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EX-23.1 - EX-23.1 - PORTOLA PHARMACEUTICALS INCd436765dex231.htm
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As filed with the Securities and Exchange Commission on May 7, 2013

Registration No. 333-187901

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Portola Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2834   20-0216859

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

270 E. Grand Avenue

South San Francisco, CA 94080

(650) 246-7300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

William Lis

Chief Executive Officer

Portola Pharmaceuticals, Inc.

270 E. Grand Avenue

South San Francisco, CA 94080

(650) 246-7300

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

Copies to:

Kenneth L. Guernsey

Sally A. Kay

Cooley LLP

101 California Street, 5th Floor

San Francisco, CA 94111

(415) 693-2000

 

Bruce K. Dallas

Davis Polk & Wardwell LLP

1600 El Camino Real

Menlo Park, CA 94025

(650) 752-2000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨       Accelerated filer  ¨
Non-accelerated filer  x   (Do not check if a smaller reporting company)     Smaller reporting company  ¨

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


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Explanatory Note to Amendment No. 2 to Form S-1 Registration Statement

This Amendment No. 2 to the Form S-1 Registration Statement of Portola Pharmaceuticals, Inc. (the “Company”) is being filed solely for the purpose of correcting a diagram that depicts the data from the Company’s first Phase 2 study of PRT4445 on page 111 of Amendment No. 1 to the Registration Statement filed with the Securities and Exchange Commission on May 7, 2013 (“Amendment No. 1”). No other changes were made to the preliminary prospectus included in Amendment No. 1.


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated May 7, 2013

 

LOGO

6,900,000 Shares

Portola Pharmaceuticals, Inc.

Common Stock

 

 

This is the initial public offering of shares of common stock of Portola Pharmaceuticals, Inc.

We are offering 6,900,000 shares of our common stock. Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $13.00 and $16.00. We have applied to list our common stock on The NASDAQ Global Market under the trading symbol “PTLA.”

We are an emerging growth company under the federal securities laws and will be subject to reduced public company reporting requirements.

 

 

Investing in our common stock involves a high degree of risk. See “Risk factors” beginning on page 13.

 

     Per Share      Total  

Initial public offering price

   $                        $                    

Underwriting discounts and commissions(1)

   $         $     

Proceeds, before expenses, to Portola

   $         $     

 

(1) See “Underwriting” for additional disclosure regarding underwriting discounts, commissions and expenses.

Entities affiliated with certain of our existing stockholders and directors have indicated an interest in purchasing up to an aggregate of approximately $20.0 million in shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, less or no shares to any of these potential investors and any of these potential investors could determine to purchase more, less or no shares in this offering.

To the extent that the underwriters sell more than 6,900,000 shares of common stock, the underwriters have an over-allotment option to purchase up to an additional 1,035,000 shares from us at the initial public offering price, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The underwriters expect to deliver the shares against payment in New York, New York on         , 2013.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

Morgan Stanley     Credit Suisse
Cowen and Company   William Blair   Sanford C. Bernstein

                    , 2013


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Table of Contents

 

     Page  

Prospectus summary

     1   

Risk factors

     13   

Cautionary statement concerning forward-looking statements

     48   

Market, industry and other data

     50   

Use of proceeds

     51   

Dividend policy

     52   

Dilution

     53   

Capitalization

     56   

Selected financial data

     58   

Management’s discussion and analysis of financial condition and results of operations

     61   

Business

     90   

Management

     130   

Executive compensation

     142   

Certain relationships and related party transactions

     152   

Principal stockholders

     156   

Description of capital stock

     161   

Shares eligible for future sale

     167   

Material United States federal income tax consequences to non-U.S. holders

     169   

Underwriting

     173   

Legal matters

     178   

Experts

     178   

Where you can find more information

     178   

Index to financial statements

     F-1   

 

 

We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of its date regardless of the time of delivery of this prospectus or of any sale of common stock.

Through and including                 , 2013 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Neither we nor underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons who come into possession of this prospectus and any such free writing prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.


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Prospectus summary

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before deciding to invest in our common stock, you should read this entire prospectus carefully, including the sections of this prospectus entitled “Risk factors” and “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and related notes. Unless the context otherwise requires, references in this prospectus to the “company,” “Portola,” “we,” “us” and “our” refer to Portola Pharmaceuticals, Inc.

Portola Pharmaceuticals, Inc.

We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics in the areas of thrombosis, other hematologic disorders and inflammation for patients who currently have limited or no approved treatment options. Our current development-stage portfolio consists of three compounds discovered through our internal research efforts and one discovered by Portola scientists during their time at a prior company.

Our two lead programs address significant unmet medical needs in the area of thrombosis, or blood clots. Our lead compound Betrixaban is a novel oral once-daily inhibitor of Factor Xa in Phase 3 development for extended duration prophylaxis, or preventive treatment, of a form of thrombosis known as venous thromboembolism, or VTE, in acute medically ill patients. Currently, there is no anticoagulant approved for extended duration VTE prophylaxis in this population. Our second lead development candidate PRT4445, which has completed the first of a series of Phase 2 proof-of-concept studies, is a recombinant protein designed to reverse the anticoagulant activity in patients treated with a Factor Xa inhibitor who suffer an uncontrolled bleeding episode or undergo emergency surgery. Our third product candidate, PRT2070, is an orally available kinase inhibitor being developed for hematologic, or blood, cancers and inflammatory disorders. PRT2070 inhibits spleen tyrosine kinase, or Syk, and janus kinases, or JAK, enzymes that regulate important signaling pathways. Subject to regulatory approval, we plan to initiate a Phase 1/2 clinical study of PRT2070 in 2013 in patients with B-cell hematologic cancers who have failed or relapsed on existing marketed therapies or products in development, including patients with identified mutations. Our fourth program, PRT2607 and other highly selective Syk inhibitors, is partnered with Biogen Idec Inc., or Biogen Idec.

Members of our management team, working together or individually, have played central roles at prior companies in discovering, developing and commercializing a number of successful therapeutics in the area of thrombosis, including Integrilin® and Xarelto®. Our approach has been to identify key enzymes and cellular signaling pathways and to apply our translational expertise to discover compounds with unique properties that have potential for clear clinical and pharmacoeconomic value. To increase the likelihood that our programs will succeed, we enhance our internal discovery and development expertise by collaborating with academic leaders at major universities, including Cornell University, Duke University, Harvard University, King’s College, McMaster University, Stanford University and The University of Texas MD Anderson Cancer Center, and by proactively engaging regulatory authorities early in the development process.

 

 

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We have full worldwide commercial rights to Betrixaban and PRT4445, and to PRT2070 for systemic indications. We believe we can maximize the value of our company by retaining substantial global commercialization rights to these three product candidates and, where appropriate, entering into partnerships to develop and commercialize our other product candidates. We plan on building a successful commercial enterprise to commercialize Betrixaban and PRT4445 globally, using a hospital-based sales team in the United States and possibly other major markets and with partners in other territories.

We currently have the following product candidates in development:

 

 
Development Pipeline
Product   Description   Stage   Indication   Worldwide commercial rights
       

Betrixaban

  Oral Factor Xa inhibitor   Phase 3   Extended duration VTE prophylaxis in acute medically ill patients for up to 35 days   Portola
       

PRT4445

  Antidote for Factor Xa inhibitors   Phase 2   Reversal of Factor Xa inhibitor anticoagulation   Portola
       

PRT2070

  Oral Dual Syk and JAK inhibitor   IND ready   B-cell hematologic cancers  

Hematologic cancer and other systemic indications: Portola

Certain nonsystemic indications: 50/50 rights with Aciex

       

PRT2607

  Syk inhibitor  

Pre-clinical

  Allergic asthma and other inflammatory disorders   Biogen Idec

Betrixaban. Betrixaban is a novel oral once-daily inhibitor of Factor Xa in development for extended duration VTE prophylaxis in acute medically ill patients for up to 35 days. Acute medically ill patients are those who are hospitalized for serious non-surgical conditions, such as heart failure, stroke, infection, rheumatic disorders and pulmonary disorders. We estimate that in the G7 countries in 2012 there were 22.3 million acute medically ill patients for whom VTE prophylaxis was recommended by medical treatment guidelines. The current standard of care for VTE prophylaxis in this population is enoxaparin, an injectable drug that is approved for a usual administration period of 6 to 11 days and up to 14 days and is generally not prescribed for use outside of the hospital. According to IMS Health Incorporated, a healthcare industry information provider, worldwide sales of enoxaparin for the 12 months through June 2012 were in excess of $4.8 billion. We believe that the use of enoxaparin in acute medically ill patients accounted for at least $2 billion of these sales.

Multiple large, global trials have demonstrated that there is substantial risk of VTE in acute medically ill patients with restricted mobility and other risk factors beyond the standard course of enoxaparin. For example, the MAGELLAN trial demonstrated that the incidence of VTE-related death rose four-fold over several weeks after hospital discharge and the discontinuation of treatment. However, there are no therapies approved for use beyond a typical hospitalization period of 6 to 14 days despite the ongoing risk of VTE faced by these patients for 35 days or more following hospital admission. We are developing Betrixaban to be the first oral Factor Xa inhibitor approved for use in acute medically ill patients and the first anticoagulant approved for extended duration VTE prophylaxis in these patients.

 

 

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In 2012, we initiated our pivotal Phase 3 APEX study, a randomized, double-blind, active-controlled, multicenter, multinational study comparing a once-daily dose of Betrixaban for a total of 35 days with in-hospital administration of enoxaparin once daily for 6 to 14 days followed by placebo. We believe that Betrixaban has several clinically important pharmacological properties that differentiate it from injectable enoxaparin and other oral Factor Xa inhibitors, including a long half-life, low renal clearance and a metabolic profile that limits drug-drug interaction.

We believe that for an anticoagulant to demonstrate efficacy and safety for extended duration VTE prophylaxis in acute medically ill patients, it must have the right drug properties, be dosed at appropriate levels and target the right patient population. Leveraging the data from our extensive clinical and preclinical studies of Betrixaban and learnings from previous trials of other Factor Xa inhibitors, we believe that we have designed APEX with a dosing regimen and for a study population that significantly increase the probability that it will demonstrate both safety and efficacy in extended duration VTE prophylaxis in acute medically ill patients both in the hospital and after discharge. We can provide no assurance that APEX will be successful and, if APEX is unsuccessful, our ability to commercialize Betrixaban would be materially adversely affected.

In July 2009, we entered into an exclusive worldwide license and collaboration agreement with

Merck & Co., Inc., or Merck, to develop and commercialize Betrixaban for a different indication than the one we are currently pursuing. In March 2011, Merck exercised its right to terminate the agreement for convenience, and we and Merck agreed to a plan for Merck to return all rights to Betrixaban to us and to terminate the agreement, effective September 30, 2011.

In January 2013, we entered into a clinical collaboration agreement with Lee’s Pharmaceutical (HK) Ltd, or Lee’s, to jointly expand our Phase 3 APEX study of Betrixaban into China, with an exclusive option for Lee’s to negotiate for the exclusive commercial rights to Betrixaban in China.

As of April 30, 2013, our Betrixaban patent portfolio included 11 issued U.S. patents and 11 U.S. patent applications covering the composition of and methods of making and using Betrixaban or its analogs, including those owned by us and those licensed in from Millennium Pharmaceuticals, Inc. The U.S. patents relating to the composition of matter of Betrixaban are not due to expire before September 2020 and may be extended until up to September 2025 pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act, and Betrixaban may also be eligible for an additional 6 months of pediatric exclusivity under the Best Pharmaceuticals for Children Act.

PRT4445. PRT4445 is a recombinant protein designed to reverse the anticoagulant activity in patients treated with a Factor Xa inhibitor who suffer an uncontrolled bleeding episode or undergo emergency surgery. Currently, there is no antidote or reversal agent approved for use against Factor Xa inhibitors. Based on industry data, we estimate that in 2020 between 23 million and 36 million patients will be treated with Factor Xa inhibitors for short-term use or chronic conditions. Clinical trial results suggest that, depending on their underlying medical condition, annually between 1% and 4% of these patients will experience uncontrolled bleeding and an additional 1% will require emergency surgery. We believe that PRT4445, if approved, has the long-term potential to address a total worldwide market in excess of $2 billion.

Leading clinicians have identified, and the United States Food and Drug Administration, or FDA, has recognized, the lack of an effective reversal agent for Factor Xa inhibitors as a significant unmet

 

 

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clinical need. Preclinical and Phase 1 studies suggest, but do not prove, that PRT4445 has the potential to be a universal reversal agent for all Factor Xa inhibitors, including enoxaparin. We recently completed the first of a series of Phase 2 proof-of-concept studies evaluating the safety and activity of PRT4445 in healthy volunteers who are administered one of several Factor Xa inhibitors. Analysis of anticoagulation markers in blood samples taken from the subjects in this first study demonstrates that PRT4445 produces a rapid, sustained and dose-related reversal of anticoagulant activity of the Factor Xa inhibitor apixaban. We recently initiated a second Phase 2 proof-of-concept study evaluating PRT4445 for reversal of the anticoagulant activity of the Factor Xa inhibitor rivaroxaban. We expect results from this study in the second half of 2013.

We have entered into a collaboration agreement with Bristol-Myers Squibb Company, or BMS, and Pfizer Inc., or Pfizer, and a collaboration agreement with Bayer Pharma AG, or Bayer, and Janssen Pharmaceuticals, Inc., or Janssen, pursuant to which agreements, BMS and Pfizer and Bayer and Janssen, respectively, are obligated to make payments to us to collaborate with us on a portion of these studies, but we retain full commercial rights with respect to PRT4445. Based on the results of our initial Phase 2 study, we anticipate that we will have meetings with the FDA and European regulators to discuss the remaining clinical studies needed for approval of PRT4445. If the FDA allows us to pursue an expedited approval process, we anticipate that we could initiate a registration study for PRT4445 in 2014.

As of April 30, 2013, our Factor Xa inhibitor antidote patent portfolio was wholly owned by us and included two issued U.S. patents and 13 U.S. patent applications covering the composition of and methods of making and using PRT4445 or its analogs. The U.S. patents are not due to expire before February 2029. A related international patent application has issued in New Zealand, another related international patent application has issued in New Zealand and Mexico and international patent applications are pending in Europe and a number of other countries. These international patents and patent applications, if issued, would not be due to expire before September 2028.

PRT2070. PRT2070 is an orally available, potent inhibitor of Syk and JAK. Scientists have demonstrated that both Syk and JAK play key roles in various hematologic cancers and inflammatory diseases. We are developing PRT2070 for treatment of certain B-cell hematologic cancers, with a particular focus on patients who have NFkB activating mutations or acquired mutations to other novel B-cell targeted therapies that cause treatment failure or disease relapse. PRT2070 has completed preclinical testing and has demonstrated in-vitro activity in cancer cell lines with NFkB activating mutations and in patient tumor samples with acquired mutations to novel B-cell targeted drug candidates. Subject to regulatory approval, we plan to advance PRT2070 into a Phase 1/2 clinical study in non-Hodgkin’s lymphoma and chronic lymphocytic leukemia in 2013. In February 2013, we entered into a license and collaboration agreement with Aciex Therapeutics, Inc., or Aciex, pursuant to which we granted Aciex an exclusive license to co-develop and co-commercialize PRT2070 and certain related compounds for nonsystemic indications, such as the treatment and prevention of ophthalmological diseases by topical administration and allergic rhinitis by intranasal administration. We retain rights to other non-systemic indications, including dermatologic disorders.

PRT2607. PRT2607 is an orally available, potent and selective inhibitor of Syk. We partnered PRT2607 and other highly selective Syk inhibitors on a worldwide basis with Biogen Idec in October

 

 

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2011. Pursuant to our agreement, Biogen Idec made an upfront cash payment to us of $36.0 million and we are entitled to additional payments of up to approximately $370 million based on the occurrence of certain development and regulatory events. We are also entitled to receive royalties from any eventual sales of these product candidates by Biogen Idec. PRT2607 has been evaluated in 131 subjects in several Phase 1 clinical studies. Biogen Idec is leading the pre-clinical study of PRT2607 and other highly selective Syk inhibitors for allergic asthma and other inflammatory disorders and is responsible for all development-related expenses.

Our strategy

Our goal is to build an enduring biopharmaceutical company with a foundation of products and product candidates that significantly advance patient care in the areas of thrombosis, other hematologic disorders and inflammation. Key elements of our strategy are as follows:

 

   

Successfully complete the clinical development of Betrixaban;

 

   

Seek regulatory approval for PRT4445 through an expedited development and approval process, if available;

 

   

Commercialize Betrixaban and PRT4445, if approved, using a hospital-focused sales force;

 

   

Independently advance PRT2070 for treatment of hematologic cancers; and

 

   

Deploy capital strategically to develop our portfolio of product candidates and create value.

Financial overview

Our revenue to date has been generated primarily from collaboration and license revenue pursuant to our collaboration agreements with Biogen Idec, Merck and Novartis Pharma A.G., and our agreement with BMS and Pfizer. We have not generated any commercial product revenue. As of March 31, 2013, we had $124.6 million of cash, cash equivalents and investments and an accumulated deficit of $220.5 million.

Risks associated with our business

Our business is subject to numerous risks and uncertainties related to our financial condition and need for additional capital, the development and commercialization of our product candidates, our reliance on third parties, the operation of our business, our intellectual property, government regulation and this offering and ownership of our common stock. These risks include those highlighted in the section entitled “Risk factors” immediately following this prospectus summary, including the following:

 

   

We do not have any products approved for sale and expect to incur substantial and increasing losses for the foreseeable future;

 

   

Our operating results may fluctuate significantly, are difficult to predict and could fall below expectations;

 

   

We will need additional funds to support our operations, and such funding may not be available on acceptable terms or at all;

 

 

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Our success depends heavily on the approval and successful commercialization of our lead product candidates, Betrixaban and PRT4445;

 

   

Clinical studies of our product candidates will be costly and time consuming, and if they fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities, we may be unable to commercialize our product candidates;

 

   

If serious adverse side effects are identified during the development or commercialization of any of our product candidates, we may need to abandon our development or commercialization of that product candidate;

 

   

Our APEX study of Betrixaban may fail due to a potential risk of increased bleeding or lack of efficacy, as experienced in two of our competitors’ clinical trials evaluating Factor Xa inhibitors for VTE prophylaxis in acute medically ill patients;

 

   

If Betrixaban or any of our other product candidates is approved for sale, we will be allowed to market it only for the specific indication for which it receives approval, which may be more limited than we currently anticipate;

 

   

If the FDA does not determine that an expedited approval process is available for PRT4445, then the development or commercialization of PRT4445 could be delayed or abandoned;

 

   

We face substantial competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies;

 

   

Our product candidates have never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale;

 

   

Our business may be adversely affected if we are unable to obtain and maintain effective intellectual property rights or fail to comply with our obligations in our intellectual property licenses with third parties; and

 

   

Our stock price may be volatile, and purchasers of our common stock could incur substantial losses.

Corporate information

We were incorporated in Delaware in September 2003. Our principal executive offices are located at 270 E. Grand Avenue, South San Francisco, California 94080, and our telephone number is (650) 246-7300. Our website address is www.portola.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our

 

 

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common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

“Portola Pharmaceuticals,” our logo and other trade names, trademarks and service marks of Portola appearing in this prospectus are the property of Portola. Other trade names, trademarks and service marks appearing in this prospectus are the property of their respective holders.

 

 

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The offering

 

Common stock offered by Portola

6,900,000 shares

 

Common stock to be outstanding immediately after this offering

32,360,180 shares

 

Underwriters’ over-allotment option

The underwriters have an option to purchase up to 1,035,000 additional shares of common stock to cover over-allotments as described in “Underwriting.”

 

Use of proceeds

We estimate that the net proceeds from the issuance of our common stock in this offering will be approximately $89.2 million or approximately $103.2 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $14.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use all of the net proceeds from this offering, along with our other capital resources, to fund ongoing development of our product candidates, including our Phase 3 study of Betrixaban, our Phase 2 proof-of-concept studies of PRT4445 and a Phase 1/2 study in hematologic cancers for PRT2070, and for working capital, capital expenditures and other general corporate purposes, which may include the acquisition or licensing of other products, businesses or technologies. See “Use of proceeds” for additional information.

 

Risk factors

See “Risk factors” beginning on page 13 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

NASDAQ Global Market symbol

We have applied for listing of our common stock on The NASDAQ Global Market under the symbol “PTLA.”

 

 

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Entities affiliated with certain of our existing stockholders and directors have indicated an interest in purchasing up to an aggregate of approximately $20.0 million in shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, less or no shares to any of these potential investors and any of these potential investors could determine to purchase more, less or no shares in this offering. Any shares purchased by these potential investors that are our affiliates will be subject to lock-up restrictions described in the section of this prospectus entitled “Shares eligible for future sale.”

The number of shares of our common stock to be outstanding after this offering is 32,360,180, based on 25,460,180 shares of our common stock outstanding as of March 31, 2013 (including convertible preferred stock on an as-converted basis), and excludes the following:

 

   

3,529,789 shares of our common stock issuable upon the exercise of stock options outstanding at a weighted-average exercise price of $6.59 per share;

 

   

Shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan, or 2013 Plan (which consist of (i) 617,650 shares of common stock reserved for issuance under our 2003 Equity Incentive Plan, or 2003 Plan, as of March 31, 2013, which shares will be added to the shares reserved under the 2013 Plan upon its effectiveness and (ii) up to 4,194,129 additional shares that may be added to the 2013 Plan upon the expiration, termination, forfeiture or other reacquisition of any shares of common stock issuable upon the exercise of stock options outstanding under the 2003 Plan), which will become effective upon the execution and delivery of the underwriting agreement for this offering;

 

   

1,000,000 shares of our common stock reserved for future issuance under our 2013 Employee Stock Purchase Plan; and

 

   

82,575 shares of our common stock issuable upon the exercise of common stock warrants and convertible preferred stock warrants outstanding at a weighted-average exercise price of $12.92 per share.

Unless otherwise indicated, all information in this prospectus reflects and assumes the following:

 

   

a one-for-ten reverse split of our common stock to be effected prior to the closing of this offering;

 

   

the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 24,026,797 shares of our common stock immediately prior to the closing of this offering;

 

   

the automatic conversion of all outstanding convertible preferred stock warrants into warrants to purchase an aggregate of 81,075 shares of our common stock immediately prior to the closing of this offering;

 

   

the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this offering; and

 

   

no exercise of the underwriters’ over-allotment option to purchase up to an additional             shares of our common stock.

 

 

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Summary financial data

The following tables summarize our financial data and should be read together with the sections in this prospectus entitled “Selected financial data” and “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and related notes included elsewhere in this prospectus.

We have derived the statement of operations data for the years ended December 31, 2010, 2011 and 2012 from our audited financial statements included elsewhere in this prospectus. We have derived the statement of operations data for the three months ended March 31, 2012 and 2013 and the balance sheet data as of March 31, 2013 from our unaudited interim condensed financial statements included elsewhere in this prospectus. We have prepared the unaudited financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and our unaudited interim results are not necessarily indicative of the results that should be expected for the full year or any other period.

 

     Year ended
December 31,
     Three months ended
March 31,
 
     2010     2011     2012      2012     2013  
    

(in thousands, except share and per share data)

 
            (unaudited)   

Statement of operations data:

           

Collaboration and license revenue(1)

   $ 35,268      $ 78,029      $ 72,042       $ 2,481      $ 3,108   

Operating expenses:

           

Research and development

     43,260        46,089        49,717         12,961        17,722   

General and administrative

     10,762        12,071        11,469         2,807        3,039   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     54,022        58,160        61,186         15,768        20,761   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) from operations

     (18,754     19,869        10,856         (13,287     (17,653

Interest and other income, net

     1,659        136        510         160        (489

Interest expense

     (380     (21                      
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before income taxes

     (17,475     19,984        11,366         (13,127     (18,142

Provision for income taxes

     2,794                                
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ (20,269   $ 19,984      $ 11,366       $ (13,127   $ (18,142
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to common stockholders:

           

Basic

   $ (20,269   $ 79      $       $ (13,127   $ (18,142
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

   $ (20,269   $ 127      $       $ (13,127   $ (18,142
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders(2):

           

Basic

   $ (16.79   $ 0.06      $ 0.00       $ (10.08   $ (12.94
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

   $ (16.79   $ 0.06      $ 0.00       $ (10.08   $ (12.94
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Shares used to compute net income (loss) per share attributable to common stockholders:

           

Basic

     1,207,106        1,249,778        1,350,939         1,302,333        1,401,677   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

     1,207,106        2,089,206        2,048,867         1,302,333        1,401,677   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

 

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     Year ended
December 31,
     Three months
ended
March 31,
 
     2010    2011    2012      2012    2013  
                      (unaudited)  

Statement of operations data (continued):

              

Pro forma net income (loss) per share attributable to common stockholders (unaudited)(2):

              

Basic

         $ 0.44          $ (0.71
        

 

 

       

 

 

 

Diluted

         $ 0.43          $ (0.71
        

 

 

       

 

 

 

Shares used to compute pro forma net income (loss) per share attributable to common stockholders (unaudited):

              

Basic

           25,377,736            25,428,474   
        

 

 

       

 

 

 

Diluted

           26,075,664            25,428,474   
        

 

 

       

 

 

 

 

(1) To date, substantially all of our revenue has been generated from our collaboration agreements, and we have not generated any commercial product revenue. Revenue in the year ended December 31, 2011 includes $8.3 million that represents the recognition of all remaining deferred revenue following the termination of our exclusive worldwide license and collaboration agreement with Merck, effective September 30, 2011. Revenue in the year ended December 31, 2012 includes $65.1 million that represents the recognition of all remaining deferred revenue following the termination of our exclusive worldwide license agreement with Novartis Pharma A.G., effective July 1, 2012. See the section of this prospectus entitled “Management’s discussion and analysis of financial condition and results of operations—Financial operations overview—Revenue” for a more detailed description of our revenue recognition with respect to these agreements.
(2) See Note 2 to our audited financial statements for an explanation of the calculations of our actual basic and diluted and pro forma basic and diluted net income (loss) per share attributable to common stockholders for the years ended December 31, 2010, December 31, 2011 and December 31, 2012. See Note 1 to our unaudited interim condensed financial statements for an explanation of the calculations of our actual basic and diluted and pro forma basic and diluted net income (loss) per share attributable to common stockholders for the three months ended March 31, 2012 and March 31, 2013. All shares to be issued in this offering were excluded from the unaudited pro forma basic and diluted net income per share calculation.

Stock-based compensation included in the statement of operations data above was as follows:

 

     Year ended
December 31,
     Three months
ended
March 31,
 
     2010      2011      2012      2012      2013  
    

(in thousands)

 
                          (unaudited)  

Research and development

   $ 1,170       $ 1,164       $ 1,452       $ 354       $ 336   

General and administrative

     764         1,189         1,357         359         377   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 1,934       $ 2,353       $ 2,809       $ 713       $ 713   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

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     As of March 31, 2013  
     Actual     Pro
forma(1)
     Pro forma
as
adjusted(2)(3)
 
    

(in thousands)

 
    

(unaudited)

 

Balance sheet data:

       

Cash, cash equivalents and investments(4)

   $ 124,637      $ 124,637       $ 213,834   

Working capital

     96,229        96,229         185,426   

Total assets

     134,020        134,020         223,216   

Convertible preferred stock

     317,280                  

Total stockholders’ (deficit) equity

     (208,846     109,082         198,278   

 

(1) The pro forma column reflects the filing of our amended and restated certificate of incorporation and the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 24,026,797 shares of common stock immediately prior to the closing of this offering and the reclassification to additional paid-in capital of our convertible preferred stock warrant liability in connection with the conversion of our outstanding convertible preferred stock warrants into common stock warrants.
(2) The pro forma as adjusted column reflects the pro forma adjustments described in footnote (1) above and the sale by us of 6,900,000 shares of common stock in this offering at an assumed initial public offering price of $14.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(3) A $1.00 increase (decrease) in the assumed initial public offering price of $14.50 per share would increase (decrease) each of cash, cash equivalents and investments, working capital and total assets by $6.4 million and decrease (increase) total stockholders’ (deficit) equity by $6.4 million, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) each of cash, cash equivalents and investments, working capital and total assets by approximately $13.5 million and decrease (increase) total stockholders’ (deficit) equity by approximately $13.5 million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price, number of shares offered and other terms of this offering determined at pricing.
(4) Includes $7.7 million classified as long-term investments.

 

 

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Risk factors

Investing in our common stock involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this prospectus, including our financial statements and notes thereto, before you invest in our common stock. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment.

Risks related to our financial condition and need for additional capital

Although we reported net income for the years ended December 31, 2012 and December 31, 2011, we have incurred significant losses prior to 2011 and in 2013 and expect to incur substantial and increasing losses for the foreseeable future.

We are a clinical-stage biopharmaceutical company. We do not currently have any products approved for sale, and we continue to incur significant research and development and general and administrative expenses related to our operations. Although we reported net income for the years ended December 31, 2012 and December 31, 2011, this was primarily due to the recognition of all remaining deferred revenue following the termination of two of our collaboration agreements. We have incurred significant operating losses prior to 2011 and in 2013 and expect to incur substantial and increasing losses for the foreseeable future. As of March 31, 2013, we had an accumulated deficit of $220.5 million.

To date, we have financed our operations primarily through private placements of our convertible preferred stock, collaborations and, to a lesser extent, government grants, equipment leases, venture debt and with the benefit of tax credits made available under a federal stimulus program supporting drug development. We have devoted substantially all of our efforts to research and development, including clinical studies, but have not completed development of any product candidates. We anticipate that our expenses will increase substantially as we:

 

   

initiate or continue clinical studies of our three most advanced product candidates;

 

   

continue the research and development of our product candidates;

 

   

seek to discover or in-license additional product candidates;

 

   

seek regulatory approvals for our product candidates that successfully complete clinical studies;

 

   

establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize products for which we may obtain regulatory approval; and

 

   

enhance operational, financial and information management systems and hire more personnel, including personnel to support development of our product candidates and, if a product candidate is approved, our commercialization efforts.

To be profitable in the future, we must succeed in developing and eventually commercializing products with significant market potential. This will require us to be successful in a range of activities, including advancing our product candidates, completing clinical studies of our product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those

 

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products for which we may obtain regulatory approval. We are only in the preliminary stages of some of these activities. We may not succeed in these activities and may never generate revenue that is sufficient to be profitable in the future. Even if we are profitable, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to achieve sustained profitability would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our product candidates, market our product candidates, if approved, or continue our operations.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. From time to time, we enter into collaboration agreements with other companies that include development funding and significant upfront and milestone payments, and we expect that amounts earned from our collaboration agreements will continue to be an important source of our revenue. Accordingly, our revenue will depend on development funding and the achievement of development and clinical milestones under our existing collaboration arrangements, as well as any potential future collaboration and license agreements and sales of our products, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. For example, in the year ended December 31, 2011, we recognized all remaining deferred revenue of approximately $8.3 million following the termination of our exclusive worldwide license and collaboration agreement with Merck & Co., Inc., or Merck, and in the year ended December 31, 2012, we recognized all remaining deferred revenue of approximately $65.1 million following the termination of our worldwide license agreement with Novartis Pharma A.G., or Novartis. In addition, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award, and recognize the cost as an expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, including our underlying stock price and stock price volatility after the closing of this offering, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:

 

   

the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time;

 

   

the cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our agreements with manufacturers;

 

   

expenditures that we will or may incur to acquire or develop additional product candidates and technologies;

 

   

the level of demand for our product candidates, should they receive approval, which may vary significantly;

 

   

future accounting pronouncements or changes in our accounting policies;

 

   

the timing and success or failure of clinical studies for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners;

 

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the risk/benefit profile, cost and reimbursement policies with respect to our products candidates, if approved, and existing and potential future drugs that compete with our product candidates; and

 

   

the changing and volatile U.S., European and global economic environments.

The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue and/or earnings guidance we may provide.

We will need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, reduce or suspend our research and development programs and other operations or commercialization efforts. Raising additional capital may subject us to unfavorable terms, cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates and technologies.

We are advancing multiple product candidates through the research and clinical development process. The completion of the development and the potential commercialization of our product candidates, should they receive approval, will require substantial funds. As of March 31, 2013, we had approximately $124.6 million in cash, cash equivalents and investments. We believe that our available cash, cash equivalents and investments will be sufficient to fund our anticipated level of operations for at least the next 12 months. Our future financing requirements will depend on many factors, some of which are beyond our control, including the following:

 

   

the rate of progress and cost of our clinical studies;

 

   

the timing of, and costs involved in, seeking and obtaining approvals from the United States Food and Drug Administration, or FDA, and other regulatory authorities;

 

   

the costs of commercialization activities if any of our product candidates is approved, including product sales, marketing, manufacturing and distribution;

 

   

the degree and rate of market acceptance of any products launched by us or future partners;

 

   

our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements; and

 

   

the emergence of competing technologies or other adverse market developments.

We do not have any material committed external source of funds or other support for our development efforts other than our exclusive worldwide license and collaboration agreement with Biogen Idec Inc., or Biogen Idec, for the development and commercialization of PRT2607 and other highly selective Syk inhibitors, which is terminable by Biogen Idec without cause upon 120 days’ notice. Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never

 

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do, we expect to finance future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. Additional financing may not be available to us when we need it or it may not be available on favorable terms. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of, or suspend one or more of our clinical studies or research and development programs or our commercialization efforts.

Risks related to the development and commercialization of our product candidates

Our success depends heavily on the approval and successful commercialization of our lead product candidates, Betrixaban and PRT4445, along with PRT2070 and our selective Syk inhibitor program. Clinical studies of these product candidates may not be successful. If we are unable to commercialize one or more of our product candidates, or experience significant delays in doing so, our business will be materially harmed.

We have invested a significant portion of our efforts and financial resources into the development of Betrixaban, a novel oral once-daily inhibitor of Factor Xa, an enzyme involved in the body’s coagulation system, that seeks to inhibit the blood coagulation process, and PRT4445, a recombinant protein designed to reverse the anticoagulant activity in patients treated with a Factor Xa inhibitor who suffer an uncontrolled bleeding episode or undergo emergency surgery, and, to a lesser extent, PRT2070 and our selective Syk inhibitor program. Our ability to generate product revenue, which we do not expect to occur for at least the next several years, if ever, will depend heavily on the successful development, regulatory approval and eventual commercialization of one of our product candidates. The success of our product candidates will depend on several factors, including the following:

 

   

successful enrollment in, and completion of, clinical studies;

 

   

our ability to reach agreement with the FDA and other regulatory authorities on the appropriate regulatory path for approval of our product candidates, particularly PRT4445;

 

   

receipt of marketing approvals from the FDA and similar regulatory authorities outside the United States for our product candidates;

 

   

establishing commercial manufacturing arrangements with third parties;

 

   

launching commercial sales of any product candidate that may be approved, whether alone or in collaboration with others;

 

   

acceptance of any approved product by the medical community, third-party payors and patients;

 

   

effectively competing with other therapies;

 

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a continued acceptable safety profile of the product following approval; and

 

   

obtaining, maintaining, enforcing and defending intellectual property rights and claims.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business.

If clinical studies of our product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

Before obtaining regulatory approval for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety and efficacy of our product candidates in humans. Clinical studies are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of one or more of our clinical studies could occur at any stage of testing. The outcome of preclinical testing and early clinical studies may not be predictive of the success of later clinical studies, and interim results of a clinical study do not necessarily predict final results.

For example, the favorable results from our Phase 2 clinical studies of Betrixaban, which involved the prophylaxis, or preventive treatment, against venous thromboembolism, or VTE, in patients receiving total knee replacements and the prevention of stroke in patients with atrial fibrillation, may not be predictive of success in our current Phase 3 clinical study of Betrixaban, which we refer to as APEX, for extended duration VTE prophylaxis for up to 35 days in acute medically ill patients with restricted mobility and other risk factors, as the Phase 2 studies were not designed to demonstrate statistically significant effectiveness, were in different medical conditions, involved different patient populations or dosing regimens, were of different duration or had different comparators. Any of these factors and other factors could result in Betrixaban showing decreased activity or increased safety risks in our APEX study as compared to the Phase 2 studies. Moreover, the probability of our APEX study succeeding is highly dependent on the adequacy of its design. Two other Factor Xa inhibitors have failed in Phase 3 trials for the indication that we are pursuing for Betrixaban. We have reviewed publicly available data from those studies and incorporated the results of our analysis into the design of our APEX study, but we could have misinterpreted the data or performed a flawed analysis. Furthermore, relevant information from the studies may not be publicly available or, if available, may not have been obtained by us. As a result, there could be flaws in the design of our APEX study that could cause it to fail. For example, our patient inclusion criteria for the APEX study selects for patients with a higher risk of VTE, and these patients may be more likely to experience a severe bleeding event, even though we attempt to exclude certain patients at higher risk of bleeding. If patients in the APEX study experience a higher than expected rate of severe bleeding events, the APEX study may fail to demonstrate a sufficient safety profile for Betrixaban. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain regulatory approval for the marketing of their products.

Similarly, the favorable results from our first Phase 2 proof-of concept study of PRT4445, evaluating the effect of PRT4445 in healthy volunteers taking apixaban, may not be predictive of success in our other Phase 2 proof-of-concept studies or other later studies. We do not yet know how the results from

 

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our Phase 1 studies of PRT4445 or our Phase 2 study in healthy volunteers taking PRT4445 will translate into clinical outcomes in our intended target population of patients treated with a Factor Xa inhibitor who suffer an uncontrolled bleeding episode or undergo emergency surgery. Moreover, the results from our studies to date of PRT4445 do not address the effect of repeat doses or allow a determination of the optimal therapeutic dose of PRT4445 for our intended target patient population.

We may experience numerous unforeseen events during, or as a result of, clinical studies that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including the following:

 

   

clinical studies of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical studies or abandon product development programs;

 

   

the number of patients required for clinical studies of our product candidates may be larger than we anticipate, enrollment in these clinical studies may be insufficient or slower than we anticipate or patients may drop out of these clinical studies at a higher rate than we anticipate;

 

   

the cost of clinical studies of our product candidates may be greater than we anticipate;

 

   

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

   

we might have to suspend or terminate clinical studies of our product candidates for various reasons, including a finding that our product candidates have unanticipated serious side effects or other unexpected characteristics or that the patients are being exposed to unacceptable health risks;

 

   

regulators may not approve our proposed clinical development plans;

 

   

regulators or institutional review boards may not authorize us or our investigators to commence a clinical study or conduct a clinical study at a prospective study site;

 

   

regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; and

 

   

the supply or quality of our product candidates or other materials necessary to conduct clinical studies of our product candidates may be insufficient or inadequate.

If we are required to conduct additional clinical studies or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical studies of our product candidates or other testing, if the results of these studies or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

   

be delayed in obtaining marketing approval for our product candidates;

 

   

not obtain marketing approval at all;

 

   

obtain approval for indications that are not as broad as intended;

 

   

have the product removed from the market after obtaining marketing approval;

 

   

be subject to additional post-marketing testing requirements; or

 

   

be subject to restrictions on how the product is distributed or used.

 

 

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Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether any clinical studies will begin as planned, will need to be restructured or will be completed on schedule, or at all. For example, in 2010, we suspended our Phase 1 clinical study of PRT2607 in order to investigate potentially adverse toxicology findings in an animal study that was being conducted concurrently. A follow-up study determined that there was not a significant safety risk, but the completion of the study was delayed by approximately nine months.

Significant clinical study delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to commercialize our product candidates and harm our business and results of operations.

If serious adverse side effects are identified during the development of any of our product candidates, we may need to abandon our development of that product candidate.

None of our leading product candidates has completed clinical development. The risk of failure of clinical development is high. It is impossible to predict when or if any of our product candidates will prove safe enough to receive regulatory approval. For example, our lead product candidate Betrixaban, like all currently marketed inhibitors of Factor Xa, carries some risk of life-threatening bleeding. In addition, subjects taking Betrixaban had an increased rate of gastrointestinal issues, such as diarrhea, nausea and vomiting, and other side effects such as back pain, dizziness, headaches, rashes and insomnia as compared to subjects taking a placebo or an active comparator. There can be no assurance that our APEX study will not fail due to safety issues. In such an event, we might need to abandon development of Betrixaban or enter into a partnership to continue development.

The failure of two of our competitors’ clinical trials evaluating Factor Xa inhibitors for VTE prophylaxis in acute medically ill patients may suggest an increased risk that our APEX trial for Betrixaban will also fail.

Two of our competitors’ clinical trials evaluating Factor Xa inhibitors for VTE prophylaxis in acute medically ill patients have failed. The MAGELLAN trial sponsored by Bayer Pharma AG, or Bayer, and Janssen Pharmaceuticals, Inc., or Janssen, which evaluated rivaroxaban, demonstrated efficacy but failed to demonstrate an acceptable benefit to risk profile due to increased bleeding. The ADOPT trial sponsored by Bristol-Myers Squibb Company, which evaluated apixaban, showed a reduction in VTE events, but failed to demonstrate statistically significant efficacy and also showed an increase in bleeding. Betrixaban, like rivaroxaban and apixaban, may fail its clinical trials if it does not show a statistically significant level of efficacy or if the resulting bleeding risk is too high compared to its benefits.

Delays in the enrollment of patients in any of our clinical studies could increase our development costs and delay completion of the study.

We may not be able to initiate or continue clinical studies for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these studies as required by the FDA or other regulatory authorities. Even if we are able to enroll a sufficient number of patients in our clinical studies, if the pace of enrollment is slower than we expect, the development costs for our product candidates may increase and the completion of our studies may be delayed or our studies could become too expensive to complete.

 

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For example, our APEX study is expected to enroll approximately 6,850 patients at more than 400 study sites throughout the world. We have never previously conducted a study of this magnitude and can provide no assurance that we will be able to enroll patients at a sufficient pace to complete the study within our projected time frame. The first patient was enrolled in APEX in March 2012, and, based on current enrollment, we expect the study to be completed by mid-2015. Completing the study by that date will require us to continue to activate new clinical study sites and to enroll patients at forecasted rates at both new and existing clinical study sites. Our forecasts regarding the rates of clinical site activation and patient enrollment at those sites are based on a number of assumptions including assumptions based on past experience with our APEX study. However, there can be no assurance that those forecasts will be accurate or that we will complete our APEX study by the currently anticipated date. During the initial months of the APEX study, the number of clinical sites activated and the number of patients enrolled at each clinical site per month was lower than we had anticipated and, as a result, we made a number of adjustments to the clinical study plan, including increasing the number of clinical study sites. We can provide no assurance that those adjustments will be sufficient to enable us to complete the APEX study within our anticipated time frame. If we experience delays in enrollment, our ability to complete our APEX study could be materially adversely affected.

If we are unable to enroll the patients at the projected rate, the completion of the study could be delayed and the costs of conducting the study could increase, either of which could have a material adverse effect on our business. For example, in October 2012, we decided to increase the number of study sites for our APEX study and make certain changes to the management of the study in order to increase the enrollment rate, which had been slower than originally anticipated. These adjustments increased the cost of the study.

Even if our APEX study demonstrates statistically significant safety and efficacy of Betrixaban for extended duration VTE prophylaxis in acute medically ill patients for up to 35 days, the FDA or similar regulatory authorities outside the United States may not approve Betrixaban for marketing or may approve it with restrictions on the label, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Assuming the success of our APEX study, we anticipate seeking regulatory approval for Betrixaban in the United States for extended duration VTE prophylaxis in acute medically ill patients for up to 35 days. It is possible that the FDA may not consider the results of our APEX study to be sufficient for approval of Betrixaban for this indication. In general, the FDA suggests that sponsors complete two adequate and well-controlled clinical studies to demonstrate effectiveness because a conclusion based on two persuasive studies will be more compelling than a conclusion based on a single study. Although the FDA has informed us that our APEX study, plus supportive Phase 2 data obtained to date, could potentially provide sufficient safety and efficacy data for extended duration VTE prophylaxis in acute medically ill patients for up to 35 days, the FDA has further advised us that whether one or two adequate and well-controlled clinical studies are required will be a review issue in connection with a new drug application, or NDA, submission. Even if we achieve favorable results in our APEX study, the FDA may nonetheless require that we conduct additional clinical studies, possibly using a different clinical study design.

Even if the FDA or other regulatory authorities approve Betrixaban for VTE prophylaxis in acute medically ill patients, the approval may include additional restrictions on the label that could make Betrixaban less attractive to physicians and patients than other products that may be approved for broader indications, which could limit potential sales of Betrixaban.

 

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If we fail to obtain FDA or other regulatory approval of Betrixaban or if the approval is for an indication that is narrower than what we seek, it could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

We anticipate seeking regulatory approval of PRT4445 in the United States through an expedited approval process, and if the FDA does not determine that such a process is available for PRT4445, then the development or commercialization of PRT4445 could be delayed or abandoned.

We currently plan to seek FDA approval of PRT4445 through an expedited approval process, such as “Accelerated Approval,” which is a process allowing drugs that treat serious diseases for which there is an unmet medical need to be approved on a shortened timetable based on use of a surrogate endpoint in clinical studies or with restrictions to promote safe use. However, the FDA has not provided assurance that Accelerated Approval or any other expedited process will be available for PRT4445. If the FDA does not allow us to pursue an expedited approval process for PRT4445 or determines that a study based on a surrogate endpoint will not be acceptable, the time and expense associated with developing PRT4445 would be significantly greater than we currently anticipate, and we might be required to enter into a partnership in order to develop PRT4445 or delay or abandon development of PRT4445. Even if we are able to pursue an expedited approval process, the FDA may subsequently determine that the studies conducted by us were insufficient to support approval or require us to conduct extensive post-approval studies. If the FDA determines that a randomized, placebo-controlled study demonstrating superior efficacy of PRT4445 in Factor Xa inhibitor treated patients experiencing a severe bleeding event is required for approval of PRT4445, it may not be feasible to conduct such a trial or may take many years to complete at substantially greater cost.

Even if our product candidates receive regulatory approval, they may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.

If any of our product candidates receive regulatory approval, they may nonetheless fail to gain sufficient market acceptance by physicians, hospital administrators, patients, healthcare payors and others in the medical community. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including the following:

 

   

the prevalence and severity of any side effects;

 

   

efficacy and potential advantages compared to alternative treatments;

 

   

the price we charge for our product candidates;

 

   

the willingness of physicians to change their current treatment practices;

 

   

the willingness of hospitals and hospital systems to include our product candidates as treatment options;

 

   

convenience and ease of administration compared to alternative treatments;

 

   

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

   

the strength of marketing and distribution support; and

 

   

the availability of third-party coverage or reimbursement.

For example, while there are no approved therapies for VTE prophylaxis in acute medically ill patients approved for use beyond the typical hospitalization period, there are therapies available for in-hospital

 

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use and physicians may not be willing to change their current in-hospital treatment practices in favor of Betrixaban. If our product candidates, if approved, do not achieve an adequate level of acceptance, we may not generate significant product revenue and we may not become profitable on a sustained basis.

Our product candidates have never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale. In particular, we will need to develop a larger scale manufacturing process that is more efficient and cost-effective to commercialize PRT4445, which may not be successful, and which may require us to transfer our production to another manufacturer, potentially delaying regulatory approval and commercialization.

Our product candidates have never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency and timely availability of raw materials. Even if we could otherwise obtain regulatory approval for any product candidate, there is no assurance that our manufacturer will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If our manufacturer is unable to produce sufficient quantities of the approved product for commercialization, our commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

In particular, we face uncertainties and risks associated with scaling up the manufacturing for PRT4445. PRT4445, one of our four product candidates, is a biological molecule, or biologic, rather than a small molecule chemical compound. The manufacture of biologics involves complex processes or cell systems, including developing cells or cell systems to produce the biologic, growing large quantities of such cells and harvesting and purifying the biologic produced by them. As a result, the cost to manufacture biologics is generally far higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable and is difficult to reproduce. PRT4445 is currently produced for us by a third-party contract manufacturer using a small-scale process that is too expensive and inefficient to support the commercialization of PRT4445 in the dosages and at the sales volumes and price that would be necessary for a commercially viable drug. Although we are currently working with the manufacturer to develop a more efficient, larger-scale process that we believe will be commercially viable, scaling up a biologic manufacturing process is a difficult and uncertain task, and we can give no assurance that we will be successful or that our manufacturer will have the capabilities required. In addition, while we are currently negotiating an agreement pursuant to which a manufacturer would fully develop a commercial scale manufacturing process for PRT4445 and produce approval-enabling validation lots, we may not be able reach agreement with this manufacturer on commercially reasonable terms or at all. If we are unable to adequately validate or scale-up the manufacturing process for PRT4445 with our current manufacturer, we will need to transfer to another manufacturer and complete the manufacturing validation process, which can be lengthy. Additionally, if the therapeutically effective dosage of PRT4445 is higher than we anticipate or the obtainable sales price is lower than we anticipate, we may not be able to successfully commercialize PRT4445.

 

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We currently have no sales or distribution personnel and only limited marketing capabilities. If we are unable to develop a sales and marketing and distribution capability on our own or through collaborations or other marketing partners, we will not be successful in commercializing Betrixaban, PRT4445 or other future products.

We do not have a significant sales or marketing infrastructure and have no experience in the sale, marketing or distribution of therapeutic products. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. We plan to establish a hospital-based sales force in the United States and possibly other major markets and work with partners in other parts of the world to commercialize both Betrixaban and PRT4445 globally, if they are approved.

There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

We also may not be successful entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively and could damage our reputation. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of new therapeutic products is highly competitive. We face competition with respect to our current product candidates, and will face competition with respect to any products that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. For example, several large pharmaceutical and biotechnology companies currently market and sell direct or indirect Factor Xa inhibitors for use in various disease states, including the treatment of acute medically ill patients. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Many of these competitors are attempting to develop therapeutics for our target indications. In addition, many of our competitors are large pharmaceutical companies that will have a greater ability to reduce prices for their competing drugs in an effort to gain market share and undermine the value proposition that we might otherwise be able to offer to payors.

We are developing our lead product candidate Betrixaban for extended duration VTE prophylaxis in acute medically ill patients for up to 35 days. The current standard of care for VTE prophylaxis in acute medically ill patients in the United States is a 6- to 14-day hospital administration of enoxaparin, marketed as Lovenox® and also available in generic form, an indirect Factor Xa inhibitor. Enoxaparin is

 

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widely accepted by physicians, patients and third-party payors. As a result, we may face difficulties in marketing Betrixaban as a substitute therapy for the current standard of care, enoxaparin. Furthermore, the FDA has already approved a number of therapies that, like Betrixaban, are direct Factor Xa inhibitors and that have already achieved substantial market acceptance. Although these products have not been approved for VTE prophylaxis in acute medically ill patients, the owners of the products may decide to seek such approval or physicians may decide to prescribe these products for the treatment of VTE in acute medically ill patients absent such approval, known as prescribing “off-label.” Further, our competitors may have the financial and other resources to conduct additional clinical studies in an effort to obtain regulatory approval for use of their drugs for VTE prophylaxis in acute medically ill patients, even in cases where they have previously run clinical trials that have failed.

While there are no therapies approved specifically as antidotes for Factor Xa inhibitors, PRT4445, if approved, may compete with other currently approved treatments designed to enhance coagulation, such as fresh frozen plasma, prothrombin complex concentrates, recombinant Factor VIIa or whole blood. Although there is no clinical evidence supporting the use of such treatments in patients taking Factor Xa inhibitors, physicians may choose to use them because of familiarity, cost or other reasons. In addition, we are aware that several companies have conducted preclinical research on compounds intended to be antidotes for Factor Xa inhibitors and that at least one company has announced plans to initiate a clinical trial of an antidote.

There are also a number of products in clinical development for hematologic cancer, opthalmological diseases, allergic rhinitis, allergic asthma and other inflammatory diseases that are potential indications for PRT2070 or PRT2607. Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive. Many competing products are in later stages of development than our products and are, therefore, likely to obtain FDA or other regulatory approval for their products before we obtain approval for ours.

Many of our competitors, including a number of large pharmaceutical companies that compete directly with us, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources 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 third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical study sites and patient registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our programs.

If we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby harming our business.

The regulations that govern marketing approvals, pricing and reimbursement for new therapeutic products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. 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,

 

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we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain regulatory approval.

Our ability to commercialize any products successfully also will depend in part on the extent to which reimbursement for these products and related treatments becomes available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with products administered under the supervision of a physician. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.

There may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government funded and private payors for new products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical studies and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any product candidates or products that we may develop;

 

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injury to our reputation and significant negative media attention;

 

   

withdrawal of patients from clinical studies or cancellation of studies;

 

   

significant costs to defend the related litigation;

 

   

substantial monetary awards to patients;

 

   

loss of revenue; and

 

   

the inability to commercialize any products that we may develop.

We currently hold $10.0 million in product liability insurance coverage, which may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we focus on research programs and product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or other indications that later 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 on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products.

If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights.

Risks related to our reliance on third parties

We rely on third parties to conduct our clinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such studies.

We do not independently conduct clinical studies of our product candidates. We rely on third parties, such as contract research organizations, or CROs, clinical data management organizations, medical institutions and clinical investigators, to perform this function. For example, we rely on PPD Development, LP and other CROs to oversee and manage our APEX study. Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. Furthermore, most of the clinical study sites for our APEX study are outside the United States, including several developing countries. The performance of these sites may be adversely affected by various issues, including less advanced medical infrastructure, lack of familiarity with conducting clinical studies using U.S. standards, insufficient training of personnel and communication difficulties. We remain responsible for ensuring that each of our clinical studies is conducted in accordance with the general investigational plan and protocols for the study. Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical studies to assure that data and reported

 

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results are credible and accurate and that the rights, integrity and confidentiality of patients in clinical studies are protected. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical studies in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.

We also rely on other third parties to store and distribute supplies for our clinical studies. Any performance failure on the part of our existing or future distributors could delay clinical development or regulatory approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.

We rely on third-party contract manufacturing organizations to manufacture and supply our product candidates for us. If one of our suppliers or manufacturers fails to perform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts, particularly with respect to PRT4445, to find new suppliers or manufacturers. We may also face delays in the development and commercialization of our product candidates.

We currently have limited experience in, and we do not own facilities for, clinical-scale manufacturing of our product candidates and we rely upon third-party contract manufacturing organizations to manufacture and supply drug product for our clinical studies. The manufacture of pharmaceutical products in compliance with the FDA’s current good manufacturing practices, or cGMPs, requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, including difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced cGMP requirements, other federal and state regulatory requirements and foreign regulations. If our manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations to us or under applicable regulations, our ability to provide study drugs in our clinical studies would be jeopardized. Any delay or interruption in the supply of clinical study materials could delay the completion of our clinical studies, increase the costs associated with maintaining our clinical study programs and, depending upon the period of delay, require us to commence new studies at significant additional expense or terminate the studies completely.

All manufacturers of our product candidates must comply with cGMP requirements enforced by the FDA through its facilities inspection program. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our product candidates may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. The FDA or similar foreign regulatory agencies may also implement new standards at any time, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall or withdrawal of product approval. If the safety of any product supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products and we may be held liable for any injuries sustained as a result. Any of these factors could

 

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cause a delay of clinical studies, regulatory submissions, approvals or commercialization of our product candidates, entail higher costs or impair our reputation.

We currently rely on a single source supplier for each of our product candidates. For example, we rely on Hovione Inter Limited to produce the active pharmaceutical ingredient for Betrixaban for our APEX study. Our current agreements with our suppliers do not provide for the entire supply of the drug product necessary for all anticipated clinical studies or for full scale commercialization. If we and our suppliers cannot agree to the terms and conditions for them to provide the drug product necessary for our clinical and commercial supply needs, or if any single source supplier terminates the agreement in response to a breach by us or otherwise becomes unable to fulfill its supply obligations, we would not be able to manufacture the product candidate until a qualified alternative supplier is identified, which could also delay the development of, and impair our ability to commercialize, our product candidates. In particular, one of our leading product candidates, PRT4445, is a biologic and therefore requires a complex production process. Transferring the production process to a new manufacturer would be particularly difficult, time consuming and expensive and may not yield comparable product. We are currently working on multiple strategies to develop an economical, commercial scale production process for PRT4445. If we are not successful in developing and implementing such a strategy, commercialization of PRT4445 could be significantly delayed.

Although alternative sources of supply exist, the number of third-party suppliers with the necessary manufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers, which could have a material adverse effect on our business. New suppliers of any product candidate would be required to qualify under applicable regulatory requirements and would need to have sufficient rights under applicable intellectual property laws to the method of manufacturing the product candidate. Obtaining the necessary FDA approvals or other qualifications under applicable regulatory requirements and ensuring non-infringement of third-party intellectual property rights could result in a significant interruption of supply and could require the new manufacturer to bear significant additional costs which may be passed on to us.

We have entered into a collaboration agreement with each of Lee’s, BMS and Pfizer, Bayer and Janssen, Biogen Idec and Aciex with respect to our product candidates. These collaborations may place the development of these product candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us, and if our collaborations are not successful, these product candidates may not reach their full market potential.

In January 2013, we entered into a clinical collaboration agreement with Lee’s Pharmaceutical (HK) Ltd, or Lee’s, to jointly expand our Phase 3 APEX study of Betrixaban into China with an exclusive option for Lee’s to negotiate for the exclusive commercial rights to Betrixaban in China. In October 2012, we entered into a three-way agreement with Bristol-Myers Squibb Company, or BMS, and Pfizer Inc., or Pfizer, to include subjects dosed with apixaban, their jointly owned Factor Xa inhibitor product, in one of our proof-of-concept studies of PRT4445. In February 2013, we entered into a three-way agreement with Bayer and Janssen to include subjects dosed with rivaroxaban, their Factor Xa inhibitor product, in one of our proof-of-concept studies of PRT4445. In February 2013, we entered into a license and collaboration agreement with Aciex Therapeutics, Inc., or Aciex, pursuant to which we granted Aciex an exclusive license to co-develop and co-commercialize PRT2070 and certain related compounds for nonsystemic indications, such as the treatment and prevention of ophthalmological diseases by topical administration and allergic rhinitis by intranasal administration.

 

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We retain rights to other non-systemic indications including dermatologic disorders. In October 2011, we entered into a collaboration agreement with Biogen Idec pursuant to which Biogen Idec has ultimate decision-making authority with respect to the research, development and commercialization of PRT2607 and other highly selective Syk inhibitors. We may enter into additional collaboration agreements with third parties with respect to our other product candidates for the commercialization of the candidates outside the United States. In addition, depending on our capital requirements, development and commercialization costs, need for additional therapeutic expertise and other factors, it is possible that we will enter into broader development and commercialization arrangements with respect to our other product candidates. Our likely collaborators for any distribution, marketing, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We will have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenue from these arrangements will depend in part on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.

Collaborations involving our product candidates, such as our collaboration with Biogen Idec, are subject to numerous risks, which may include the following:

 

   

collaborators have significant discretion in determining the efforts and resources that they will apply to a collaborations;

 

   

collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical study results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;

 

   

collaborators may delay clinical studies, provide insufficient funding for a clinical study program, stop a clinical study, abandon a product candidate, repeat or conduct new clinical studies or require a new formulation of a product candidate for clinical testing;

 

   

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;

 

   

a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing and distribution;

 

   

collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

 

   

disputes may arise between us and a collaborator that causes the delay or termination of the research, development or commercialization of our product candidates or that results in costly litigation or arbitration that diverts management attention and resources;

 

   

collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and

 

   

collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we would not have the exclusive right to commercialize such intellectual property.

 

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For example, we previously had an exclusive worldwide license and collaboration agreement with Merck for the development and commercialization of Betrixaban and an exclusive worldwide license agreement with Novartis for the development and commercialization of Elinogrel, a novel anti-platelet agent. In each case, the collaborator chose to terminate the collaboration for internal business reasons. As a result of these terminations, we were required to revise the development plan for Betrixaban and raise additional financing to support that plan, and we also decided to halt our development efforts with respect to Elinogrel. Any termination or disruption of our collaboration with Biogen Idec or other potential collaborators could result in delays in the development of product candidates, increases in our costs to develop the product candidate or the termination of development of a product candidate.

Risks related to the operation of our business

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on William Lis, our Chief Executive Officer, and the other principal members of our executive and scientific teams. Under the terms of their employment, our executives may terminate their employment with us at any time. The loss of the services of any of these people could impede the achievement of our research, development and commercialization objectives. We maintain “key person” insurance for Mr. Lis but not for any other executives or employees. Any insurance proceeds we may receive under our “key person” insurance on Mr. Lis would not adequately compensate us for the loss of his services.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

As of April 30, 2013, we had 57 employees. Over the next several years, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

 

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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 could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and radioactive and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We also store certain low level radioactive waste at our facilities until the materials can be properly disposed of. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may be required to incur substantial costs to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Requirements associated with being a public company will increase our costs significantly, as well as divert significant company resources and management attention.

Prior to this offering, we have not been subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the other rules and regulations of the Securities and Exchange Commission, or SEC, or any securities exchange relating to public companies. We are working with our legal, independent accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, the expenses that will be required in order to adequately prepare for being a public company could be material. Compliance with the various reporting and other requirements applicable to public companies will also require considerable time and attention of management. In addition, the changes we make may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis.

In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified personnel to serve on our board of directors, our board committees or as executive officers.

 

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We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, which was enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may suffer or be more volatile.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations could be subject to earthquakes, power shortages, telecommunications failures, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Our corporate headquarters is located in California and certain clinical sites for our product candidates, operations of our existing and future partners and suppliers are or will be located in California near major earthquake faults and fire zones. The ultimate impact on us, our significant partners, suppliers and our general infrastructure of being located near major earthquake faults and fire zones and being consolidated in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake, fire or other natural or manmade disaster.

If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If any product candidates that we may develop are approved for commercialization outside the United States, we will be subject to additional risks related to entering into international business relationships, including:

 

   

different regulatory requirements for drug approvals in foreign countries;

 

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reduced protection for intellectual property rights;

 

   

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

   

economic weakness, including inflation or political instability in particular foreign economies and markets;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

foreign taxes, including withholding of payroll taxes;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

In connection with our Betrixaban studies, we are currently utilizing certain suppliers outside of the United States, which subjects us to certain of the above risks, but our risks will be significantly increased if we establish operations internationally.

Our internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our drug development programs.

Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical study data from completed or ongoing clinical studies for any of our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.

Risks related to intellectual property

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We are a party to intellectual property license agreements with third parties, including with respect to Betrixaban, PRT2070 and PRT2607, and expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that our future license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail

 

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to comply with these obligations, our licensors may have the right to terminate these agreements, in which event we may not be able to develop and market any product that is covered by these agreements. Termination of these licenses or reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms or our not having sufficient intellectual property rights to operate our business. The occurrence of such events could materially harm our business.

Our ability to successfully commercialize our technology and products may be materially adversely affected if we are unable to obtain and maintain effective intellectual property rights for our technologies and product candidates.

Our success depends in large part on our and our licensors’ ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to our proprietary technology and products. In some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology or products that we license from third parties. Therefore, we cannot be certain that these patents and applications will be prosecuted and enforced in a manner consistent with the best interests of our business. In addition, if third parties who license patents to us fail to maintain such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated.

We have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and products that are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technologies or from developing competing products and technologies. Under our collaboration agreement with Biogen Idec, we are obligated to use commercially reasonable efforts to file and prosecute patent applications, and maintain patents, covering PRT2607 and other highly selective Syk inhibitors in specified jurisdictions, and these patent rights are licensed to Biogen Idec.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unresolved. In recent years patent rights have been the subject of significant litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our licensors’ patent rights are highly uncertain. Our and our licensors’ pending and future patent applications may not result in patents being issued which protect our technology or products or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned and licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. Assuming the other requirements for patentability are met, currently, in the United States, the first to make the claimed invention is entitled to the patent,

 

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while outside the United States, the first to file a patent application is entitled to the patent. In 2013, under the recently enacted America Invents Act, the United States will be moving to a first to file system. The effects of these changes are currently unclear as the United States Patent and Trademark Office, or USPTO, must still implement various regulations, the courts have yet to address any of these provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. We may become involved in opposition or interference proceedings challenging our patent rights or the patent rights of others, and the outcome of any proceedings are highly uncertain. An adverse determination in any such proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.

Even if our owned and licensed patent applications 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 our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop or prevent us from stopping others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours or otherwise provide us with a competitive advantage.

We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights or intellectual property of

 

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third parties. We may become party to, or be threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference proceedings before the USPTO. An interference proceeding is a proceeding before the USPTO to determine the priority among multiple patents or patent applications. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third-party’s intellectual property rights, we could be required to obtain a license from such third-party to continue developing and marketing our products and technology. However, we may not be able 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, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties can have a similar negative impact on our business.

For example, in August 2011, the USPTO declared an interference proceeding involving U.S. Patent No. 7,727,982 assigned to Millennium Pharmaceuticals, Inc., to which we have an exclusive license, and U.S. Application No. 12/203,640 assigned to Yamanouchi Pharmaceuticals Co., Ltd. Both of these patent applications potentially covered a Factor Xa inhibitor being developed by a competitor, but not Betrixaban or its lead backup compounds. As the competitor had ceased clinical development of its compound, we decided against contesting the interference proceeding and priority was given to U.S. Application No. 12/203,640. We do not believe this result will have a material impact on our business.

We may be unable to protect the confidentiality of our trade secrets, thus harming our business and competitive position.

In addition to our patented technology and products, we rely upon trade secrets, including unpatented know-how, technology and other proprietary information to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. We also have agreements with our employees and selected consultants that obligate them to assign their inventions to us. However, it is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees, consultants or collaborators that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could be disclosed, misappropriated or otherwise become known or be independently discovered by our competitors. In addition, intellectual property laws in foreign countries may not protect our intellectual property to the same extent as the laws of the United States. If our trade secrets are disclosed or misappropriated, it would harm our ability to protect our rights and have a material adverse effect on our business.

We may be subject to claims that our employees have wrongfully used or disclosed intellectual property of their former employers. Intellectual property litigation or proceeding could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to

 

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ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property related proceedings could have a material adverse effect on our ability to compete in the marketplace.

Risks related to government regulation

The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our collaboration partners from obtaining approvals for the commercialization of some or all of our product candidates.

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. Neither we nor our collaboration partners are permitted to market our product candidates in the United States until we receive approval of an NDA or a Biologics License Application, or BLA, from the FDA. Neither we nor our collaboration partners have submitted an application or received marketing approval for any of our product candidates. Obtaining approval of an NDA or BLA can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable U.S. and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions, including the following:

 

   

warning letters;

 

   

civil or criminal penalties and fines;

 

   

injunctions;

 

   

suspension or withdrawal of regulatory approval;

 

   

suspension of any ongoing clinical studies;

 

   

voluntary or mandatory product recalls and publicity requirements;

 

   

refusal to accept or approve applications for marketing approval of new drugs or biologics or supplements to approved applications filed by us;

 

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restrictions on operations, including costly new manufacturing requirements; or

 

   

seizure or detention of our products or import bans.

Prior to receiving approval to commercialize any of our product candidates in the United States or abroad, we and our collaboration partners must demonstrate with substantial evidence from well-controlled clinical studies, and to the satisfaction of the FDA and other regulatory authorities abroad, that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical studies can be interpreted in different ways. Even if we and our collaboration partners believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering any of our product candidates to humans may produce undesirable side effects, which could interrupt, delay or cause suspension of clinical studies of our product candidates and result in the FDA or other regulatory authorities denying approval of our product candidates for any or all targeted indications.

Regulatory approval of an NDA or BLA is not guaranteed, and the approval process is expensive and may take several years. The FDA also has substantial discretion in the approval process. Despite the time and expense exerted, failure can occur at any stage, and we could encounter problems that cause us to abandon or repeat clinical studies, or perform additional preclinical studies and clinical studies. The number of preclinical studies and clinical studies that will be required for FDA approval varies depending on the product candidate, the disease or condition that the product candidate is designed to address and the regulations applicable to any particular product candidate. The FDA can delay, limit or deny approval of a product candidate for many reasons, including, but not limited to, the following:

 

   

a product candidate may not be deemed safe or effective;

 

   

FDA officials may not find the data from preclinical studies and clinical studies sufficient;

 

   

the FDA might not approve our or our third-party manufacturer’s processes or facilities; or

 

   

the FDA may change its approval policies or adopt new regulations.

If any of our product candidates fails to demonstrate safety and efficacy in clinical studies or does not gain regulatory approval, our business and results of operations will be materially and adversely harmed.

Even if we receive regulatory approval for a product candidate, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements.

Once regulatory approval has been granted, the approved product and its manufacturer are subject to continual review by the FDA and/or non-U.S. regulatory authorities. Any regulatory approval that we or our collaboration partners receive for our product candidates may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing follow-up studies to monitor the safety and efficacy of the product. In addition, if the FDA and/or non-U.S. regulatory authorities approve any of our product candidates, we will be subject to extensive and ongoing regulatory requirements by the FDA and other regulatory authorities with regard to the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for our products. In addition, manufacturers of our drug products are required to comply with cGMP regulations, which include requirements related to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory authorities must approve these manufacturing facilities before they can be used to manufacture our drug products,

 

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and these facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If we or a third party discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory authority may impose restrictions on that product, the manufacturer or us, including requiring withdrawal of the product from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with regulatory requirements of the FDA and/or other non-U.S. regulatory authorities, we could be subject to administrative or judicially imposed sanctions, including the following:

 

   

warning letters;

 

   

civil or criminal penalties and fines;

 

   

injunctions;

 

   

suspension or withdrawal of regulatory approval;

 

   

suspension of any ongoing clinical studies;

 

   

voluntary or mandatory product recalls and publicity requirements;

 

   

refusal to approve pending applications for marketing approval of new drugs or supplements to approved applications filed by us;

 

   

restrictions on operations, including costly new manufacturing requirements; or

 

   

seizure or detention of our products or import bans.

The regulatory requirements and policies may change and additional government regulations may be enacted for which we may also be required to comply. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or in other countries. If we are not able to maintain regulatory compliance, we may not be permitted to market our future products and our business may suffer.

Failure to obtain regulatory approvals in foreign jurisdictions will prevent us from marketing our products internationally.

We intend to seek a distribution and marketing partner for Betrixaban outside the United States and may market future products in international markets. In order to market our future products in the European Economic Area, or EEA, and many other foreign jurisdictions, we must obtain separate regulatory approvals. Specifically, in the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA.

Before granting the MA, the European Medicines Agency or the competent authorities of the member states of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

We have had limited interactions with foreign regulatory authorities, and the approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Clinical studies conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure

 

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approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and even if we file we may not receive necessary approvals to commercialize our products in any market.

Healthcare reform measures could hinder or prevent our product candidates’ commercial success.

In the United States, there have been and we expect there will continue to be a number of legislative and regulatory changes to the healthcare system in ways that could affect our future revenue and profitability and the future revenue and profitability of our potential customers. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, collectively, the PPACA, was enacted in 2010. The PPACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which will impact existing government healthcare programs and will result in the development of new programs. The PPACA, among other things:

 

   

imposes a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs,” effective 2011;

 

   

increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%;

 

   

requires collection of rebates for drugs paid by Medicaid managed care organizations;

 

   

requires manufacturers to participate in a coverage gap discount program, under which they must agree to offer 50% point-of-sale discounts off negotiated prices of applicable branded drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D, beginning January 2011; and

 

   

creates a process for approval of biologic therapies that are similar or identical to approved biologics.

While the U.S. Supreme Court upheld the constitutionality of most elements of the PPACA in June 2012, other legal challenges are still pending final adjudication in several jurisdictions. In addition, Congress has also proposed a number of legislative initiatives, including possible repeal of the PPACA. At this time, it remains unclear whether there will be any changes made to the PPACA, whether to certain provisions or its entirety. We cannot assure that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, the Budget Control Act of 2011, among other things, created the Joint Select Committee

 

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on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, which triggered the legislation’s automatic reduction to several government programs, including aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two months the budget cuts mandated by the sequestration provisions of the Budget Control Act of 2011. The ATRA, among other things, also reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. On March 1, 2013, the sequestration went into effect.

There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future or their full impact. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of health care may adversely affect:

 

   

our ability to set a price we believe is fair for our products;

 

   

our ability to generate revenue and achieve or maintain profitability; and

 

   

the availability of capital.

Further, changes in regulatory requirements and guidance may occur and we may need to amend clinical study protocols to reflect these changes. Amendments may require us to resubmit our clinical study protocols to Institutional Review Boards for reexamination, which may impact the costs, timing or successful completion of a clinical study. In light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the Governmental Accounting Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the recall and withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of risk management programs that may, for instance, restrict distribution of drug products or require safety surveillance and/or patient education. The increased attention to drug safety issues may result in a more cautious approach by the FDA to clinical studies and the drug approval process. Data from clinical studies may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate or suspend clinical studies before completion, or require longer or additional clinical studies that may result in substantial additional expense and a delay or failure in obtaining approval or approval for a more limited indication than originally sought.

Given the serious public health risks of high profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, costly risk evaluation and mitigation strategies, which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, preapproval of promotional materials and restrictions on direct-to-consumer advertising.

If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations

 

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pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The regulations that may affect our ability to operate include, without limitation:

 

   

the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs;

 

   

indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs;

 

   

the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to entities like us which provide coding and billing advice to customers;

 

   

federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

 

   

the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;

 

   

the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and

 

   

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

The PPACA, among other things, amends the intent requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our

 

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management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

Risks related to this offering and ownership of our common stock

Our stock price may be volatile, and purchasers of our common stock could incur substantial losses.

Our stock price is likely to be volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including the following:

 

   

the success of competitive products or technologies;

 

   

results of clinical studies of our product candidates or those of our competitors;

 

   

regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products;

 

   

introductions and announcements of new products by us, our commercialization partners, or our competitors, and the timing of these introductions or announcements;

 

   

actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms;

 

   

variations in our financial results or those of companies that are perceived to be similar to us;

 

   

the success of our efforts to acquire or in-license additional products or product candidates;

 

   

developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our commercialization partners;

 

   

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

 

   

developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products;

 

   

our ability or inability to raise additional capital and the terms on which we raise it;

 

   

the recruitment or departure of key personnel;

 

   

changes in the structure of healthcare payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally;

 

   

trading volume of our common stock;

 

   

sales of our common stock by us or our stockholders;

 

   

general economic, industry and market conditions; and

 

   

the other risks described in this “Risk factors” section.

These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market,

 

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securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Immediately after this offering, we will have outstanding 32,360,180 shares of common stock based on the number of shares outstanding as of March 31, 2013. This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Of the remaining shares, 25,460,180 shares are currently restricted as a result of securities laws or lock-up agreements but will be able to be sold after the offering as described in the section of this prospectus entitled “Shares eligible for future sale.” Moreover, immediately after this offering, holders of an aggregate of up to 24,107,872 shares of our common stock, including shares of our common stock issuable upon exercise of outstanding warrants, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the “Underwriting” section of this prospectus.

After this offering, our executive officers, directors and principal stockholders will maintain the ability to control or significantly influence all matters submitted to stockholders for approval.

Upon the closing of this offering, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock before this offering will, in the aggregate, beneficially own shares representing approximately 58% of our common stock, excluding any shares of our common stock that these stockholders may purchase in the offering. As a result, if these stockholders were to choose to act together, they would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these stockholders, if they choose to act together, will control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, and rules of the SEC and those of The NASDAQ Stock Market, or the NASDAQ, have imposed various requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance

 

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initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, beginning with our annual report on Form 10-K for the fiscal year ended December 31, 2013. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 10-K following the date on which we are no longer an emerging growth company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.

Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for our common stock, and could adversely affect our ability to access the capital markets.

An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. Entities affiliated with certain of our existing stockholders and directors have indicated an interest in purchasing up to an aggregate of approximately $20.0 million in shares of our common stock in this offering at the initial public offering price. To the extent these potential investors are our affiliates and are allocated and purchase shares in this offering, such purchases would reduce the available public float for our shares because these potential investors will be restricted from selling the shares under the lock-up agreements described in the section of this prospectus entitled the “Shares eligible for future sale.” As a result, the liquidity of our common stock could be significantly reduced from what it would have been if these shares had been purchased by investors that were not affiliated with us. The initial public offering price for our common stock was determined through negotiations with the underwriters. Although our common stock has been approved for listing on the NASDAQ an active trading market for our shares may never develop or be sustained following this offering. If an active market for our

 

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common stock does not develop, it may be difficult for our stockholders to sell shares purchased in this offering without depressing the market price for the shares or at all.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the balance of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our corporate charter and our bylaws that will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions include the following:

 

   

our board of directors is divided into three classes with staggered three-year terms which may delay or prevent a change of our management or a change in control;

 

   

our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

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our stockholders may not act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of our capital stock would not be able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the board of directors, the chairman of the board, the chief executive officer or the president;

 

   

our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and

 

   

our board of directors may issue, without stockholder approval, shares of undesignated preferred stock; the ability to issue undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Our employment agreements with our executive officers may require us to pay severance benefits to any of those persons who are terminated in connection with a change in control of us, which could harm our financial condition or results.

Certain of our executive officers are parties to employment agreements that contain change in control and severance provisions providing for aggregate cash payments of up to approximately $2.7 million for severance and other benefits and acceleration of vesting of stock options with a value of approximately $10.6 million (as of March 31, 2013, based on an assumed initial public offering price of $14.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus) in the event of a termination of employment in connection with a change in control of us. The accelerated vesting of options could result in dilution to our existing stockholders and harm the market price of our common stock. The payment of these severance benefits could harm our financial condition and results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with us.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be our stockholders’ sole source of gain.

We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.

 

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Cautionary statement concerning forward-looking statements

This prospectus, including the sections titled “Prospectus summary,” “Risk factors,” “Use of proceeds,” “Management’s discussion and analysis of financial condition and results of operations,” “Market, industry and other data,” “Business” and “Shares eligible for future sale,” contains forward-looking statements. In some cases you can identify these statements by forward-looking words, such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “potential,” “seek,” “expect,” “goal,” or the negative or plural of these words or similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

   

our expected uses of the net proceeds to us from this offering;

 

   

our ability to enroll patients in our clinical studies at the pace that we project;

 

   

the timing and the success of the design of our Phase 3 clinical study of Betrixaban, or APEX;

 

   

the timing of our anticipated additional Phase 2 proof-of-concept studies of PRT4445;

 

   

our ability to design and implement a registration program of PRT4445 in the time frame we project;

 

   

whether the results of our APEX study will be sufficient to support global regulatory approvals for Betrixaban;

 

   

our ability to obtain and maintain regulatory approval of our product candidates;

 

   

the possibility that the FDA might consider PRT4445 for an expedited regulatory approval process;

 

   

our ability to advance PRT2070 into a Phase 1/2 clinical study in 2013;

 

   

our ability to conduct a proof-of-concept study in hematologic cancers for PRT2070;

 

   

our expectation that our existing capital resources and the net proceeds from this offering will be sufficient to enable us to complete our ongoing Phase 3 clinical study of Betrixaban, our Phase 2 proof-of-concept studies of PRT4445 and a Phase 1/2 study for PRT2070;

 

   

the projected number of acute medically ill patients who would benefit from the use of Betrixaban;

 

   

the projected dollar amounts of future sales of established and novel anticoagulants;

 

   

our ability to successfully commercialize our products;

 

   

the rate and degree of market acceptance of our products;

 

   

our ability to scale up manufacturing of our product candidates to commercial scale;

 

   

our ability to successfully build a hospital-based sales force and commercial infrastructure;

 

   

our ability to compete with branded and generic Factor Xa inhibitors;

 

   

our reliance on third parties to conduct our clinical studies;

 

   

our reliance on third-party contract manufacturers to manufacture and supply our product candidates for us;

 

   

our reliance on our collaboration partners’ performance over which we do not have control;

 

   

our ability to retain and recruit key personnel;

 

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our ability to obtain and maintain intellectual property protection for our products;

 

   

the actual receipt and timing of any milestone payments or royalties from our collaborators;

 

   

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing;

 

   

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act;

 

   

our ability to identify, develop, acquire and in-license new products and product candidates;

 

   

our ability to successfully establish and successfully maintain appropriate collaborations and derive significant revenue from those collaborations;

 

   

our financial performance; and

 

   

developments and projections relating to our competitors or our industry.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

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Market, industry and other data

We obtained the industry, market and other data throughout this prospectus from our own internal estimates and research, and from industry publications and research, surveys and studies conducted by other third parties. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates.

Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

 

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Use of proceeds

We estimate that the net proceeds from our issuance and sale of 6,900,000 shares of our common stock in this offering will be approximately $89.2 million, or approximately $103.2 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $14.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $14.50 per share would increase (decrease) the net proceeds from this offering by approximately $6.4 million, assuming that the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering by approximately $13.5 million, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

As of March 31, 2013, we had cash, cash equivalents and investments of approximately $124.6 million. We currently estimate that we will use the net proceeds from this offering, together with our cash, cash equivalents and investments, as follows:

 

   

approximately $135.0 million to fund our ongoing clinical program for Betrixaban;

 

   

approximately $28.0 million to fund our continued development of PRT4445;

 

   

approximately $15.0 million to fund a Phase 1/2 study in hematologic cancers for PRT2070; and

 

   

the balance to fund working capital, capital expenditures and other general corporate purposes, which may include the acquisition or licensing of other products, businesses or technologies.

This expected use of the net proceeds from this offering and our existing cash, cash equivalents and investments represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development and commercialization efforts and the status of and results from clinical studies, as well as any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We have no current understandings, agreements or commitments for any material acquisitions or licenses of any products, businesses or technologies.

Based on our planned use of the net proceeds from this offering and our existing cash, cash equivalents and investments described above, we expect that such funds will be sufficient to enable us to complete our ongoing Phase 3 clinical study of Betrixaban, our Phase 2 proof-of-concept studies of PRT4445 and a Phase 1/2 study in hematologic cancers for PRT2070. However, it is possible that we will not achieve the progress that we expect because the actual costs and timing of drug development, particularly clinical studies, are difficult to predict, subject to substantial risks and delays and often

 

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vary depending on the particular indication and development strategy. We do not expect that the net proceeds from this offering and our existing cash, cash equivalents and investments will be sufficient to enable us to fund substantial development of our other product candidates.

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, interest bearing instruments and U.S. government securities.

Dividend policy

We have never declared or paid, and do not anticipate declaring, or paying in the foreseeable future, any cash dividends on our capital stock. Future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial conditions, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

 

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Dilution

Dilution is the amount by which the offering price paid by the purchasers of the shares of common stock sold in the offering exceeds the pro forma as adjusted net tangible book value per share of our common stock after this offering. The pro forma net tangible book value of our common stock as of March 31, 2013 was $108.4 million, or $4.26 per share. Pro forma net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of outstanding shares of common stock, after giving effect to the pro forma adjustments referenced under “Capitalization.”

After giving effect to (i) the pro forma adjustments referenced under “Capitalization” and (ii) receipt of the net proceeds from our sale of 6,900,000 shares of common stock at an assumed initial public offering price of $14.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2013 would have been approximately $197.6 million, or $6.11 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $1.85 per share to our existing stockholders and an immediate dilution of $8.39 per share to investors purchasing common stock in this offering.

The following table illustrates this dilution on a per share basis to new investors:

 

Assumed initial public offering price per share

      $ 14.50   

Pro forma net tangible book value per share as of March 31, 2013

   $ 4.26      

Increase in pro forma net tangible book value per share attributable to new investors purchasing shares in this offering

     1.85      
  

 

 

    

Pro forma net tangible book value per share after giving effect to this offering

        6.11   
     

 

 

 

Dilution in pro forma net tangible book value per share to new investors in this offering

      $ 8.39   
     

 

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $14.50 per share would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $0.20 per share and the dilution to new investors by $0.81 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option to purchase additional shares in this offering is exercised in full, the pro forma net tangible book value, as adjusted to give effect to this offering, would be $6.34 per share and the dilution to new investors would be $8.16 per share.

We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value by approximately $13.5 million, or $0.22 per share, and decrease (increase) the pro forma dilution per share to investors in this offering by $0.22 per share, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma information discussed above is illustrative only and will change based on the actual initial public offering price, number of shares and other terms of this offering determined at pricing.

 

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The table below summarizes as of March 31, 2013, on a pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration, and the average price per share (i) paid to us by our existing stockholders and (ii) to be paid by new investors purchasing our common stock in this offering at an assumed initial public offering price of $14.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares purchased     Total consideration     Average price
per share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     25,460,180         78.7   $ 320,256,170         76.2   $ 12.58   

New investors

     6,900,000         21.3        100,050,000         23.8      $ 14.50   
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     32,360,180         100.0   $ 420,306,170         100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

A $1.00 increase (decrease) in the assumed initial public offering price of $14.50 per share would increase (decrease) total consideration paid by new investors by $6.9 million and increase (decrease) the percent of total consideration paid by new investors by 1.2%, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering.

If the underwriters’ over-allotment option to purchase additional shares in this offering is exercised in full, the percentage of shares of our common stock held by existing stockholders will be reduced to 73.6% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will increase to 7,935,000 shares, or 23.8% of the total number of shares of our common stock outstanding after this offering.

The number of shares of our common stock reflected in the discussion and tables above is based on 25,460,180 shares of our common stock outstanding as of March 31, 2013 (including convertible preferred stock on an as-converted basis), and excludes the following:

 

   

3,529,789 shares of our common stock issuable upon the exercise of stock options outstanding at a weighted-average exercise price of $6.59 per share;

 

   

Shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan, or 2013 Plan (which consist of (i) 617,650 shares of common stock reserved for issuance under our 2003 Equity Incentive Plan, or 2003 Plan, as of March 31, 2013, which shares will be added to the shares reserved under the 2013 Plan upon its effectiveness and (ii) up to 4,194,129 additional shares that may be added to the 2013 Plan upon the expiration, termination, forfeiture or other reacquisition of any shares of common stock issuable upon the exercise of stock options outstanding under the 2003 Plan), which will become effective upon the execution and delivery of the underwriting agreement for this offering;

 

   

1,000,000 shares of our common stock reserved for future issuance under our 2013 Employee Stock Purchase Plan; and

 

   

82,575 shares of our common stock issuable upon the exercise of convertible preferred stock warrants outstanding and common stock warrants outstanding at a weighted-average exercise price of $12.92 per share.

 

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To the extent that any outstanding options or warrants are exercised, new options are issued under our stock-based compensation plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. If all of these options and warrants were exercised, then our existing stockholders, including the holders of these options and warrants, would own 80.8% and our new investors would own 19.2% of the total number of shares of our common stock outstanding upon the closing of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options and warrants, would be approximately $344.6 million, or 77.5%, the total consideration paid by our new investors would be $100.1 million, or 22.5%, the average price per share paid by our existing stockholders would be $11.85, and the average price per share paid by our new investors would be $14.50.

Entities affiliated with certain of our existing stockholders and directors have indicated an interest in purchasing up to an aggregate of approximately $20.0 million in shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, less or no shares to any of these potential investors and any of these potential investors could determine to purchase more, less or no shares in this offering. The foregoing discussion and tables do not reflect any potential purchases by these potential investors.

 

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Capitalization

The following table sets forth our cash, cash equivalents and investments and capitalization as of March 31, 2013:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect the filing of our amended and restated certificate of incorporation and the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 24,026,797 shares of our common stock immediately prior to the closing of this offering, and the conversion of all outstanding convertible preferred stock warrants into warrants to purchase an aggregate of 81,075 shares of our common stock immediately prior to the closing of this offering; and

 

   

on a pro forma as adjusted basis to further reflect the sale by us of 6,900,000 shares of common stock in this offering at an assumed initial public offering price of $14.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with the sections in this prospectus entitled “Selected financial data,” and “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and related notes included elsewhere in this prospectus.

 

     As of March 31, 2013  
     Actual     Pro forma     Pro forma
as adjusted(1)
 
    

(in thousands, except share and

per share data)

 
    

(unaudited)

 

Cash, cash equivalents and investments(2)

   $ 124,637      $ 124,637      $ 213,834   
  

 

 

   

 

 

   

 

 

 

Convertible preferred stock warrant liability

   $ 648      $      $   

Convertible preferred stock, $0.001 par value; 243,258,300 shares authorized, 24,026,797 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

     317,280                 

Stockholders’ (deficit) equity:

      

Preferred stock, $0.001 par value; 5,000,000 shares authorized, no shares issued and outstanding, actual; 5,000,000 shares authorized, pro forma and pro forma as adjusted

                     

Common stock, $0.001 par value; 300,000,000 shares authorized, 1,433,383 shares issued and outstanding, actual; 100,000,000 shares authorized, pro forma and pro forma as adjusted; 25,460,180 shares issued and outstanding, pro forma; 32,360,180 shares issued and outstanding, pro forma as adjusted

     1        25        32   

Additional paid-in capital

     11,595        329,499        418,688   

Accumulated deficit

     (220,462     (220,462     (220,462

Accumulated other comprehensive income

     20        20        20   
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (208,846     109,082        198,278   
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 109,082      $ 109,082      $ 198,278   
  

 

 

   

 

 

   

 

 

 

 

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(1) A $1.00 increase (decrease) in the assumed initial public offering price of $14.50 per share would increase (decrease) each of cash, cash equivalents and investments, working capital and total assets by $6.4 million and decrease (increase) total stockholders’ (deficit) equity by $6.4 million, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) each of cash, cash equivalents and investments, working capital and total assets by approximately $13.5 million and decrease (increase) total stockholders’ (deficit) equity by approximately $13.5 million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price, number of shares offered and other terms of this offering determined at pricing.
(2) Includes $7.7 million classified as long-term investments.

The outstanding share information in the table above is based on 25,460,180 shares of our common stock outstanding as of March 31, 2013 (including convertible preferred stock on an as-converted basis), and excludes the following:

 

   

3,529,789 shares of our common stock issuable upon the exercise of stock options outstanding at a weighted-average exercise price of $6.59 per share;

 

   

Shares of common stock reserved for future issuance under our 2013 Equity Incentive Plan, or 2013 Plan (which consist of (i) 617,650 shares of common stock reserved for issuance under our 2003 Equity Incentive Plan, or 2003 Plan, as of March 31, 2013, which shares will be added to the shares reserved under the 2013 Plan upon its effectiveness and (ii) up to 4,194,129 additional shares that may be added to the 2013 Plan upon the expiration, termination, forfeiture or other reacquisition of any shares of common stock issuable upon the exercise of stock options outstanding under the 2003 Plan), which will become effective upon the execution and delivery of the underwriting agreement for this offering;

 

   

1,000,000 shares of our common stock reserved under our 2013 Employee Stock Purchase Plan; and

 

   

82,575 shares of our common stock issuable upon the exercise of convertible preferred stock warrants outstanding and common stock warrants outstanding at a weighted-average exercise price of $12.92 per share.

 

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Selected financial data

You should read the following selected financial data together with the section of this prospectus entitled “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and the related notes included in this prospectus. The statement of operations data for the years ended December 31, 2010, 2011 and 2012 and the balance sheet data as of December 31, 2011 and 2012 are derived from our audited financial statements included elsewhere in this prospectus. The statement of operations data for the three months ended March 31, 2012 and 2013 and the balance sheet data as of March 31, 2013 are derived from our unaudited interim condensed financial statements included elsewhere in this prospectus. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results to be expected in the future, and our unaudited interim results are not necessarily indicative of the results to be expected for the full year or any other period.

 

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     Year ended
December 31,
     Three months ended
March 31,
 
     2010     2011     2012      2012     2013  
    

(in thousands, except share and per share data)

 
                        (unaudited)  
Statement of operations data:            

Collaboration and license revenue(1)

   $ 35,268      $ 78,029      $ 72,042       $ 2,481      $ 3,108   

Operating expenses:

           

Research and development

     43,260        46,089        49,717         12,961        17,722   

General and administrative

     10,762        12,071        11,469         2,807        3,039   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     54,022        58,160        61,186         15,768        20,761   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) from operations

     (18,754     19,869        10,856         (13,287     (17,653

Interest and other income, net

     1,659        136        510         160        (489

Interest expense

     (380     (21                      
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before income taxes

     (17,475     19,984        11,366         (13,127     (18,142

Provision for income taxes

     2,794                                
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ (20,269   $ 19,984      $ 11,366       $ (13,127   $ (18,142
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to common stockholders:

           

Basic

   $ (20,269   $ 79      $       $ (13,127   $ (18,142
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

   $ (20,269   $ 127      $       $ (13,127   $ (18,142
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders:

           

Basic

   $ (16.79   $ 0.06      $ 0.00       $ (10.08   $ (12.94
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

   $ (16.79   $ 0.06      $ 0.00       $ (10.08   $ (12.94
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Shares used to compute net income (loss) per share attributable to common stockholders:

           

Basic

     1,207,106        1,249,778        1,350,939         1,302,333        1,401,677   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

     1,207,106        2,089,206        2,048,867         1,302,333        1,401,677   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Pro forma net income (loss) per share attributable to common stockholders (unaudited):

           

Basic

       $ 0.44         $ (0.71
      

 

 

      

 

 

 

Diluted

       $ 0.43         $ (0.71
      

 

 

      

 

 

 

Shares used to compute pro forma net income (loss) per share attributable to common stockholders (unaudited):

           

Basic

         25,377,736           25,428,474   
      

 

 

      

 

 

 

Diluted

         26,075,664           25,428,474   
      

 

 

      

 

 

 

 

(1) To date, substantially all of our revenue has been generated from our collaboration agreements, and we have not generated any commercial product revenue. Revenue in the year ended December 31, 2011 includes $8.3 million that represents the recognition of all remaining deferred revenue following the termination of our exclusive worldwide license and collaboration agreement with Merck & Co., Inc., effective September 30, 2011. Revenue in the year ended December 31, 2012 includes $65.1 million that represents the recognition of all remaining deferred revenue following the termination of our exclusive worldwide license agreement with Novartis Pharma A.G., effective July 1, 2012. See the section of this prospectus entitled “Management’s discussion and analysis of financial condition and results of operations—Financial operations overview—Revenue” for a more detailed description of our revenue recognition with respect to these agreements.

 

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     As of
December 31,
    As of
March 31,
 
      2010     2011     2012     2013  
    

(in thousands)

 
                       (unaudited)  
Balance sheet data:         

Cash, cash equivalents and investments

   $ 101,417      $ 188,089      $ 137,384      $ 124,637   

Restricted cash

     6,000                        

Working capital

     55,659        169,128        116,089        96,229   

Total assets

     113,658        193,403        146,001        134,020   

Convertible preferred stock

     220,374        317,280        317,280        317,280   

Total stockholders’ deficit

     (228,407     (206,105     (191,569     (208,846

 

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Management’s discussion and analysis of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations together with the section of this prospectus entitled “Selected financial data” and our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this prospectus entitled “Risk factors.

Overview

We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics in the areas of thrombosis, other hematologic disorders and inflammation for patients who currently have limited or no approved treatment options. Since our inception in 2003, we have advanced several innovative compounds into clinical development. Our lead product candidate Betrixaban is in a pivotal Phase 3 clinical study, and our second lead development candidate PRT4445 has completed the first of a series of Phase 2 proof-of-concept studies. We have completed preclinical testing for one of our other product candidates, PRT2070, and we plan to file an investigational new drug application, or IND, with the United States Food and Drug Administration, or FDA, in order to advance PRT2070 into a Phase 1/2 clinical study in 2013. We also have completed multiple Phase 1 studies for PRT2607.

Our product candidates and collaboration agreements

Betrixaban

Betrixaban is a novel oral once-daily inhibitor of Factor Xa in development for extended duration prophylaxis, or preventive treatment, of a form of thrombosis, or blood clots, known as venous thromboembolism, or VTE, in acute medically ill patients for up to 35 days. In March 2012, we initiated a pivotal Phase 3 study to evaluate oral once-daily Betrixaban for superiority as compared to subcutaneous injection of enoxaparin for extended VTE prophylaxis in acute medically ill patients with restricted mobility and other risk factors. This study is anticipated to enroll approximately 6,850 patients. Based on current enrollment, we expect our current Phase 3 study of Betrixaban, or APEX, to be completed in mid-2015.

We entered into an asset purchase agreement with Millennium Pharmaceuticals, Inc., or Millennium, in November 2003 to acquire patent rights and intellectual property to a platelet research program, and a license agreement with Millennium in August 2004, to obtain certain exclusive rights to research, develop and commercialize certain compounds that inhibit Factor Xa, including Betrixaban. Both of these agreements were amended in December 2005. See the section of this prospectus entitled “Business—Collaboration and license agreements—Millennium agreements” for a more detailed description of these agreements.

In July 2009, we entered into an exclusive worldwide license and collaboration agreement with Merck & Co., Inc., or Merck, to develop and commercialize Betrixaban, which was terminated effective September 2011. See the section of this prospectus entitled “Business—Collaboration and license agreements—Merck agreement” for a more detailed description of this agreement.

 

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In January 2013, we entered into a clinical collaboration agreement with Lee’s Pharmaceutical (HK) Ltd, or Lee’s, to jointly expand the Phase 3 APEX study of Betrixaban into China with an exclusive option for Lee’s to negotiate for the exclusive commercial rights to Betrixaban in China. See the section of this prospectus entitled “Business—Collaboration and license agreements—Lee’s agreement” for a more detailed description of this agreement.

PRT4445

PRT4445 is a recombinant protein designed to reverse the anticoagulant activity in patients treated with a Factor Xa inhibitor who suffer an uncontrolled bleeding episode or undergo emergency surgery. In May 2013, we completed the first of a series of Phase 2 proof-of-concept studies of PRT4445 in healthy volunteers who are administered a Factor Xa inhibitor. Based on discussions with the FDA and the results of this study, we believe that the FDA may consider PRT4445 for an expedited regulatory approval process.

In October 2012, we entered into a three-way agreement with Bristol-Myers Squibb Company, or BMS, and Pfizer Inc., or Pfizer, to include subjects dosed with apixaban, their jointly owned Factor Xa inhibitor product, in one of our proof-of-concept studies of PRT4445. See the section of this prospectus entitled “Business—Collaboration and license agreements—BMS and Pfizer agreement” for a more detailed description of this agreement.

In February 2013, we entered into a three-way agreement with Bayer Pharma AG, or Bayer, and Janssen Pharmaceuticals, Inc., or Janssen, to include subjects dosed with rivaroxaban, their jointly owned Factor Xa inhibitor product, in one of our proof-of-concept studies of PRT4445. See the section of this prospectus entitled “Business—Collaboration and license agreements—Bayer and Janssen agreement” for a more detailed description of this agreement.

PRT2070

In addition to our thrombosis products, we have discovered two novel orally available kinase inhibitors to treat hematologic disorders and inflammation. The first, PRT2070, is an orally available, potent inhibitor of enzymes that regulate two important signaling pathways, spleen tyrosine kinase, or Syk, and janus kinase. We are developing PRT2070 for the treatment of certain B-cell hematologic cancers. We have completed preclinical testing for PRT2070, and we plan to file an IND in order to advance PRT2070 into a Phase 1/2 clinical study in non-Hodgkin’s lymphoma and chronic lymphocytic leukemia in 2013.

In February 2013, we entered into an agreement with Aciex Therapeutics, Inc., or Aciex, for topical and intranasal co-development and co-commercialization of PRT2070 and certain related compounds for nonsystemic indications, such as the treatment and prevention of ophthalmological diseases by topical administration and allergic rhinitis by intranasal administration. We retain rights to other non-systemic indications, including dermatologic disorders. See the section of this prospectus entitled “Business—Collaboration and license agreements—Aciex agreement” for a more detailed description of this agreement.

PRT2607

Our second kinase inhibitor, PRT2607, is an orally available, potent and selective inhibitor of Syk. Syk is an important mediator of immune response in a number of different types of immune cells. PRT2607 has been successfully evaluated in 131 subjects in several Phase 1 clinical studies. Biogen Idec Inc., or Biogen Idec, is leading the pre-clinical study of PRT2607 and other highly selective Syk inhibitors for allergic asthma and other inflammatory disorders and is responsible for all development-related expenses.

 

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In October 2011, we entered into an exclusive, worldwide license and collaboration agreement with Biogen Idec to develop and commercialize selective Syk kinase inhibitors for the treatment of autoimmune and inflammatory diseases. See the section of this prospectus entitled “Business—Collaboration and license agreements—Biogen Idec agreement” for a more detailed description of this agreement.

In June 2005, we entered into a license agreement with Astellas Pharma, Inc., or Astellas, pursuant to which we licensed from Astellas certain rights to research, develop and commercialize Syk kinase inhibitors, including PRT2070 and PRT2607. This agreement was amended in December 2010. See the section of this prospectus entitled “Business—Collaboration and license agreements—Astellas agreement” for a more detailed description of this agreement.

Other

Prior to 2012, we were developing Elinogrel, a novel anti-platelet agent. In February 2009, we entered into a worldwide collaboration and license agreement with Novartis Pharma A.G., or Novartis, to develop and commercialize Elinogrel. In April 2012, we and Novartis agreed to a plan for Novartis to return all rights to Elinogrel to us and to terminate our agreement, effective July 1, 2012. See the section of this prospectus entitled “Business—Collaboration and license agreements—Novartis agreement” for a more detailed description of this agreement. Although we may resume development of Elinogrel in the future, we currently do not plan do to so.

For purposes of this discussion and analysis of our financial condition and results of operations, we refer to our agreements with Millennium, Merck, Lee’s, BMS and Pfizer, Bayer and Janssen, Aciex, Biogen Idec, Astellas and Novartis collectively as our collaboration agreements.

Financial operations overview

Summary

Our revenue to date has been generated primarily from collaboration and license revenue pursuant to our collaboration agreements with Biogen Idec, Merck and Novartis, and our agreement with BMS and Pfizer. We have not generated any commercial product revenue. As of March 31, 2013, we had an accumulated deficit of $220.5 million. Although we reported net income for 2011 and 2012, this was primarily due to the recognition of revenue pursuant to our agreements with Biogen Idec and with Merck in 2011 and the recognition of all remaining deferred revenue following the termination of our agreement with Novartis in 2012. We have incurred significant losses prior to 2011 and in 2013 and expect to incur significant and increasing losses in the foreseeable future as we advance our product candidates into later stages of development and, if approved, commercialization. There can be no assurance that we will receive additional collaboration revenue in the future.

We expect our research and development expenses to increase as we continue to advance our product candidates through clinical development. We intend to identify partnerships to further develop other product candidates that strengthen our pipeline, which may offset a portion of our research and development expenses through reimbursement from these partners. In addition, if any of our product candidates receive regulatory approval for commercial sale, we expect to incur significant expenses associated with the establishment of a hospital-based sales force in the United States and possibly other major markets. Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of expenses incurred or when, or if, we will be able to achieve sustained profitability.

 

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We have historically funded our operations primarily through the sale of convertible preferred stock and funds received pursuant to our collaboration agreements. To date, we have raised an aggregate of $317.3 million through the sale of convertible preferred stock. Under our agreements with Biogen Idec, Merck and Novartis, and our agreement with BMS and Pfizer and our agreement with Bayer and Janssen we received non-refundable upfront license fees in the aggregate amount of $172.0 million. As of March 31, 2013, we had cash, cash equivalents and investments of $124.6 million, of which $7.7 million was classified as long-term investments.

Revenue

We have not generated any revenue from commercial product sales to date. Our revenue to date has been generated primarily from non-refundable upfront license payments and reimbursements for research and development expenses under our collaboration agreements. In addition to upfront license payments, we may also be entitled to milestone and other contingent payments upon the occurrence of specific events. We have not achieved any milestones or received any contingent payments under any of our collaboration agreements as of March 31, 2013.

The following table summarizes the sources of our revenue for the years ended December 31, 2010, 2011 and 2012 and the three months ended March 31, 2012 and 2013:

 

    Year Ended
December 31,
    Three Months Ended
March 31,
 
    2010     2011     2012         2012             2013      
   

(in thousands)

 
                      (unaudited)  

Novartis:

         

Recognition of upfront license fee

  $ 7,692      $ 7,692      $ 53,846      $ 1,923      $   

Reimbursement of research and development expenses

    898        1,879        16,238        558          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Novartis total

    8,590        9,571        70,084        2,481          
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Merck:

         

Recognition of upfront license fee

    21,429        21,429                        

Reimbursement of research and development expenses

    5,249        9,973                        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Merck total

    26,678        31,402                        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Biogen Idec:

         

Recognition of upfront license fee

           37,056                        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Biogen Idec total

           37,056                        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BMS and Pfizer:

         

Recognition of research and development services

                  1,958               1,988   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BMS and Pfizer total

                  1,958               1,988   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Bayer and Janssen:

         

Recognition of research and development services

                                1,120   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Bayer and Janssen total

                                1,120   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total collaboration and license revenue

  $ 35,268      $ 78,029      $ 72,042      $ 2,481      $ 3,108   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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In accordance with the accounting guidance we adopted on January 1, 2011, we recognized collaboration revenue of $37.1 million pursuant to our agreement with Biogen Idec and recorded a reduction for research and development expenses of $0.7 million for reimbursement of research and development expenses received from Biogen Idec for the year ended December 31, 2011. Under the previous accounting guidance for multiple element arrangements, we would have recognized revenue of approximately $3.4 million pursuant to our agreement with Biogen Idec for the year ended December 31, 2011. We expect that our revenue will continue to fluctuate in future periods.

Research and development expenses

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our unpartnered product candidates, as well as discovery and development of clinical candidates pursuant to our collaboration agreements. We recognize all research and development costs as they are incurred.

Research and development expenses consist of the following:

 

   

external research and development expenses incurred under agreements with consultants, third-party contract research organizations, or CROs, and investigative sites where a substantial portion of our preclinical studies and all of our clinical studies are conducted, and with contract manufacturing organizations, or CMOs, where a substantial portion of our preclinical supplies and all of our clinical supplies are produced;

   

employee-related expenses, which include salaries, benefits and stock-based compensation; and

 

   

facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization of leasehold improvements and equipment and laboratory and other supplies.

Our research and development expenses may increase or decrease by amounts we may pay or receive under various cost-sharing provisions of our collaboration and license agreements.

The following table summarizes our research and development expenses incurred during the years ended December 31, 2010, 2011 and 2012 and the three months ended March 31, 2012 and 2013:

 

        Year Ended
December 31,
    Three Months Ended
March 31,
 
    Phase of
development
  2010     2011     2012         2012             2013      
        (in thousands)  

Product candidate

      (unaudited)   

Betrixaban

  Phase 3   $ 6,099      $ 5,828      $ 27,297      $ 7,455      $ 10,750   

PRT4445

  Phase 2     4,435        11,128        15,049        3,223        5,780   

PRT2070

  IND ready     1,961        1,970        726        139        1,031   

PRT2607

  Pre-clinical     7,454        19,045        3,344        1,356        28   

Elinogrel(1)

  Phase 3 ready     9,371        3,221        172        60        36   

Other research and development expenses(2)

      13,940        4,897        3,129        728        97   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total research and development expenses(3)

    $ 43,260      $ 46,089      $ 49,717      $ 12,961      $ 17,722   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Although we may resume development of Elinogrel in the future, we currently do not plan to do so.

 

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(2) Amount in 2010 consists primarily of costs for another compound which we are no longer developing. Amounts in all periods include costs for other potential product candidates.
(3) Our research and development expenses have been reduced by reimbursements of certain research and development expenses pursuant to the cost-sharing provisions of our agreements with Biogen Idec commencing in the fourth quarter of 2011 and MyoKardia, Inc. and Global Blood Therapeutics, Inc. commencing in the fourth quarter of 2012. Reimbursement of research and development expenses of the cost-sharing provisions of our agreements with Merck and Novartis were recognized as revenue pursuant to the revenue recognition accounting policy applicable to these agreements.

The program-specific expenses summarized in the table above include costs directly attributable to our product candidates. We allocate research and development salaries, benefits, stock-based compensation and indirect costs to our product candidates on a program-specific basis, and we include these costs in the program-specific expenses. The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates. We expect our research and development expenses to increase in the future. The process of conducting the necessary clinical research to obtain FDA approval is costly and time consuming. We consider the active management and development of our clinical pipeline to be crucial to our long-term success. The actual probability of success for each product candidate and clinical program may be affected by a variety of factors including: the quality of the product candidate, early clinical data, investment in the program, competition, manufacturing capability and commercial viability. Furthermore, in the past we have entered into collaborations with third parties to participate in the development and commercialization of our product candidates, and we may enter into additional collaborations in the future. In situations in which third parties have control over the preclinical development or clinical study process for a product candidate, the estimated completion dates are largely under the control of such third parties and not under our control. We cannot forecast with any degree of certainty which of our product candidates, if any, will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

General and administrative expenses

General and administrative expenses consist primarily of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. We expect to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities and other administration and professional services.

Interest and other income, net

Interest and other income, net consists primarily of interest received on our cash, cash equivalents and investments, unrealized gains and losses from the remeasurement of our foreign currency bank balances and foreign currency forward contracts and gains and losses resulting from the remeasurement of our convertible preferred stock warrant liability. We will continue to record adjustments to the estimated fair value of the convertible preferred stock warrants until they are exercised, expired or converted into warrants to purchase shares of our common stock upon the closing of our initial public offering. At that time, we will

 

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reclassify the convertible preferred stock warrant liability as additional paid-in capital and we will no longer record any related periodic fair value adjustments.

Interest and other income, net also includes income in connection with tax credits made available through awards received in 2010 under the U.S. federal Qualifying Therapeutic Discovery Project Program to support research with the potential to produce new therapies.

Interest expense

Interest expense consists primarily of interest on any outstanding borrowings. We had no outstanding borrowings as of March 31, 2013.

Critical accounting policies and significant judgments and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue recognition

We generate revenue from collaboration and license agreements for the development and commercialization of our product candidates. Collaboration and license agreements may include non-refundable upfront payments, partial or complete reimbursement of research and development costs, contingent payments based on the occurrence of specified events under our collaboration arrangements, license fees and royalties on sales of product candidates if they are successfully approved and commercialized. Our performance obligations under the collaborations may include the transfer of intellectual property rights in the form of licenses, obligations to provide research and development services and related materials and obligations to participate on certain development and/or commercialization committees with the collaboration partners. We make judgments that affect the periods over which we recognize revenue. We periodically review our estimated periods of performance based on the progress under each arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis.

On January 1, 2011, we adopted an accounting standards update that amends the guidance on accounting for new or materially modified multiple-element arrangements that we enter into subsequent to January 1, 2011. This guidance removed the requirement for objective and reliable evidence of fair value of the undelivered items in order to consider a deliverable a separate unit of accounting. It also changed the allocation method such that the relative-selling-price method must be used to allocate arrangement consideration to all the units of accounting in an arrangement. This

 

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guidance established the following hierarchy that must be used in estimating selling price under the relative-selling-price method: (1) vendor-specific objective evidence of fair value of the deliverable, if it exists, (2) third-party evidence of selling price, if vendor-specific objective evidence is not available or (3) vendor’s best estimate of selling price if neither vendor-specific nor third-party evidence is available. The adoption of this guidance had a material effect on the revenue recognized for the year ended December 31, 2011 as we entered into a multiple-element agreement with Biogen Idec. We determined that the deliverables under our agreement with Biogen Idec had stand-alone value and there were no rights of return, thus we accounted for each deliverable as a separate unit of accounting. For multiple element arrangements entered into prior to January 1, 2011, we determined whether the elements had stand-alone value and whether there was objective and reliable evidence of fair value. When the delivered element did not have stand-alone value or there was insufficient evidence of fair value for the undelivered element(s), we recognized the consideration for the combined unit of accounting ratably over the estimated period of performance, which was the same manner in which the revenue was recognized for the final deliverable.

Based upon the relative estimated selling prices of the units of accounting for the year ended December 31, 2011, we recognized collaboration and license revenue of $37.1 million pursuant to our agreement with Biogen Idec, and recorded a reduction in our research and development expenses of $0.7 million for reimbursement of research and development expenses received from Biogen Idec pursuant to the cost-sharing provisions of our agreement with Biogen Idec. Under the previous accounting guidance for multiple element arrangements, we would have recognized revenue of approximately $3.4 million pursuant to our agreement with Biogen Idec for the year ended December 31, 2011. We would have concluded that all deliverables are combined into a single unit of accounting in the absence of vendor-specific objective evidence of fair value of undelivered services, and we would have recognized the funds received over an estimated performance period through November 2013.

On January 1, 2011, we also adopted an accounting standards update that provides guidance on revenue recognition using the milestone method. Payments that are contingent upon achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved. Milestones are defined as events that can be achieved based only on our performance and as to which, at the inception of the arrangement, there is substantive uncertainty about whether the milestone will be achieved. Events that are contingent only on the passage of time or only on third-party performance are not considered milestones subject to this guidance. Further, the amounts received must relate solely to prior performance, be reasonable relative to all of the deliverables and payment terms in the agreement and commensurate with our performance to achieve the milestone after commencement of the agreement.

Amounts received from licensing of intellectual property are recognized as revenue, as such licensing is one of our principal or major ongoing activities. Amounts received as funding of research and development activities are recognized as revenue if the collaboration arrangement involves the sale of our research or development services at amounts that exceed our cost. However, such funding is recognized as a reduction of research and development expenses when we engage in a research and development project jointly with another entity, with both entities participating in project activities and sharing costs and potential benefits of the project. Accordingly, reimbursement of research and development expenses pursuant to the cost-sharing provisions of our agreements with Merck and Novartis, which were entered into in 2009 and prior to the adoption of the accounting standards update explained above, were recognized as revenue pursuant to our revenue recognition accounting policy in

 

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effect at that time. Reimbursement of research and development expenses pursuant to the cost-sharing provisions of our agreement with Biogen Idec, which was entered into in 2011 following the adoption of the accounting standards update explained above, are recognized as a reduction of research and development expenses. In November 2012, we elected to exercise our option to fully out-license PRT2607 under our agreement with Biogen Idec and accordingly we and Biogen Idec no longer have any further obligation pursuant to the cost-sharing provisions of the agreement.

Amounts related to research and development funding are recognized as the related services or activities are performed, in accordance with the contract terms. Payments may be made to or by us based on the number of full-time equivalent researchers assigned to the collaboration project and the related research and development expenses incurred.

Accrued research and development expenses

As part of the process of preparing financial statements, we are required to estimate and accrue expenses, the largest of which are research and development expenses. This process involves the following:

 

   

communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost;

 

   

estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time; and

 

   

periodically confirming the accuracy of our estimates with selected service providers and making adjustments, if necessary.

Examples of estimated research and development expenses that we accrue include:

 

   

fees paid to CROs in connection with preclinical and toxicology studies and clinical studies;

 

   

fees paid to investigative sites in connection with clinical studies;

 

   

fees paid to CMOs in connection with the production of clinical study materials; and

 

   

professional service fees for consulting and related services.

We base our expense accruals related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors, such as the successful enrollment of patients and the completion of clinical study milestones. Our service providers invoice us monthly in arrears for services performed. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.

To date, we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period. However, due to the nature of estimates, we cannot

 

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assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities.

Estimated fair value of convertible preferred stock warrants

Freestanding warrants for the purchase of convertible preferred stock that is either subject to a put right or redeemable are classified as liabilities on the balance sheet at their estimated fair value. At the end of each reporting period, changes in estimated fair value during the period are recorded in interest and other income, net. We will continue to adjust the carrying value of these warrants until the earlier of the exercise of the warrants or the completion of a liquidity event, including the completion of an initial public offering, or IPO, at which time the liabilities will be reclassified to stockholders’ deficit.

We estimate the fair values of the convertible preferred stock warrants using the Black-Scholes option-pricing model based on inputs as of the valuation measurement dates for the estimated fair value of the underlying convertible preferred stock, the remaining contractual terms of the warrants, risk-free interest rates, expected dividend rates and the estimated volatility of the price of the convertible preferred stock.

Stock-based compensation

Stock-based compensation cost is measured at the date of grant, based on the estimated fair value of the award and recognized as an expense over the employee’s requisite service period on a straight-line basis. We recorded non-cash stock-based compensation expense of $1.9 million, $2.4 million, $2.8 million, $0.7 million and $0.7 million for the years ended December 31, 2010, 2011 and 2012 and the three months ended March 31, 2012 and 2013, respectively. At March 31, 2013, we had $6.1 million of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to stock option grants that will be recognized over a weighted-average period of 2.8 years. We expect to continue to grant stock options in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods will likely increase.

We account for stock-based compensation arrangements with non-employees using a fair value approach. The fair value of these options is measured using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. The compensation costs of these arrangements are subject to remeasurement over the vesting terms as earned.

Significant factors, assumptions and methodologies used in determining the estimated fair value of our common stock

Our board of directors, with the assistance of management and, in some cases, an independent third-party valuation consultant, determined the estimated fair value of our common stock as of March 23, 2011, July 13, 2011, September 22, 2011, December 15, 2011, March 8, 2012, July 18, 2012, September 25, 2012, December 13, 2012, February 27, 2013 and April 25, 2013. Option grants are based on the estimated fair value of our common stock on the date of grant, which is determined by taking into account several factors, including the following:

 

   

important developments in our operations, most significantly related to the clinical development of our product candidates, Betrixaban, PRT4445, PRT2070 and PRT2607;

 

   

equity market conditions affecting comparable public companies, as reflected in comparable companies market multiples, IPO valuations and other metrics;

 

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the estimated likelihood of achieving a liquidity event for the shares of our common stock, such as an IPO or an acquisition of our company, given prevailing market conditions and other contingencies affecting the probability or potential timing of such an event; and

 

   

that the options and our common stock are illiquid securities of a private company.

In determining the estimated fair value of our common stock, our board of directors used a combination of the market multiple approach and the IPO value approach to estimate the enterprise value of our company in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The per share common stock value was estimated by allocating the enterprise value using the probability-weighted expected return method, or PWERM, at each valuation date prior to December 2011, and was subsequently estimated by using the option pricing method, or OPM, in each of the contemporaneous valuations dated December 12, 2011 and May 31, 2012. Commencing with the December 31, 2012 contemporaneous valuation, the valuation methodology returned to PWERM. The reasons for our changes in valuation methodology are described below.

The market multiple approach estimates the value of a company by comparing it to a peer group of similar publicly-traded companies. When selecting the peer group to be used for the market multiple approach, we focused on companies within the biopharmaceutical industry. The criteria we used to select comparable companies included the stage of development of their product candidates, their overall position in the biopharmaceutical industry and their risk profile. The peer group was reviewed at each valuation date to assess whether to add or remove companies to maintain the relevance of the peer group, and our peer group’s composition has changed over time based upon this continuing evaluation. Specifically, in connection with the May 31, 2011 contemporaneous valuation, we removed several of the peer group companies that we deemed no longer comparable to us because they had a discontinued or failed program, their cash position was not as strong as ours, they were acquired or for a similar reason, and replaced them with several other companies with programs in Phase 3 development that we believe are comparable to us. Based on these considerations, we believe that our peer group of comparable companies has been a representative group for purposes of performing valuations.

Once a peer group of comparable publicly-traded companies is selected, market multiples are calculated using each company’s stock price and other financial data. Typically, a company’s value is estimated by applying selected market multiples based on forecasted financial results for both that company and its peer group. However, given that we are several years away from generating product revenue and we were unable to develop reliable long-term forecasts, our analysis applied the market approach based on research and development spending results, which was deemed to be the most relevant financial measure. Based on the research and development expenses of our peer group companies, we applied a market multiple of 3.5 to 6.0 to our historical research and development expenses in the last 12 months and a market multiple of 3.5 to 5.5 to our historical research and development expenses over the last three years.

The IPO value approach estimated the value of our company by estimating a future IPO value based on pre-money valuations of IPOs of biopharmaceutical companies that are of similar stage over approximately the preceding two- to three-year period, discounted to the present value. Given that both the market multiple approach and the IPO value approach provide relevant estimates of fair value, which did not differ significantly, we applied equal weighting to each of these approaches to determine an initial estimated enterprise value. The initial estimated enterprise value was then allocated to the common stock using either PWERM or OPM for the periods described above.

 

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OPM is appropriate to use when the range of possible future outcomes is so difficult to predict that any such forecast would be highly speculative, or there is a substantially contemporaneous sale of stock to a third party. OPM treats common stock and convertible preferred stock as call options on the enterprise value, with exercise prices based on the liquidation preference of the convertible preferred stock. Therefore, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference to be received by holders of our convertible preferred stock at the time of a liquidity event, such as a merger, sale or IPO, assuming the enterprise has funds available to make a liquidation preference meaningful and collectible by the stockholders. The common stock is modeled to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the convertible preferred stock is liquidated. OPM uses the Black-Scholes option pricing model to price the call option.

PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the rights of each share class. PWERM estimates the common stock value to our stockholders under each of four possible future scenarios—IPO, sale, stay private and liquidation. The value per share under each scenario was then probability weighted and the resulting weighted values per share were summed to determine the estimated fair value per share of our common stock. In the liquidation, sale and stay private scenarios, the value per share was allocated taking into account the liquidation preferences and participation rights of our convertible preferred stock consistent with the method outlined in the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately-Held Company Equity Securities Issued as Compensation. In the IPO scenario, it was assumed that all outstanding shares of our convertible preferred stock would convert into common stock. Over time, as we achieved certain company-related milestones, the probability of each scenario was evaluated and adjusted accordingly.

In determining the estimated fair value of our common stock, our board of directors also considers the fact that our stockholders cannot freely trade our common stock in the public markets. The estimated fair value of our common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.

 

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Stock options

Information regarding our stock option grants to our employees and non-employees, along with the estimated fair value per share of the underlying common stock, for stock options granted from January 1, 2011 through April 25, 2013 is summarized as follows:

 

Grant date

   Number
of shares of  common
stock underlying options
granted
     Exercise
price per
share of
common
stock
     Estimated
fair value

per  share of
common stock
 

March 23, 2011

     443,970       $ 8.50       $ 8.50   

July 13, 2011

     242,082       $ 8.50       $ 8.50   

September 22, 2011

     80,763       $ 8.50       $ 8.50   

December 15, 2011

     84,162       $ 7.00       $ 7.00   

March 8, 2012

     416,754       $ 7.00       $ 7.00   

July 18, 2012

     77,648       $ 7.00       $ 7.00   

September 25, 2012

     64,900       $ 7.00       $ 7.00   

December 13, 2012

     99,487       $ 9.50       $ 9.50   

February 27, 2013

     218,600       $ 9.80       $ 9.80   

April 25, 2013

     119,780       $ 10.90       $ 10.90 (1) 

 

(1) 

The exercise price per share of common stock and the estimated fair value per share of common stock represent the determination by our board of directors of the estimated fair value of our common stock as of the date of the grant, taking into consideration various objective and subjective factors, including the conclusions of the most recent independent valuations of our common stock as discussed below. For the April 25, 2013 grant date, we have determined to use the low end of the price range set forth on the cover page of this preliminary prospectus as the deemed fair value per share of common stock for financial accounting purposes, including determination of the stock-based compensation expense that will be reflected in our financial statements. Based on this deemed fair value per share of common stock, the aggregate intrinsic value of the stock options granted on April 25, 2013 was $0.3 million on the grant date. All other stock options reflected in this table had no intrinsic value on their respective grant dates.

The intrinsic value of all outstanding options as of March 31, 2013 was $27.9 million based on $14.50 per share, the mid point of the estimated price range set forth on the cover page of this prospectus, of which approximately $20.2 million related to vested options and approximately $7.7 million related to unvested options.

March 23, 2011: We obtained a contemporaneous independent valuation of our common stock as of December 31, 2010. The valuation used a risk-adjusted discount rate of 20%, a non-marketability discount of 27% and an estimated time to a liquidity event of 1.25 years. PWERM probabilities were as follows: IPO in the range of 20% to 30%, sale of the company in the range of 15% to 20%, remaining private in the range of 50% to 55% and liquidation in the range of 0% to 10%. Between December 31, 2010 and March 23, 2011, we continued to make progress in our preclinical and clinical product portfolio and agreed to a plan for Merck to return to us all rights to Betrixaban and terminate the exclusive worldwide license agreement, effective September 30, 2011. Our board of directors determined the fair value of our common stock to be $8.50 per share as of March 23, 2011, which was consistent with the conclusion of the December 31, 2010 contemporaneous independent valuation.

 

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July 13, 2011: Between March 23, 2011 and July 13, 2011, we continued to make progress in our preclinical and clinical product portfolio. We obtained a contemporaneous independent valuation as of May 31, 2011. The valuation used a risk-adjusted discount rate of 18%, a non-marketability discount of 27% and a time to liquidity event of 1.08 years. PWERM probabilities were as follows: IPO in the range of 20% to 30%, sale of the company in the range of 10% to 15%, remaining private in the range of 55% to 60% and liquidation in the range of 0% to 10%. Our board of directors determined the fair value of our common stock to be $8.50 per share as of July 13, 2011, which was consistent with the conclusion of the May 31, 2011 contemporaneous independent valuation. In the judgment of our board of directors, there were no internal or external developments that would indicate that the fair value of our common stock would have increased from May 31, 2011.

September 22, 2011: Between July 13, 2011 and September 22, 2011, we continued to make progress in our preclinical and clinical product portfolio. Our board of directors, taking into account all relevant factors, including among other things, the May 31, 2011 independent valuation, determined the fair value of our common stock to be $8.50 per share as of September 22, 2011, as, in its judgment, there were no internal or external developments that would indicate that the fair value of our common stock would have increased from July 13, 2011.

December 15, 2011: In November 2011, we entered into an exclusive worldwide license and collaboration agreement with Biogen Idec to further advance PRT2607 and completed an $89.0 million financing through the sale of shares of our convertible preferred stock. We obtained a contemporaneous independent valuation as of December 12, 2011 and updated our valuation methodology from PWERM to OPM. OPM was deemed to be more appropriate for the December 12, 2011 valuation as we had recently completed a sale of our Series D preferred stock. Such financing substantially deferred the date by which we would need financing through an initial public offering and it became more difficult to predict the range of possible outcomes pursuant to PWERM. The sale of our Series D preferred stock was deemed to be an arm’s length, third-party transaction and thus was relied upon to estimate the value of the common stock. OPM used a non-marketability discount of 25%, a volatility of 70% and a time to liquidity event of 1.5 years. Based on this valuation and other factors, our board of directors determined the fair value of our common stock to be $7.00 per share as of December 15, 2011, which was consistent with the conclusion of the December 12, 2011 contemporaneous independent valuation.

March 8, 2012: Between December 15, 2011 and March 8, 2012, we continued to make progress in our preclinical and clinical product portfolio. Our board of directors, taking into account all relevant factors, including among other things, the December 12, 2011 independent valuation, determined the fair value of our common stock to be $7.00 per share as of March 8, 2012, as, in its judgment, there were no internal or external developments that would indicate the fair value of our common stock would have increased from December 15, 2011.

July 18, 2012: We obtained a contemporaneous independent valuation as of May 31, 2012 based on OPM, which we deemed still to be the most appropriate methodology as we did not expect to commence an IPO until 2013 at the earliest. The valuation used a non-marketability discount of 21%, a volatility of 75% and a time to liquidity event of 1.08 years. Between May 31, 2012 and July 18, 2012, we continued to make progress in our preclinical and clinical product portfolio and agreed to a plan for Novartis to return to us all rights to Elinogrel and terminate the exclusive worldwide license agreement effective July 1, 2012. Based on this valuation and other factors, our board of directors determined the fair value of our common stock to be $7.00 per share as of July 18, 2012, which was consistent with

 

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the conclusion of the May 31, 2012 contemporaneous independent valuation. In the judgment of our board of directors, there were no internal or external developments that would indicate that the fair value of our common stock would have increased from May 31, 2012.

September 25, 2012: Between July 18, 2012 and September 25, 2012, we continued to make progress in most of our preclinical and clinical product portfolio. However, based on our interactions with Biogen Idec during this period, our board of directors became increasingly concerned that its collaboration partner Biogen Idec would abandon its previously announced plans to initiate a Phase 2 clinical trial of our product candidate PRT2607 in rheumatoid arthritis. In fact, in October 2012, Biogen Idec informed us that it was terminating its development program for PRT2607 in rheumatoid arthritis and focusing instead on an earlier stage development program for proposed inhaled versions of PRT2607 in allergic asthma. Our board of directors, taking into account all relevant factors, including among other things, the May 31, 2012 independent valuation, determined the fair value of our common stock to be $7.00 per share as of September 25, 2012, as, in its judgment, there were no internal or external developments that would indicate that the fair value of our common stock would have increased from July 18, 2012.

December 13, 2012: Between September 25, 2012 and December 13, 2012, we continued to make progress in our preclinical and clinical product portfolio. In particular, during October 2012, we held a critical meeting with representatives of the FDA to discuss our development plan for PRT4445 and entered into a collaboration agreement with BMS and Pfizer for PRT4445. Based on discussions with the FDA regarding our proposed development plan, we determined to proceed as rapidly as possible with our Phase 2 proof-of-concept studies for PRT4445, which we launched in December 2012. In light of these and other developments and in view of what we perceived to be a receptive market environment for biotechnology company public offerings, following the FDA meeting, our board of directors authorized our management to begin preparation in late 2012 for a potential IPO. At this time, we initiated an IPO evaluation process. In late October and early November 2012, we held meetings to evaluate investment banks for an IPO process, and in mid-November 2012, we held an IPO organizational meeting. In the judgment of our board of directors, the progress in our preclinical and clinical programs, discussions with the FDA regarding our proposed development plan for PRT4445 and the perception of an increased probability of an IPO collectively contributed to an increase of approximately one-third in the fair value of our common stock. Accordingly, our board of directors determined, taking into account all relevant factors, including among other things, the May 31, 2012 independent valuation, the estimated fair value of our common stock to be $9.50 per share as of December 13, 2012.

February 27, 2013: Between December 13, 2012 and February 27, 2013, we continued to make progress in our preclinical and clinical product portfolio. In particular, during January 2013, we completed the first dosing in our first Phase 2 proof-of-concept study for PRT4445, which we launched in December 2012. In February 2013, we entered into a collaboration agreement with Bayer and Janssen for PRT4445. We obtained a contemporaneous independent valuation as of December 31, 2012. At that time, we had developed increased confidence regarding possible discrete events, including an IPO. Accordingly, the allocation methodology utilized to allocate our enterprise value to our common stock transitioned from OPM back to PWERM for the December 31, 2012 contemporaneous independent valuation. The valuation used a risk-adjusted discount rate of 17% and a time to liquidity event of 0.92 years. PWERM probabilities were as follows: IPO in the range of 35% to 45%, sale of the company in the range of 10% to 15%, remaining private in the range of 40% to 45% and liquidation in the range of 0% to 10%. Our board of directors determined the estimated fair value of our common stock to be $9.80 per share as of February 27, 2013, which was consistent with the conclusion of the December 31, 2012 contemporaneous independent valuation.

 

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April 25, 2013: Between February 27, 2013 and April 25, 2013, we continued to make progress in our preclinical and clinical product portfolio. In particular, the independent data monitoring committee for our APEX trial met in March 2013 to review interim safety data from the trial and did not raise any issues regarding the trial’s continuation. We obtained a contemporaneous independent valuation as of March 31, 2013. The valuation used a risk-adjusted discount rate of 17% and a time to liquidity event of 0.67 years. PWERM probabilities were as follows: IPO in the range of 45% to 55%, sale of the company in the range of 7.5% to 12.5%, remaining private in the range of 32.5% to 37.5% and liquidation in the range of 0% to 10%. Our board of directors determined the estimated fair value of our common stock to be $10.90 per share as of April 25, 2013, which was consistent with the conclusion of the March 31, 2013 contemporaneous independent valuation. However, in view of the proximity of the grant date to the proposed initial public offering of our common stock, we have determined that, for financial accounting purposes, we will use a deemed fair value of $13.00 per share of common stock, which represents the low end of the price range set forth on the cover page of this preliminary prospectus.

Estimated price range: Immediately prior to the issuance of this preliminary prospectus, in consultation with the underwriters of this offering, we determined the estimated price range set forth on the cover of this preliminary prospectus, which is $13.00 per share to $16.00 per share. We believe the difference between this estimated price range and the estimated fair value of our common stock as determined by our board of directors in connection with the grant of stock options earlier in 2013 is attributable to several factors, including the following:

 

   

The estimated price range represents a future price for shares of common stock that will be immediately freely tradable in a public market, whereas the estimated fair value of our common stock at earlier dates represents a contemporaneous estimate of the fair value of illiquid shares that would be expected to remain restricted from public sale for a substantial period of time even after the completion of an initial public offering.

 

   

The estimated price range was not established until after we received positive results from the first of our Phase 2 proof-of-concept studies of PRT4445. Prior to our receipt of these data, the outcome of this study represented a significant contingency affecting the probability and timing of a liquidity event and, therefore, the estimated fair value of our common stock.

 

   

The estimated price range reflects a meaningful milestone in the APEX study in March 2013, when the independent data monitoring committee for the study met to review interim safety data from the study and did not raise any issues regarding the study’s continuation.

 

   

The estimated price range reflects a significant improvement in the relevant market environment.

Income taxes

We file U.S. federal income tax returns and California, Alaska and Massachusetts state tax returns. To date, we have not been audited by the Internal Revenue Service or any state income tax authority.

As of March 31, 2013, our total deferred tax assets were $89.1 million. The deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards. Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to historical or future ownership percentage change rules provided by the Internal Revenue Code

 

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of 1986, and similar state provisions. The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards before their utilization. In each of 2009 and 2012, we performed an analysis on annual limitation as a result of ownership changes that may have occurred before January 2007 and through December 31, 2012, respectively. As a result of the analysis, we do not believe that we are currently subject to any such limitation. However, due to uncertainties surrounding our ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets.

Results of operations

Comparison of the three months ended March 31, 2012 and 2013

Revenue

 

     Three months ended
March 31,
               
     2012      2013      Increase /
(Decrease)
     % Increase /
(Decrease)
 
     (dollars in thousands)
(unaudited)
 

Collaboration and license revenue

   $ 2,481       $ 3,108       $ 627         25

The increase in collaboration and license revenue was due to the increase in revenue recognized with respect to our agreements with BMS and Pfizer and Bayer and Janssen, which we entered into in the fourth quarter of 2012 and the first quarter of 2013, respectively. Pursuant to our agreement with BMS and Pfizer, we are obligated to provide research and development services and participate on various committees. We originally estimated the period of performance of our obligations to extend through June 8, 2013. Effective January 1, 2013, we revised our estimated period of performance to be through July 2, 2013.

The increase in collaboration and license revenue recognized with respect to our agreement with BMS and Pfizer and our agreement with Bayer and Janssen was partially offset by a decrease in collaboration and license revenue from Novartis following the termination of our agreement with Novartis effective July 1, 2012. We recognized no revenue from our agreement with Novartis during the three months ended March 31, 2013, compared to revenue of $2.5 million recognized from this same agreement during the three months ended March 31, 2012.

We expect revenue recognized in future periods to be lower than that in 2012 primarily due to no further revenue being recognized in connection with our terminated agreement with Novartis, which may be partially offset by an increase in revenue recognized in connection with new collaboration agreements.

Research and development expenses

 

     Three months ended
March 31,
               
     2012      2013      Increase /
(Decrease)
     % Increase /
(Decrease)
 
     (dollars in thousands)
(unaudited)
 

Research and development expenses

   $ 12,961       $ 17,722       $ 4,761         37

 

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The increase in research and development expenses was primarily due to the following:

 

   

increased program costs of $3.3 million to advance Betrixaban;

 

   

increased program costs of $2.6 million to advance PRT4445; and

 

   

increased program costs of $0.9 million to advance PRT2070.

These increases were partially offset by:

 

   

decreased net program costs of $1.3 million related to PRT2607, primarily due to reimbursements received from Biogen Idec to fund clinical and manufacturing costs pursuant to the cost-sharing provisions of our agreement with Biogen Idec; and

 

   

decreased development costs of $0.7 million as we narrowed our focus to support the development of Betrixaban, PRT4445 and PRT2070.

We expect our research and development expenses to increase in the future as we advance our product candidates through clinical development. The timing and amount of expenses incurred will depend largely upon the outcomes of current or future clinical studies for our product candidates as well as the related regulatory requirements, manufacturing costs and any costs associated with the advancement of our preclinical programs.

General and administrative expenses

 

     Three months ended
March 31,
               
     2012      2013      Increase /
(Decrease)
     % Increase /
(Decrease)
 
     (dollars in thousands)
(unaudited)
 

General and administrative expenses

   $ 2,807       $ 3,039       $ 233         8

The increase in general and administrative expenses was primarily related to increased professional fees to support business development and collaboration arrangements and legal costs of $0.2 million.

We expect general and administrative expenses to increase after this offering in order for us to support the costs of being a public company.

Interest and other income (expense), net

 

     Three months ended
March 31,
             
     2012      2013     Increase /
(Decrease)
    % Increase /
(Decrease)
 
     (dollars in thousands)
(unaudited)
 

Interest and other income (expense), net

   $ 160       $ (489   $ (649     (405 )% 

The decrease in interest and other income (expense), net is from foreign currency exchange losses of $0.6 million, primarily related to unfavorable fluctuations in the Euro compared to the U.S. dollar and unrealized losses related to our foreign currency forward contracts, and decreased other income of $0.1 million due to the fair value remeasurement of our convertible preferred stock warrants, partially offset by increased interest income of $33,000 on higher cash, cash equivalents and investments.

 

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Interest expense

We did not incur any interest expense in the three months ended March 31, 2012 or 2013.

Comparison of the years ended December 31, 2011 and 2012

Revenue

 

     Year ended
December 31,
     Increase  /
(Decrease)
    % Increase  /
(Decrease)
 
     2011      2012       
    

(dollars in thousands)

 

Collaboration and license revenue

   $ 78,029       $ 72,042       $ (5,987     (8 )% 

The decrease in collaboration and license revenue was due to the decrease in revenue recognized with respect to our agreements with Biogen Idec, which we entered into in the fourth quarter of 2011, and Merck, which was terminated in the third quarter of 2011. We recognized no revenue from our agreement with Biogen Idec during 2012, compared to revenue of $37.1 million recognized from this same agreement during 2011. We recognized no revenue from our agreement with Merck during 2012, compared to revenue of $31.4 million recognized from this same agreement during 2011.

The decrease in collaboration and license revenue recognized with respect to our agreements with Biogen Idec and Merck was partially offset by the recognition of all remaining deferred revenue following the termination of our agreement with Novartis effective July 1, 2012. In connection with the termination of our agreement with Novartis, we recognized revenue of $65.1 million, consisting of $50.0 million of upfront license fees and $15.1 million of reimbursement of research and development expenses. Our total Novartis revenue for 2012 of $70.1 million included the foregoing amounts. In addition, we recognized $3.8 million of upfront collaboration and license revenue and $1.1 million of reimbursement of research and development expenses prior to the termination of our agreement with Novartis. For 2011, we recognized total Novartis revenue of $9.6 million.

We expect revenue recognized in future periods to be lower than that in 2012 primarily due to no further revenue being recognized in connection with our terminated agreement with Novartis, which may be partially offset by an increase in revenue recognized in connection with new collaboration agreements.

Research and development expenses

 

     Year ended
December 31,
     Increase /
(Decrease)
     % Increase  /
(Decrease)
 
     2011      2012        
     (dollars in thousands)  

Research and development expenses

   $ 46,090       $ 49,717       $ 3,627         8

The increase in research and development expenses was primarily due to the following:

 

   

increased program costs of $21.5 million to advance Betrixaban;

 

   

increased program costs of $3.9 million to advance PRT4445;

 

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decreased net program costs of $15.7 million related to PRT2607, primarily due to reimbursements received from Biogen Idec to fund clinical and manufacturing costs pursuant to the cost-sharing provisions of our agreement with Biogen Idec; and

 

   

decreased program costs of $3.0 million related to Elinogrel in connection with the termination of our agreement with Novartis effective July 1, 2012.

We expect our research and development expenses to increase in the future as we advance our product candidates through clinical development. The timing and amount of expenses incurred will depend largely upon the outcomes of current or future clinical studies for our product candidates as well as the related regulatory requirements, manufacturing costs and any costs associated with the advancement of our preclinical programs.

General and administrative expenses

 

     Year ended
December 31,
     Increase /
(Decrease)
    % Increase  /
(Decrease)
 
     2011      2012       
     (dollars in thousands)  

General and administrative expenses

   $ 12,071       $ 11,469       $ (602     (5 )% 

The decrease in general and administrative expenses was primarily related to decreased professional and legal costs of $1.1 million, partially offset by increased facilities and overhead-related costs of $0.5 million.

We expect general and administrative expenses to increase upon the closing of this offering in order to support the costs of being a public company.

Interest and other income, net

 

     Year ended
December 31,
     Increase /
(Decrease)
     % Increase  /
(Decrease)
 
     2011      2012        
    

(dollars in thousands)

 

Interest and other income, net

   $ 116       $ 510       $ 394         341

The increase in interest and other income, net is from increased interest income of $0.2 million on higher cash, cash equivalents and investments, increased other income of $0.1 million due to the fair value remeasurement of our convertible preferred stock warrants, and foreign currency exchange gains of $0.1 million primarily related to favorable fluctuations in the Euro compared to the U.S. dollar and the unrealized gains related to our Euro forward contracts.

Interest expense

 

     Year ended
December 31,
     Increase /
(Decrease)
    % Increase  /
(Decrease)
 
     2011      2012       
    

(dollars in thousands)

 

Interest expense

   $ 21       $     —       $ (21     (100 %) 

The decrease in interest expense was due to the repayment of our long-term debt in April 2011.

 

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Comparison of the years ended December 31, 2010 and 2011

Revenue

 

     Year ended
December 31,
     Increase /
(Decrease)
     % Increase  /
(Decrease)
 
     2010      2011        
     (dollars in thousands)  

Collaboration and license revenue

   $ 35,268       $ 78,029       $ 42,761         121

The increase in collaboration and license revenue was primarily due to $37.1 million of recognition of collaboration revenue pursuant to our agreement with Biogen Idec, which we entered into in October 2011, an increase of $4.7 million for recognition of collaboration revenue pursuant to our agreement with Merck and an increase of $1.0 million for recognition of collaboration revenue pursuant to our agreement with Novartis.

In October 2011, we entered into an exclusive, worldwide license and collaboration agreement with Biogen Idec to develop and commercialize PRT2607 and other highly selective Syk inhibitors. Pursuant to the agreement, Biogen Idec provided us with an upfront cash license fee of $36.0 million and paid us $9.0 million for the purchase of 636,042 shares of our Series 1 convertible preferred stock, a premium of $1.1 million above the stock’s estimated fair value. For the year ended December 31, 2011, we recognized collaboration revenue of $37.1 million pursuant to our agreement with Biogen Idec and recorded a reduction in our research and development expenses of $0.7 million for reimbursement of research and development expenses received from Biogen Idec.

In March 2011, we agreed to a plan for Merck to return to us all rights to Betrixaban and terminate our agreement with Merck effective September 30, 2011. In connection with the termination of our agreement with Merck, we recognized revenue of $8.3 million, consisting of $5.3 million of upfront license fees and $3.0 million for reimbursement of research and development expenses. Our total Merck revenue for 2011 of $31.4 million included the foregoing amounts, as well as an additional $16.1 million of upfront license fees and $7.0 million for reimbursement of research and development expenses. We have no further performance obligations under our agreement with Merck. For 2010, we recognized total revenue from Merck of $26.7 million.

Research and development expenses

 

    Year ended
December  31,
     Increase /
(Decrease)
     % Increase  /
(Decrease)
 
    2010      2011        
    (dollars in thousands)  

Research and development

  $ 43,260       $ 46,089       $ 2,829         7

The increase in research and development expenses was primarily due to the following:

 

   

increased costs of $6.7 million for PRT4445, primarily due to increased costs to advance its clinical development;

 

   

increased net costs of $12.3 million for PRT2607 primarily due to the payment of $7.2 million to Astellas pursuant to our agreement with Astellas in connection with our agreement with Biogen Idec for the Syk program development;

 

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a reduction of research and development expenses for PRT2607 by $0.7 million due to reimbursement received from Biogen Idec under the cost-sharing provisions of our agreement with Biogen Idec;

 

   

decreased clinical development costs for Elinogrel of $6.2 million; and

 

   

decreased preclinical development costs of $9.0 million as we narrowed our focus to support clinical development of Betrixaban, PRT4445 and PRT2607 and preclinical development of PRT2070.

General and administrative expenses

 

    Year ended
December  31,
     Increase /
(Decrease)
     % Increase  /
(Decrease)
 
    2010      2011        
    (dollars in thousands)  

General and administrative expenses

  $ 10,762       $ 12,071       $ 1,309         12

The increase in general and administrative expenses was primarily due to increased legal and other professional costs of $1.6 million to negotiate and support our collaboration agreements and clinical studies, partially offset by decreased personnel costs of $0.2 million resulting from lower headcount and decreased facility and overhead costs of $0.1 million primarily due to favorable lease negotiations resulting in lower rent expense for our South San Francisco, California headquarters.

Interest and other income, net

 

    Year ended
December 31,
     Increase /
(Decrease)
    % Increase  /
(Decrease)
 
    2010      2011       
    (dollars in thousands)  

Interest and other income, net

  $ 1,659       $ 136       $ (1,523     (92 %) 

The decrease in interest and other income, net resulted primarily from the receipt of $1.5 million of income in connection with tax credit awards received during the year ended December 31, 2010 from the U.S. Department of Treasury for six projects under the Qualifying Therapeutic Discovery Project Program to support research with the potential to produce new therapies. There were no such amounts received in 2011.

Interest expense

 

     Year ended
December 31,
     Increase /
(Decrease)
    % Increase  /
(Decrease)
 
     2010      2011       
     (dollars in thousands)  

Interest expense

   $ 380       $ 21       $ (359     (94 %) 

The decrease in interest expense was due to the repayment in full of our long-term debt in April 2011.

Provision for income taxes

 

     Year ended
December 31,
     Increase /
(Decrease)
    % Increase  /
(Decrease)
 
     2010      2011       
     (dollars in thousands)  

Provision for income taxes

   $ 2,794       $         —       $ (2,794     (100 %) 

 

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For the year ended December 31, 2011, we did not record an income tax provision on pre-tax income because we incurred taxable losses for both state and federal income tax purposes and had available tax credits to offset all state income tax. Tax credits were used in lieu of net operating losses because state law suspended their use in 2011. We recorded an income tax provision for the year ended December 31, 2010 on a pre-tax loss due primarily to the recognition of collaboration revenue deferred in previous years for California state income tax purposes that could not be offset by state net operating losses due to the suspension of the use of these losses under state law in 2010.

Liquidity and capital resources

Due to our significant research and development expenditures, we have generated significant operating losses since our inception. We have funded our operations primarily through sales of our convertible preferred stock and payments from our collaboration partners. Our expenditures are primarily related to research and development activities. We have received additional funding from long-term debt and interest earned on investments. At March 31, 2013, we had available cash, cash equivalents and investments of $124.6 million. Our cash, cash equivalents and investments are held in a variety of interest-bearing instruments, including investments backed by U.S. government agencies, corporate debt securities and money market accounts. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.

In February 2009, July 2009, November 2011, December 2012, and February and March 2013, in connection with our agreements with Novartis, Merck and Biogen Idec, our agreement with BMS and Pfizer and our agreement with Bayer and Janssen, we received $75.0 million, $50.0 million, $36.0 million, $6.0 million and $5.0 million, respectively, as initial upfront payments. These payments are reflected as deferred revenue and included within cash used in operating activities. In addition, in November 2011, we received proceeds of $98.0 million from the sale of our convertible preferred stock.

The following table summarizes our cash flows for the periods indicated:

 

    Year ended December 31,     Three months ended March 31,  
    2010     2011     2012     2012     2013  
   

(in thousands)

 
                      (unaudited)  

Cash used in operating activities

  $ (29,646   $ (11,321   $ (49,225   $ (16,871   $ (12,160

Cash provided by (used in) investing activities

    (4,865     32,710        (67,802     (68,399     16,349   

Cash provided by (used in) financing activities

    (6,492     94,218        317        163        164   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

  $ (41,003   $ 115,607      $ (116,710   $ (85,107   $ 4,353   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash used in operating activities

Cash used in operating activities was $12.2 million for the three months ended March 31, 2013 reflecting net loss of $18.1 million, which was decreased by non-cash charges of $0.7 million for stock-based compensation, $0.5 million for unrealized losses related to foreign currency forward contracts, $0.4 million for amortization of premium on investments and $0.3 million for depreciation and amortization. Cash used

 

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in operating activities also reflected an increase in net operating assets of $4.0 million primarily due to increases in accounts payable and accrued and other liabilities of $4.0 million related to higher clinical study and related costs as we continue to increase our research and development activities, an increase in deferred revenue of $1.9 million due to an increase in deferred revenue of $5.0 million related to the upfront payments received from Bayer and Janssen in the three months ended March 31, 2013, partially offset by the recognition of collaboration revenue earned of $3.1 million from our collaboration agreements. Cash used in operating activities also reflected a decrease in prepaid expenses and other current assets of $0.4 million primarily reflecting lower prepaid clinical study costs of $0.5 million as our CROs incur the costs to support our clinical trials, partially offset by higher prepaid corporate insurance of $0.1 million following the renewal of our corporate insurance program in the three months ended March 31, 2013. Also reflected in cash used in operating activities is an increase in other assets of $1.0 million related to deferred offering costs and legal fees related to our proposed initial public offering, a decrease in accrued compensation and employee benefits of $0.8 million due to 2012 bonuses that were paid in the three months ended March 31, 2013 and an increase in receivables from collaborations of $0.3 million due to research and development expenses reimbursable from Biogen Idec pursuant to our agreement with Biogen Idec.

Cash used in operating activities was $16.9 million for the three months ended March 31, 2012 reflecting net loss of $13.1 million, which was decreased by non-cash charges of $0.7 million for stock-based compensation, $0.4 million for depreciation and amortization and $0.2 million for amortization of premium on investments and increased by $0.1 million for revaluation of preferred stock warrant liabilities. Cash used in operating activities also reflected a decrease in net operating assets of $4.9 million primarily due to the increase in receivables from collaborations of $2.7 million due to increased research and development expenses reimbursable from Biogen Idec pursuant to our agreements with Biogen Idec, a decrease in deferred revenue of $2.2 million due to the recognition of collaboration revenue earned, a decrease in accrued compensation and employee benefits of $1.5 million due to 2011 bonuses that were paid in the three months ended March 31, 2012, an increase in prepaid expenses and other current assets of $1.1 million primarily for clinical study costs paid in advance to our CRO and prepaid clinical study insurance and a decrease in accounts payable of $0.5 million related to timing of payments of clinical study and related costs. Also reflected in cash used in operating activities is an increase in accrued and other liabilities of $3.4 million related to higher clinical study and related costs as we continue to increase our research and development activities.

Cash used in operating activities was $49.2 million for the year ended December 31, 2012 reflecting net income of $11.4 million, which was increased by non-cash charges of $1.4 million for depreciation and amortization, $1.5 million for amortization of premium on investments, $2.8 million for stock-based compensation and $0.1 million for unrealized gains related to foreign currency forward contracts. Cash used in operating activities also reflected a decrease in net operating assets of $66.1 million primarily due to the recognition of all remaining deferred revenue of $65.1 million related to the upfront payments received from Novartis in prior periods following the termination of our agreement with Novartis effective July 1, 2012 and the recognition of collaboration revenue earned of $6.9 million; an increase in prepaid expenses and other current assets of $2.5 million primarily for clinical study costs paid in advance to our CRO and prepaid clinical study insurance; and an increase in other assets of $2.1 million related to deferred offering costs and legal fees related to our proposed initial public offering. Also reflected in cash used in operating activities is a decrease in accrued compensation and employee benefits of $1.0 million due to 2011 bonuses that were paid in the first quarter of 2012 and a decrease in receivables from collaboration agreements of $0.3 million due to increased research and development expenses reimbursable from Biogen Idec pursuant to our

 

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agreements with Biogen Idec, MyoKardia, Inc. and Global Blood Therapeutics, Inc., and increases in accounts payable and accrued and other liabilities of $5.4 million related to higher clinical study and related costs as we continue to increase our research and development activities.

Cash used in operating activities was $11.3 million for the year ended December 31, 2011 reflecting net income of $20.0 million, which was increased by non-cash charges of $0.8 million for amortization of premium on investments, $1.4 million for depreciation and amortization and $2.4 million for stock-based compensation. Cash used in operating activities also reflected a decrease in net operating assets of $35.8 million due to the amortization of deferred revenue of $35.4 million related to initial upfront payments from our collaboration partners, a decrease in accrued income taxes of $2.5 million for taxes paid in the first quarter of 2011 and decreases in prepaid expenses and other current assets of $1.6 million primarily related to the receipt of reimbursable leasehold improvement costs from our landlord and timing of prepaid research and development expenses and the increase in accounts payable of $1.4 million due to higher research and development related costs and timing of such payments.

Cash used in operating activities was $29.6 million for the year ended December 31, 2010 reflecting a net loss of $20.3 million decreased by non-cash charges of $0.7 million for amortization of premium on investments, $0.8 million for depreciation and amortization and $1.9 million for stock-based compensation. Cash used in operating activities also reflected a decrease in net operating assets of $13.0 million due to the amortization of deferred revenue of $14.1 million related to initial upfront payments from our collaboration partners, decreases in accounts payable of $1.8 million primarily related to the $1.0 million purchase of laboratory equipment which was paid in 2010, accrued compensation and employee benefits of $0.4 million due to a higher bonus payout in 2010 related to 2009 performance, and accrued and other liabilities of $1.4 million primarily due to lower accrued clinical study costs. These decreases were partially offset by an increase in accrued income taxes of $2.5 million related to an income tax provision for the year ended December 31, 2010 due to the recognition of collaboration revenue deferred in previous years for state income tax purposes and an increase in other long-term liabilities by $2.2 million primarily due to increased deferred rent related to our increased leased space as we expanded our operations.

Cash provided by (used in) investing activities

Cash provided by investing activities of $16.3 million for the three months ended March 31, 2013 was primarily related to proceeds from sales of investments of $2.5 million and proceeds from maturities of investments of $26.0 million, partially offset by capital equipment purchases of $0.3 million and purchases of investments of $11.9 million.

Cash used in investing activities of $68.4 million for the three months ended March 31, 2012 was primarily related to capital equipment purchases of $0.3 million and purchases of investments of $78.4 million, partially offset by proceeds from sales of investments of $2.7 million and proceeds from maturities of investments of $7.5 million.

Cash used in investing activities of $67.8 million for 2012 was primarily related to purchases of investments of $144.6 million and capital equipment purchases of $0.4 million, partially offset by proceeds from sales of investments of $36.5 million and proceeds from maturities of investments of $40.7 million.

 

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Cash provided by investing activities of $32.7 million for the year ended December 31, 2011 was primarily related to proceeds from maturities of investments of $59.8 million, the contractual release of restricted cash of $6.0 million and proceeds from sales of investments of $2.2 million. These increases were partially offset by purchases of investments of $33.8 million and capital equipment purchases of $1.5 million.

Cash used in investing activities of $4.9 million for the year ended December 31, 2010 was primarily related to purchases of investments of $94.9 million and capital equipment purchases of $2.4 million was partially offset by proceeds from sales of investments of $1.0 million and proceeds from maturities of investments of $91.4 million.

Cash provided by (used in) financing activities

Cash provided by financing activities of $0.2 million for each of the three months ended March 31, 2012 and 2013 was related to proceeds from the exercise of stock options.

Cash provided by financing activities of $0.3 million for 2012 was related to proceeds from the exercise of stock options.

Cash provided by financing activities of $94.2 million for the year ended December 31, 2011 was primarily related to net proceeds from issuance of convertible preferred stock of $96.7 million and proceeds from the exercise of stock options of $0.2 million, partially offset by repayment of long-term debt of $2.6 million.

Cash used in financing activities of $6.5 million for the year ended December 31, 2010 was primarily due to repayment of long-term debt of $6.7 million, partially offset by proceeds from the exercise of stock options of $0.2 million.

We believe that our existing capital resources, together with interest thereon, will be sufficient to meet our projected operating requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility or committed sources of capital other than potential milestones receivable under our current collaboration. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies. Our future funding requirements will depend on many factors, including the following:

 

   

the scope, rate of progress, results and cost of our clinical studies, preclinical testing and other related activities;

 

   

the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;

 

   

the receipt of any collaboration payments;

 

   

the number and characteristics of product candidates that we pursue;

 

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the cost, timing and outcomes of regulatory approvals;

 

   

the cost and timing of establishing sales, marketing and distribution capabilities;

 

   

the terms and timing of any other collaborative, licensing and other arrangements that we may establish;

 

   

the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products;

 

   

the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

 

   

the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

If we need to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our clinical studies, research and development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Off-balance sheet arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

Contractual obligations

Our future contractual obligations at March 31, 2013 were as follows:

 

     Payments due by period  
      Less than 1
year
     1 to 3
years
     3 to 5
years
     More than
5 years
     Total  
     (in thousands)  
Contractual obligations:               

Purchase commitments

   $ 432       $       $         —       $         —       $ 432   

Operating lease obligations

     1,624         1,673                         3,297   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 2,056       $ 1,673       $       $       $ 3,729   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Pursuant to our asset purchase agreement with Millennium, we are obligated to pay to Millennium royalties on sales of certain products if product sales are ever achieved, which royalty payments will continue until the expiration of the relevant patents or 10 years after the launch, whichever is later. Pursuant to the license agreement between Millennium and us, we are required to make certain license fee, milestone, royalty and sublicense sharing payments to Millennium as we develop, commercialize or sublicense Betrixaban and other products from certain Factor Xa programs as described in the agreement. In November 2007, we made a cash payment to Millennium of $5.0 million pursuant to the license agreement. The Millennium license agreement further provides for additional payments to Millennium of up to $35.0 million based on the achievement of certain milestones related to Betrixaban and the Factor Xa programs. See the section of this prospectus entitled “Business—Collaboration and license agreements—Millennium agreements” for a more detailed description of these agreements.

We are currently negotiating an agreement pursuant to which a manufacturer would fully develop a commercial scale manufacturing process for PRT4445 and produce approval-enabling validation lots. We currently expect that the agreement will include purchase commitments aggregating approximately $4.0 million over several years.

JOBS Act accounting election

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Newly adopted accounting pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-02, or ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires reporting and disclosure about changes in accumulated other comprehensive income balances and reclassifications out of accumulated other comprehensive income. We adopted this guidance as of January 1, 2013 on a prospective basis, and this adoption did not have a material effect on our financial statements.

Quantitative and qualitative disclosures about market risk

The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in a variety of securities of high credit quality. As of March 31, 2013, we had cash, cash equivalents and investments of $124.6 million consisting of cash and liquid investments deposited in highly rated financial institutions in the United States. A portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. However, because our investments are primarily short-term in duration, we believe that our exposure to interest rate risk is not significant and a 1% movement in market interest rates would not have a significant impact on the total value of our portfolio. We actively monitor changes in interest rates.

 

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We contract for the conduct of certain clinical development and manufacturing activities with vendors in Europe. We made payments in the aggregate amount of €6.0 million and €2.2 million to these European vendors during the year ended December 31, 2012 and the three months ended March 31, 2013, respectively. We are subject to exposure due to fluctuations in foreign exchange rates in connection with these agreements and with our cash balance denominated in Euros. For the years

ended December 31, 2010 and 2011 and the three months ended March 31, 2013, the effect of the exposure to these fluctuations in foreign exchange rates was not material. Beginning in 2012, we have utilized foreign currency forward contracts to mitigate our exposure to foreign currency gains and losses. A 10% change in the exchange rates upward or downward in our portfolio of foreign currency forward contracts would have increased unrealized loss by $1.1 million or decreased unrealized loss by $1.4 million, respectively, at March 31, 2013. We hedge our foreign currency exposures but we have not used derivative financial instruments for speculation or trading purposes.

 

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Business

We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics in the areas of thrombosis, other hematologic disorders and inflammation for patients who currently have limited or no approved treatment options. Our current development-stage portfolio consists of three compounds discovered through our internal research efforts and one discovered by Portola scientists during their time at a prior company.

Our two lead programs address significant unmet medical needs in the area of thrombosis, or blood clots. Our lead compound Betrixaban is a novel oral once-daily inhibitor of Factor Xa in Phase 3 development for extended duration prophylaxis, or preventive treatment, of a form of thrombosis known as venous thromboembolism, or VTE, in acute medically ill patients. Currently, there is no anticoagulant approved for extended duration VTE prophylaxis in this population. Our second lead development candidate PRT4445, which has successfully completed the first of a series of Phase 2 proof-of-concept studies, is a recombinant protein designed to reverse the anticoagulant activity in patients treated with a Factor Xa inhibitor who suffer an uncontrolled bleeding episode or undergo emergency surgery. Our third product candidate, PRT2070, is an orally available kinase inhibitor being developed for hematologic, or blood, cancers and inflammatory disorders. PRT2070 inhibits spleen tyrosine kinase, or Syk, and janus kinases, or JAK, enzymes that regulate important signaling pathways. Subject to regulatory approval, we plan to initiate a Phase 1/2 clinical study of PRT2070 in 2013 in patients with B-cell hematologic cancers who have failed or relapsed on existing marketed therapies or products in development, including patients with identified mutations. Our fourth program, PRT2607 and other highly selective Syk inhibitors, is partnered with Biogen Idec Inc., or Biogen Idec.

Members of our management team, working together or individually, have played central roles at prior companies, including COR Therapeutics, Inc., Millennium Pharmaceuticals, Inc. and Johnson & Johnson, in discovering, developing and commercializing a number of successful therapeutics in the area of thrombosis, including Integrilin and Xarelto. Our approach has been to identify key enzymes and cellular signaling pathways and to apply our translational expertise to discover compounds with unique properties that have potential for clear clinical and pharmacoeconomic value. To increase the likelihood that our programs will succeed, we enhance our internal discovery and development expertise by collaborating with academic leaders at major universities, including Cornell University, Duke University, Harvard University, King’s College, McMaster University, Stanford University and The University of Texas MD Anderson Cancer Center, and by proactively engaging regulatory authorities early in the development process.

We have full worldwide commercial rights to Betrixaban and PRT4445, and to PRT2070 for systemic indications. We believe we can maximize the value of our company by retaining substantial global commercialization rights to these three product candidates and, where appropriate, entering into partnerships to develop and commercialize our other product candidates. We plan to build a successful commercial enterprise using a hospital-based sales team in the United States and possibly other major markets and with partners in other territories.

We currently have the following product candidates in development:

 

   

Betrixaban is a novel oral once-daily inhibitor of Factor Xa in development for extended duration VTE prophylaxis in acute medically ill patients for up to 35 days. Acute medically ill patients are those who are hospitalized for serious non-surgical conditions, such as heart

 

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failure, stroke, infection, rheumatic disorders and pulmonary disorders. Based on our research, we estimate that in the G7 countries in 2012 there were 22.3 million acute medically ill patients for whom VTE prophylaxis was recommended by medical treatment guidelines. The current standard of care for VTE prophylaxis in this population is enoxaparin, marketed as Lovenox by Sanofi and as a generic drug by several manufacturers. Enoxaparin is an injectable drug that is approved for a usual administration period of 6 to 11 days and up to 14 days and is generally not prescribed for use outside of the hospital. According to IMS Health Incorporated, a healthcare industry information provider, or IMS, worldwide sales of enoxaparin for the 12 months through June 2012 were in excess of $4.8 billion. We believe that use of enoxaparin in acute medically ill patients accounted for at least $2 billion of these sales. Multiple large, global trials have demonstrated that there is substantial risk of VTE in acute medically ill patients with restricted mobility and other risk factors beyond the standard course of enoxaparin. For example, the MAGELLAN trial demonstrated that the incidence of VTE-related death rose four-fold over several weeks after hospital discharge and the discontinuation of treatment. However, there are no therapies approved for use beyond a typical hospitalization period of 6 to 14 days despite the ongoing risk of VTE faced by these patients for 35 days or more following hospital admission.

In 2012, we initiated our pivotal Phase 3 APEX study to evaluate extended duration VTE prophylaxis with oral once-daily Betrixaban for superiority as compared to the current standard of care in acute medically ill patients. We believe that Betrixaban has several clinically important pharmacological properties that differentiate it from injectable enoxaparin and other oral Factor Xa inhibitors, including a long half-life, low renal clearance and a metabolic profile that limits drug-drug interaction. Renal clearance is a measurement of the degree to which a drug is excreted from the body through the kidneys. In January 2013, we entered into a clinical collaboration agreement with Lee’s Pharmaceutical (HK) Ltd, or Lee’s, to jointly expand our Phase 3 APEX study of Betrixaban into China with an exclusive option for Lee’s to negotiate for the exclusive commercial rights to Betrixaban in China. Under the agreement, Lee’s will provide us with an upfront payment and reimburse our costs in connection with the study to support the expansion of the APEX study into China. Lee’s will also lead regulatory interactions with China’s State Food and Drug Administration for the study.

 

   

PRT4445 is a recombinant protein designed to reverse the anticoagulant activity in patients treated with a Factor Xa inhibitor who suffer an uncontrolled bleeding episode or undergo emergency surgery. Currently, there is no antidote or reversal agent approved for use against Factor Xa inhibitors. Based on industry data, we estimate that in 2020 between 23 million and 36 million patients will be treated with Factor Xa inhibitors for short-term use or chronic conditions. Clinical trial results suggest that, depending on their underlying medical condition, annually between 1% and 4% of these patients will experience uncontrolled bleeding and an additional 1% will require emergency surgery. We believe that PRT4445, if approved, has the long-term potential to address a total worldwide market in excess of $2 billion. Leading clinicians have identified, and the United States Food and Drug Administration, or FDA, has recognized, the lack of an effective reversal agent for Factor Xa inhibitors as a significant unmet clinical need. Preclinical and Phase 1 studies suggest that PRT4445 has the potential to be a universal reversal agent for all Factor Xa inhibitors, including enoxaparin. We recently completed the first of a series of Phase 2 proof-of-concept studies evaluating the safety and activity of PRT4445 in healthy volunteers who are administered one of several Factor Xa inhibitors. Analysis of anticoagulation markers in blood samples taken from the subjects in this first study demonstrates that PRT4445 produces a rapid, sustained and dose-related reversal of anticoagulant activity of the

 

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Factor Xa inhibitor apixaban. We recently initiated a second Phase 2 proof-of-concept study evaluating PRT4445 for reversal of the anticoagulant activity of the Factor Xa inhibitor rivaroxaban. We expect results from this study in the second half of 2013. We have entered into a collaboration agreement with Bristol-Myers Squibb Company, or BMS, and Pfizer Inc., or Pfizer, and a collaboration agreement with Bayer Pharma AG, or Bayer, and Janssen Pharmaceuticals, Inc., or Janssen, pursuant to which agreements, BMS and Pfizer and Bayer and Janssen, respectively, are obligated to make payments to us to collaborate with us on a portion of these studies, but we retain full commercial rights with respect to PRT4445.

 

   

PRT2070 is an orally available, potent inhibitor of Syk and JAK. Scientists have demonstrated that both Syk and JAK play key roles in various hematologic cancers and inflammatory diseases. We are developing PRT2070 for treatment of certain B-cell hematologic cancers, with a particular focus on patients who have NFkB activating mutations or acquired mutations to other novel B-cell targeted therapies that cause treatment failure or disease relapse. PRT2070 has completed preclinical testing and has demonstrated in-vitro activity in cancer cell lines with NFkB activating mutations and in patient tumor samples with acquired mutations to novel B-cell targeted drug candidates. Subject to regulatory approval, we plan to advance PRT2070 into a Phase 1/2 clinical study in non-Hodgkin’s lymphoma, or NHL, and chronic lymphocytic leukemia, or CLL, in 2013. In February 2013, we entered into a license and collaboration agreement with Aciex Therapeutics, Inc., or Aciex, pursuant to which we granted Aciex an exclusive license to co-develop and co-commercialize PRT2070 and certain related compounds for nonsystemic indications, such as the treatment and prevention of ophthalmological diseases by topical administration and allergic rhinitis by intranasal administration. Under the agreement, we will share development costs with Aciex and be entitled to receive either a share of the profits generated by any eventual products or royalty payments. We retain rights to other non-systemic indications, including dermatologic disorders.

 

   

PRT2607 is an orally available, potent and selective inhibitor of Syk. PRT2607 has been evaluated in 131 subjects in several Phase 1 clinical studies. Biogen Idec is leading the pre-clinical study of PRT2607 and other highly selective Syk inhibitors for allergic asthma and other inflammatory disorders and is responsible for all development-related expenses. Syk plays a critical role in mast-cell signaling and activation, which are central to immune system over-activation and resultant airway constrictions in asthma. It is estimated that allergic asthma affects 15 million people in the United States alone. Despite numerous approved treatments, approximately 25% of all emergency room visits each year are attributed to acute and severe episodes of this disease.

Our strategy

Our goal is to build an enduring biopharmaceutical company with a foundation of products and product candidates that significantly advance patient care in the areas of thrombosis, other hematologic disorders and inflammation. Key elements of our strategy are as follows:

Successfully complete the clinical development of Betrixaban. We have initiated APEX, our global pivotal Phase 3 clinical study, to evaluate the efficacy and safety of our lead product candidate Betrixaban for extended duration VTE prophylaxis for up to 35 days in acute medically ill patients with restricted mobility and other risk factors. If APEX is successful and we receive regulatory approval, Betrixaban will be the first anticoagulant approved for the multi-billion dollar market for extended VTE prophylaxis in acute medically ill patients, both in the hospital and after discharge.

 

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Advance PRT4445 through an expedited development and approval process. We recently completed the first of a series of Phase 2 proof-of-concept studies of PRT4445 in healthy volunteers receiving anticoagulation therapy. Based on the results of our initial Phase 2 study, we anticipate that we will have meetings with the FDA and European regulators to discuss the remaining clinical studies needed for approval of PRT4445. If the FDA allows us to pursue an expedited approval process, we anticipate that we could initiate a registration study for PRT4445 in 2014.

Commercialize Betrixaban and PRT4445, if approved, in the United States using a hospital-focused sales force. We plan to commercialize both of our thrombosis product candidates with a U.S. hospital-based sales force of approximately 100 to 140 sales representatives all focused on demonstrating the clinical and pharmacoeconomic value of our product candidates. We believe we will be able to address the multi-billion dollar markets for our thrombosis products with a targeted sales and marketing effort because hospitals represent a concentrated customer base as compared to primary care or specialty physicians.

Independently advance PRT2070 for treatment of hematologic cancers. Our research into cellular signaling pathways has resulted in development of PRT2070, a clinical stage kinase inhibitor with what we believe to be unique pharmacological properties that strongly differentiate it from approved kinase inhibitors and those in development. We are preparing to advance PRT2070 into a Phase 1/2 study in NHL and CLL in 2013.

Deploy capital strategically to develop our portfolio of product candidates and create value. We intend to deploy most of our capital resources, including the proceeds from this offering, to develop our two lead product candidates. It is our strategy to leverage established clinical trial design principles as well as proactive engagement with relevant regulatory authorities to advance these candidates towards key value inflection points in a capital-efficient manner. In parallel with these efforts, we have entered into and anticipate that we will continue to enter into partnerships that provide support for the further development of our clinical-stage kinase inhibitors while retaining significant economic and commercial rights. We believe that this combination of independent development and partnering activity will allow us to realize the substantial potential value of our product candidates while reducing our capital requirements.

Product candidates

Our development pipeline, summarized in the table below, includes three wholly owned compounds and one partnered program.

 

 

Development pipeline

         

Product

  Description   Stage   Indication   Worldwide commercial rights
         

Betrixaban

  Oral Factor Xa
inhibitor
  Phase 3   Extended duration VTE prophylaxis
in acute medically ill patients
for up to 35 days
  Portola
         

PRT4445

  Antidote for Factor
Xa inhibitors
  Phase 2   Reversal of Factor Xa inhibitor anticoagulation   Portola
         

PRT2070

  Oral Dual Syk and
JAK inhibitor
  IND ready   B-cell hematologic cancers   Hematologic cancer and other
systemic indications: Portola

Certain nonsystemic
indications: 50/50 rights with
Aciex

         

PRT2607

  Syk inhibitor   Pre-clinical   Allergic asthma and other
inflammatory disorders
  Biogen Idec

 

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Betrixaban

We are developing our lead product candidate Betrixaban to be the first anticoagulant approved for extended duration VTE prophylaxis in acute medically ill patients for up to 35 days, both in the hospital and after discharge. Acute medically ill patients are patients hospitalized for non-surgical conditions, such as heart failure, stroke, infection, rheumatic disorders and pulmonary disorders. Acute medically ill patients with restricted mobility and other risk factors are known to be at increased risk for VTE, both in the hospital and after discharge. Each year, more than 150,000 acute medically ill patients worldwide die of VTE and not from their underlying medical condition. Pulmonary embolism is the most common preventable cause of hospital death and a leading cause of increased length of hospital stay. The average annual direct medical cost of treating VTE in a hospital setting in the United States is between $7,500 and $16,500 and is even greater for elderly, higher risk patients. Both the National Quality Forum and the Joint Commission on Accreditation of Healthcare Organizations include the utilization of VTE prevention measures as a leading indicator of quality of patient care.

While there are a number of anticoagulants approved for short-duration VTE prophylaxis in acute medically ill patients during the typical hospitalization period, there is no anticoagulant approved for extended duration VTE prophylaxis in this population. Acute medically ill patients at risk for VTE are typically treated with intravenous or injectable heparin or an injectable low molecular weight heparin, such as enoxaparin, marketed as Lovenox and also available in generic form, while in the hospital but not after discharge. Multiple large regional and global studies have demonstrated that there is a substantial risk of VTE after hospital discharge in acute medically ill patients with restricted mobility and other risk factors. For example, the MAGELLAN trial of 8,101 patients showed that the rate of VTE-related death for the 10-day period while the patients were in the hospital receiving anticoagulation therapy was 0.2%, while the rate of VTE-related death for the 25-day post-discharge period when the patient did not receive anticoagulation treatment, was 0.8%, a four-fold increase. One academic study examined the medical records of approximately 11,000 acute medically ill patients for a period of 180 days after hospital admission and determined that 56.6% of VTE events in this population occurred after discharge. These studies highlight the need for more effective extended duration prophylaxis therapies.

We are developing Betrixaban to be the first oral Factor Xa inhibitor approved for use in acute medically ill patients and the first anticoagulant approved for extended duration VTE prophylaxis in those patients. We are evaluating Betrixaban in APEX, a global Phase 3 clinical study. In the field of thrombosis, it is well established that the outcomes of Phase 3 trials are significantly influenced by three factors: drug properties, dose selection and selection of the patients who will benefit most from treatment. Historically, multiple anticoagulant drugs have effectively addressed these factors in their clinical trials and have had success where competing agents within the same class have not. Applying our knowledge of Betrixaban’s properties, our clinical experience with Betrixaban and learnings from Factor Xa inhibitor clinical trials conducted by other companies, we believe we have designed the APEX study to enhance the likelihood of its success, despite the lack of success of other Factor Xa inhibitors in this indication, based on the following factors:

Drug properties. Betrixaban’s unique pharmacodynamic and pharmacokinetic properties compared to other oral Factor Xa inhibitors include a long half-life suitable for once-daily dosing, low renal clearance, which reduces the risk of drug accumulation, and low drug-drug interaction potential due to lack of metabolism by the CYP3A4 pathway, a key metabolic route for many other drugs.

 

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Dosing. The dosing regimen in our APEX study is designed to provide immediate anticoagulation for patients in the hospital and to maintain a therapeutic level of anticoagulation over 24 hours with each oral once-daily dose for 35 days to reduce variability and potential for increased bleeding risk from supratherapeutic drug levels or increased VTE risk from subtherapeutic drug levels. We chose the dosing regimen of Betrixaban administered in APEX based on extensive modeling from our preclinical and clinical experience with Betrixaban and analysis of efficacy, safety and pharmacokinetic data from clinical trials of other Factor Xa inhibitors.

Patient population. The APEX patient population, which is based on extensive review of epidemiologic studies and data from multiple large trials in acute medically ill patients, targets the specific patients with certain risk factors who are at an increased risk for VTE and can potentially benefit from extended duration VTE prophylaxis for up to 35 days, while excluding those at increased risk of bleeding, the main side effect of all anticoagulants.

Overview of thrombosis

Thrombosis is the leading cause of mortality and morbidity in the western world. Thrombosis arises from an abnormal or excessive activation of the body’s natural clotting process, resulting in the formation of a clot inside a blood vessel that disrupts normal blood flow. If the clot detaches from the blood vessel wall and travels through the body, known as thromboembolism, it can damage vital organs, such as the brain, heart and lungs. Clots that block arteries can lead to myocardial infarctions, more commonly referred to as heart attacks, or a form of stroke known as ischemic strokes. Our Betrixaban development efforts are currently focused on VTE, with the two most common conditions being deep vein thrombosis, or DVT, which typically leads to pain and swelling in the leg, and pulmonary embolism, which occurs when a clot disrupts blood flow to the lungs, leading to lung damage or even death. In the United States, on an annual basis, 1.2 million people have a new or recurrent heart attack, 700,000 people suffer an ischemic stroke and 350,000 to 600,000 people have a VTE.

The following diagram illustrates various forms of thrombosis:

 

LOGO

 

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Both normal blood clotting and thrombosis are driven by a similar activation of the body’s coagulation system. That system integrates biochemical signals from two distinct cascades known as the extrinsic and intrinsic pathways. Through a series of protein interactions, both of these pathways lead to the activation of Factor Xa. Factor Xa forms an active complex with other clotting factors, leading to generation of thrombin. Thrombin then converts fibrinogen into fibrin, the basic building block of a clot. Other elements, such as platelets and various blood factors, may also be recruited to stabilize or amplify the clotting response depending on the type and severity of the underlying cause. Current research indicates that venous thrombosis does not significantly involve platelets whereas arterial thrombosis has a large platelet component.

The following diagram depicts elements of the coagulation cascade:

 

LOGO

Thrombosis is generally prevented or treated using either anticoagulants, commonly known as blood thinners, or another class of drugs known as antiplatelet agents. The specific drug, dose and dosing frequency and duration of treatment depends on a patient’s underlying disease and treatment setting, such as during surgery, in the hospital or at home. In some cases, these agents may be used in sequence or combination.

Prophylaxis against all forms of thrombosis is a major medical need throughout the developed world. For example, in the G7 countries, the United States, Japan, France, Germany, Italy, Spain and the United Kingdom, existing medical guidelines recommend that a population of approximately 46.4 million patients receive some form of anticoagulation drug therapy to reduce their risk of thrombosis. The largest category of patients at risk for thrombosis is the acute medically ill, whose risk is increased for those patients immobilized for more than a few days or with other risk factors. In addition to acute medically ill patients, populations at risk for thrombosis include patients with atrial fibrillation, acute coronary syndrome, recent VTE and certain genetic mutations, as well as surgical patients undergoing orthopedic or abdominal procedures.

 

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The table below shows our estimate of the number of patients in the G7 countries, categorized by medical condition or procedure, for whom a Class I medical guideline recommendation of anticoagulation drug therapy would apply. A Class I medical guideline recommendation represents the highest level of recommendation that patients receive specified medical treatment based on the evidence of the relative risks and benefits of such treatment.

Patients with Class I medical guideline recommendation to receive anticoagulation drug therapy

 

Population  

Number of G7 patients

(in millions)

 

Acute medically ill patients

    22.3   

Moderate to high risk surgery (including orthopedic surgery)

    12.3   

Atrial fibrillation

    6.6   

Acute coronary syndrome

    3.5   

VTE treatment and secondary prophylaxis

    1.7   

Total

    46.4   

The population of acute medically ill patients represents the largest patient segment in the anticoagulant market, accounting for nearly half of patients in the G7 countries. Despite the short duration of current VTE prophylaxis for the acute medically ill, typically 6 to 14 days, we believe that annual worldwide sales of enoxaparin for use in acute medically ill patients are at least $2 billion.

All anticoagulant therapies used in the prophylaxis or treatment of thrombosis carry a risk of uncontrolled bleeding resulting from excessive inhibition of the coagulation cascade. Uncontrolled bleeding can occur in anticoagulated patients spontaneously in multiple forms, including intracranial bleeding, intestinal bleeding and bleeding as a result of trauma or during emergency surgery. As a result of this risk, the use of any particular antithrombotic medicine is typically limited to those patient populations where the clinical benefit achieved by the therapy has been clearly shown to outweigh the risk of uncontrolled bleeding.

Established and novel anticoagulants

A number of well-established anticoagulants are used for the prophylaxis and treatment of thrombosis, including heparin, low molecular weight heparins, fondaparinux and warfarin. While all of these therapies generally work through inhibiting the coagulation process, each drug has specific properties that have led to approval and use in specific indications or target populations. For example, prior to the recent approval of novel oral anticoagulants, warfarin was the only oral anticoagulant for long-term use in the outpatient setting for patients at high chronic risk of VTE, with over 33.9 million prescriptions for various forms of warfarin written in the United States in 2011. Warfarin has significant limitations, including the need to gradually adjust, or titrate, the dose a specific patient receives over multiple weeks, a slow therapeutic onset and offset (two to five days), the need to monitor patients with a blood test (typically monthly) and a high propensity for interactions with diet or other drugs leading to increased bleeding risk from supratherapeutic drug levels or increased VTE risk from subtherapeutic drug levels. Importantly, warfarin is neither approved nor routinely used to prevent blood clots in the population of acute medically ill patients.

 

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In the hospital, where acute medically ill patients are typically treated for VTE prophylaxis, intravenous and subcutaneous heparin and injectable low molecular weight heparins, such as enoxaparin, are the most widely used anticoagulants. Heparin is typically prescribed to patients with an active clot or undergoing surgery, but due to its short half-life (less than one hour) and intravenous administration it is generally used for only a few hours at a time. In addition, measurement of a patient’s activated partial thromboplastin time is needed to determine appropriate dosing. Patients receiving heparin must also be monitored for signs of thrombocytopenia, a serious debilitating decrease of platelet levels in the blood that can result in increased risk of thrombosis.

Low molecular weight heparins are chemically modified heparins with extended half-lives (four to five hours) that can be administered subcutaneously, typically once or twice daily by a physician or nurse. In hospitals, low molecular weight heparins are used to prevent blood clots in a number of different patient populations, including acute medically ill patients, patients with acute coronary syndrome, patients with a DVT or pulmonary embolism and patients who have just undergone major surgery. Low molecular weight heparins are rarely prescribed for use outside of the hospital setting either because they are not approved for extended use or due to the difficulty of training patients to self-inject. Enoxaparin is cleared extensively through the kidneys, increasing the risk of bleeding in patients with moderate and severe kidney disease. In addition, low molecular weight heparins carry a risk of inducing thrombocytopenia. Despite these limitations, heparins and low molecular weight heparins have been demonstrated to be generally safe and effective across a broad range of patient populations. Therefore, the market for low molecular weight heparins is substantial.

According to IMS, worldwide sales of enoxaparin for the 12 months through June 2012 were in excess of $4.8 billion. We believe that use of enoxaparin in acute medically ill patients accounted for at least $2 billion of these sales in the G7 markets. Enoxaparin was the second highest drug expenditure in non-federal U.S. hospitals in 2010, according to a paper published in the American Journal of Health System Pharmacy in 2011. Overall, we estimate that approximately 55% of acute medically ill patients in the G7 countries currently receive some form of VTE prophylaxis.

Recently, a number of new oral anticoagulants have been developed and commercialized to replace enoxaparin or warfarin in specific indications and settings. These agents are designed to give consistent and targeted levels of anticoagulation without the need for ongoing monitoring and are based on a detailed understanding of the biochemical mechanism of action of heparin and enoxaparin. Heparin and enoxaparin both work by indirectly inhibiting Factor Xa and thrombin, with enoxaparin having greater anti-Factor Xa activity. Based on these observations, novel orally available anticoagulants have been developed that directly target either thrombin, in the case of dabigatran, or Factor Xa, in the case of rivaroxaban, apixaban and edoxaban.

These novel agents have been extensively studied in multiple Phase 3 clinical trials, which have enrolled more than 130,000 patients worldwide. These trials, which were sponsored by the owners of the novel agents (Bayer, Janssen, BMS, Pfizer, Daiichi Sankyo and Boehringer Ingelheim) have demonstrated superior or equivalent efficacy compared to enoxaparin and/or warfarin with equal or better bleeding profiles in multiple populations, including atrial fibrillation, acute coronary syndrome, treatment of VTE and VTE prophylaxis in major orthopedic surgery. Some of these agents have received regulatory approval in the United States and Europe for prevention of stroke in atrial fibrillation patients, treatment and secondary prophylaxis in patients with a DVT or pulmonary embolism and VTE prophylaxis in orthopedic surgery patients. Additional regulatory decisions relating to their use in patients with acute coronary syndrome are pending. We estimate that the global market

 

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for all anticoagulants will reach $15.5 billion by 2018 and that the global market for all Factor Xa and direct thrombin inhibitors will grow to $10 billion to $14 billion by 2020.

While both thrombin and Factor Xa are logical targets for an anticoagulant, an analysis of the coagulation cascade suggests a number of reasons that Factor Xa may be a better target. First, Factor Xa is the first step in the final common cascade for the intrinsic and extrinsic pathways and is effectively a point of convergence in the coagulation process. Furthermore, activation of a single Factor Xa molecule generates 1,000 thrombin molecules and, unlike thrombin, Factor Xa has limited biological activity outside of the coagulation cascade, potentially limiting off-target side effects as compared to direct thrombin inhibitors. This hypothesis has been borne out in clinical trials that have indicated that direct Factor Xa inhibitors may be safer and more effective than direct thrombin inhibitors, such as dabigatran. For example, the recent approval of apixaban in Europe for stroke prevention in atrial fibrillation includes differentiated label claims, such as mortality benefit as compared to warfarin, not included in dabigatran’s product label. In addition, administration of direct Factor Xa inhibitors in large clinical trials has not resulted in increased myocardial infarction risk, which was observed with dabigatran in similar patient populations.

Although the novel oral anticoagulants have been successfully developed for a number of thrombotic indications, none has been approved or, to our knowledge, is currently in clinical development for prophylactic use in the acute medically ill patient population, creating an opportunity for Betrixaban to be first to market for this important patient population.

Established and novel anticoagulants

 

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VTE in acute medically ill patients

The standard of care for VTE prophylaxis in acute medically ill patients is to treat those patients who have certain risk factors with an anticoagulant, such as heparin or enoxaparin, for 6 to 14 days, primarily while the patient is in the hospital. Despite the fact that the approved treatment duration for enoxaparin is limited to 6 to 14 days, we believe that annual worldwide sales of enoxaparin for use in acute medically ill patients are at least $2 billion. Factors that have been identified as increasing the risk of VTE include several days of restricted mobility, age, an elevated blood marker known as D-dimer, previous VTE event, family history of VTE, smoking, hormonal therapy and others. Almost all hospitalized non-surgical patients have at least one of these risk factors, and approximately two-thirds have two or more risk factors. In-hospital use of anticoagulation has been shown to reduce the incidence of VTEs by approximately 63% and have a net clinical benefit; however, recent registry studies and clinical trials have shown that acute medically ill patients remain at a high risk of VTE during the period after discharge.

For example, one academic study examined the medical records of approximately 11,000 acute medically ill patients for a period of 180 days after hospital admission and determined that 56.6% of VTE events in this population occurred after discharge. In the MAGELLAN trial sponsored by Bayer and Janssen, 5.7% of enoxaparin-treated patients experienced a significant thrombotic event during the trial period, and, in higher risk sub-populations, such event rate was 7% to 9%. In the ADOPT trial sponsored by BMS, the combined incidence of symptomatic VTE and VTE-related death was twice as high during the period after cessation of enoxaparin treatment as it was during the treatment period.

Currently, there are no anticoagulants approved for extended duration VTE prophylaxis in acute medically ill patients for more than a 6- to 14-day period, and most patients receive anticoagulation therapy only while in the hospital. Heparin and enoxaparin are generally not prescribed for use outside of the hospital due to the difficulty of administering the therapies and lack of data showing a benefit beyond the currently approved duration of therapy. Warfarin has not been studied in a large randomized trial and is not indicated for VTE prophylaxis in acute medically ill patients. Both rivaroxaban and apixaban have been evaluated in large Phase 3 trials of VTE prophylaxis in acute medically ill patients, both in the hospital and after discharge. The MAGELLAN trial, which evaluated rivaroxaban, demonstrated efficacy but failed to demonstrate an acceptable benefit to risk profile due to increased bleeding, and the ADOPT trial, which evaluated apixaban, showed a reduction in VTE events, but failed to demonstrate statistically significant efficacy. Importantly, the results of these trials showed that acute medically ill patients with restricted mobility and other risk factors treated with standard duration enoxaparin therapy for 6 to 14 days continue to be at increased risk of VTE post-hospital discharge for several weeks up to 35 days.

Leading clinicians have identified, and the FDA has recognized, the lack of an appropriate therapy to prevent VTE in acute medically ill patients after discharge as a significant unmet clinical need. Such a therapy should be easy to administer both within and outside of the hospital setting and would need to show a robust reduction in the incidence of VTE and an acceptable bleeding profile compared to the current standard of care. The therapy would also need to have other properties appropriate for use in acute medically ill patients. These patients are typically frail and elderly and often cannot tolerate drugs that are significantly cleared through the kidneys. Moreover, they are often taking multiple medications for concomitant conditions and need a therapy that has a low potential to interact with other medications and a simple dosing regimen.

 

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Betrixaban for extended duration VTE prophylaxis in acute medically ill patients

We believe that Betrixaban is well suited for use in extended duration VTE prophylaxis in acute medically ill patients, both in the hospital and after discharge. Our preclinical and clinical studies suggest that it has antithrombotic activity similar to that of enoxaparin and the novel oral Factor Xa inhibitors. In addition, it has a number of characteristics that differentiate it from these compounds that we believe are particularly relevant to acute medically ill patients, including:

Orally active with 23 hour half-life. Betrixaban’s half-life of approximately 23 hours is ideal for once-daily dosing, unlike that of any approved oral Factor Xa inhibitor and enoxaparin. As a result, we believe it is possible to dose Betrixaban to a lower peak concentration and still maintain effective anticoagulation through a 24-hour period while avoiding increased bleeding risk from supratherapeutic drug levels or increased VTE risk from subtherapeutic drug levels. Furthermore, oral once-daily dosing is generally considered important to patients and doctors, as it reduces the risk of administration errors compared to twice-daily dose regimens or injectable administration.

Relatively low renal clearance. Unlike all currently approved Factor Xa inhibitors, Betrixaban is primarily excreted unchanged in the bile, with renal clearance of 5% to 7% of total oral administered dose. This renal clearance is lower than that of enoxaparin and the novel oral Factor Xa inhibitors. Low renal clearance is desirable because the acute medically ill patient population includes many elderly patients with reduced kidney function, which can result in higher levels of drugs remaining in the bloodstream, thereby complicating the process of dose selection and increasing the potential risk of bleeding associated with anticoagulants. We believe that Betrixaban’s relatively low renal clearance will result in more predictable blood levels of the drug across the acute medically ill patient population and, therefore, an overall lower risk of severe bleeding and higher probability of net clinical benefit.

Low potential for drug-drug interaction. Unlike all currently approved direct Factor Xa inhibitors, Betrixaban is not metabolized through the CYP3A4 pathway, a key metabolic route for many approved drugs for a wide range of conditions. Many acute medically ill patients suffer from a significant underlying illness or one or more chronic conditions and are taking multiple therapies. The concurrent use of multiple CYP3A4 metabolized drugs can result in unpredictable drug levels and other undesirable drug-drug interactions. As a result of not being metabolized through the CYP3A4 pathway, we believe Betrixaban will have a lower risk of dangerous drug-drug interactions than other direct Factor Xa inhibitors.

Betrixaban clinical experience

Betrixaban has been evaluated in 22 Phase 1 and Phase 2 clinical studies involving 1,411 human subjects, 1,200 of whom received Betrixaban, including more than 100 subjects for six months or more. A series of 19 Phase 1 and clinical pharmacology studies provided substantial information regarding its safety, dosage and use in specific sub-populations. In three Phase 2 studies, Betrixaban was evaluated in specific patient populations relative to commonly used anticoagulants. Consistent with the development of other antithrombotic agents, these studies were not designed to demonstrate a statistically significant difference between groups for the studied outcomes. The Betrixaban Phase 2 studies were instead designed to demonstrate evidence of an anticoagulant effect and relative safety compared to an established comparator. In these clinical studies:

 

   

Betrixaban was well tolerated in diverse patient populations with comparable or better tolerability as compared to warfarin and enoxaparin;

 

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Betrixaban achieved clinically relevant anticoagulant activity with comparable or less bleeding risk than existing agents; and

 

   

Betrixaban demonstrated predictable pharmacokinetic and pharmacodynamic activity.

As is typical in the development of anticoagulants, our initial Phase 2 study was conducted in patients undergoing elective total knee replacement surgery. This patient population has a very high incidence of VTE, making it an excellent population in which to evaluate the relative effectiveness and safety of different doses as compared to the standard of care. In our 215-patient EXPERT study, two different doses of Betrixaban, 15 mg and 40 mg each given twice daily, were evaluated against a U.S. standard twice-daily dose of 30 mg of enoxaparin in patients undergoing this surgery. The incidence of VTE in the Betrixaban groups was comparable to that in the enoxaparin group and lower than the rates historically observed in placebo groups, although these results were not statistically significant. In addition, the only incidence of major bleeding seen in the study was in the enoxaparin group.

In our 508-patient Phase 2 EXPLORE-Xa study, we evaluated the use of Betrixaban for ischemic stroke prevention in elderly patients with nonvalvular atrial fibrillation. Three different once-daily doses of Betrixaban, 40 mg, 60 mg and 80 mg, were evaluated against dose-adjusted warfarin. Patients with a median age of 74 years received treatment for at least 90 days and as long as 12 months. The incidence of ischemic stroke, as well as major bleeds and clinically relevant non-major bleeds, was comparable across the warfarin and Betrixaban treatment groups, suggesting similar anticoagulant activity and bleeding risk across all groups. In addition, we measured D-dimer levels. D-dimer is a byproduct of coagulation, and elevated levels have been shown to be indicative of an increased risk of thromboembolism. In those patients receiving Betrixaban who had not previously been taking warfarin, we observed a dose-related decrease in D-dimer levels. We believe the results of the EXPLORE-Xa study, although not statistically significant, provide evidence of the anticoagulant activity of Betrixaban and indicate that the long-term use of Betrixaban is safe in an elderly population, including those with moderate to severe kidney disease.

Our Phase 2 DEC study evaluated the utility of adjusting the dose of Betrixaban based on a patient’s weight. The study indicated that making such adjustments is not necessary and it provided additional evidence of the safety and activity of Betrixaban.

All of our clinical studies to date have indicated that Betrixaban is well tolerated. Subjects taking Betrixaban had an increased rate of gastrointestinal issues, such as diarrhea, nausea and vomiting, as compared to subjects taking placebo, but these increased rates appear to be similar to those of patients taking other Factor Xa inhibitors. Patients taking Betrixban also had an increased incidence of other side effects such as back pain, dizziness, headaches, rashes and insomnia as compared with patients taking a placebo or an active comparator. These side effects do not appear to have a substantial impact on patients’ tolerance of Betrixaban. There is no evidence that Betrixaban has negative effects on heart rhythm or liver function. As discussed earlier, the most significant side effect of all anticoagulants is uncontrolled bleeding. While definitive conclusions cannot be drawn from our Phase 2 studies, it does not appear from the study results that patients taking Betrixaban face a greater risk of uncontrolled bleeding than patients taking warfarin or enoxaparin.

 

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Betrixaban clinical development
         
Phase of  study   Number of
studies
  Subjects

receiving
Betrixaban

  Objective   Selected results
         
Phase 1   19   459  

Safety, tolerability, pharmacokinetic, pharmacodynamic

  Single doses up to 550 mg
well tolerated with  predictable
drug properties
         
Phase 2 (EXPLORE-Xa and DEC)   2   570   Safety/efficacy in atrial fibrillation patients; safety compared to warfarin   Prophylaxis and bleeding risk
comparable to warfarin
         
Phase 2 (EXPERT)   1   171   Safety/efficacy in knee replacement compared to enoxaparin   Prophylaxis and bleeding risk
comparable to enoxaparin

Clinical experience of Factor Xa inhibitors in acute medically ill patients

Direct Factor Xa inhibitors rivaroxaban and apixaban have been studied in large Phase 3 trials for VTE prophylaxis in acute medically ill patients. Neither trial was successful in showing a balanced result of VTE reduction relative to major bleeding events, referred to as net clinical benefit. The MAGELLAN trial, which evaluated rivaroxaban, met its primary efficacy endpoint of decreased VTE in acute medically ill patients but achieved this result with an unfavorable bleeding risk. By comparison, the ADOPT trial, which evaluated apixaban, did not demonstrate significant clinical efficacy, although the rates of VTE in its study population were significantly lower than those observed in MAGELLAN, which we believe reflects the lower risk patient inclusion in ADOPT. Despite the lack of efficacy observed in ADOPT, the incidence of major bleeding was lower than that observed in MAGELLAN. Although neither MAGELLAN nor ADOPT was successful, both highlighted the continuing risk of VTE after hospital discharge and illustrated two major lessons that have informed the clinical development plan for Betrixaban for acute medically ill patients.

Dose selection: In the MAGELLAN trial, rivaroxaban was dosed once daily despite having a half-life of only between 5 to 9 hours. To achieve adequate therapeutic coverage in a once-daily regimen, MAGELLAN may have studied a rivaroxaban dose that produced supratherapeutic drug levels for a period after dosing, possibly explaining the unfavorable bleeding risk observed in that trial. In the ADOPT trial, apixaban with a half life of 12 hours, was dosed twice daily in order to maintain more consistent drug levels, which may have been responsible for its relatively lower rate of bleeding than was seen in MAGELLAN.

Patient selection: Multiple studies of the acute medically ill have demonstrated that VTE incidence increases as the number of risk factors that a patient has increases. In the ADOPT trial, where enrollment was open to a broad set of acute medically ill patients, including a large number of subjects who were not at high risk of VTE, there were too few VTE events to create a statistically significant separation between the control and treatment arms. In contrast to ADOPT, MAGELLAN enrolled patients with higher levels of VTE risk and treatment with rivaroxaban produced a significant reduction in the 35-day incidence of VTE compared to standard of care treatment with enoxaparin. Neither MAGELLAN nor ADOPT excluded patients whose medical history or concurrent use of anti-platelet therapy placed them at a substantially higher risk of severe bleeding. In MAGELLAN, this

 

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failure to exclude certain high risk patients combined with the dosing regimen used may have contributed to the relatively high level of bleeding events observed in the trial and the lack of net clinical benefit.

Phase 3 APEX study

We believe that for an anticoagulant to demonstrate efficacy and safety for extended duration VTE prophylaxis in acute medically ill patients, it must have the right drug properties, be dosed at appropriate levels and target the right patient population. As discussed above, we believe that Betrixaban has a number of key pharmacokinetic and pharmacodynamic properties that make it well suited for use with the frail and elderly patients that comprise a significant portion of the acute medically ill patient population. In addition, using the data from our extensive clinical and preclinical studies of Betrixaban and learnings from ADOPT and MAGELLAN, we believe that we have designed APEX with a dosing regimen and for a study population that significantly increase the probability that it will demonstrate both safety and efficacy in VTE prophylaxis in acute medically ill patients both in the hospital and after discharge.

Dose selection. Based on standard pharmacometric modeling that integrated preclinical and clinical studies of Factor Xa inhibitors, we believe that we have identified a dosing regimen (80 mg oral once-daily dose for 34 days following a 160 mg oral loading dose on day 1) that will produce clinically meaningful anticoagulant effects in the APEX trial. In our clinical studies, we measured the concentration of Betrixaban achieved at different dose levels and showed in Phase 2 studies that at total daily doses of 30 mg and 80 mg Betrixaban had anticoagulant activity, measured by standard imaging tests to detect VTE, comparable to standard of care enoxaparin. We also observed that bleeding and anticoagulant activity, as measured by a common blood marker D-dimer, of once-daily 40 mg, 60 mg and 80 mg doses of Betrixaban were comparable to standard doses of warfarin in patients with non-valvular atrial fibrillation. We correlated those doses with levels of thrombin generation inhibition, a common pharmacodynamic measurement used to compare anticoagulant activity of different drugs, and compared those levels with those produced by other Factor Xa inhibitors, including enoxaparin, rivaroxaban and apixaban. For patients with severe renal impairment and those taking agents that are strong inhibitors of PGP enzymes, the dose of Betrixaban will be reduced to 40 mg daily, which targets a level of anticoagulant activity consistent with the overall patient population.

The following diagram depicts pharmacometric modeling of thrombin generation inhibition over time for rivaroxaban, apixaban and Betrixaban, reflecting the dosing regimen used in MAGELLAN, ADOPT and APEX, respectively:

 

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Patient selection: efficacy. We used the findings of MAGELLAN, ADOPT and other trials to help define the population of patients to be included in APEX. APEX is enrolling patients that have a combination of specific medical conditions and risk factors that put them at an elevated risk of VTE for up to 35 days after enrollment. The APEX inclusion criteria specify that patients must be admitted to the hospital with one of five categories of acute medical illness: heart failure, respiratory failure, infection, rheumatic disease or stroke. The inclusion criteria also require that patients have a high degree of immobilization. Further, a patient must meet one of the following three additional criteria: have a D-dimer level of at least twice the upper limit of normal, be older than 75 years or have at least two additional risk factors for VTE, such as obesity, ongoing hormonal treatment, or previous episode of VTE. We believe that by enrolling these high risk patients, we are more likely to demonstrate net clinical benefit from extended duration VTE prophylaxis.

Patient selection: safety. Consistent with our approach to enroll patients into the APEX study that are at an elevated risk for VTE for 35 days or more, we likewise designed the trial to exclude patients at high risk for bleeding. We believe this further increases the probability that APEX will demonstrate a net clinical benefit for Betrixaban. For example, we exclude patients with a previous history of major surgery, gastrointestinal bleeding, hemorrhagic stroke or bleeding pulmonary lesions. In addition, patients taking daily doses of aspirin are limited to low doses and must also take a proton-pump inhibitor to reduce the risk of gastrointestinal bleeding.

Other study design features and operations measures. We have implemented various measures to improve data quality, ensure we maintain a high degree of statistical power and reduce confounding clinical and statistical issues compared to MAGELLAN and ADOPT. For example, we are