered number 165223 (“ Stealth Cayman”), STEALTH BIOTHERAPEUTICS INC., a Delawarecorporation (“ Stealth Delaware” and, together with Stealth Cayman, hereinafter individually and collectively referred to as “Borrower”), those certainbanks and other financial institutions or entities from time to time party to the Loan and Security Agreement (collectively, referred to as “Lender”), andHERCULES CAPITAL, INC., a Maryland corporation, in its capacity as administrative agent and collateral agent for itself and Lender (in such capacity,“Agent”).WHEREAS, Lender has advanced U.S.$20 million to the Borrower under the Tranche 1 Advance, Tranche 2 Advance and Tranche 3 Advance underthe Loan and Security Agreement dated as of June 30, 2017, as amended by that certain First Amendment to Loan and Security Agreement dated as ofMarch 12, 2018, that certain Second Amendment to Loan and Security Agreement dated as of July 26, 2018, and that certain Third Amendment to Loan andSecurity Agreement dated as of October 10, 2018, in each case by and among Borrower, Lender and Agent (and as further amended from time to time, the“Loan and Security Agreement”); andWHEREAS, the Borrower, Agent and Lender have agreed to certain amendments to the Loan and Security Agreement;NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency thereof being hereby acknowledged, the parties hereto agree asfollows:SECTION 1 Definitions; Interpretation.(a) Terms Defined in Loan and Security Agreement. All capitalized terms used in this Fourth Amendment (including in the recitals hereof) and nototherwise defined herein shall have the meanings assigned to them in the Loan and Security Agreement.(b) Interpretation. The rules of interpretation set forth in Section 1 of the Loan and Security Agreement shall be applicable to this FourthAmendment and are incorporated herein by this reference.SECTION 2 Amendments to the Loan and Security Agreement.(a) Amendment. The Loan and Security Agreement shall be amended as follows effective as of the Fourth Amendment Effective Date:(i) New Definitions . The following definitions are added to Section 1.1 in their proper alphabetical order:“Fourth Amendment Effective Date” means March 29, 2019.“New Amortization Date” means October 1, 2019; provided however, if Performance Milestone 9 occurs, then February 1, 2020;provided further, if Performance Milestone 10 occurs, then April 1, 2020. 1“New Drug Application” means a new drug application in the United States for authorization to market a product, as defined in theapplicable laws and regulations and submitted to the FDA.“Performance Milestone 9” means satisfaction of each of the following events: (a) no Event of Default has occurred and is continuing,and (b) after the Fourth Amendment Effective Date and on or prior to September 30, 2019, receipt by Borrower of at least ThirtyMillion Dollars ($30,000,000) of Net Financing Proceeds; in each case, subject to verification by Agent in its reasonable discretion(including supporting documentation reasonably requested by Agent).“Performance Milestone 10” means satisfaction of each of the following events: (a) no Event of Default has occurred and is continuing,(b) achievement of Performance Milestone 9, and (c) the achievement of one or more of the protocol-specified primary endpoints(provided that if only one endpoint is achieved it shall be met at the p £ 0.025 level of significance) as described in the clinical studyprotocol for the Phase 3 clinical trial of daily subcutaneous injections of elamipretide in patients with primary mitochondrial myopathy(ClinicalTrials.gov Identifier: NCT03323749) with an acceptable safety profile such that the data is sufficient to file a New DrugApplication; in each case subject to verification by Agent in its reasonable discretion (including supporting documentation reasonablyrequested by Agent). (ii)Amended Definitions . The following definitions are hereby amended as follows:The definition of “Permitted Indebtedness” is hereby amended by replacing “and (xii) extensions, refinancings and renewals of anyitems of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose materially moreburdensome terms upon Borrower or its Subsidiary, as the case may be.” with “and (xii) leases for up to ten (10) vehicles for use in theordinary course of business, (xiii) financing of up to One Million Dollars ($1,000,000) in the aggregate for the premiums associatedwith Borrower’s directors and officers liability insurance policy; and (xiv) extensions, refinancings and renewals of any items ofPermitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose materially moreburdensome terms upon Borrower or its Subsidiary, as the case may be.”The definition of “Permitted Liens” is hereby amended by replacing “(vii) Liens on Equipment, software, other Intellectual Property inconnection with such Equipment or other capital assets constituting purchase money Liens and Liens in connection with capital leasessecuring Indebtedness permitted in clause (iii) of “Permitted Indebtedness” with (vii) Liens on Equipment, software, other IntellectualProperty in connection with such Equipment or other capital assets constituting purchase money Liens and Liens in connection withcapital leases securing Indebtedness permitted in clause (iii) of “Permitted Indebtedness” and Liens in connection with vehicle leasespermitted in clause (xii) of “Permitted Indebtedness”. 2 (iii)Section 2.2(a) . Section 2.2(a) is hereby amended and restated as follows:Section 2.2(a) is hereby amended by deleting the penultimate sentence and replacing it with the following: “Subject to the terms andconditions of this Agreement, and conditioned on approval by Lender’s investment committee in its sole and unfettered discretion,beginning on the Fourth Amendment Effective Date and continuing through March 31, 2020, Borrower may request and Lender shall,at its sole discretion, make additional Term Loan Advances in an aggregate principal amount up to $20,000,000 in minimum incrementsof $5,000,000 (each a “Tranche 4 Advance”).” (iv)Section 2.2(d) . Section 2.2(d) is hereby amended and restated as follows:“Payment.(i) Borrower will pay interest in arrears on each Term Loan Advance on the first Business Day of each month, beginning themonth after the Advance Date. Borrower shall repay the aggregate Term Loan principal balance that is outstanding on the dayimmediately preceding the Amortization Date, in equal monthly installments of principal and interest (mortgage style) beginning on theAmortization Date and continuing on the first Business Day of each month thereafter until the Fourth Amendment Effective Date.Agent and Lender acknowledges receipt of principal payments from Borrower in the amount of $2,780,155.37 as of the FourthAmendment Effective Date.(ii) Commencing on the Fourth Amendment Effective Date, (x) Borrower will pay interest in arrears on each Term Loan Advanceon the first Business Day of each month; and (y) Borrower shall repay the aggregate Term Loan principal balance that is outstanding onthe day immediately preceding the New Amortization Date, in equal monthly installments of principal and interest (mortgage style)beginning on the New Amortization Date and continuing on the first Business Day of each month thereafter until the SecuredObligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination ofthis Agreement) are repaid, provided that (1) if the New Amortization Date is October 1, 2019, solely for the payment dates fromOctober 1, 2019 through March 1, 2020 (inclusive), the amount for each such payment date shall be calculated as if there weretwenty-two (22) equal monthly installments of principal and interest (mortgage style), provided further that (2) if the New AmortizationDate is February 1, 2020, solely for the payment dates from February 1, 2020 through March 1, 2020 (inclusive), the amount for eachsuch payment date shall be calculated as if there were eighteen (18) equal monthly installments of principal and interest (mortgagestyle). For the avoidance of doubt, thereafter any payments shall be based on the actual number of scheduled monthly paymentsremaining through the Term Loan Maturity Date. As an example, the payment schedules as of the Fourth Amendment Effective Dateare reflected in Exhibit J attached hereto (as reflected on Schedules 1 , 2 and 3 therein for a New Amortization Date of October 1, 2019,February 1, 2020 and April 1, 2020, respectively), and Agent may update such payment schedule from time to time in accordance withthe terms of this Agreement (as amended from time to time, the “ Amortization Schedules”) . In the event of any inconsistencybetween the Amortization Schedules and the terms of this Agreement (including this Section 2.2), the terms of this Agreement shallprevail.” 3(iii) The entire Term Loan principal balance and all accrued but unpaid interest hereunder, shall be due and payable on TermLoan Maturity Date.Borrower shall make all payments under this Agreement without setoff, recoupment or deduction and regardless of any counterclaim ordefense. Agent will initiate debit entries to the Borrower’s account as authorized on the ACH Authorization (A) on each payment dateof all periodic obligations payable to Agent or Lender under each Term Advance and (B) out-of-pocket legal fees and costs incurred byAgent or Lender in connection with Section 11.11 of this Agreement.” (v)Section 2.5 . The first sentence of Section 2.5 is hereby amended and restated as follows:“At its option upon at least five (5) Business Days prior notice to Agent, Borrower may prepay all, but not less than all, of theoutstanding Advances by paying the entire principal balance, all accrued and unpaid interest thereon, plus all fees and other amountsowing under the Loan Documents at such time (including, for the avoidance of doubt, the End of Term Charge), together with aprepayment charge equal to the following percentage of the Advance amount being prepaid: if such Advance amounts are prepaid inany of the first twelve (12) months following the Closing Date, 3.0%; after twelve (12) months but on or prior to March 31, 2020, 2.0%;and thereafter, 0.5% (each, a “ Prepayment Charge ”).” (vi)Section 2.6 . Section 2.6 is hereby amended and restated as follows.“End of Term Charge. On the earliest to occur of (i) the Term Loan Maturity Date, (ii) the date that Borrower prepays the outstandingSecured Obligations (other than any inchoate indemnity obligations and any other obligations which, by their terms, are to survive thetermination of this Agreement) in full, or (iii) the date that the Secured Obligations become due and payable, Borrower shall pay Lendera charge in an amount equal to (a) One Million Three Hundred Thirty-Five Thousand Dollars ($1,335,000) plus (b) five percent (5%) ofthe aggregate principal amount of all Tranche 4 Advances made (the “ End of Term Charge”) . Notwithstanding the required paymentdate of any charges or fees due under this Section 2.6, such charge or fee shall be deemed earned by Lender as follows: U.S.$750,000earned as of the Closing Date, U.S.$250,000 earned as of March 15, 2018, U.S.$200,000 earned as of the Second Amendment EffectiveDate, U.S.$50,000 earned as of the Third Amendment Date, U.S.$85,000 earned as of the Fourth Amendment Effective Date, and 5%of the aggregate principal amount of all Tranche 4 Advances made as of the Advance Date of each such Advance.” (vii)Section 2.10 . A new Section 2.10 is hereby added as follows.“Treatment of Prepayment Charge and End of Term Charge. Borrower agrees that any Prepayment Charge and any End of TermCharge payable shall be presumed to be the liquidated damages sustained by each Lender as the result of the early termination, andBorrower agrees that it is reasonable under the circumstances currently existing, existing as of the Closing Date, and existing as 4of the Fourth Amendment Effective Date. The Prepayment Charge and the End of Term Charge shall also be payable in the event theSecured Obligations (and/or this Agreement) are satisfied or released by foreclosure (whether by power of judicial proceeding), deed inlieu of foreclosure, or by any other means. Borrower expressly waives (to the fullest extent it may lawfully do so) the provisions of anypresent or future statute or law that prohibits or may prohibit the collection of the foregoing Prepayment Charge and End of TermCharge in connection with any such acceleration. Borrower agrees (to the fullest extent that each may lawfully do so): (a) each of thePrepayment Charge and the End of Term Charge is reasonable and is the product of an arm’s length transaction between sophisticatedbusiness people, ably represented by counsel; (b) each of the Prepayment Charge and the End of Term Charge shall be payablenotwithstanding the then prevailing market rates at the time payment is made; (c) there has been a course of conduct between Lenderand Borrower giving specific consideration in this transaction for such agreement to pay the Prepayment Charge and the End of TermCharge as a charge (and not interest) in the event of prepayment or acceleration; (d) Borrower shall be estopped from claimingdifferently than as agreed to in this paragraph. Borrower expressly acknowledges that their agreement to pay each of the PrepaymentCharge and the End of Term Charge to Lender as herein described was on the Closing Date, was on the Fourth Amendment EffectiveDate, and continues to be a material inducement to Lender to provide the Term Loans.” (viii)Section 7.1(b) . Section 7.1(b) is hereby amended and restated as follows:“(b) as soon as practicable (and in any event within 45 days) after the end of each of the first three calendar quarters of each year,unaudited interim and year-to-date financial statements as of the end of such calendar quarter (prepared on a consolidated andconsolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by details(which may be provided in the accompanying Compliance Certificate) of any material contingencies (including the commencement ofany material litigation by or against Borrower) or any other occurrence that could reasonably be expected to have a Material AdverseEffect, certified by Borrower’s Chief Executive Officer or Chief Financial Officer to the effect that they have been prepared inaccordance with GAAP, except (i) for the absence of footnotes, (ii) that they are subject to normal year-end adjustments; and (iii) thatthey do not contain certain equity-related non-cash items that are customarily included in annual financial statements (e.g., warrantliabilities and stock-based compensation);” (ix)Section 7.1(c) . Section 7.1(c) is hereby amended and restated as follows:“(c) as soon as practicable (and in any event (i) so long as the Company is a foreign private issuer (as defined in Rule 405 promulgatedunder the Securities Act of 1933, as amended), within one hundred twenty (120) days and (ii) upon the Company ceasing to be a foreignprivate issuer, ninety (90) days after the end of each fiscal year unqualified audited financial statements as of the end of such year(prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cashflows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independentcertified public accountants selected by Borrower and reasonably acceptable to Agent, accompanied by any audit report from suchaccountants; provided that Borrower’s unqualified opinion on financial statements may contain a limitation as to going concern;” 5 (x)Section 7.1(g) . Section 7.1(g) is hereby amended and restated as follows:“promptly following its approval by Borrower’s board of directors, and in any event no later than (i) 120 days after the end of fiscalyear end 2018, and (ii) sixty (60) days after the end of each fiscal year commencing with fiscal year end 2019, an annual operatingbudget, as well as other financial information reasonably requested by Agent;” (xi)Section 7.1(h) . Section 7.1(h) is hereby amended and restated as follows:“[Reserved].” (xii)Section 8 . Section 8 is hereby amended and restated as follows:“[Reserved].” (xiii)Section 9.3 . Section 9.3 is hereby amended and restated as follows:“Material Adverse Effect. A circumstance has occurred that has had a Material Adverse Effect; provided that solely for purposes of thisSection 9.3, the failure to achieve Performance Milestone 1, Performance Milestone 2, Performance Milestone 3, PerformanceMilestone 4, Performance Milestone 5, Performance Milestone 6, Performance Milestone 7, Performance Milestone 8, PerformanceMilestone 9 or Performance Milestone 10, in each case in and of itself, shall not constitute a Material Adverse Effect; or” (xiv)Section 10.1 . Section 10.1 is hereby amended and restated as follows:“General. Upon and during the continuance of any one or more Events of Default, (i) Agent may, and at the direction of the RequiredLenders shall, accelerate and demand payment of all or any part of the Secured Obligations together with a Prepayment Charge anddeclare them to be immediately due and payable (provided, that upon the occurrence of an Event of Default of the type described inSection 9.5, all of the Secured Obligations (including, without limitation, the Prepayment Charge and the End of Term Charge) shallautomatically be accelerated and made due and payable, in each case without any further notice or act), (ii) Agent may, at its option,sign and file in Borrower’s name any and all collateral assignments, notices, control agreements, security agreements and otherdocuments it deems necessary or appropriate to perfect or protect the repayment of the Secured Obligations, and in furtherance thereof,Borrower hereby grants Agent an irrevocable power of attorney coupled with an interest, and (iii) Agent may notify any of Borrower’saccount debtors to make payment directly to Agent, compromise the amount of any such account on Borrower’s behalf and endorseAgent’s name without recourse on any such payment for deposit directly to Agent’s account. Agent may, and at the direction of theRequired Lenders shall, exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise availableto it under the UCC 6and other applicable law, including the right to release, hold, sell, lease, liquidate, collect, realize upon, or otherwise dispose of all orany part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. All Agent’s rights and remedies shallbe cumulative and not exclusive.” (xv)Exhibit F . Exhibit F is hereby amended and restated in the form attached hereto as Annex A. (xvi)Exhibit J . A new Exhibit J in the form attached hereto as Annex B is hereby added.(b) References Within Loan and Security Agreement. Each reference in the Loan and Security Agreement to “this Agreement” and the words“hereof,” “herein,” “hereunder,” or words of like import, shall mean and be a reference to the Loan and Security Agreement as amended by this FourthAmendment.SECTION 3 Conditions of Effectiveness. The effectiveness of this Fourth Amendment shall be subject to the satisfaction of each of the followingconditions precedent:(a) Fees and Expenses. Borrower shall have paid (i) a fee equal to Eighty-Five Thousand Dollars ($85,000.00), (ii) all attorney fees and other costsand expenses then due in accordance with Section 5(e) of this Amendment, and (iii) all other fees, costs and expenses, if any, due and payable as of theFourth Amendment Effective Date under the Loan and Security Agreement.(b) This Fourth Amendment. Agent shall have received this Fourth Amendment, executed by Agent, Lender and Borrower.(c) Representations and Warranties; No Default. On the Fourth Amendment Effective Date, after giving effect to the waivers under andamendment of the Loan and Security Agreement contemplated hereby:(i) The representations and warranties contained in Section 4 of this Fourth Amendment shall be true and correct on and as of the FourthAmendment Effective Date as though made on and as of such date; and(ii) There exist no Events of Default or events that with the passage of time would result in an Event of Default.SECTION 4 Representations and Warranties. To induce the Agent and Lender to enter into this Fourth Amendment, Borrower hereby confirms, as ofthe date hereof, (a) that the representations and warranties made by it in Section 5 of the Loan and Security Agreement and in the other Loan Documents aretrue and correct in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties thatalready are qualified or modified by materiality in the text thereof; (b) no event that has had or could reasonably be expected to have a Material AdverseEffect has occurred and is continuing. For the purposes of this Section 4 , (i) each reference in Section 5 of the Loan and Security Agreement to “thisAgreement,” and the words “hereof,” “herein,” “hereunder,” or words of like import in such Section, shall mean and be a reference to the Loan and SecurityAgreement as amended by this Fourth Amendment, and (ii) any representations and warranties which relate solely to an earlier date shall not be deemedconfirmed and restated as of the date hereof (provided that such representations and warranties shall be true, correct and complete as of such earlier date). 7SECTION 5 Miscellaneous.(a) Loan Documents Otherwise Not Affected; Reaffirmation. Except as expressly amended pursuant hereto or referenced herein, the Loan andSecurity Agreement and the other Loan Documents shall remain unchanged and in full force and effect and are hereby ratified and confirmed in all respects.Lender’s and Agent’s execution and delivery of, or acceptance of, this Fourth Amendment shall not be deemed to create a course of dealing or otherwisecreate any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. Borrower hereby reaffirmsthe grant of security under Section 3 of the Loan and Security Agreement and hereby reaffirms that such grant of security in the Collateral secures allSecured Obligations under the Loan and Security Agreement, including without limitation any Term Loans funded on or after the Fourth AmendmentEffective Date, as of the date hereof.(b) Conditions. For purposes of determining compliance with the conditions specified in Section 33 , each Lender that has signed this FourthAmendment (which constitute all Lenders) shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or othermatter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender.(c) Release. In consideration of the agreements of Agent and each Lender contained herein and for other good and valuable consideration, the receiptand sufficiency of which are hereby acknowledged, Borrower, on behalf of itself and its successors, assigns, and other legal representatives, hereby fully,absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender, and its successors and assigns, and its presentand former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent,Lender and all such other persons being hereinafter referred to collectively as the “ Releasees ” and individually as a “ Releasee ”), of and from alldemands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damagesand any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever of every name and nature, known or unknown,suspected or unsuspected, both at law and in equity, which Borrower, or any of its successors, assigns, or other legal representatives may now or hereafterown, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever whicharises at any time on or prior to the day and date of this Fourth Amendment, including, without limitation, for or on account of, or in relation to, or in anyway in connection with the Loan and Security Agreement, or any of the other Loan Documents or transactions thereunder or related thereto. Borrowerunderstands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for aninjunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.Borrower agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect inany manner the final, absolute and unconditional nature of the release set forth above. Borrower waives the provisions of California Civil CodeSection 1542, which states:A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW ORSUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT IF KNOWN BY HIM OR HER,WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.(d) No Reliance. Borrower hereby acknowledges and confirms to Agent and Lender that Borrower is executing this Fourth Amendment on the basisof its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf ofany other Person. 8(e) Costs and Expenses. Borrower agrees to pay to Agent within ten (10) days of its receipt of an invoice (or on the Fourth Effective AmendmentDate to the extent invoiced on or prior to the Fourth Amendment Effective Date), the out-of-pocket costs and expenses of Agent and Lender party hereto,and the fees and disbursements of counsel to Agent and Lender party hereto (including allocated costs of internal counsel), in connection with thenegotiation, preparation, execution and delivery of this Fourth Amendment and any other documents to be delivered in connection herewith on the FourthAmendment Effective Date or after such date.(f) Binding Effect. This Fourth Amendment binds and is for the benefit of the successors and permitted assigns of each party.(g) Governing Law. THIS FOURTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALLIN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OFCALIFORNIA (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THAT WOULD RESULT IN THE APPLICATION OFANY LAWS OTHER THAN THE LAWS OF THE STATE OF CALIFORNIA), INCLUDING ALL MATTERS OF CONSTRUCTION,VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE COLLATERAL.(h) Complete Agreement; Amendments. This Fourth Amendment and the Loan Documents represent the entire agreement about this subject matterand supersede prior negotiations or agreements with respect to such subject matter. All prior agreements, understandings, representations, warranties, andnegotiations between the parties about the subject matter of this Fourth Amendment and the Loan Documents merge into this Fourth Amendment and theLoan Documents.(i) Severability of Provisions. Each provision of this Fourth Amendment is severable from every other provision in determining the enforceability ofany provision.(j) Counterparts. This Fourth Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each ofwhich, when executed and delivered, is an original, and all taken together, constitute one Amendment. Delivery of an executed counterpart of a signaturepage of this Fourth Amendment by facsimile, portable document format (.pdf) or other electronic transmission will be as effective as delivery of a manuallyexecuted counterpart hereof.(k) Loan Documents. This Fourth Amendment and the documents related thereto shall constitute Loan Documents.[Balance of Page Intentionally Left Blank; Signature Pages Follow] 9IN WITNESS WHEREOF , the parties hereto have duly executed this Fourth Amendment, as of the date first above written. BORROWER:STEALTH BIOTHERAPEUTICS CORP.as BorrowerBy: /s/ Louise GarbarinoName: Louise GarbarinoTitle: Authorized SignatorySTEALTH BIOTHERAPEUTICS INC.,as BorrowerBy: /s/ Henry H. HessName: Henry H. HessTitle: Chief Legal Counsel[Signature Page to Fourth Amendment to Loan and Security Agreement (Hercules/Stealth)] 10AGENT: HERCULES CAPITAL, INC,as AgentBy: /s/ Jennifer ChoeName: Jennifer ChoeTitle: Assistant General Counsel LENDER: HERCULES CAPITAL FUNDING TRUST 2018-1, asLenderBy: /s/ Jennifer ChoeName: Jennifer ChoeTitle: Assistant General Counsel HERCULES CAPITAL FUNDING TRUST 2019-1,as LenderBy: /s/ Jennifer ChoeName: Jennifer ChoeTitle: Assistant General Counsel[Signature Page to Fourth Amendment to Loan and Security Agreement (Hercules/Stealth)] 11Exhibit 8.1SUBSIDIARIES OF THE REGISTRANT Name of Subsidiary Jurisdiction of Incorporation or Organization Stealth BioTherapeutics, Inc. Delaware Stealth BioTherapeutics (HK) Limited Hong Kong Stealth BioTherapeutics (Shanghai) Limited People’s Republic of China Exhibit 12.1CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. §1350)I, Irene P. McCarthy, certify that: 1.I have reviewed this annual report on Form 20-F of Stealth BioTherapeutics Corp; 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 coveredby 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 company as of, and for, the periods presented in this report; 4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) for the company and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under mysupervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known tome by others within those entities, particularly during the period in which this report is being prepared; b.Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report my conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and c.Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the periodcovered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internalcontrol over financial reporting; and 5.I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the auditcommittee of the company’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 whichare reasonably likely to adversely affect the company’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 company’sinternal control over financial reporting. Date: April 4, 2019 By: /s/ Irene P. McCarthy Name: Irene P. McCarthy Title: Chief Executive OfficerExhibit 13.1Officer Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), theundersigned officer of Stealth BioTherapeutics Corp (the “Company”), hereby certifies, to such officer’s knowledge, that:The annual report on Form 20-F for the year ended December 31, 2018 (the “Report”) of the Company fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, thefinancial condition and results of operations of the Company. Date: April 4, 2019 By: /s/ Irene P. McCarthy Name: Irene P. McCarthy Title: Chief Executive OfficerExhibit 15.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-230452 on Form S-8 of our report dated April 4, 2019 relating to theconsolidated financial statements of Stealth BioTherapeutics Corp and subsidiaries appearing in this Annual Report on Form 20-F of StealthBioTherapeutics Corp and subsidiaries for the year ended December 31, 2018./s/ Deloitte & Touche LLPBoston, MassachusettsApril 4, 2019

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