Receptos, Inc. - FORM 10-K

Receptos, Inc. - FORM 10-K - March 2, 2015

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Receptos, Inc. Reports

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EXCEL - IDEA: XBRL DOCUMENT - Receptos, Inc.	Financial_Report.xls
EX-32.1 - EX-32.1 - Receptos, Inc.	d846329dex321.htm
EX-31.2 - EX-31.2 - Receptos, Inc.	d846329dex312.htm
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EX-32.2 - EX-32.2 - Receptos, Inc.	d846329dex322.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-35900

LOGO

(Exact Name of Registrant as Specified in Its Charter)

Delaware

26-4190792

(State or Other Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)


3033 Science Park Road, Suite 300, San Diego CA		92121
(Address of Principal Executive Offices)		(Zip Code)

(858) 652-5700

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x

The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2014 totaled approximately $922,734,616 based on the closing price of $42.60 as reported by the NASDAQ Global Market.

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of February 16, 2015 was 31,545,073.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 2015 Annual Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference into Part III of this Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the registrant’s fiscal year ended December 31, 2014.

Receptos, Inc.

FORM 10-K

For the Fiscal Year Ended December 31, 2014

Table of Contents


	Page
PART I		2
Item 1. Business		3
Item 1A. Risk Factors		25
Item 1B. Unresolved Staff Comments		62
Item 2. Properties		62
Item 3. Legal Proceedings		62
Item 4. Mine Safety Disclosures		62
PART II		63
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		63
Item 6. Selected Financial Data		65
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		65
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		75
Item 8. Financial Statements and Supplementary Data		76
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		76
Item 9A. Controls and Procedures		76
Item 9B. Other Information		78
PART III		79
Item 10. Directors, Executive Officers and Corporate Governance		79
Item 11. Executive Compensation		79
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		79
Item 13. Certain Relationships and Related Transactions, and Director Independence		79
Item 14. Principal Accountant Fees and Services		79
PART IV		80
Item 15. Exhibits and Financial Statement Schedules		80

Signatures		85

PART I

Forward-Looking Statements

This Annual Report on Form 10-K. or this Annual Report, may contain “forward-looking statements” within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under Part I, Item 1A, “Risk Factors” in this Annual Report. Except as required by law, we assume no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements, and you should not place undue reliance on these forward-looking statements. All statements other than statements of historical facts, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect” or the negative version of these words and similar expressions are intended to identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•

the initiation, cost, timing, progress and results of our research and development activities, including preclinical and clinical studies;

•

our ability to obtain and maintain regulatory approval of ozanimod (formerly RPC1063), RPC4046 and any of our other future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;

•

our ability to obtain funding for our operations;

•

our plans to research, develop and commercialize our product candidates;

•

our ability to enter into collaboration agreements to pursue the development, regulatory approval and commercialization of our product candidates;

•

our collaboration partners’ election to pursue development and commercialization;

•

our ability, and the ability of our in-licensors, to obtain and maintain intellectual property protection for our product candidates;

•

the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

•

our ability to successfully commercialize our product candidates, if approved;

•

the rate and degree of market acceptance of our product candidates, if approved;

•

our ability to develop sales and marketing capabilities, whether alone or with potential collaborators, to commercialize our product candidates, if approved;

•

regulatory developments in the US and foreign countries;

•

the performance of third parties in connection with the development of our product candidates, including third parties conducting our clinical trials as well as third-party suppliers and manufacturers;

•

the development, regulatory approval and commercial success of competing therapies;

•

our ability to retain key scientific or management personnel;

•

our use of cash and other resources; and

•

the accuracy of our estimates regarding expenses, future revenues, capital requirements and need for additional financing.

Although we believe that the expectations and assumptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. We disclaim any duty to update any of these forward-looking statements after the date of this report to conform these statements to actual results or revised expectations.

Item 1. Business.

We are a biopharmaceutical company focused on discovering, developing and commercializing innovative therapeutics in immune disorders. Our product candidates span three distinct specialty disease areas. We are developing our lead asset, ozanimod (formerly RPC1063), as an oral therapy for the treatment of Relapsing Multiple Sclerosis (RMS) and Inflammatory Bowel Disease (IBD), which consists of Ulcerative Colitis (UC) and Crohn’s Disease (CD). We are developing our second asset, RPC4046, for the treatment of an allergic/immune-mediated disorder, Eosinophilic Esophagitis (EoE), for which we have been granted Orphan drug designation. Our strategy is to develop best-in-class drug candidates and selectively pursue first-in-class market positions. The mechanism of action for each of our product candidates has been validated in one or more immunology indications. Ozanimod was selected for pharmaceutic properties with potential to demonstrate best-in-class differentiation in RMS. In IBD and EoE, our product candidates ozanimod and RPC4046, respectively, have the potential to be the first in their respective classes to be approved.

Ozanimod, which impacts the immune system by modulating important G protein-coupled receptors (GPCRs) known as the sphingosine 1-phosphate 1 receptor (S1P1R) and sphingosine 1-phosphate 5 receptor (S1P5R), members of the sphingosine 1-phosphate receptor (S1PR) family of receptors, is currently being tested in a randomized Phase 3 study called RADIANCE for the treatment of RMS. In 2014, we announced that the Phase 2 portion of RADIANCE met its primary endpoint of reduction in the cumulative number of total gadolinium enhancing (GdE) lesions as determined by magnetic resonance imaging (MRI) from week 12 to week 24 of study treatment, a standard endpoint for Phase 2 trials in RMS.

The Phase 2 portion of RADIANCE was a randomized, double-blind study assessing the efficacy, safety and tolerability of two orally administered doses (0.5 mg and 1.0 mg) of ozanimod against placebo in 258 patients with RMS across 77 sites in 13 countries. Approximately 98% of patients completed the 24-week treatment period. Patients on ozanimod experienced a statistically significant reduction in GdE lesions of 86% at both the 0.5 mg and 1.0 mg doses compared to patients on placebo, with p-values of less than 0.0001 for each dose group compared to placebo. Results from the Phase 2 portion of RADIANCE relative to secondary endpoints measuring effects on other MRI parameters were also positive and statistically significant, with p-values of less than 0.0001 for each dose group compared to placebo. Although the Phase 2 portion of RADIANCE was not powered to detect a statistically significant difference between ozanimod treatment arms and placebo on annualized relapse rate (ARR), which is a standard endpoint for Phase 3 trials in RMS, there was a favorable trend for both ozanimod dose groups. We believe that safety and tolerability data from the Phase 2 portion of RADIANCE provide support for a differentiated, potential best-in-class profile, including (i) an overall adverse event profile which appeared relatively similar between the ozanimod dose groups and placebo with no concerning safety signals for patients receiving ozanimod, (ii) first dose changes in heart rate in patients receiving ozanimod that were generally modest (maximum mean reduction of less than two beats per minute compared to baseline) with no patients dropping below 45 beats per minute during the first six hours after administration, which is consistent with the findings of our earlier Phase 1 thorough QT/QTc (TQT) study, and (iii) rates of liver transaminase elevations observed in patients receiving ozanimod that were low relative to agents with similar mechanisms of action on the market or in clinical development, and supportive of a favorable hepatic safety profile.

We initiated the Phase 3 portion of RADIANCE in December 2013. In addition, we initiated SUNBEAM, another Phase 3 trial of ozanimod in RMS, in December 2014. Each trial is targeted to enroll up to 1,200 patients. They are both randomized, double-blind, double-dummy comparisons of ozanimod to an active control in

patients with RMS. In both trials, patients are receiving one of two oral daily doses of ozanimod (0.5 mg or 1.0 mg) or a weekly injection of interferon beta-1a (Avonex^® 30 µg), and the primary objective is to assess whether ozanimod is superior to Avonex^® in reducing ARR at the end of month 24 (RADIANCE) or month 12 (SUNBEAM) of treatment in patients with RMS. We have obtained Special Protocol Assessment (SPA) agreement from the US Food and Drug Administration (FDA) on our clinical trial design for both Phase 3 trials. In 2014 we sought scientific advice from the European Medicines Agency (EMA) regarding the adequacy of both Phase 3 trials, as well as the overall development program, in support of a future marketing authorization application (MAA). The EMA raised no major objections regarding the design of such Phase 3 clinical trials and indicated that with minor adjustments, the proposed development program would be sufficient to support an MAA in the European Union.

Ozanimod is also being tested in a randomized Phase 2 study called TOUCHSTONE for the treatment of UC, a gastrointestinal (GI) disease affecting a well-defined subset of IBD patients. The randomized, double-blind, placebo-controlled trial is assessing the efficacy, safety and tolerability of two orally administered doses (0.5 mg and 1.0 mg) of ozanimod against placebo in 199 patients with UC across 57 sites in 13 countries. In October 2014, we announced that, for the eight-week induction period of the study, TOUCHSTONE met its primary endpoint and all secondary endpoints with statistical significance in patients on the 1.0 mg dose. The primary endpoint, the proportion of patients in clinical remission at week eight as defined by the industry standard Mayo scoring criteria, was achieved by 16.4% of patients on the 1.0 mg dose of ozanimod, as compared to 6.2% of patients on placebo, which was statistically significant (p<0.05). All secondary endpoints at week eight, including clinical response, change in the Mayo score and mucosal improvement on endoscopy, were also positive and statistically significant for the 1.0 mg dose. Trends were observed for all secondary efficacy endpoints for the 0.5 mg dose group that appeared to demonstrate evidence of a dose response. The overall safety and tolerability profile of ozanimod appeared consistent with the results of the Phase 2 portion of RADIANCE. Ozanimod was generally well tolerated, and the incidence of adverse events across the active treatment groups and placebo appeared to be similar. Most adverse events were either mild or moderate in nature, and there appeared to be no concerning signals in the adverse events of special interest, including cardiac and hepatic safety profiles. With regard to the cardiovascular profile, first dose mean changes in heart rate in patients receiving ozanimod were generally modest during the first six hours after administration, which is consistent with the findings of the Phase 2 portion of RADIANCE as well as our earlier TQT study. Rates of liver transaminase elevations observed in patients receiving ozanimod were low and consistent with the Phase 2 portion of RADIANCE.

Patients who achieved a clinical benefit after the eight-week induction period of TOUCHSTONE were eligible to enter the maintenance phase of the trial. In the maintenance phase, efficacy will be measured for the ozanimod and placebo groups after 24 weeks of additional treatment. Top-line results for the maintenance phase of TOUCHSTONE, which will include a comparison of the overall safety and tolerability of ozanimod versus placebo for the duration of the trial, are expected to be available in the second half of 2015. The FDA has indicated that if the results of the study are statistically and clinically persuasive, TOUCHSTONE could be considered as a Phase 3 study for ozanimod in UC and the balance of our registration program could be supported by a single additional Phase 3 induction of clinical remission efficacy study accompanied by a Phase 3 maintenance of clinical remission study. However, we have not requested an SPA with respect to TOUCHSTONE, and the FDA could change its view despite the results of the study. Given the lack of disease-modifying oral therapeutics in late-stage development for IBD, we believe ozanimod could potentially represent the best orally administered therapy for IBD and effect a paradigm shift in IBD treatment similar to the impact on RMS treatment dynamics caused by the market entry of Novartis’ Gilenya^® (fingolimod), a non-selective S1PR modulator which was launched in 2010 and achieved worldwide sales of approximately $2.5 billion in 2014. We intend to move forward in 2015 with a Phase 3 trial of ozanimod in UC as well as a Phase 2 study of ozanimod in CD. In addition, we believe that ozanimod may have promise in other therapeutic areas and we intend to explore other autoimmune indications where ozanimod may provide utility.

Our second asset, RPC4046, builds upon our core competencies in immunology and GI diseases. In-licensed from AbbVie Bahamas Ltd. and AbbVie Inc., RPC4046 is a monoclonal antibody directed against the interleukin-13 (IL-13) target, which has been validated in Asthma, a predominantly allergic/immune-mediated disorder. We are testing RPC4046 in a Phase 2 trial called HEROES for the treatment of EoE, a GI disease of high unmet need with no current FDA-approved therapy. In February 2015, we were granted Orphan drug status for RPC4046 for the treatment of EoE. We commenced enrollment for HEROES in September 2014, and we anticipate that top-line results from the Phase 2 trial will be available in the first half of 2016.

Our research efforts include a preclinical program developing oral, small molecule, positive allosteric modulators (PAMs) of the glucagon-like peptide-1 receptor (GLP-1R) for the treatment of Type 2 Diabetes. Allosteric modulators bind the protein receptor at a site distinct from the receptor’s natural binding partner (ligand), and positive allosteric modulators of the GLP-1R enhance the activity between the GLP-1R and its natural binding partner. We plan to commence IND-enabling studies for this program in 2015.

We retain full development and commercial rights to ozanimod. We may seek a development and commercial partner for ozanimod to offset risk and preserve capital, although we intend to retain key development and commercialization rights. We believe retaining this strategic flexibility will help us to maximize stockholder value. If we are successful in developing ozanimod and/or RPC4046, we may elect to build a targeted specialty sales force.

Our Pipeline

LOGO

Note: All dates represent Company expectations. Actual timing may vary.

Our Lead Product Candidate—S1P1R Modulator Ozanimod

Ozanimod is a novel, oral, once daily, selective and potent S1PR modulator developed at Receptos. We exclusively licensed a broad genus patent for S1PR modulator compounds from The Scripps Research Institute (TSRI) in 2009. From our early stage research on these compounds, we identified and selected a product candidate, ozanimod, based on key pharmaceutic properties that offer the potential for clinically meaningful improved safety features. A composition of matter patent for ozanimod has issued and we expect this patent will expire in 2029 (worldwide), not including any patent term adjustments or extensions. We believe ozanimod has the potential to be the best oral S1PR modulator for RMS as well as the best orally administered therapy and first S1PR modulator approved for the treatment of UC.

S1P1R Modulation in RMS and IBD

There are five sphingosine 1-phosphate (S1P) receptors (S1PRs), termed S1P1R, S1P2R, S1P3R, S1P4R and S1P5R. The S1P1R is expressed on lymphocytes that are associated with the underlying inflammation of autoimmune diseases. Importantly, S1P1R modulation causes selective and reversible sequestration of circulating lymphocytes in the thymus and peripheral lymphoid tissues. Sequestration is achieved through changes in lymphocyte trafficking, preventing autoreactive lymphocyte migration to sites of inflammation, including the CNS in RMS and the GI tract in IBD. This approach differs from cytotoxic agents which may cause non-selective depletion or inhibition of healthy, functional lymphocytes. Sequestration of lymphocytes in the lymphoid tissues results in decreased lymphocyte count in peripheral circulation, which can be easily measured through blood sampling and thereby provide a robust mechanistic pharmacodynamic biomarker for preclinical and clinical studies.

S1P1R Modulator Ozanimod in RMS

RMS Description

Multiple sclerosis (MS) is a chronic disorder of the CNS involving brain, spinal cord and optic nerves, and is characterized clinically by recurring episodes of neurological symptoms (relapses). MS is immune-mediated, driven by autoreactive lymphocytes that attack the covering surrounding nerve cells, known as the myelin sheath. This autoimmune response results in destruction of the myelin sheath, termed demyelination, and nerve damage. The CNS destruction caused by autoreactive lymphocytes can lead to debilitating clinical symptoms such as numbness, difficulty walking, visual loss, lack of coordination and muscle weakness.

RMS is the most frequent clinical presentation of MS. The majority of patients are diagnosed between the ages of 20 and 40, with a peak at age 29-30, and there is a consistent 2:1 female-to-male ratio. At onset, approximately 85% of MS patients have RMS, characterized by recurrent acute exacerbations (relapses) of neurological dysfunction followed by variable degrees of recovery with clinical stability between relapses. Almost half of relapses result in incomplete recovery of function and leave permanent disability and impairment that accumulates over time. Owing to the complications of chronic disability, life span for patients with MS is typically shortened by approximately ten years. Depression and/or anxiety due to the physical co-morbidities associated with MS result in suicide in approximately 15-30% of patients.

The early onset and progressive nature of RMS highlights the need for treatment options that are convenient and tolerable. This unmet need is particularly important for sufferers in the workforce or those raising families. The inevitability of both relapse and disease progression also highlights the cycling nature of RMS therapy as patients and physicians avail themselves of medications that offer progressive levels of efficacy and differing risk/benefit profiles. As new efficacious and safe treatments are approved, RMS patients will have more options for treatment in earlier stages of the disease.

Overview of the RMS Market

In 2013, the annual RMS market for branded therapeutic treatments was approximately $16 billion worldwide (excluding any supportive care therapies), increasing from approximately $13 billion in 2012. These

included Avonex^® (interferon (IFN) b-1a) Betaseron^® (IFN b-1b), Copaxone^® (glatiramer acetate) and Rebif^® (IFN b-1a), together often referred to as the ABCRs, as well as Tysabri^® (natalizumab), Lemtrada™ (alemtuzumab) and the three oral therapies Gilenya^® (fingolimod), Aubagio^® (teriflunomide), and Tecfidera^® (dimethyl fumarate). Gilenya^® is a non-selective S1PR modulator, while Aubagio^® and Tecfidera^® are not S1PR modulators and have different mechanisms of action.

We believe that growth of the RMS market growth is being driven to a significant extent by the increasing use of oral therapies that demonstrate higher efficacy and improved safety and tolerability compared to the ABCRs and Tysabri^®. Highlighting continued adoption and a strong revenue growth trajectory, Gilenya^® achieved worldwide sales of approximately $1.9 billion in 2013 and $2.5 billion in 2014. Tecfidera^® revenues have grown from $876 million in 2013, its first year of launch, to $2.9 billion in 2014. The size of the oral segment has doubled from $3 billion in combined sales for Gilenya^®, Tecfidera^®, and Aubagio^® in 2013 to $6 billion in 2014. We believe this rapid growth in revenue is indicative of a strong market trend toward efficacious oral therapies.

RMS patients represent a specialty market of an estimated 500,000 patients worldwide. RMS patients can be segmented into first-line, second-line and last-line treatment groups. The ABCR therapies have historically been the first line of treatment in RMS, although utilization of oral therapies has been increasing in the first line. Newly diagnosed RMS patients often receive ABCR treatment and typically cycle through the therapies for so long as they remain controlled and responsive to therapy. However, patients inevitably become uncontrolled and/or progress to become non-responsive. These second-line patients may opt to quit therapy altogether due to tolerability issues or dissatisfaction with treatment options, such as injection fatigue or perceived lack of efficacy. Finally, the last line of treatment represents a small patient population with more severe disease progression willing to tolerate risk/benefit profiles of more efficacious drugs accompanied by serious side effects. We believe the second-line uncontrolled and/or discontinued patient population represents an area of large unmet medical need. As demonstrated by market growth, patients that have discontinued treatment have begun to re-enter treatment with the availability of new oral therapies to fulfill their unmet treatment need. A portion of newly diagnosed patients are also considered for safe, oral products as physician experience grows with this class of therapies. With the recent availability of oral therapies such as Gilenya^®, Tecfidera^®, and Aubagio^®, a portion of the first-line treatment segment of patients is shifting away from ABCR cycling and toward such oral therapeutics, which we believe is due to the low tolerability of the ABCRs, a diminishing tolerance for injectable therapies, and a desire on the part of physicians to treat aggressively with more efficacious therapies earlier in the course of the disease. We believe a preference for oral therapies, particularly those with higher efficacy, will continue to shift the RMS treatment algorithm.

Currently Available Treatment Options for RMS

Introduced in the 1990’s, interferon beta therapies and Copaxone^® are generally safe and thus became the standard of care in the treatment of RMS. However, these RMS therapies have not conclusively been shown to positively impact long-term disease disability and have unfavorable tolerability profiles. In addition, these therapies are administered via frequent injections leading many patients to develop injection fatigue. Oral therapies for MS have been actively sought by neurologists and patients. The first oral treatment for RMS, Gilenya^®, was approved in September 2010, the second, Aubagio^®, was approved in September 2012, and the third, Tecfidera^®, was approved in March 2013.

A primary measure of efficacy for RMS therapeutics is reduction in ARR measured versus placebo. The ABCRs have shown reductions in ARR of approximately 30%. The interferon-beta therapies are characterized by flu-like symptoms that accompany their regimens of weekly to every-other day injections. Copaxone^® is not associated with flu-like symptoms, but requires daily injections. In addition, hepatic injury has been associated with Avonex^® and Rebif^® treatment. The ABCRs are generally administered early in the treatment algorithm due to physician experience with their long-term safety profile. Tysabri^® has shown a reduction in ARR of 67%, but it may cause serious side effects, including increased risk of progressive multifocal leukoencephalopathy (PML),

a rare and potentially fatal viral disease. Tysabri^® is generally recommended for patients who have an inadequate response to, or are unable to tolerate, alternate RMS therapies, and is only available to this defined patient group through a special restricted distribution program. In September 2013, Sanofi’s Lemtrada™ (alemtuzumab) was approved in the EU as a twice-yearly, intravenously infused therapy. In two Phase 3 studies, Lemtrada™ showed reduced ARR of 49% and 55% against an active comparator, Rebif^®, although reduced disability progression of significance was shown in only one of the two studies. In November 2014, Sanofi received FDA approval to market Lemtrada™ in the United States.

Three oral drug therapies have been approved for RMS. The first, Gilenya^®, is a non-selective S1PR modulator with activity on four of the five S1P receptors: S1P1R, S1P3R, S1P4R, and S1P5R. Gilenya^® at a 0.5 mg once daily dose has shown a reduction in ARR of 54% versus placebo, a reduction in ARR of 52% versus Avonex^®, and a reduction by 30% versus placebo in the risk of three-month confirmed disability progression (as measured by the Expanded Disability Status Scale, or EDSS). Gilenya^® has also shown a reduction in brain volume loss determined by magnetic resonance imaging (MRI). At a 0.5 mg once daily dose Gilenya^® demonstrated a reduction of 35% versus placebo and a reduction of 32% versus Avonex^®. Common adverse reactions to Gilenya^® include headache, influenza, diarrhea, back pain, liver transaminase elevations and cough. In addition, prescribing information warnings and precautions for Gilenya^® include risks of abnormal slowing of the heart rate, or bradyarrhythmia, and atrioventricular (AV) blocks, infection, macular edema, respiratory effects, hepatic effects (elevations in liver enzymes), fetal risk, blood pressure effects and immune system effects following discontinuation of therapy (long lymphocyte recovery time of one to two months). Aside from hepatic effects, we believe these reactions and risks are associated with S1PR modulation. Since ozanimod is also an S1PR modulator, although more selective for S1P1R and S1P5R, these adverse reactions and risks could apply to use of ozanimod. However, we believe that by virtue of its pharmaceutic properties, ozanimod has the potential to improve upon the cardiovascular side effect profile and immune system effects following discontinuation of therapy as well as the non-class hepatic effects.

Genzyme’s Aubagio^® became the second oral treatment for RMS approved for first-line therapy. Aubagio^®, which is not an S1PR modulator, has shown a reduction in ARR of 31% versus placebo at once daily doses of 7 or 14 mg. The most common adverse reactions include risk of alanine aminotransferase (ALT, or liver enzyme) increases, alopecia (hair loss), diarrhea, influenza, nausea and paresthesia. Aubagio^® prescribing information carries a black box, or cautionary, warning for both hepatotoxicity and teratogenicity.

In March 2013, Biogen Idec’s Tecfidera^® (a dimethyl fumarate compound with a mechanism of action different from S1PR modulation) was approved by the FDA for the treatment of RMS, thereby becoming the third available oral therapy. In Phase 3 clinical trials, with twice daily dosing, Tecfidera^® showed reductions in ARR versus placebo of 44% and 53%, compared to Phase 2 results of 32%. Tecfidera^® also showed a reduction in the cumulative number of total gadolinium enhancing (GdE) lesions determined by MRI of 73% and 57% in Phase 3 clinical trials, compared to Phase 2 results of 69%. Adverse events of note in the prescribing label for Tecfidera^® include flushing (40%), abdominal pain (18%), diarrhea (14%), nausea (12%) and vomiting (9%). In 2014, the Tecfidera^® prescribing label was updated to include warnings and precautions related to PML. Tecfidera^® is further catalyzing the transition to an oral treatment market.

S1P1R Modulator Ozanimod in Inflammatory Bowel Disease (IBD)

We are also developing ozanimod for the treatment of IBD. IBD is comprised of two distinct disease states, UC and CD. A number of agents that demonstrate efficacy in one IBD indication also demonstrate efficacy in the other. We believe ozanimod has the potential to be the best orally administered therapy as well as the first S1PR modulator approved for the treatment of UC as well as CD, and an opportunity exists to position ozanimod in earlier lines of therapy in both patient groups.

Overview of IBD

Ulcerative Colitis (UC) Description

UC is a chronic GI inflammatory disorder which involves the surface mucosa, the epithelium and the submucosa of the colon. Patients with UC suffer from a multitude of gastrointestinal symptoms, such as diarrhea, rectal bleeding and weight loss. UC is characterized by a chronic course of remissions and exacerbations. Within 10 years of diagnosis, 20% of adults with UC had undergone a colectomy. In addition, patients with UC have an increased risk of carcinoma over time.

Crohn’s Disease (CD) Description

Similar to UC, CD is a chronic, inflammatory disorder of the GI tract. Symptoms include diarrhea, blood in the stool, abdominal pain and weight loss. Maintaining symptomatic control and obtaining remission are critical to minimizing short-term and long-term complications and to improving the outcomes and quality of life for patients with CD. The natural course of CD is a progression from inflammation of the mucosa to stricture formation of the intestine and of mucosal penetration or fistula formation, with the risk of stricture and fistula increasing with the duration of CD.

Overview of IBD Market

Drug sales in the IBD market were forecasted by Datamonitor Group at approximately $7.6 billion worldwide in 2012 and consisted of three therapeutic categories: immunomodulators, anti-inflammatory agents, and biologics.

The Datamonitor Group estimates that biologic therapies, such as Remicade^® (infliximab), Humira^® (adalimumab), and Tysabri^®, would represent approximately 71% of total drug sales in the global IBD market in 2012. We believe that new immunological mechanisms of action, as well as oral therapeutics and their associated convenience and promotion of patient compliance, will drive growth of drug sales in the IBD market.

The total IBD prevalence is estimated at 2.6 million patients in the US, Japan and EU5. Ulcerative Colitis is prevalent in approximately 1.7 million patients in the US, Japan and EU5.

Current Treatments Options for IBD

The overall goal of treatment for IBD is to induce and maintain remission in acute, active disease. IBD treatment consists of therapies of varying degrees of efficacy and safety, depending on the patient’s disease severity and response to prior therapy. While agents used to treat mild to moderate IBD are generally well tolerated, as the severity of IBD increases, so do the potential toxicities of the medications required to manage the disease.

Specifically for UC, up to 90% of patients with mild-to-moderate UC can initially be maintained in remission using once-daily oral administration of 5-aminosalicylic acid (5-ASA). However, half of these patients will progress to more severe disease and become nonresponsive to therapy. For those patients who do not respond to 5-ASA, or those with more severe and/or extensive disease at diagnosis, corticosteroids are generally the next line of treatment for inducing clinical remission. Longer-term treatment with corticosteroids is associated with multiple adverse effects. Furthermore, after one year, approximately 45% of patients who initially responded to corticosteroids have either become steroid-dependent or have required surgery. Patients who have become nonresponsive or intolerant to corticosteroids may move to azathioprine (AZA) and 6-mercaptopurine (6-MP), but these treatments show a delay in onset of action of three months. Finally, as a last line of treatment for UC, biologics are used to induce and maintain remission, although the anti-TNFs have not been as effective in maintaining remission in IBD as in other disease areas in which they are approved for treatment.

Approved biologic therapies for IBD include Entyvio^®, Remicade^® and Humira^®, approved for UC and CD, Cimzia^®, approved for CD, and Simponi^®, approved for UC. In addition, Tysabri^® has been approved for CD.

Entyvio^® and Tysabri^® are both lymphocyte trafficking agents. The recently launched lymphocyte trafficking agent Entyvio^® (vedolizumab), which is administered by IV infusion and indicated for patients with Ulcerative Colitis or Crohn’s Disease, achieved $140 million in worldwide sales in 2014 within the first seven months of its launch.

Biologics are most commonly used in later lines of IBD therapy, and require either recurring intravenous (IV) or subcutaneous (SC) delivery. Specifically in UC, induction of clinical remission therapy with anti-TNFs has demonstrated consistent favorable clinical response at eight weeks; however, maintenance of clinical remission has been less successful. The anti-TNFs carry the risk of infusion and injection-site reactions, immunogenicity, immunosuppression and infection. Humira^® has a black box warning for malignancy and serious infection.

While numerous potential treatments exist for patients with IBD, none are curative and all are associated with significant risks. There exists in IBD significant unmet medical need for new and effective immunomodulatory treatments, particularly with oral route of administration and with improved safety and tolerability profiles. UC patients have fewer therapeutic options compared to CD, as biologics have only been adopted as a last line of therapy in UC.

Entyvio^® (vedolizumab), a recently launched lymphocyte trafficking agent

Entyvio^® is an intravenously infused inhibitor of lymphocyte trafficking. The GEMINI I Phase 3 trial for Entyvio^® in moderate to severe UC showed significant improvement in both induction and maintenance of clinical remission settings. For example, in the maintenance of clinical remission setting Entyvio^® produced an absolute improvement (i.e., delta) in clinical response of approximately 28-33% over the placebo group in the GEMINI I Phase 3 study, and Humira^® produced an improvement of approximately 12% over the placebo group in the ULTRA2 Phase 3 study. Entyvio^® also showed efficacy in anti-TNF failures. Pooled Phase 3 safety outcomes showed no major differences in adverse events for Entyvio^®-treated UC and CD patients compared to placebo groups, with infections that occurred more frequently in Entyvio^® treated-patients involving the upper respiratory tract. Entyvio^® was approved by both the FDA for marketing in the United States and the EMA for marketing in Europe in 2014.

Although Entyvio^® has a different mechanism of action to S1P1R modulation (alpha-4 beta-7 integrin antibody inhibitor), it inhibits trafficking of similar lymphocyte populations (naïve T cells [CD4+, CD8+], memory T cells and B cells) to that of S1P1R modulation. Phase 3 clinical outcomes from Entyvio^® contribute to a growing body of evidence generated by third parties which supports efficacy for agents that inhibit lymphocyte trafficking in the treatment of IBD. We believe that agents with new lymphocyte trafficking inhibition mechanisms of action such as ozanimod could have the potential to impact the current treatment algorithm for IBD. Based upon a third-party survey of 101 physicians that we sponsored, we believe that if ozanimod is able to obtain market approval for UC and show efficacy comparable to Entyvio^® and a safety profile improved from Gilenya^®, ozanimod could be adopted in both early and late lines of treatment and compete effectively as an oral agent, including against Entyvio^®. However, as clinical development of ozanimod is conducted and trial results become known, the data may not support such comparable efficacy, an improved safety profile, or even regulatory approval. It is also possible that, if approved for UC, ozanimod may not be approved with a label that includes the claims necessary or desirable for successful commercialization. Furthermore, the third-party survey did not take into account differences in pricing and reimbursement, which could impact ozanimod’s ability to compete effectively against other UC treatments.

IBD—Forward Development

We expect to initiate a Phase 3 program for ozanimod for the treatment of UC in 2015. Typically for a registration program the FDA requires two Phase 3 studies for induction of clinical remission and one Phase 3 study for maintenance of clinical remission. Subject to the results of current and future clinical development

(including the Phase 3 program) as well as the availability of adequate funding and other resources, we believe it may be possible to submit an NDA to the FDA for use of ozanimod in patients with UC as early as 2018, thereby positioning ozanimod as the potential first S1PR modulator approved in UC. We would also expect to submit an MAA with the EMA, pending input from European regulatory authorities.

Based on the positive Phase 2 induction period results of TOUCHSTONE, we also intend to pursue development of ozanimod for the treatment of CD. We expect that the next step in that program will be a Phase 2 trial, to be initiated in the second half of 2015.

Potential Additional Clinical Indications for Ozanimod

Ozanimod may have therapeutic application in other chronic immune disorders including Psoriasis, Psoriatic Arthritis, Systemic Lupus Erythematosus (SLE), Dermatomyositis and Polymyositis. Compounds targeting the S1P1R have been shown to be active in models of these diseases, although the supportive data has, to date, been generated by third parties.

Our Second Clinical Product Candidate—RPC4046

Our second clinical product candidate, RPC4046, is a recombinant, humanized, high-affinity, selective anti-IL-13 monoclonal antibody. In September 2014 we initiated a Phase 2 trial of RPC4046 (HEROES) for the treatment of adults with EoE. EoE is a GI-related immunological indication for which we have been granted Orphan Drug status. We have an exclusive development license from AbbVie to explore the efficacy of RPC4046 in EoE. We anticipate that top-line results from the Phase 2 trial will be available in the first half of 2016.

We selected EoE as the lead therapeutic indication for RPC4046 after careful consideration of the strength of the biological hypothesis for the anti-IL-13 antibody mechanism in EoE. Extensive preclinical and clinical studies provide strong evidence indicating that EoE is an atopic, or allergic-associated disease characterized by infiltration of a type of white blood cell, called an eosinophil, into the esophagus. The condition is also characterized by increased tissue levels of other immune cell types and related signaling proteins. Notably, the most over-expressed genes in patients with EoE are eotaxin-3, an eosinophil-specific chemoattractant (a chemical which causes movement of cells towards it at high concentrations), and periostin, an extracellular matrix protein that supports eosinophil cell migration. Expression of both of these proteins in epithelial cells is induced by IL-13, and these proteins represent important diagnostic biomarkers to assess the potential for patient response to targeted immunotherapy.

IL-13 antagonists have demonstrated efficacy in preclinical models of allergic and other immunological disorders and recently have shown activity in Asthma patients. IL-13 contributes to localized allergic immune responses, recruitment of proinflammatory cells and tissue remodeling including fibrosis, all of which are features of EoE. The first human demonstration of clinical efficacy for the anti-IL-13 mechanism of action in Asthma was demonstrated in a positive Phase 2 clinical study with the anti-IL-13 antibody lebrikizumab, which is being developed by Roche. Lebrikizumab was associated with improved lung function. Roche also demonstrated that Asthma patients with high pretreatment levels of serum periostin had greater improvement in lung function with lebrikizumab than did patients with low periostin, providing validation for this diagnostic biomarker in assessing a patient subgroup with potential for higher response rates.

EoE is a chronic, allergic/immune-mediated disease characterized clinically by symptoms related to esophageal dysfunction and eosinophil-predominant inflammation. The disease affects both pediatric and adult populations. Quality of life is often significantly decreased due to food impaction, swallowing difficulty and other disease effects. As a result, EoE patients often experience weight loss/difficulty putting on weight, with this as a particular concern in the pediatric population on account of the morbidity associated with failure to thrive. There are currently no FDA approved drugs for the treatment of EoE. The majority of patients are treated chronically with topical steroids, which are associated with a number of side effects. Amongst these side effects,

fungal infection, in particular esophageal candidiasis, can paradoxically worsen some of the symptoms associated with EoE, such as difficulty swallowing. Furthermore, topical steroids are associated with a short-lived duration of efficacy, with patients relapsing in approximately four months. Consequently, a high unmet need exists for drugs that reduce clinical symptoms, modify disease progression through tissue remodelling and/or increase duration of treatment response. Over the course of the last decade, there has been a steady rise in the incidence and diagnosis of EoE due to increases in atopic diseases in the general population and adoption of diagnostic guidelines. Based on reported prevalence and diagnosis rates, our 2015 epidemiological estimates for EoE are approximately 180,000 patients in the US and approximately 170,000 patients in the EU.

AbbVie previously completed a Phase 1 study and demonstrated that RPC4046 was well tolerated in healthy subjects as well as in patients with mild to moderate persistent Asthma. The Phase 1 study supports both single-dose IV administration and multiple SC doses. We plan to use an initial IV loading dose followed by the SC injection route of administration in future EoE clinical studies. RPC4046 binds to an IL-13 epitope that prevents the binding of circulating IL-13 to both types of IL-13 receptor, (IL-13R) a1 and IL-13R a2. This binding profile may be advantageous in optimizing efficacy and/or safety features.

The HEROES Phase 2 trial has been designed as a randomized, double-blind, placebo controlled, parallel enrollment, multicenter study in patients with active EoE as measured by endoscopic, histologic (eosinophil count) and clinical assessment. We plan to enroll approximately 90 patients to assess two doses of RPC4046 against placebo. The primary objective of the Phase 2 trial will be to determine whether treatment with RPC4046 has clinical efficacy as determined by histological improvement of eosinophil count reduction. We plan to explore periostin, eotaxin and other proteins as potential predictive diagnostic biomarkers for clinical efficacy in the proof-of-concept study. Secondary objectives for this study include a comparison of patients with histologic response and remission, improvement in swallowing difficulty including as assessed by patient diaries as well as scores calculated from symptom and behavior measurements, and safety, pharmacodynamic and biomarker measures.

We have an exclusive development license to RPC4046 from AbbVie which is limited in scope to conducting a Phase 2 study of RPC4046 in EoE. See “—Strategic Collaborations and Research Arrangements” for more details. AbbVie holds an option to enter into a global collaboration for RPC4046 with us following the availability of results from the planned Phase 2 study. If AbbVie does not exercise its option, we will have an exclusive worldwide license for the development and commercialization of RPC4046 which will be unlimited as to indications.

Should AbbVie elect to enter into a collaboration with us, we will have a strong partner with biologic manufacturing experience and a vested interest in GI indications easily expandable to EoE. Should AbbVie elect not to enter into a collaboration with us, we may have the opportunity to independently complete a potentially expedited development program (based on unmet need) for an Orphan Disease. If such a development program is successful, we believe it may be possible to commercialize RPC4046 in the US and potentially in the EU with a targeted specialty sales force. Assuming the successful development and approval of our lead candidate ozanimod in UC, as well as the successful development and approval of RPC4046 in EoE, we believe commercial synergies could be realized in GI by a targeted specialty sales force.

Preclinical Program for Glucagon-like Peptide-1 Receptor Small Molecule Positive Allosteric Modulators (GLP-1R PAMs)

We are pursuing a research program for glucagon-like peptide-1 receptor (GLP-1R) small molecule positive allosteric modulators (PAMs) for the treatment of Type 2 Diabetes. The GLP-1 mechanism of action is known for controlling glucose as well as conferring weight loss in Type 2 Diabetes patients. Currently marketed GLP-1R peptide agonists are administered by injection, which has limited their adoption rate in Type 2 Diabetes. We believe that an oral, potent, non-peptide modulator of GLP-1R would make this important therapeutic class more convenient and accessible to a wider population of Type 2 Diabetes patients. We are designing and developing small molecule drug candidate leads to increase the activity of endogenous GLP-1 and related gastrointestinal

hormones, which is a novel mechanism of action. This approach fits well with our strategy to deliver differentiated, novel therapeutic offerings where unmet need exists in the disease category. This opportunity also aligns with our desire to utilize early clinical biomarkers that may correlate with efficacy. In Type 2 Diabetes, pharmacodynamic biomarkers such as measuring levels of blood glucose or hemoglobin A1c (HbA1C) can be explored in Phase 1 studies. Our efforts involving GLP-1R PAMs for the treatment of Type 2 Diabetes have only been preclinical to date, and we have not filed an IND for this program.

We may initiate further internal drug discover efforts for select high-value targets that align with our focus on immune or metabolic diseases.

Strategic Collaborations and Research Arrangements

License Agreements with The Scripps Research Institute (TSRI)

Novel Modulators of Sphingosine Phosphate Receptors

In April 2009, we entered into an exclusive license agreement (with a right to sublicense) with TSRI to rights to novel modulators of sphingosine phosphate receptors, including modulators to the S1P1R. The technology licensed covers ozanimod, and we will owe to TSRI a royalty on net sales for ozanimod of up to 2% depending on whether ozanimod is patent protected under the licensed technology in a particular country. We will also owe to TSRI up to an aggregate of $4,350,000 in success milestones as development of ozanimod advances, and upon any sublicense of ozanimod, we will owe to TSRI a percentage of any sublicensing revenues obtained as part of the sublicensing arrangement. The agreement will continue for as long as we are obligated to pay royalties to TSRI, which will be for as long as any licensed patent covers any product in any country at issue or, where no such patent applies in a particular country, for as long as any licensed patent would cover any product in any one of several specified major markets, after which the licenses granted to us will survive and become royalty-free, perpetual and irrevocable. However, TSRI has the right to terminate the agreement if we fail to use commercially reasonable efforts to develop and commercialize the licensed compound. In addition, TSRI has the right to terminate the agreement if we do not make a payment under the agreement and fail to cure the non-payment, in the event that we file for bankruptcy, if we are convicted of a felony related to the development, manufacture, use, marketing, distribution or sale of the licensed products or licensed biological materials, if we underreport or underpay TSRI the greater of 15% or $100,000 or more, or if we materially breach the agreement. Because TSRI receives funding from the US government in support of TSRI’s research activities, to the extent that inventions claimed by the novel modulators of sphingosine phosphate receptors arise or result from TSRI’s receipt of research support from the US government, our rights and obligations under the agreement will be subject to all applicable rights of the US government.

Development License and Option Agreement between AbbVie and Receptos for RPC4046

In October 2012, we entered into a Development License and Option Agreement with AbbVie which provided us with an exclusive research and development license to the IL-13 antibody ABT-308 (referred to by us as RPC4046) to conduct a Phase 2 study of RPC4046 in EoE. Under the terms of this agreement, we are fully responsible for the costs of such study. Following our delivery to AbbVie of a data package including results for the Phase 2 study, AbbVie may elect to enter into an exclusive, worldwide collaboration with us. Key terms of this collaboration include our obligation to fund half of the costs of global development, a 50/50 net profit/loss arrangement in the US market, co-promotion and commercialization rights for us in the US market, a double-digit royalty for us on net sales outside the US, shared decision-making for US commercialization and AbbVie having control of commercialization outside the US.

If AbbVie does not exercise its option to collaborate, we will have an exclusive, worldwide license to RPC4046 which will be unlimited as to indications. Key terms of this license include our obligation to fund 100% of all development and payment to AbbVie of a royalty on global net sales at the same double digit rate payable from AbbVie to us on net sales outside of the US in the event of a collaboration. The royalty rate in a

collaboration or licensing scenario may be subject to offset in the event third-party intellectual property is required. AbbVie has the right but not the obligation in either the collaboration or the licensing scenario to be the manufacturer and supplier for RPC4046.

If AbbVie does not exercise its option to collaborate in the first instance, AbbVie will have a second option to enter into a collaboration with us, if applicable, when a data packages including results for a Phase 2 study is available for a second indication for RPC4046; however, if AbbVie exercises this second option, AbbVie would be required to reimburse us for development costs incurred after completion of the Phase 2 study in EoE and the collaboration would be a 50/50 net profit/loss arrangement worldwide. AbbVie’s second option terminates if we undergo a change of control, if we execute a sublicense to RPC4046 or if five years pass following AbbVie’s election not to exercise its first option.

The term of the Development License and Option Agreement extends until the parties enter into a collaboration (if AbbVie exercises its option to collaborate) or AbbVie provides us with an exclusive, worldwide license to RPC4046. However, AbbVie has the right to terminate the Development License and Option Agreement if we materially breach the agreement and fail to cure the breach, if we prosecute or otherwise participate in any claim that an AbbVie patent is invalid, or if we file for bankruptcy. In addition, we have the right to terminate the Development License and Option Agreement if we have delivered to AbbVie a data package including results for the Phase 2 study of RPC4046 in EoE, if despite our exercise of commercially reasonable efforts we are unable to proceed with the Phase 2 study or the objectives of such study are determined by us to be unachievable or materially frustrated, or if the Phase 2 study is suspended for at least nine months or halted indefinitely.

Intellectual Property

The proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important to our business. We have sought patent protection in the US and internationally for ozanimod and our discovery GLP-1R PAM program, and any other inventions to which we have rights, where available and when appropriate. AbbVie has sought similar patent protection for RPC4046, to which we currently have a license to conduct a Phase 2 study of RPC4046 in EoE. Our policy is to pursue, maintain and defend patent rights, whether developed internally or licensed from third parties, and to protect the technology, inventions and improvements that are commercially important to the development of our business. We also rely on trade secrets relating to our proprietary technology platform that may be important to the development of our business.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our current and future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors—Risks Relating to Our Intellectual Property.”

Ozanimod (S1P1R Modulator)

corresponding foreign patents and patent applications issued or pending in Canada, Europe, Japan, Australia, Mexico, Eurasia, South Korea, China, New Zealand, Malaysia, Philippines, Singapore, Brazil, India, Israel and South Africa and one pending PCT application. We expect the composition of matter patent for ozanimod, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire in 2029 (worldwide). It is possible, assuming ozanimod achieves regulatory approval, that the term of the composition of matter patent in the US may be extended up to a maximum of five additional years under the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act (see “—Government Regulation and Product Approval—United States Government Regulation—Patent Term Restoration and Marketing Exclusivity”). Patent term extension may similarly be available in certain foreign countries upon regulatory approval. We expect the other patents and patent applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire from 2030 to 2032.

RPC4046 (anti-IL-13 antibody)

The patent portfolio for RPC4046, to which rights are in-licensed from AbbVie, contains an issued patent and pending patent applications directed to compositions of matter for RPC4046 and certain of their methods of use. As of December 31, 2014, the in-licensed portfolio consisted of rights to two US patents, one pending US patent application, foreign patents in Australia, Israel and New Zealand, and corresponding foreign pending patent applications in Europe, Japan, China, Canada, Australia, Mexico, Norway, Korea, Russia and Costa Rica. We expect the issued composition of matter patent in the US, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire in 2028. It is possible, assuming RPC4046 achieves regulatory approval, that the term of the composition of matter patent in the US may be extended up to five additional years under the provisions of the Hatch-Waxman Act (see “—Government Regulation and Product Approval—United States Government Regulation—Patent Term Restoration and Marketing Exclusivity”), although such an extension is subject to AbbVie’s consent where AbbVie does not exercise its option to enter into a global collaboration for RPC4046 with us and we instead receive an exclusive worldwide license to RPC4046, and thus the possibility that AbbVie utilizes or chooses to reserve the opportunity for an extension of that patent in such context for a different drug. We expect the pending foreign patent applications in the portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire in 2027. Patent term extension may similarly be available, also subject to AbbVie’s consent, in certain foreign countries upon regulatory approval.

GLP-1R PAMs (positive allosteric modulators)

The patent portfolio for our GLP-1R PAM program contains pending patent applications directed to certain compositions of matter for multiple chemical scaffolds as well as one issued US patent directed to certain methods of use. As of December 31, 2014, we owned three issued US patents and seven pending US patent applications and corresponding foreign patent applications, including one pending PCT application as well as applications pending in Canada, Europe, Japan, Australia, Brazil, China, India, South Korea, Mexico, New Zealand and Russia. We expect the composition of matter patents in the US, if issued from the pending patent applications and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire from 2031 to 2032. It is possible that the term of any composition of matter patents in the US, if issued, may be extended up to a maximum of five additional years under the provisions of the Hatch-Waxman Act if a clinical candidate covered by such a patent is selected for development and subsequently receives regulatory approval (see “—Government Regulation and Product Approval—United States Government Regulation—Patent Term Restoration and Marketing Exclusivity”). We expect the corresponding foreign patent applications in the portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire from 2031 to 2032. Patent term extension may similarly be available in certain foreign countries upon regulatory approval.

GPCR Structure Determination Technology Platform

resolution crystals of GPCRs. As of December 31, 2014, we had exclusive commercial license rights from TSRI to two US patents, one pending US patent application, foreign patents in Canada, France, Germany, Japan, Switzerland and United Kingdom, and foreign patent applications in Australia, Canada, China, Eurasia, Europe, Israel, India, Japan, Korea, New Zealand and Singapore related to GPCR structure determination. We expect the patent and any patent applications in the US or corresponding foreign patent applications which issue, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire from 2028 to 2032.

Trade Secrets

In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. We seek to protect our proprietary data and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and partners. These agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. With respect to our proprietary GPCR structure determination technology platform, we consider trade secrets and know-how to be our primary intellectual property. Trade secrets and know-how can be difficult to protect. In particular, we anticipate that with respect to this GPCR structure determination technology platform, these trade secrets and know-how will over time be disseminated within the industry through independent development, the publication of journal articles describing methodology for crystallization of membrane proteins, and the movement of personnel skilled in the art from academic to industry scientific positions.

Manufacturing

Ozanimod

We currently contract with third parties for the manufacture of ozanimod for preclinical studies and clinical trials and intend to do so in the future. The third parties with whom we currently work have the capability to meet our current and commercial manufacturing needs. We do not own or operate manufacturing facilities for the production of clinical quantities of our product candidates. We currently have no plans to build our own clinical or commercial scale manufacturing capabilities. Although we rely on contract manufacturers, we have personnel with extensive manufacturing experience to oversee the relationships with our contract manufacturers. One of our contract manufacturers has manufactured what we believe to be sufficient quantities of ozanimod active pharmaceutical ingredient (or drug substance) to complete the ongoing Phase 2 clinical trials. Another of our existing contract manufacturers continues to produce ozanimod drug product for use in ongoing clinical trials. We are evaluating secondary contract manufacturers for clinical and commercial production of drug substance and product. We have contracted a second drug product contract manufacturer for clinical and commercial production of drug product. In addition, a separate contract manufacturer labels, packages and distributes clinical supplies of ozanimod. We believe the manufacturing processes for the active pharmaceutical ingredient and finished drug product for ozanimod have been developed to adequately support future development and commercial demands. While we believe that our existing suppliers of active pharmaceutical ingredient and drug product would be capable of continuing to produce materials in commercial quantities, we may need to identify additional third-party manufacturers capable of providing commercial quantities of drug product. If we are unable to arrange for such a third-party manufacturing source, or fail to do so on commercially reasonable terms, we may not be able to successfully produce and market ozanimod.

RPC4046

As part of our Development License and Option Agreement, AbbVie has agreed to manufacture quantities of RPC4046 drug substance and drug product needed for preclinical and clinical studies as part of the development activities contemplated by such Agreement, including the ongoing Phase 2 study of RPC4046 in EoE. AbbVie will support Receptos on regulatory chemistry, manufacturing and control (CMC) activities

suitable for regulatory filings with the FDA and EMA as needed. We may also request during the term of the Development License and Option Agreement that AbbVie initiate CMC activities in order to supply the first Phase 3 trial for RPC4046.

Should AbbVie elect at its option to enter into a collaboration with us following delivery to AbbVie of a data package including results for the planned Phase 2 of RPC4046 in EoE, AbbVie can elect to supply the collaboration with RPC4046 or effect technology transfer to a third-party manufacturer to supply the collaboration. If AbbVie does not exercise its option to collaborate, the parties will either agree on the terms for AbbVie to supply RPC4046 to Receptos, or AbbVie will effect technology transfer to a third-party manufacturer. If technology transfer occurs in either scenario, we believe there is sufficient expertise and capacity within the biologic manufacturing industry to perform clinical and commercial supply of RPC4046. However, if we are unable to arrange for such a third-party manufacturing source, or fail to do so on commercially reasonable terms, our ability to develop and commercialize RPC4046 will be adversely affected. Additionally, an inability to effect technology transfer in a timely fashion will impact the pace and potential success of our development efforts as well as our prospects for potential commercialization.

Government Regulation and Product Approval

Governmental authorities in the US, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and export and import of products such as those we are developing. Our product candidates must be approved by the FDA before they may be legally marketed in the US and by the EMA before they may be legally marketed in Europe. Our product candidates will be subject to similar requirements in other countries prior to marketing in those countries. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

United States Government Regulation

NDA Approval Processes

In the US, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or FDCA, and biologics under the Public Health Service Act, or PHSA, and implementing regulations. Failure to comply with the applicable US requirements at any time during the product development process or approval process, or after approval, may subject an applicant to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:

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refusal to approve pending applications;

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withdrawal of an approval;

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imposition of a clinical hold;

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warning letters;

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product seizures;

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total or partial suspension of production or distribution; or

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injunctions, fines, disgorgement, or civil or criminal penalties.

The process required by the FDA before a drug or biologic may be marketed in the US generally involves the following:

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completion of nonclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices, or GLPs, or other applicable regulations;

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submission to the FDA of an IND, which must become effective before human clinical trials may begin;

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performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or GCPs, to establish the safety and efficacy of the proposed product for its intended use;

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submission to the FDA of an NDA or BLA;

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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current Good Manufacturing Practices, or cGMPs, to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and

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FDA review and approval of the NDA or BLA.

Once a product candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results of the nonclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an IND, and may affect one or more specific studies or all studies conducted under the IND.

All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must timely report to FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the product candidate. An institutional review board, or IRB, at each institution participating in the clinical trial must review and approve the protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the study until completed and otherwise comply with IRB regulations.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

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Phase 1. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and elimination. In the case of some products for severe or life-threatening diseases, such as cancer, especially when the product may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.

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Phase 2. Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

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Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product labeling.

Human clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.

During the development of a new drug or biologic, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to the submission of an IND, at the end of Phase 2 and before an NDA or BLA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval of the new product. A sponsor may also request a Special Protocol Assessment, or SPA, the purpose of which is to reach agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy claim.

According to published guidance on the SPA process, a sponsor which meets the prerequisites may make a specific request for an SPA and provide information regarding the design and size of the proposed clinical trial. The FDA is supposed to evaluate the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and a request for additional information. An SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the record. The agreement will be binding on the FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or efficacy of the product candidate was identified after the testing began.

Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing commercial quantities of the product in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches and the manufacturer must develop methods for testing the quality, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its proposed shelf-life.

The results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part of an NDA or BLA requesting approval to market the product. The submission is subject to the payment of user fees, but a waiver of such fees may be obtained under specified circumstances. The FDA reviews all NDAs and BLAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. It may request additional information rather than accept an NDA or BLA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.

Once the submission is accepted for filing, the FDA begins an in-depth review. A product candidate representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA may refuse to approve an application if the applicable regulatory criteria are not satisfied or may require additional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the application does not satisfy the criteria for approval. The FDA reviews applications to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant. The FDA may refer the NDA or BLA to an advisory committee for review and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the

recommendation of an advisory committee, but it generally follows such recommendations. Before approving an application, the FDA will inspect the facility or facilities where the product is manufactured and tested.

Expedited Review and Approval

The FDA has various programs, including Fast Track, priority review, and accelerated approval, which are intended to expedite or simplify the process for reviewing new products, and/or provide for the approval of a product on the basis of a surrogate endpoint. Even if a product qualifies for one or more of these programs, the FDA may later decide that it no longer meets the conditions for qualification or that the time period for FDA review or approval will not be shortened. Generally, products that are eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs and those that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate the development and expedite the review of drugs and biologics to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Priority review is designed to give products that offer major advances in treatment or provide a treatment where no adequate therapy exists an initial review within eight months of submission as compared to a standard review time of 12 months. Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated product and expedite review of the application for a product designated for priority review. Accelerated approval, which is described in Subpart H of 21 CFR Part 314, provides for an earlier approval for a product that is intended to treat a serious or life-threatening disease or condition and that fills an unmet medical need based on a surrogate endpoint. A surrogate endpoint is a laboratory measurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome. As a condition of approval, the FDA may require that a sponsor of a product candidate receiving accelerated approval perform post-marketing clinical trials.

In the recently enacted Food and Drug Administration Safety and Innovation Act, or FDASIA, Congress encouraged the FDA to utilize innovative and flexible approaches to the assessment of products under accelerated approval. The law requires the FDA to issue related draft guidance within a year after the law’s enactment and also promulgate confirming regulatory changes.

Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of FDA approval of the use of our drug and biologic product candidates, some of the US patents covering our product candidates may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission date of an NDA or BLA and the approval of that application. Only one patent applicable to an approved product is eligible for the extension and the application for extension must be made prior to expiration of the patent. The US Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant application. However, our ability to seek restoration of the patent term of certain licensed patents, such as in the instance of patents covering RPC4046 (where AbbVie is the licensor), will be subject to action by the licensor, and it is possible (including in a situation where a patent at issue also covers a separate approved drug or drug candidate owned or otherwise licensed to a third party by the licensor) that the licensor may elect not to seek such a restoration.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the US to the

first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an approved NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant Orphan Drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the US, or more than 200,000 individuals in the US and for which there is no reasonable expectation that the cost of developing and making available in the US a drug for this type of disease or condition will be recovered from sales in the US for that drug. Orphan Drug designation must be requested before submitting an NDA. After the FDA grants Orphan Drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan Drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has Orphan Drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for seven years. Orphan Drug exclusivity, however, could also block the approval of one of our products for seven years if a competitor obtains approval of the same drug as defined by the FDA or if our drug candidate is determined to be contained within the competitor’s product for the same indication or disease.

Post-Approval Requirements

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:

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record-keeping requirements;

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reporting of adverse experiences;

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providing the FDA with updated safety and efficacy information;

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drug sampling and distribution requirements;

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notifying the FDA and gaining its approval of specified manufacturing or labeling changes; and

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complying with FDA promotion and advertising requirements.

Drug or biologic manufacturers and other entities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMP and other laws.

We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products. Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.

Regulation Outside of the United States

In addition to regulations in the US, we will be subject to regulations of other countries governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of countries outside of the US before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the EU, before we may market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Under EU regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders or diabetes and optional for those medicines which are highly innovative, provides for the grant of a single marketing authorization that is valid for all EU member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report, each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.

As in the US, we may apply for designation of a product as an Orphan Drug for the treatment of a specific indication in the EU before the application for marketing authorization is made. Orphan Drugs in Europe enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan-designated product.

Pharmaceutical Coverage, Pricing and Reimbursement

Sales of our products will depend, in part, on the extent to which the costs of our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of drugs have been a focus in this effort. The US government, state legislatures and

foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment under Medicare Part D may result in a similar reduction in payments from non-governmental payors.

The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as ACA, enacted in March 2010, is expected to have a significant impact on the health care industry. ACA is expected to expand coverage for the uninsured while at the same time containing overall healthcare costs. ACA, among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also contains substantial new provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for the healthcare industry, impose new taxes and fees on pharmaceutical manufacturers, and impose additional health policy reforms, any or all of which may affect our business. A significant number of provisions are not yet, or have only recently become, effective, but ACA is likely to continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

Other legislative changes have also been proposed and adopted since ACA was enacted. For example, the Budget Control Act of 2011 resulted in aggregate reductions in Medicare payments to providers of up to 2% per fiscal year, starting in 2013, and the American Taxpayer Relief act of 2012, among other things, reduced

Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding.

In addition, in some non-US jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the EU provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the EU do not follow price structures of the US and generally tend to be significantly lower.

We expect that ACA, as well as other healthcare reform measures that have been and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.

Employees

As of December 31, 2014, we had 68 employees, of which 20 hold M.D. or Ph.D. degrees. Fifty-one of our employees are involved in our drug research and development operations, and 17 are in general and administrative functions. None of our employees are represented by a labor union, and we consider our employee relations to be good.

Corporate Information

We were incorporated in the state of Delaware on September 26, 2008 under the name Receptor Pharmaceuticals, Inc. and changed our name to name to Receptos, Inc. on May 11, 2009. As used in this Annual Report, unless the context suggests otherwise, “the Company”, “Receptos”, “we”, “us” and “our” refer to Receptos, Inc. and its subsidiaries on a consolidated basis. Our principal executive offices are located at 3033 Science Park Road, Suite 300, San Diego California 92121, and our telephone number is (858) 652-5700.

Our corporate website address is www.receptos.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available free of charge on our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an internet site that contains our public filings with the SEC and other information regarding Receptos, at www.sec.gov. These reports and other information concerning Receptos may also be accessed at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The contents of these websites are not incorporated into this Annual Report. Further, our references to the URLs for these websites are intended to be inactive textual reference only.

This Annual Report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Annual Report, including logos, artwork and other visual displays, may appear without the ^® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Item 1A. Risk Factors.

Except for the historical information contained herein or incorporated by reference, this Annual Report and the information incorporated by reference contains forward-looking statements that involve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. These statements are not guarantees of future performance or events. Our actual results may differ materially from those discussed here. Factors that could cause or contribute to differences in our actual results include those discussed in the following section, as well as those discussed in Part II, Item 7 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this Annual Report and in any other documents incorporated by reference into this Annual Report. You should consider carefully the following risk factors, together with all of the other information included or incorporated in this Annual Report. Each of these risk factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock. There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position.

Risks Related to Our Financial Position and Capital Requirements

We are a clinical-stage company with no approved products and no historical product revenues, which makes it difficult to assess our future prospects and financial results.

We are a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. Our operations to date have been limited to developing our technology, undertaking preclinical studies and clinical trials of our product candidate ozanimod, and in-licensing, preparing for and undertaking the clinical development of our product candidate RPC4046. As an early stage company, we have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. Consequently, the ability to predict our future operating results or business prospects is more limited than if we had a longer operating history or approved products on the market.

Our actual financial condition and operating results have varied significantly in the past and are expected to continue to fluctuate significantly from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include:

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the results of our clinical trials through all phases of clinical development;

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the timing of commencement of and enrollment in our clinical trials;

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potential side effects of our product candidates that could delay or prevent approval or cause an approved drug to be taken off the market;

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our ability to obtain, as well as the timeliness of obtaining, additional funding to develop our product candidates;

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our ability to secure and maintain collaborations, licensing or other arrangements for the future development and/or commercialization of our product candidates, as well as the terms of such arrangements;

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the results of clinical trials or marketing applications for product candidates that may compete with our product candidates;

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competition from existing products, as well as new products that may receive marketing approval;

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the availability of generic versions of products that compete with our product candidates;

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the timing of regulatory review and approval of our product candidates;

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market acceptance of our product candidates that receive regulatory approval, if any;

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our ability to establish an effective sales and marketing infrastructure directly or through collaborations with third parties;

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the ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;

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our ability, and the ability of third parties on which we rely upon for clinical development of our product candidates such as contract research organizations (CROs), to adhere to clinical study and other regulatory requirements;

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the ability of third-party manufacturers to manufacture our product candidates for the conduct of clinical trials and, if approved, for successful commercialization;

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the cost, availability and timeliness of supply of sufficient quantities of placebo or comparator drugs used in certain of our clinical trials;

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the costs to us, and our ability as well as the ability of any third-party collaborators, to obtain, maintain and protect intellectual property rights covering our product candidates and technologies;

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costs related to potential intellectual property disputes, and the outcome of any such dispute;

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our ability to adequately support future growth;

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our ability to attract and retain key personnel to manage our business effectively;

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our ability to identify and develop additional product candidates; and

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our ability to build our finance infrastructure and improve our accounting systems and controls.

Accordingly, the likelihood of our success must be evaluated in light of many potential challenges and variables associated with an early-stage drug development company, many of which are outside of our control, and past operating or financial results should not be relied on as an indication of future results.

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated any revenue from product sales and may never be profitable.

We have incurred significant operating losses since our inception in 2008. Our net loss attributable to common stockholders for the year ended December 31, 2014 was approximately $115.0 million, and as of December 31, 2014, we had an accumulated deficit of $210.9 million. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. We expect to continue incurring significant research, development and other expenses related to our ongoing operations, and to continue incurring losses for the foreseeable future. We also expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates.

We do not anticipate generating revenues from sales of products for the foreseeable future, if ever. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our ability to generate future revenues from product sales depends heavily on our success in:

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completing development and clinical trial programs for our product candidates ozanimod and RPC4046;

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entering into collaboration and license agreements, particularly with respect to the development and commercialization of ozanimod;

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seeking and obtaining marketing approvals for any product candidates that successfully complete clinical trials;

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establishing and maintaining supply and manufacturing relationships with third parties; and

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successfully commercializing any product candidates for which marketing approval is obtained, including with one or more partners or, if launched independently, successfully establishing a sales force, marketing and distribution infrastructure.

If one or more of our product candidates is approved for commercial sale and we retain commercial rights, we anticipate incurring significant costs associated with commercializing any such approved product candidate. Therefore, even if we are able to generate revenues from the sale of any approved product, we may never become profitable. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of expenses and when we will be able to achieve or maintain profitability, if ever.

We will require substantial additional funding, which may not be available to us on acceptable terms, or at all.

Our operations have consumed substantial amounts of cash since inception. We are currently conducting two Phase 3 studies of ozanimod in Relapsing Multiple Sclerosis (RMS), conducting a Phase 2 study of ozanimod in Ulcerative Colitis (UC), preparing for a Phase 3 study of ozanimod in Ulcerative Colitis (UC) and Phase 2 study of ozanimod in Crohn’s Disease (CD), and conducting a Phase 2 study of RPC4046 in Eosinophilic Esophagitis (EoE). Developing pharmaceutical product candidates, including conducting clinical trials, is expensive. We will require substantial additional future capital in order to complete clinical development and, if we are successful, to commercialize any of our current product candidates. If the US Food and Drug Administration (FDA) or any foreign regulatory agency, such as the European Medicines Agency (EMA), requires that we perform studies or trials in addition to those that we currently anticipate with respect to the development of ozanimod and RPC4046, or repeat studies or trials, our expenses would further increase beyond what we currently expect, and any delay resulting from such further or repeat studies or trials could also result in the need for additional financing.

Our existing cash and cash equivalents will not be sufficient for us to complete advanced clinical development of any of our product candidates or, if applicable, to commercialize any product candidate that is approved. Accordingly, we will continue to require substantial additional capital to continue our clinical development activities and potentially engage in commercialization activities. Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and commercialize our product candidates. The amount and timing of our future funding requirements will depend on many factors, including but not limited to:

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the progress, costs, results of and timing of our ongoing and planned clinical trials;

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our ability to enter into collaborative agreements for the development and commercialization of our product candidates, particularly ozanimod;

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the willingness of the FDA, EMA and other regulatory agencies to accept our clinical and preclinical studies and other work as the basis for review and approval of product candidates;

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the outcome, costs and timing of seeking and obtaining regulatory approvals from the FDA, EMA and any similar regulatory agencies;

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whether AbbVie Bahamas Ltd. and AbbVie Inc., which we refer to together as AbbVie, exercises its option, following the availability of results from the planned Phase 2 trial of RPC4046 in EoE, to collaborate with us on the development and commercialization of RPC4046;

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the number of product candidates and indications that we pursue, whether developed from our research program for glucagon-like peptide-1 small molecule positive allosteric modulators (GLP-1R PAMs), otherwise developed internally or in-licensed;

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the timing and costs associated with manufacturing our product candidates for clinical trials and other studies and, if approved, for commercial sale;

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the availability and costs of placebo and/or comparator drugs used in our clinical trials;

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our need to expand our development activities and, potentially, our research activities;

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the timing and costs associated with establishing sales and marketing capabilities;

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market acceptance of any approved product candidates;

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the costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;

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the cost to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

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the extent to which we are required to pay milestone or other payments under our in-license agreements and the timing of such payments;

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our need and ability to hire additional management, development and scientific personnel; and

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our need to implement additional internal systems and infrastructure, including financial and reporting systems.

Some of these factors are outside of our control. Based upon our current expected level of operating expenditures and our existing cash and cash equivalents, we believe that we will be able to fund our operations for at least the next 12 months. This period could be shortened if there are any significant increases beyond our expectations in spending on development programs or more rapid progress of development programs than anticipated. We do not expect our existing capital resources to be sufficient to enable us to complete all of the Phase 3 programs of ozanimod in RMS, UC and CD. Accordingly, we expect that we will need to raise substantial additional funds in the future. Additional funding may not be available to us on acceptable terms, or at all. If we are unable to obtain funding from equity offerings or debt financings, including on a timely basis, we may be required to:

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seek collaborators for one or more of our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;

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relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or

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significantly curtail one or more of our research or development programs or cease operations altogether.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates or technologies.

We may seek additional funding through a combination of equity offerings, debt financings, collaborations and/or licensing arrangements. Additional funding may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of additional indebtedness and/or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in certain additional restrictive covenants, such as limitations on our ability to incur additional debt and/or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, issuance of additional equity securities, or the possibility

of such issuance, may cause the market price of our common stock to decline. In the event that we enter into collaborations and/or licensing arrangements in order to raise capital, we may be required to accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves or potentially reserve for future potential arrangements when we might be able to achieve more favorable terms.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

We have incurred substantial losses during our history. We do not anticipate generating revenues from sales of products for the foreseeable future, if ever, and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed our analysis to determine what, if any, impact any prior ownership change has had on our ability to utilize our net operating loss carryforwards. In addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As of December 31, 2014, we had federal net operating loss carryforwards of approximately $189.0 million that could be limited if we have experienced, or if in the future we experience, an ownership change, which could have an adverse effect on our future results of operations.

Risks Related to Our Business and Industry

We are heavily dependent on the success of our product candidate ozanimod. We are also dependent on the success of our product candidate RPC4046. We cannot give any assurance that any product candidate will successfully complete clinical trials or receive regulatory approval, which is necessary before it can be commercialized.

Our business and future success is substantially dependent on our ability to develop successfully, obtain regulatory approval for, and then successfully commercialize our product candidate ozanimod, which is the subject of Phase 3 programs in RMS and UC, with an additional Phase 3 program CD in the planning stages. Our business and future success also depends on our ability to develop successfully, obtain regulatory approval for, and then successfully commercialize our product candidate RPC4046, which is currently being studied in a Phase 2 study in EoE. Our product candidates will require additional clinical development, management of clinical and manufacturing activities, regulatory approval in multiple jurisdictions (if regulatory approval can be obtained at all), securing sources of commercial manufacturing supply, building of, or partnering with, a commercial organization, substantial investment and significant marketing efforts before any revenues can be generated from product sales. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA, the EMA or any other foreign regulatory authority, and we may never receive such regulatory approval for any of our product candidates. We cannot assure you that our clinical trials for ozanimod or RPC4046 will be completed in a timely manner, or at all, or that we will be able to obtain approval from the FDA, the EMA or any other foreign regulatory authority for either of these product candidates. We cannot be certain that we will advance any other product candidates into clinical trials. If any of ozanimod, RPC4046 or any future product candidate is not approved and commercialized, we will not be able to generate any product revenues. Moreover, any delay or setback in the development of any product candidate could adversely affect our business and cause our stock price to fall.

Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials, as well as data from an interim analysis of a current clinical trial, may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development. We have never completed a Phase 3 study or submitted a New Drug Application (NDA) or a Biologics License Application (BLA).

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and previous

clinical trials, as well as data from any interim analysis of ongoing clinical trials, of our product candidates, as well as studies and trials of other products with similar mechanisms of action to our product candidates, may not be predictive of the results of ongoing or future clinical trials. For example, the positive results generated to date in preclinical and Phase 1 and Phase 2 clinical studies for ozanimod in RMS and UC do not ensure that ongoing and future clinical studies, such as our current and proposed Phase 3 programs will demonstrate similar results or observations. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and earlier clinical trials. In addition to the safety and efficacy traits of any product candidate, clinical trial failures may result from a multitude of factors including flaws in trial design, dose selection, placebo effect and patient enrollment criteria. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Based upon negative or inconclusive results, we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval.

We may experience delays in our ongoing clinical trials and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to:

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obtaining regulatory approval to commence a trial;

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reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

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obtaining Institutional Review Board (IRB) approval at each site;

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obtaining regulatory concurrence on the design and parameters for the trial;

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obtaining approval for the design of our clinical development programs for each country targeted for trial enrollment;

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recruiting suitable patients to participate in a trial, which may be impacted by the number of competing trials that are enrolling patients;

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having patients complete a trial or return for post-treatment follow-up;

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clinical sites deviating from trial protocol or dropping out of a trial;

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adding new clinical trial sites;

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manufacturing sufficient quantities of product candidate or obtaining sufficient quantities of placebo or comparator drug for use in clinical trials; or

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the availability of adequate financing and other resources.

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. With respect to our clinical development of ozanimod in RMS, the recent availability of oral therapies such as Gilenya^® (fingolimod), Aubagio^® (teriflunomide) and Tecfidera^® (dimethyl fumarate) may cause patients to be less willing to participate in our clinical trial for an oral therapy in regions in which an oral therapy has been approved. Since RMS is a competitive market in certain regions such as the US and the European Union (EU) with a number of product candidates in development, patients may have other choices with respect to potential clinical trial participation and we may have difficulty in reaching our enrollment targets. In addition, the relatively limited number of RMS patients worldwide (estimated at 500,000) may make enrollment more challenging.

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Monitoring Committee (DMC) for such trial or by the FDA or other regulatory authorities. A suspension or termination may be imposed due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. For example, it is possible that safety issues or adverse side effects could be observed in our trials for ozanimod in RMS and UC or for RPC4046 in EoE, which could result in a delay, suspension or termination of the ongoing trials of ozanimod (in one or both indications) or of RPC4046. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

If ozanimod, RPC4046 or any other product candidate is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for it and our business would be materially harmed. For example, if the results of our ongoing trials for ozanimod in RMS and/or UC or RPC4046 in EoE do not achieve the primary efficacy endpoints or demonstrate unexpected safety findings, the prospects for approval of ozanimod or RPC4046, as applicable, as well our stock price and our ability to create stockholder value would be materially and adversely affected.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any clinical trials we or any of our collaborators may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates. If we are unable to bring any of our current or future product candidates to market, or to acquire any marketed, previously approved products, our ability to create long-term stockholder value will be limited.

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. The competition in the RMS market is particularly intense. We have competitors both in the US and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. For example, the branded RMS treatment market today includes the ABCRs (including Avonex^® (interferon (IFN) ß-1a), Betaseron^® (IFN ß -1b), Copaxone^® (glatiramer acetate) and Rebif^® (IFN ß-1a)), Tysabri^® (natalizumab), Lemtrada™ (alemtuzumab), mitoxantrone, Aubagio^®, Gilenya^® and Tecfidera^®. In January 2014, Teva received a refusal to its Marketing Authorization Application (MAA) for Nerventra^® (laquinimod), submitted for regulatory approval in 2012, and subsequently Teva requested a re-review of the MAA by the European Medicines Agency (EMA). The Committee for Medicinal Products for Human Use (CHMP) re-examined the initial opinion, and confirmed the refusal of the marketing authorization in May 2014. In addition, there are a number of active clinical trials ongoing in RMS for additional product candidates. For Inflammatory Bowel Disease (IBD), which consists of UC and Crohn’s Disease (CD), drug sales from four therapeutic categories substantially comprise the market, including intestinal anti-inflammatory drugs (including mesalamine, budesonide, hydrocortisone and others), immunosuppressive agents (including Remicade^® (infliximab), Simponi^® (golimumab), Tysabri^®, Cimzia^®

(certolizumab pegol) and Humira^® (adalimumab)) antimetabolites (including methotrexate and others), and lymphocyte trafficking agents (Entyvio^® (vedolizumab)).In addition, there are several late-stage pipeline programs in development for IBD indications. For EoE, there are currently no approved drugs indicated for that disorder, although steroids are prescribed off-label and several anti-inflammatory targeted drugs are in development for EoE.

Oral RMS therapies in particular represent competition for us, since ozanimod is being developed as an oral therapy. The first oral treatment for RMS, Novartis’ Gilenya^®, was approved in September 2010. In 2014, Gilenya^® achieved approximately $2.5 billion in worldwide sales. Like ozanimod, Gilenya^® is an S1PR modulator, although non-selective. Whereas Gilenya^® is already approved and is currently being marketed, ozanimod is in the Phase 3 portion of a Phase 2/3 trial for RMS and will require significant additional clinical development before it will be eligible for approval, if ever. Gilenya^® will thus have at least a several-year period, prior to any market entrance by ozanimod, in which to acquire additional brand identity and market share. Aside from Gilenya^®, other oral therapies for RMS have recently been approved. Specifically, in 2012, Genzyme’s Aubagio^® became the second oral therapy approved for RMS, and in March 2013, Biogen Idec’s Tecfidera^® became the third oral therapy approved for RMS. Although not an S1PR modulator, Tecfidera^® in particular has built upon the shift in treatment paradigm from a largely injectable product landscape to an oral product landscape. In 2014, Tecfidera^® achieved $2.9 billion in worldwide sales. In the development pipeline for oral therapies, Nerventra^®‘s sponsors (Teva Pharmaceutical Industries Ltd. and Active Biotech AB) have announced their commitment to pursue US registration based on a phase 3 RMS study currently estimated to be completed in June 2018. Beyond Gilenya^®, which is approved, the late-stage S1PR modulator drug pipeline of potential competition in RMS consists of one other active programs, MT-1303 (under development by Mitsubishi Tanabe). Mitsubishi Tanabe has initiated Phase 2 studies of MT-1303 in RMS and psoriasis. S1PR modulator drug pipeline programs, siponimod (under development by Novartis) and ponesimod (under development by Actelion), have diverted development to SPMS or suspended further development pending partnership, respectively. In June 2014, Merck KGaA announced that it had reached a mutual agreement with Ono Pharmaceuticals to terminate the license agreement for a fourth program, ceralifimod (Ono-4641), because it did not meet Merck’s criteria for further investment.

Although we believe ozanimod has the potential to demonstrate differentiation as the best S1PR modulator in RMS, as clinical development of ozanimod is conducted and trial results become known it is possible that the data will not support such differentiation, whether as a result of the effectiveness of ozanimod in RMS or as a result of its safety profile. With respect to efficacy, for example, whereas Gilenya^® is a non-selective S1PR modulator with activity on four of the five S1P receptors and ozanimod is by comparison more selective for the S1P1R and to a lesser extent, the S1P5R, it is possible that efficacy for an S1PR modulator benefits from, and is potentially dependent upon, broader activity among the S1P receptors and that ozanimod’s profile will not result in best-among-S1PR modulator effectiveness, or even meaningful effectiveness. Moreover, although we believe ozanimod has the potential for clinically meaningful improved safety features, late-stage clinical trial results may be inconsistent with earlier studies and not support such a safety profile. Inasmuch as ozanimod will, if approved in RMS, be entering a market in which the first approved oral therapy (Gilenya^®, which is also an S1PR modulator) will have been available since 2010, the absence of differentiation for ozanimod as the best S1PR modulator in RMS may adversely affect the ability of ozanimod to be approved for commercialization. If approved, the absence of differentiation for ozanimod as the best S1PR modulator in RMS would adversely affect the ability of ozanimod to gain market share and otherwise be commercialized successfully. In addition, at such time as ozanimod is approved for marketing in RMS, if ever, the patent protection for Gilenya^® may have lapsed, in which case generic treatments of Gilenya^® may be available. The competition represented by generic alternatives to or versions of an S1PR modulator, including the expected lower cost of any such generic alternatives, would adversely affect the ability of ozanimod, if approved, to gain market share and otherwise be commercialized successfully.

We have publically disclosed results of the induction period of a Phase 2 study of ozanimod in UC and plan to initiate in 2015 a Phase 3 program for ozanimod in UC and a Phase 2 program for ozanimod in CD. Although we believe ozanimod has the potential to be the best orally administered therapy, as well as the first S1PR

modulator approved, for the treatment of UC, as clinical development of ozanimod in UC is conducted and trial results become known it is possible that the data will not support such differentiation, whether as a result of the effectiveness of ozanimod in UC, the safety profile of ozanimod or the relative pace of development and potential timing for regulatory approval, if any, of ozanimod in UC. To our knowledge, currently there are no other S1P1 modulators in Phase 2 clinical trials for UC. It is possible, particularly as clinical results for the use of an S1PR modulator in UC become available (including, for example, from our Phase 2 trial of ozanimod in UC), that an approved therapy, such as Gilenya^®, could be used for UC patients notwithstanding the absence of regulatory approval (so called “off-label” use). Where applicable, off-label use of generic alternatives to Gilenya^® may also occur. Xeljanz^® (tofacitinib), Pfizer’s oral JAK tyrosine kinase inhibitor which is approved for Rheumatoid Arthritis, is currently in phase 2 development for CD and phase 3 development for UC. Although Xeljanz^® is not an S1PR modulator, its advanced stage of development relative to ozanimod in UC may provide Xeljanz^® with the opportunity to become the first approved oral therapy for UC. KRP203, a non-selective S1PR modulator being developed by Kyorin and Novartis, has completed a Phase 2 exploratory trial for UC under Novartis sponsorship and is in Phase 2 development for CD in Japan under Kyorin sponsorship. If ozanimod is not the first-approved S1PR modulator for UC, the ability of ozanimod to be approved for commercialization in UC may be adversely affected. In addition, any off-label use of another S1PR modulator in UC would adversely affect the ability of ozanimod, if approved, to gain market share and otherwise be commercialized successfully in UC.

RPC4046 is a recombinant, humanized, high-affinity, selective, anti-interleukin-13 (IL-13) monoclonal antibody. IL-13 antagonists have demonstrated efficacy in preclinical models of allergic and other immunological disorders, with the first human proof-of-concept data being obtained in a Phase 2 study of Genentech’s anti-IL-13 antibody lebrikizumab for the treatment of Asthma. We are currently conducting a Phase 2 clinical study of RPC4046 in an allergic/immune-mediated disorder, EoE, which is an Orphan Disease for which there is currently no FDA-approved therapy. It is possible that other anti-IL-13 antibodies may also pursue approval in EoE. For example, QAX-576, an intravenously administered anti-IL-13 antibody currently in development by Novartis for EoE and other indications, has completed an exploratory single dose Phase 2 study in 25 patients with EoE. The absence of status for RPC4046 as the first-approved therapy in EoE may adversely affect the ability of RPC4046, if approved, to gain market share and otherwise be commercialized successfully in EoE. In particular, the presence of other approved anti-IL-13 therapies may adversely affect the ability of RPC4046 to gain market share and otherwise be commercialized successfully.

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able and may be more effective in selling and marketing their products as well. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis drug products that are more effective or less costly than any drug candidate that we are currently developing or that we may develop. If approved, our product candidates will face competition from commercially available drugs as well as drugs that are in the development pipelines of our competitors.

Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA, EMA or other regulatory approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business.

We believe that our ability to successfully compete will depend on, among other things:

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the efficacy and safety of our product candidates, including as relative to marketed products and product candidates in development by third parties;

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the time it takes for our product candidates to complete clinical development and receive marketing approval;

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the ability to maintain a good relationship with regulatory authorities;

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the ability to commercialize and market any of our product candidates that receive regulatory approval;

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the price of our products, including in comparison to branded or generic competitors;

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whether coverage and adequate levels of reimbursement are available under private and governmental health insurance plans, including Medicare;

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the ability to protect intellectual property rights related to our product candidates;

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the ability to manufacture and sell commercial quantities of any of our product candidates that receive regulatory approval; and

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acceptance of any of our product candidates that receive regulatory approval by physicians and other healthcare providers.

If our competitors market products that are more effective, safer or less expensive than our future products, if any, or that reach the market sooner than our future products, if any, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological change. Because our research approach integrates many technologies, it may be difficult for us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.

We may not be successful in establishing development and commercialization collaborations, which could adversely affect, and potentially prohibit, our ability to develop our product candidates.

Developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products are expensive. Accordingly, we may seek to enter into collaborations with companies that have more resources and experience. For example, we may seek a development and commercial partner for ozanimod, particularly since the substantial costs of developing an RMS therapy or UC therapy in later-stage clinical trials may otherwise be prohibitive. If we are unable to obtain a partner for ozanimod, we may be unable to advance the development of ozanimod through late-stage clinical development and seek approval in any market. In addition, although AbbVie has an option to enter into a global collaboration for RPC4046 with us following the availability of Phase 2 results in EoE, if AbbVie declines such option, we may elect to seek a different development and commercial partner for RPC4046, if we believe such Phase 2 results warrant further development. We do not intend to enter into a collaboration agreement for the development of ozanimod unless we retain key decision-making, development and/or commercialization rights, and it may be difficult to find a suitable partner willing to share such rights. In situations where we enter into a development and commercial collaboration arrangement for a product candidate, we may also seek to establish additional collaborations for development and commercialization in territories outside of those addressed by the first collaboration arrangement for such product candidate. If any of our product candidates receives marketing approval, we may enter into sales and marketing arrangements with third parties with respect to otherwise unlicensed or unaddressed territories. There are a limited number of potential partners, and we expect to face competition in seeking appropriate partners. If we are unable to enter into any development and commercial collaborations and/or sales and marketing arrangements on acceptable terms, if at all, we may be unable to successfully develop and seek regulatory approval for our product candidates and/or effectively market and sell approved products, if any.

We may not be successful in maintaining development and commercialization collaborations, and any partner may not devote sufficient resources to the development or commercialization of our product candidates or may otherwise fail in development or commercialization efforts, which could adversely affect our ability to develop certain of our product candidates and our financial condition and operating results.

Even if we are able to establish collaboration arrangements, any such collaboration may not ultimately be successful, which could have a negative impact on our business, results of operations, financial condition and growth prospects. If we partner with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. For example, if AbbVie elects to exercise its option to enter into a global collaboration for RPC4046 with us following the availability of Phase 2 results in EoE, AbbVie will have control of any ex-US commercialization in the event RPC4046 is approved. It is possible that a partner may not devote sufficient resources to the development or commercialization of our product candidate or may otherwise fail in development or commercialization efforts, in which event the development and commercialization of such product candidate could be delayed or terminated and our business could be substantially harmed. In addition, the terms of any collaboration or other arrangement that we establish may not be favorable to us or may not be perceived as favorable, which may negatively impact the trading price of our common stock. In some cases, we may be responsible for continuing development of a product candidate or research program under a collaboration and the payment we receive from our partner may be insufficient to cover the cost of this development. Moreover, collaborations and sales and marketing arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to maintain.

We are subject to a number of additional risks associated with our dependence on collaborations with third parties, the occurrence of which could cause our collaboration arrangements to fail. Conflicts may arise between us and partners, such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial provisions or the ownership of intellectual property developed during the collaboration. If any such conflicts arise, a partner could act in its own self-interest, which may be adverse to our best interests. Any such disagreement between us and a partner could result in one or more of the following, each of which could delay or prevent the development or commercialization of our product candidates, and in turn prevent us from generating sufficient revenues to achieve or maintain profitability:

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reductions in the payment of royalties or other payments we believe are due pursuant to the applicable collaboration arrangement;

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actions taken by a partner inside or outside our collaboration which could negatively impact our rights or benefits under our collaboration; or

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unwillingness on the part of a partner to keep us informed regarding the progress of its development and commercialization activities or to permit public disclosure of the results of those activities.

AbbVie retains rights to the antibody which is the subject of RPC4046 which could conflict with the development and commercialization of RPC4046.

Our rights to RPC4046, which are the subject of an exclusive development agreement with AbbVie limited in scope to conducting a Phase 2 study of RPC4046 in EoE, do not preclude AbbVie from using the anti-IL-13 antibody in other products which are not solely specific to the IL-13 target. Whether AbbVie elects to exercise its option to enter into a global collaboration for RPC4046 with us following the availability of Phase 2 results in EoE, or in the alternative AbbVie does not elect such a collaboration and we receive an exclusive worldwide license to RPC4046 which will be unlimited as to indications, AbbVie will retain the right to use the anti-IL-13 antibody in other products that are not solely specific to the IL-13 target. While we believe that any such product would necessarily be meaningfully different from RPC4046, there can be no assurance that any such product would not have certain qualities in common with or similar to RPC4046 and thus be potentially competitive with RPC4046, or that adverse events arising from the clinical development of any such product would not have an impact on the development, commercialization or potential value of RPC4046 due, for example, to such qualities. With respect to the patent portfolio for RPC4046, which is in-licensed from AbbVie, AbbVie maintains

rights to prosecute and maintain patents and patent applications within the portfolio as well as to assert such patents against infringers within and outside the scope of our license, and to defend such patents against claims of invalidity and unenforceability. Although we have rights to consult with AbbVie on actions taken as well as back-up rights of prosecution and enforcement, another AbbVie product covered by the same patent portfolio, such as a different product using the anti-IL-13 antibody, could potentially influence AbbVie’s interests in the exercise of its prosecution, maintenance and enforcement rights in a manner that may favor the interests of such other product as compared with RPC4046. In addition, while the term of the composition of matter patent for RPC4046 in the US could be extended up to five additional years under the provisions of the Hatch-Waxman Act if RPC4046 achieves regulatory approval, such an extension for RPC4046 is subject to AbbVie’s consent where AbbVie does not exercise its option to enter into a global collaboration for RPC4046 with us and we instead receive an exclusive worldwide license to RPC4046. If the extension is otherwise available in such context it is possible that AbbVie would instead utilize or choose to reserve the opportunity for an extension of the composition of matter patent for a different product using the anti-IL-13 antibody, in which case we would not have the benefit of a potential extended patent term for RPC4046.

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

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we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA, supplemental NDA (sNDA), BLA or other submission or to obtain regulatory approval in the US or elsewhere;

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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may change or differ from one another significantly in a manner rendering our clinical data insufficient for approval.

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failure to obtain regulatory approval to market ozanimod and/or RPC4046, which would harm our business, results of operations and prospects significantly. In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

We have not previously submitted an NDA, a BLA, a Marketing Authorization Application (MAA) or any similar drug approval filing to the FDA, the EMA or any comparable foreign authority for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, to a significant extent, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights or share in revenues from the exercise of such rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

Ozanimod is an S1PR modulator which is selective for the GPCRs termed S1P1R and S1P5R. Upon initial treatment, S1PR modulators have been associated with a dose-dependent transient drop in heart rate that attenuates over time. During its development program, Gilenya^®, a non-selective S1PR modulator, was reported to cause certain cardiovascular side effects, including abnormal slowing of the heart rate, or bradyarrhythmia, and atrioventricular (AV) blocks after first dose administration. The prescribing information for Gilenya^® requires that six hours of cardiac monitoring occur upon first dose administration to observe patients for potential cardiovascular side effects. In a Phase 1 study of ozanimod, the findings we observed are consistent with the biology of S1P1R agonism, including potential dose-dependent effects on target organ systems, such as cardiovascular and pulmonary effects, with subjects treated with higher doses (such as 1.5 mg and higher) experiencing greater changes on parameters. Although pharmaceutic properties of ozanimod including low maximum concentration (or “C_max”), slow time to maximum concentration (or “T_max”) and lower overall exposure may provide the potential for an improved cardiac conduction profile which may reduce risk of cardiovascular side effects, in our ongoing development of ozanimod we are also employing a dose titration strategy to further improve patient outcomes upon first dose administration. Based on the high potency of ozanimod, we are exploring the potential for efficacy at a lower dose in an effort to further improve the cardiovascular safety profile. Despite these features and efforts, as clinical development of ozanimod is conducted and trial results become known, it is possible the data will reveal that ozanimod may have a

cardiovascular safety profile which is no better than, and possibly inferior to, Gilenya^®. Moreover, whether or not ozanimod has an improved profile, since ozanimod is an S1PR modulator, physicians may nonetheless associate ozanimod with adverse cardiovascular side effects. In connection with any approval of ozanimod, cardiac monitoring may be required upon first dose administration to observe patients for potential cardiovascular side effects. Required cardiac monitoring as well as dose titration will adversely affect the convenience of prescribing ozanimod and the initiation of patients on the therapy, if ozanimod is approved, and may thus adversely affect the adoption and market potential of ozanimod.

Common Gilenya^® adverse reactions include headache, influenza, diarrhea, back pain, liver transaminase elevations and cough. In addition to the risks of bradyarrhythmia and AV blocks, prescribing information warnings and precautions for Gilenya^® include risks of infection, macular edema, respiratory effects, hepatic effects (elevations in liver enzymes), fetal risk, blood pressure effects and immune system effects following discontinuation of therapy (long lymphocyte recovery time of one-to-two months). Aside from hepatic effects, we believe these reactions and risks are associated with S1PR modulation. Since ozanimod is also an S1PR modulator, although selective for S1P1R and S1P5R, these adverse reactions and risks could apply to use of ozanimod. However, we believe that by virtue of its pharmaceutic properties, ozanimod has the potential to improve upon the cardiovascular side effect profile and immune system effects following discontinuation of therapy as well as the non-class hepatic effects.

If one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

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regulatory authorities may withdraw approvals of such product;

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regulatory authorities may require additional warnings on the label;

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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

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we could be sued and held liable for harm caused to patients; and

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our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

If serious adverse events or other undesirable side effects are identified during the development of ozanimod or any other product candidate for one indication, we may need to abandon our development of ozanimod or such other product candidate for any other indications.

We are simultaneously developing ozanimod for RMS, UC and CD. When a drug candidate is in development for multiple indications, different patient populations are involved and side effects could be identified in either population. Side effects found during the development of ozanimod or any other product candidate for one indication, particularly if severe or having unexpected characteristics, could require us to abandon our development of ozanimod or any other product candidate at issue for other potential indications. We cannot assure you that severe or unexpected side effects with respect to ozanimod or any other product candidate will not develop in current or future clinical trials, which could delay or preclude regulatory approval of ozanimod or any other product candidate at issue or limit its commercial use.

We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon CROs to monitor and manage data for our preclinical and clinical programs. We rely on these parties for execution of our preclinical and clinical trials, and we control only certain aspects of their activities. We and our CROs also rely upon clinical sites and investigators for the

performance of our clinical trials in accordance with the applicable protocols and applicable legal, regulatory and scientific standards. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and applicable legal, regulatory and scientific standards, and our reliance on CROs as well as clinical sites and investigators does not relieve us of our regulatory responsibilities. We, our CROs, as well as the clinical sites and investigators are required to comply with current good clinical practices (GCPs), which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area (EEA) and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, investigators and clinical sites. If we, any of our CROs or any of the clinical sites or investigators fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. We also cannot assure you that our CROs, as well as the clinical sites and investigators, will perform our clinical trials in accordance with the applicable protocols as well as applicable legal, regulatory and scientific standards, or report the results obtained in a timely and accurate manner. In addition to GCPs, our clinical trials must be conducted with product produced under cGMP regulations. While we have agreements governing activities of our CROs, we have limited influence over the actual performance of our CROs as well as the performance of clinical sites and investigators. In addition, significant portions of the clinical studies for our product candidates will be conducted outside of the US, which will make it more difficult for us to monitor CROs as well as clinical sites and investigators and perform visits of our clinical sites, and will force us to rely heavily on CROs to ensure the proper and timely conduct of our clinical trials in accordance with the applicable protocols and compliance with applicable regulations, including GCPs. Failure to comply with applicable protocols and regulations in the conduct of the clinical studies for our product candidates may require us to repeat clinical trials, which would delay the regulatory approval process.

Some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.

If any of our relationships with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure (including by clinical sites or investigators) to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to generate revenues could be delayed significantly.

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

We rely completely on third parties to manufacture our preclinical and clinical drug supplies and we intend to rely on third parties to produce commercial supplies of any approved product candidate.

If, for any reason, we were to experience an unexpected loss of supply of our product candidates or placebo or comparator drug used in certain of our clinical trials, whether as a result of manufacturing, supply or storage

issues or otherwise, we could experience delays, disruptions, suspensions or terminations of, or be required to restart or repeat, any pending or ongoing clinical trials. We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our preclinical and clinical drug supplies and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. The facilities used by our contract manufacturers or other third-party manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our NDA to the FDA. We do not control the implementation of the manufacturing process of, and are completely dependent on, our contract manufacturers or other third-party manufacturers for compliance with the regulatory requirements, known as cGMPs, for manufacture of both active drug substances and finished drug products. If our contract manufacturers or other third-party manufacturers cannot successfully manufacture material that conforms to applicable specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers or other third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical trials. There are a limited number of suppliers for raw materials that we use to manufacture our drugs and there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and if approved, for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Although we generally do not begin a clinical trial unless we believe we have access to a sufficient supply of a product candidate to complete the clinical trial, any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a contract manufacturer or other third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates. Additionally, if we receive regulatory approval for our product candidates, we may experience unforeseen difficulties or challenges in the manufacture of our product candidates on a commercial scale compared to the manufacture for clinical purposes.

We are currently conducting a Phase 2 trial of RPC4046 in EoE. As part of our Development License and Option Agreement, AbbVie has agreed to manufacture quantities of RPC4046 drug substance and drug product needed for preclinical and clinical studies, including the Phase 2 study of RPC4046 in EoE. Should AbbVie elect at its option to enter into a collaboration with us following the completion of the planned Phase 2 trial of RPC4046 in EoE, AbbVie can elect to manufacture and supply the collaboration with RPC4046 or effect technology transfer to a third-party manufacturer to supply the collaboration. If AbbVie does not exercise its option to collaborate, the parties will either agree on the terms for AbbVie to supply RPC4046 to us or AbbVie will effect technology transfer to a third-party manufacturer. If technology transfer occurs in either scenario, and if we or AbbVie are unable to arrange for such a third-party manufacturing source or fail to do so on commercially reasonable terms, or if AbbVie fails to supply RPC4046 on a timely basis, any ability to develop and commercialize RPC4046 will be adversely affected. Additionally, an inability to effect technology transfer in a timely fashion will impact the pace and potential success of our development efforts as well as our prospects for potential commercialization.

We expect to continue to depend on contract manufacturers or other third-party manufacturers for the foreseeable future. We currently obtain our supplies of finished drug product through individual purchase orders.

We have not entered into long-term agreements with our current contract manufacturers or with any alternate fill/finish suppliers. Although we intend to do so prior to any commercial launch in order to ensure that we maintain adequate supplies of finished drug product, we may be unable to enter into such an agreement or do so on commercially reasonable terms, which could have a material adverse impact upon our business.

We rely on clinical data and results obtained by third parties that could ultimately prove to be inaccurate or unreliable.

As part of our strategy to mitigate development risk, we seek to develop product candidates with validated mechanisms of action and we utilize biomarkers to assess potential clinical efficacy early in the development process. This strategy necessarily relies upon clinical data and other results obtained by third parties that may ultimately prove to be inaccurate or unreliable. Further, such clinical data and results may, at times, be based on products or product candidates that are significantly different from our product candidates. If the third-party data and results we rely upon prove to be inaccurate, unreliable or not applicable to our product candidates, we could make inaccurate assumptions and conclusions about our product candidates and our research and development efforts could be materially adversely affected.

Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. For example, the prescribing information for Gilenya^® requires that six hours of cardiac monitoring occur upon first dose administration to observe patients for potential cardiovascular side effects. In connection with any approval of ozanimod, cardiac monitoring may be required upon first dose administration. Required cardiac monitoring will adversely affect the convenience of prescribing ozanimod and the initiation of patients on the therapy, if ozanimod is approved, and may thus adversely affect the adoption and market potential of ozanimod.

If the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration requirements and continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

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fines, warning letters or holds on clinical trials;

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refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;

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product seizure or detention, or refusal to permit the import or export of products; and

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injunctions or the imposition of civil or criminal penalties.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in

existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

We currently have no marketing and sales organization. To the extent any of our product candidates for which we maintain commercial rights is approved for marketing, if we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell any product candidates, or generate product revenues.

We currently do not have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any product candidates that receive marketing approval, we would have to build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. In the event of successful development of ozanimod and/or RPC4046, we may elect to build a targeted specialty sales force which will be expensive and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. With respect to our product candidates, we may choose to partner with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. In the instance of RPC4046, should AbbVie elect to enter into a collaboration with us following completion of the Phase 2 trial of RPC4046 in EoE, then we will have co-promotion and commercialization rights with AbbVie in the US with AbbVie having control of commercialization outside the US. If we are unable to enter into collaborations with third parties for the commercialization of approved products, if any, on acceptable terms or at all, or if any such partner (including AbbVie if it exercises its option to collaboration with us on RPC4046) does not devote sufficient resources to the commercialization of our product or otherwise fails in commercialization efforts, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.

Although we have obtained SPA agreements for our Phase 3 studies of ozanimod in RMS, these agreements do not guarantee any particular outcome from regulatory review of these trials of ozanimod.

We have obtained SPA agreements from the FDA for our Phase 3 studies of ozanimod in RMS. The FDA’s SPA process creates a written agreement between the sponsoring company and the FDA regarding clinical trial design and other clinical trial issues that can be used to support approval of a product candidate. The SPA is intended to provide the sponsoring company with assurance that if the agreed upon clinical trial protocols are followed and the clinical trial endpoints are achieved, the data may serve as the primary basis for an efficacy claim in support of an NDA. However, SPA agreements are not a guarantee of an approval of a product candidate or any permissible claims about the product candidate. In particular, SPA agreements are not binding on the FDA if previously unrecognized public health concerns arise during the performance of the clinical trial, if other new scientific concerns regarding product candidate safety or efficacy arise or if the sponsoring company fails to comply with the agreed upon clinical trial protocols. SPA agreements do not address all of the variables and details that may go into planning for or conducting a clinical trial, and any change in the protocol for a clinical trial can invalidate the SPA agreement unless the change is intended to improve the clinical trial at issue and the FDA agrees in writing prior to implementation. A protocol change entails a resubmission to the FDA and triggers a new cycle of FDA review which is not limited to the change. In the event of a resubmission, there can be no assurance that the FDA will agree with the proposed changes or that delays in the applicable development program will not occur as a result. Moreover, there can be no assurance that the FDA will ultimately consider either of our SPA agreements to be binding, in which event the FDA could assert that additional data, including data obtained through one or more additional clinical trials, may be required to support a regulatory submission. In addition, while an SPA agreement addresses the requirements for submission of an NDA, the results of the related clinical trial(s) may not support FDA approval.

Our revenues to date have been generated through our collaboration agreements and we may not receive any additional revenues under such agreements.

To date, our sources of revenue have been the upfront and milestone payments received under now-concluded collaborations utilizing our proprietary GPCR platform with Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Eli Lilly & Co., as well as a completed collaboration and ongoing technology transfer program with Ono Pharmaceutical Co., Ltd. We do not expect to receive further payments pursuant to the collaborations with Ortho-McNeil-Janssen Pharmaceuticals and Eli Lilly. Additional payments under the collaboration with Ono Pharmaceuticals are based on the achievement of various research and development milestones. Future payments from Ono Pharmaceuticals are uncertain because the nature of the research and development activities is inherently uncertain, and Ono Pharmaceuticals may choose not to pursue activities that would support achievement of the milestones. If we do not receive any further milestone payments from Ono Pharmaceuticals and we are unable to enter into new collaborations utilizing our proprietary GPCR platform, then our reliance on other potential sources of funding for our operations will be increased. Financing from such other potential sources may not be available to us on acceptable terms, or at all.

Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, healthcare payors, patients and the medical community.

Even if we obtain regulatory approval for one or more of our product candidates, the product may not gain market acceptance among physicians, healthcare payors, patients and the medical community, which is critical to commercial success. Market acceptance of any product candidate for which we receive approval depends on a number of factors, including:

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the efficacy and safety as demonstrated in clinical trials;

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the timing of market introduction of the product candidate as well as competitive products;

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the clinical indications for which the product candidate is approved;

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acceptance by physicians, the medical community and patients of the product candidate as a safe and effective treatment;

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the convenience of prescribing and initiating patients on the product candidate, which may be adversely affected in the instance of ozanimod by dose titration as well as cardiac monitoring upon first dose administration;

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the potential and perceived advantages of such product candidate over alternative treatments;

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the cost of treatment in relation to alternative treatments, including any similar generic treatments;

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the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;

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relative convenience and ease of administration;

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the prevalence and severity of adverse side effects; and

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the effectiveness of sales and marketing efforts.

If our product candidates are approved but fail to achieve an adequate level of acceptance by physicians, healthcare payors, patients and the medical community, we will not be able to generate significant revenues, and we may not become or remain profitable.

Even if we obtain and maintain approval for any of our product candidates from the FDA, we may never obtain approval for such product candidates outside of the US, which would limit our market opportunities and adversely affect our business.

Sales of our product candidates outside of the US will be subject to foreign regulatory requirements governing clinical trials and marketing approval and, to the extent that we retain commercial rights following

clinical development, we would plan to seek regulatory approval to commercialize our product candidates in the US, the EU and additional foreign countries. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the manufacturing and marketing of the product candidates in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the US, including additional preclinical studies or clinical trials. In many countries outside the US, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our products is also subject to approval. We may decide to submit an MAA to the EMA for approval. As with the FDA, obtaining approval of an MAA from the EMA is a similarly lengthy and expensive process and the EMA has its own procedures for approval of product candidates. Even if a product is approved, the FDA or the EMA, as the case may be, may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the US and the EEA also have requirements for approval of drug candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval for any of our product candidates may be withdrawn. If we fail to comply with the regulatory requirements in international markets and or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business will be adversely affected.

Coverage and reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. Recent legislative and regulatory activity may exert downward pressure on potential pricing and reimbursement for any of our product candidates, if approved, that could materially affect the opportunity to commercialize.

There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. To the extent that we retain commercial rights following clinical development, we would seek approval to market our product candidates in the US, the EU and other selected foreign jurisdictions. Market acceptance and sales of our product candidates, if approved, in both domestic and international markets will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for any of our product candidates and may be affected by existing and future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish payment levels. We cannot be certain that coverage and adequate reimbursement will be available for any of our product candidates, if approved. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, any of our product candidates, if approved. If reimbursement is not available or is available on a limited basis for any of our product candidates, if approved, we may not be able to successfully commercialize any such product candidate. Reimbursement by a third-party payor may depend upon a number of factors, including, without limitation, the third-party payor’s determination that use of a product is:

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a covered benefit under its health plan;

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safe, effective and medically necessary;

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appropriate for the specific patient;

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cost-effective; and

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neither experimental nor investigational.

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-

effectiveness data for the use of our products to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement or to have pricing set at a satisfactory level. If reimbursement of our future products, if any, is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels such as may result where alternative or generic treatments are available, we may be unable to achieve or sustain profitability.

In some foreign countries, particularly in the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies. If reimbursement of any of our product candidates, if approved, is unavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability of our products in such country.

In the US, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. Any negotiated prices for any of our product candidates, if approved, covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain outside of the Medicare Part D prescription drug plan. Moreover, while Medicare Part D applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment under Medicare Part D may result in a similar reduction in payments from non-governmental payors.

The US and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell any of our product candidates profitably, if approved. Among policy-makers and payors in the US and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the US, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future.

The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

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the demand for any of our product candidates, if approved;

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the ability to set a price that we believe is fair for any of our product candidates, if approved;

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our ability to generate revenues and achieve or maintain profitability;

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the level of taxes that we are required to pay; and

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the availability of capital.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, ACA), became law in the US. The goal of ACA is to reduce the cost of healthcare and substantially change the way healthcare is financed by both governmental and private insurers. The ACA may result in downward pressure on pharmaceutical reimbursement, which could

negatively affect market acceptance of any of our product candidates, if they are approved. Provisions of ACA relevant to the pharmaceutical industry include the following:

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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;

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an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively;

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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts on negotiated prices of applicable brand 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;

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extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially increasing manufacturers’ Medicaid rebate liability;

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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

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new requirements under the federal Open Payments program and its implementing regulations;

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expansion of healthcare fraud and abuse laws, including the federal False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance;

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a licensure framework for follow-on biologic products; and

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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research.

In addition, other legislative changes have been proposed and adopted since ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding.

Our future success depends on our ability to retain our executive officers and to attract, retain and motivate qualified personnel. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our industry has experienced a high rate of turnover of management personnel in recent years. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, especially Faheem Hasnain, our President and Chief Executive Officer, Graham Cooper, our Chief Financial Officer, Sheila Gujrathi, our Chief Medical Officer, Marcus Boehm, our Chief Technology Officer, Robert Peach, our Chief Scientific Officer, Chrysa Mineo, our Senior Vice President of Corporate Development, and Christian Waage, our Senior Vice President and General Counsel, whose services are critical to the successful implementation of our product candidate acquisition, development and regulatory strategies. We are not aware of any present intention of any of these individuals to leave our company. In order to induce valuable employees to continue their employment with us, we have provided stock

options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.

Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.

We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we have to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize product candidates will be limited.

We will need to grow the size of our organization, and we may experience difficulties in managing this growth.

As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, scientific, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including:

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managing our clinical trials effectively;

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identifying, recruiting, maintaining, motivating and integrating additional employees;

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managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;

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improving our managerial, development, operational and finance systems; and

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expanding our facilities.

As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to hire, train and integrate additional management, scientific, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.

If we engage in an acquisition, reorganization or business combination, we will incur a variety of risks that could adversely affect our business operations or our stockholders.

From time to time we have considered, and we will continue to consider in the future, strategic business initiatives intended to further expand and develop our business. These initiatives may include acquiring businesses, technologies or products or entering into a business combination with another company. If we pursue such a strategy, we could, among other things:

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issue equity securities that would dilute our stockholders;

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incur substantial debt that may place strains on our operations;

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spend substantial operational, financial and management resources to integrate new businesses, technologies and products;

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assume substantial actual or contingent liabilities;

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reprioritize our development programs and even cease development and commercialization of our product candidates; or

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merge with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash and/or shares of the other company on terms that certain of our stockholders may not deem desirable.

Although we intend to evaluate and consider acquisitions, reorganizations and business combinations in the future, we have no agreements or understandings with respect to any acquisition, reorganization or business combination at this time.

Failure to maintain our finance infrastructure and accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies and our ability to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

As a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), and the related rules and regulations of the Securities and Exchange Commission (SEC), expanded disclosure requirements, accelerated reporting requirements and more complex accounting rules. Requirements under the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.

We are required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Additionally, we are required to obtain from our independent registered public accounting firm an attestation report on the effectiveness of our internal control over financial reporting. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts. If we identify, or our independent registered public accounting firm identifies, deficiencies in our internal controls 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 Stock Market (NASDAQ), the SEC or other regulatory authorities, which would require additional financial and management resources. New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act and rules adopted by the SEC and by NASDAQ, would likely result in increased costs to us as we respond to these requirements.

If we cannot prepare and disclose, in a timely manner, our consolidated financial statements and other required disclosures or comply with the Sarbanes-Oxley Act or existing or new reporting requirements, or if we cannot prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

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 biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. 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 or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future 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.

Any future relationships with customers and third-party payors may be subject, directly or indirectly, to applicable anti-kickback laws, fraud and abuse laws, false claims laws, health information privacy and security laws and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

If we obtain FDA approval for any of our product candidates and begin commercializing those products in the US, our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to health information privacy and security regulation by the federal government and by the US states and foreign jurisdictions in which we conduct our business. The laws that may affect our ability to operate include:

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

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federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

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the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

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HIPAA, as amended by the Health Information Technology and Clinical Health Act of 2009 (HITECH), and their respective implementing regulations, which imposes certain obligations, including mandatory contractual terms, on covered healthcare providers, health plans, and healthcare clearinghouses, as well as their business associates, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and

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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that

our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government funded healthcare programs.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any of our product candidates, if approved.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to stop development or, if approved, limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

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delay or termination of clinical studies;

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injury to our reputation;

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withdrawal of clinical trial participants;

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initiation of investigations by regulators;

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costs to defend the related litigation;

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a diversion of management’s time and our resources;

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substantial monetary awards to trial participants or patients;

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decreased demand for our product candidates;

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product recalls, withdrawals or labeling, marketing or promotional restrictions;

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loss of revenues from product sales; and

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the inability to commercialize any our product candidates, if approved.

Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the development or commercialization of our product candidates. We currently carry clinical trial liability insurance at levels which we believe are appropriate for our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amount.

We are conducting a substantial portion of the clinical trials for our product candidates outside of the US. If approved, we intend to market our product candidates abroad. We will thus be subject to the risks of doing business outside of the US.

We are conducting a substantial portion of our clinical trials outside of the US and, if approved, we intend to market our product candidates outside of the US. We are thus subject to risks associated with doing business outside of the US. With respect to our product candidates, we may choose to partner with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems outside of the US or in lieu of our own sales force and distribution systems, which would indirectly expose us to these risks. Our business and financial results in the future could be adversely affected due to a variety of factors associated with conducting development and marketing of our product candidates, if approved, outside of the US, including:

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efforts to develop an international sales, marketing and distribution organization may increase our expenses, divert our management’s attention from the acquisition or development of product candidates or cause us to forgo profitable licensing opportunities in these geographies;

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changes in a specific country’s or region’s political and cultural climate or economic condition;

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unexpected changes in foreign laws and regulatory requirements;

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difficulty of effective enforcement of contractual provisions in local jurisdictions;

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inadequate intellectual property protection in foreign countries;

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trade-protection measures, import or export licensing requirements such as Export Administration Regulations promulgated by the US Department of Commerce and fines, penalties or suspension or revocation of export privileges;

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regulations under the US Foreign Corrupt Practices Act and similar foreign anti-corruption laws;

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the effects of applicable foreign tax structures and potentially adverse tax consequences; and

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significant adverse changes in foreign currency exchange rates which could make the cost of our clinical trials, or the cost of drug supply or comparator drug supply to the extent conducted or sourced outside of the US, more expensive.

Risks Related to Our Intellectual Property

If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the US or in other foreign countries. Even if patents have issued, or do successfully issue, from patent applications, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patents and patent applications we hold, license or pursue with respect to our product candidates is threatened, it could threaten our ability to commercialize our product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market any of our product candidates under patent protection, if approved, would be reduced. Since patent applications in the US and most other countries are confidential for a period of time after filing, we cannot be certain that we or our licensors were the first to file any patent application related to our

product candidates. Furthermore, an interference proceeding can be provoked by a third party or instituted by the US Patent and Trademark Office (PTO) to determine who was the first to invent any of the subject matter covered by the patent claims of our applications.

The patent portfolio for ozanimod contains patents and patent applications directed to compositions of matter for ozanimod and multiple chemical scaffolds as well as certain of their metabolites, synthetic intermediates, manufacturing methods, and methods of use. As of December 31, 2014, we owned or had exclusive license (from The Scripps Research Institute (TSRI)) to seven issued US patents and five pending US patent applications as well as corresponding foreign patents and patent applications issued or pending in Canada, Europe, Japan, Australia, Mexico, Eurasia, South Korea, China, New Zealand, Malaysia, Philippines, Singapore, Brazil, India, Israel, and South Africa, and one pending PCT application. We expect the composition of matter patent for ozanimod (which is in-licensed from TSRI), if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire in 2029 (worldwide). It is possible, assuming ozanimod achieves regulatory approval, that the term of the composition of matter patent in the US may be extended up to a maximum of five additional years under the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Act). Patent term extension may similarly be available in certain foreign countries upon regulatory approval. We expect the other patents and patent applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire from 2030 to 2032.

The patent portfolio for RPC4046, which is in-licensed from AbbVie, contains issued patents and pending patent applications directed to compositions of matter for RPC4046 and certain of their methods of use. As of December 31, 2014, this in-licensed portfolio consisted of two issued US patents, one pending US patent application, foreign patents in Australia, Israel and New Zealand, and corresponding foreign pending patent applications in Europe, Japan, China, Canada, Australia, Mexico, Norway, Korea, Russia, and Costa Rica. We expect the issued composition of matter patent in the US, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire in 2028. It is possible, assuming RPC4046 achieves regulatory approval, that the term of the composition of matter patent in the US may be extended up to five additional years under the provisions of the Hatch-Waxman Act, although such an extension is subject to AbbVie’s consent where AbbVie does not exercise its option to enter into a global collaboration for RPC4046 with us and we instead receive an exclusive worldwide license to RPC4046, and thus the possibility that AbbVie utilizes or chooses to reserve the opportunity for an extension of that patent in such context for a different drug. We expect the pending foreign patent applications in the portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire in 2027. Patent term extension may similarly be available, also subject to AbbVie’s consent, in certain foreign countries upon regulatory approval.

The patent portfolio for our GLP-1R PAMs program contains pending patent applications directed to certain compositions of matter for multiple chemical scaffolds as well as one issued patent directed to certain methods of use. As of December 31, 2014, we owned three issued US patents and seven pending US patent applications and corresponding foreign patent applications, including one pending PCT application as well as applications pending in Canada, Europe, Japan, Australia, Brazil, China, India, South Korea, Mexico, New Zealand and Russia. We expect the composition of matter patents in the US, if issued from the pending patent applications and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire from 2031 to 2032. It is possible that the term of the composition of matter patents in the US, if issued, may be extended up to a maximum of five additional years under the provisions of the Hatch-Waxman Act if a clinical candidate covered by such a patent is selected for development and subsequently receives regulatory approval. We expect the corresponding foreign patent applications in the portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire from 2031 to 2032. Patent term extension may similarly be available in certain foreign countries upon regulatory approval.

The patent portfolio for our proprietary GPCR structure determination portfolio, which is in-licensed from TSRI, includes patents and patent applications directed primarily to methods and compositions for obtaining high resolution crystals of G-protein coupled receptors. As of December 31, 2014, we had exclusive commercial

license rights from TSRI to two US patents, one pending US patent application, foreign patents in Canada, France, Germany, Japan, Switzerland and United Kingdom and foreign patent applications in Australia, Canada, China, Eurasia, Europe, Israel, India, Japan, Korea, New Zealand and Singapore related to GPCR structure determination. We expect the patent and any patent applications in the US or corresponding foreign patent applications which issue, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire from 2028 to 2032.

In addition to the protection afforded by patents, we seek to rely on trade secrets and know-how to develop and maintain our competitive position. We seek to protect our proprietary data and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and partners. These agreements are designed to protect our proprietary information, although we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. With respect to our proprietary GPCR structure determination technology platform, we consider trade secrets and know-how to be our primary intellectual property. Trade secrets and know-how can be difficult to protect. In particular, we anticipate that with respect to this GPCR structure determination technology platform, these trade secrets and know-how will over time be disseminated within the industry through independent development, the publication of journal articles describing methodology for crystallization of membrane proteins, and the movement of personnel skilled in the art from academic to industry scientific positions. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the US. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the US and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

Third-party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including interference and reexamination proceedings before the PTO or oppositions and other comparable proceedings in foreign jurisdictions. Numerous US and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others.

Third parties may assert that we are employing their proprietary technology without authorization. As a result of searching patent literature in support of patent protection and otherwise evaluating the patent landscape, we are aware of third-party patents, and third-party patent applications which may issue, with coverage that could be asserted with respect to mechanisms of action and uses or formulations of RPC4046, which if successful could materially affect any commercialization of RPC4046 contemplated by us, if RPC4046 is approved. Similarly, we are also aware of a third-party patent, and third-party patent applications which may issue, with respect to certain dosing regimens for S1P1R modulators. Such patent contains broad claims to administering an S1P receptor agonist (including for treatment of Multiple Sclerosis) at a dosage lower than the standard daily dosage, and then increasing the dosage to the standard daily dosage (including to ameliorate a negative chronotropic effect of the S1PR agonist). While we do not believe that any claims of such patent that could otherwise materially adversely affect commercialization of ozanimod (if approved) are valid and enforceable, we may be incorrect in this belief.

In addition, other patents may issue from third-party patent applications with respect to certain dosing regimens with coverage broader than any product candidate being developed by a party seeking such a patent, which could adversely affect our ability to commercialize ozanimod if ozanimod is approved, and if it is included within such coverage together with its dosing regimen. We are also aware of pending third-party patent applications with claims to broad generic structural formulas, which claims if issued in their broadest form could adversely affect commercialization of ozanimod, if ozanimod is approved. In addition, we are aware of a portfolio of patents and pending third party patent applications with respect to certain GPCR structure-based drug discovery and design technology. While we do not believe that any of the currently issued patents in such portfolio affect the manner in which we are utilizing our proprietary GPCR structure-based drug discovery and design technology, if a patent were to issue from any pending application in such portfolio with coverage affecting the manner in which we utilize such technology, our ability to utilize such technology or to use the results of any such utilization could be adversely affected. There may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. Third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patent were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patent may be able to block our ability to develop and commercialize such product candidate unless we obtain a license under the applicable patent or limit or modify our manufacturing process to avoid the coverage of the patent, or until such patent expires or is finally determined to be invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of the formulation of any of our product candidates or any method of use of any of our product candidates, including any therapy or patient selection methods, the holder of any such patent may be able to block our ability to develop and commercialize such product candidate unless we obtain a license under the applicable patent or limit or modify the formulation or use, or until such patent expires or is finally determined to be invalid or unenforceable. Where a license to a third-party patent is needed, such a license may not be available on commercially reasonable terms or at all.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement (which may include situations in which we had knowledge of an issued patent but nonetheless proceeded with activity which infringed such patent), obtain one or more licenses from third parties, limit our uses, pay royalties or redesign our infringing product candidates, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any required license would be available on commercially reasonable terms, if at all. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In such an event, we would be unable to further develop and commercialize any of our product candidates at issue, which could harm our business significantly.

Patent protection and patent prosecution for some of our product candidates is dependent on, and the ability to assert patents and defend them against claims of invalidity is maintained by, third parties.

While we normally seek and gain the right to prosecute fully the patents relating to our product candidates, there may be times when patents that relate to our product candidates are controlled by our licensors. The patent portfolio for our proprietary GPCR structure determination technology and a portion of the patent portfolio for ozanimod (including a composition of matter patent for ozanimod) are each in-licensed from TSRI. Although TSRI prosecutes and maintains the patent portfolio, we have the right to consult with TSRI on any action taken. With respect to the patent portfolio for RPC4046, which is in-licensed from AbbVie, AbbVie maintains rights to

prosecute and maintain patents and patent applications within the portfolio as well as to assert such patents against infringers within and outside the scope of our license and to defend such patents against claims of invalidity and unenforceability, although we have rights to consult with AbbVie on actions taken as well as back-up rights of prosecution and enforcement. If TSRI, AbbVie or any future licensor fails to appropriately prosecute and maintain patent protection for patents covering any of our product candidates, or if patents covering any of our product candidates are asserted against infringers or defended against claims of invalidity or unenforceability in a manner which adversely affects such coverage, our ability to develop and commercialize any such product candidate may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.

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

Competitors may infringe our patents or the patents of our licensors. 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 or one of our licensors is not valid or is unenforceable, or may refuse to stop the other party in such infringement proceeding 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 or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly, and could put any of our patent applications at risk of not yielding an issued patent.

Interference proceedings provoked by third parties or brought by the PTO or any foreign patent authority may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is offered at all. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees.

We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the US. 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. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. 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.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as in the US. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

If we breach any of the agreements under which we license the use, development and commercialization rights to our product candidates or GPCR structure determination technology from third parties, we could lose license rights that are important to our business.

The patent portfolio for our proprietary GPCR structure determination technology and a portion of the patent portfolio for ozanimod (including a composition of matter patent for ozanimod) are each in-licensed from TSRI. The patent portfolio for RPC4046 is in-licensed from AbbVie. Under our existing license agreements, we are subject to various obligations, including diligence obligations such as development and commercialization obligations, as well as potential royalty payments and other obligations. If we fail to comply with any of these obligations or otherwise breach our license agreements, our licensing partners may have the right to terminate the applicable license in whole or in part. Generally, the loss of any one of our current licenses, or any other license we may acquire in the future, could materially harm our business, prospects, financial condition and results of operations.

In particular, the loss of the license from TSRI to a portion of the patent portfolio for ozanimod, inasmuch as it includes a composition of matter patent for ozanimod, would materially adversely affect our ability to proceed with any development or potential commercialization of ozanimod. In addition, the loss of the license from AbbVie for RPC4046 would likely result in the termination of our efforts with respect to RPC4046.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:

•

others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have licensed;

•

we or our licensors or partners might not have been the first to make the inventions covered by an issued patent or pending patent application that we own or have exclusively licensed;

•

we or our licensors or partners might not have been the first to file patent applications covering an invention;

•

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

•

pending patent applications that we own or have licensed may not lead to issued patents;

•

issued patents that we own or have licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

•

our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

•

we may not develop or in-license additional proprietary technologies that are patentable; and

•

the patents of others may have an adverse effect on our business.

Should any of these events occur, they could significantly harm our business, results of operations and prospects.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the PTO and various governmental patent agencies outside of the US in

several stages over the lifetime of the patents and/or applications. We employ reputable law firms and other professionals and rely on such third parties to effect payment of these fees with respect to the patents and patent applications that we own, and we rely upon our licensors to effect payment of these fees with respect to the patents and patent applications that we license. The PTO and various non-US governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply with respect to the patents and patent applications that we own, and we rely upon our licensors to effect compliance with respect to the patents and patent applications that we license. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

In 2011, the Leahy-Smith America Invents Act (Leahy-Smith Act) was signed into law. The Leahy-Smith Act includes a number of significant changes to US patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The PTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, did not become effective until March 2013, 18 months after its enactment. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

We may be subject to claims that our employees or consultants have wrongfully used or disclosed alleged trade secrets of former or other employers.

Many of our employees and consultants, including our senior management and our scientific founders, have been employed or retained by other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees and consultants, including each member of our senior management and each of our scientific founders, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment or retention. Although we try to ensure that our employees and consultants 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 or consultants have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s or consultants former or other employer. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management or scientific founders, but in the future litigation may be necessary to defend against such 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 could result in substantial costs and be a distraction to management.

Intellectual property disputes could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and/or 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 market price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development

activities or any future sales, marketing or distribution 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 greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

If we do not obtain protection under the Hatch-Waxman Act and similar legislation outside of the US by extending the patent terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, if any, one or more US patents may be eligible for limited patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request.

We expect the composition of a matter patent for ozanimod in the US, if the appropriate maintenance, renewal, annuity or other governmental fees are paid and it withstands any challenge, would expire in 2029. It is possible, assuming ozanimod achieves regulatory approval in the US and a timely application is made, that the term of the composition of matter patent in the US may be extended up to a maximum of five additional years under the Hatch-Waxman Act. We expect the composition of matter patent for RPC4046 in the US if the appropriate maintenance, renewal, annuity or other governmental fees are paid and it withstands any challenge, to expire in 2028. It is possible, assuming RPC4046 achieves regulatory approval in the US and a timely application is made, that the term of the composition of matter patent in the US may be extended up to a maximum of five additional years under the Hatch-Waxman Act, although such an extension for RPC4046 is subject to AbbVie’s consent where AbbVie does not exercise its option to enter into a global collaboration for RPC4046 with us and we instead receive an exclusive worldwide license to RPC4046, and thus the possibility in such context that AbbVie utilizes such extension for a different drug.

If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.

Risks Related to Ownership of our Common Stock

The price of our stock may be volatile, and you could lose all or part of your investment.

The trading price of our common stock may at times be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report, these factors include:

•

actual or anticipated adverse results or delays in our clinical trials;

•

positive outcomes, or faster development results than expected, by parties developing product candidates that are competitive with our product candidates, as well as approval of any such competitive product candidates;

•

unanticipated serious safety concerns related to the use of any of our product candidates;

•

our failure to secure collaboration agreements for our product candidates or actual or perceived unfavorable terms of such agreements;

•

adverse regulatory decisions;

•

changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;

•

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

•

our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;

•

our dependence on third parties, including CROs as well as manufacturers;

•

our failure to successfully commercialize any of our product candidates, if approved;

•

additions or departures of key scientific or management personnel;

•

failure to meet or exceed any financial guidance or development timelines that we may provide to the public;

•

actual or anticipated variations in quarterly operating results;

•

failure to meet or exceed the estimates and projections of the investment community;

•

overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies;

•

conditions or trends in the biotechnology and biopharmaceutical industries;

•

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

•

our ability to maintain an adequate rate of growth and manage such growth;

•

issuances of debt or equity securities;

•

significant lawsuits, including patent or stockholder litigation;

•

sales of our common stock by us or our stockholders in the future;

•

trading volume of our common stock;

•

publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;

•

ineffectiveness of our internal controls;

•

general political and economic conditions;

•

effects of natural or man-made catastrophic events; and

•

other events or factors, many of which are beyond our control.

In addition, the stock market in general, and The NASDAQ Global Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.

We have broad discretion in the use of our cash and may not use it effectively.

Our management has broad discretion in the use of our cash and might not use it in ways that ultimately increase the value of your investment. If we do not invest or use our cash in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

We may be subject to securities litigation, which is expensive and could divert management attention.

The market price of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of February 16, 2015, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 41.1% of our outstanding stock. Therefore, these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine or significantly influence all matters requiring stockholder approval. For example, these stockholders may be able to control or significantly influence elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

Certain holders of shares of our common stock are entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. Such sales may result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock.

Pursuant to our equity incentive plan(s), our board of directors or compensation committee, and in certain instances (involving non-executive new hires) our chief executive officer and chief financial officer, are authorized to grant equity-based incentive awards to our employees, directors and consultants. As of December 31, 2014, 360,301 shares of our common stock were available for future grant under our 2013 Stock Plan. The number of shares of our common stock reserved for issuance under our 2013 Plan will be increased (i) from time to time by the number of shares of our common stock forfeited upon the expiration, cancellation, forfeiture, cash settlement or other termination of awards under our 2008 Stock Plan, and (ii) on January 1 of each year through January 1, 2023, by the lesser of (x) a number of additional shares of our common stock representing four percent of our then-outstanding shares of common stock and (y) another amount that our board of directors determines. As of December 31, 2014, the number of shares of our common stock available for future grant under our ESPP was 343,000. The number of shares of our common stock reserved for issuance

under our ESPP will be increased on January 1 of each year by the lesser of (x) a number of additional shares of our common stock representing one percent of our then-outstanding shares of common stock and (y) another amount that our board of directors determines. Future option grants and issuances of common stock under our 2013 Stock Plan or ESPP may have an adverse effect on the market price of our common stock.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management. These provisions:

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divide our board of directors into three classes, each serving staggered, three-year terms;

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authorize the board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock;

•

require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

•

specify that special meetings of our stockholders can be called only by the board of directors, the chairman of the board, or the chief executive officer;

•

establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors;

•

provide that directors may be removed only for cause;

•

establish the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain derivative actions or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, or any action asserting a claim governed by the internal affairs doctrine;

•

require the affirmative vote of holders of at least 66²⁄₃% of the total votes eligible to be cast in the election of directors to amend, alter, change or repeal our bylaws; and

•

provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.

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, which is responsible for appointing the members of our management. Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under Delaware law, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

We do not anticipate paying cash dividends and, accordingly, stockholders must rely on stock appreciation for any return on their investment.

We do not anticipate paying cash dividends in the future. As a result, only appreciation of the market price of our common stock, which may never occur, will provide a return to our stockholders. Investors seeking cash dividends should not invest in our common stock.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Our corporate headquarters and clinical development operations are located in San Diego, California, where we lease and occupy approximately 65,500 square feet of space. The ten-year lease term began in December 2014. We can terminate the lease after five and a half years, subject to payment of a lease termination fee as well as certain other costs. We have the option to extend the term of the lease for an additional five-year period with a base rent equal to the then market rate. We also have a right of first refusal with respect to an additional approximately 40,000 square feet of space in the same building. We believe that our existing facility is adequate for our current needs.

Item 3. Legal Proceedings.

We are not currently a party to any material legal proceedings.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock began trading on The NASDAQ Global Market on May 8, 2013 under the symbol “RCPT.” The following table sets forth the high and low sales prices per share of our common stock as reported on The NASDAQ Global Market for the periods indicated.


	Price Range
	High		Low
Year Ended December 31, 2014
First Quarter	$	55.00	$	28.20
Second Quarter	$	43.96	$	24.53
Third Quarter	$	67.35	$	33.52
Fourth Quarter	$	139.40	$	58.51
Year Ended December 31, 2013
Second Quarter (commencing May 8, 2013)	$	25.00	$	13.00
Third Quarter	$	29.03	$	15.21
Fourth Quarter	$	35.26	$	20.90

Holders of Record

As of February 16, 2015, there were approximately 25 holders of record of our common stock, which excludes stockholders whose shares were held in nominee or street name by brokers. The actual number of common stockholders is greater than the number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividend Policy

We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.

Performance Graph

The following graph shows a comparison from May 8, 2013 (the date our common stock commenced trading on the NASDAQ Global Market) through December 31, 2014 of the cumulative total return for our common stock, the NASDAQ Biotechnology Index (NBI) and the NASDAQ Composite Index (IXIC). The graph assumes an initial investment of $100 on May 8, 2013. The comparisons in the graph are not intended to forecast or be indicative of possible future performance of our common stock.

Comparison of Cumulative Return Since IPO

Assumes Initial Investment of $100

LOGO

Use of Proceeds

On May 8, 2013, we commenced our initial public offering pursuant to a Registration Statement on Form S-1 (File No. 333-187737) that was declared effective by the SEC on May 8, 2013. On May 14, 2013 and May 30, 2013, we sold 5,200,000 shares and 733,277 shares of our common stock, respectively, to the public at a price of $14.00 per share for an aggregate gross offering price of $83,065,878, or net proceeds of approximately $75.0 million after deducting underwriting discounts and commissions and offering costs.

As of December 31, 2014, we have used all of the net proceeds from our initial public offering. We used the net proceeds to fund continued development of our product candidate ozanimod in ongoing clinical trials for relapsing multiple sclerosis and ulcerative colitis, development of our in-licensed product candidate RPC4046 in a clinical trial for eosinophilic esophagitis, other ongoing preclinical and research programs, and working capital and other general corporate purposes, including costs and expenses associated with being a public company. We cannot specify with certainty all of the particular uses for the net proceeds from our initial public offering.

Item 6. Selected Financial Data.

Set forth below are our selected consolidated financial data (in thousands, except per share amounts):


	Year ended December 31,
	2014			2013			2012			2011
Statements of operations:
Collaborative revenue	$	5,900		$	4,641		$	8,647		$	9,232
Operating expenses:
Research and development expenses		101,663			43,585			22,927			12,803
General and administrative expenses		15,807			8,949			3,430			2,756

Total operating expenses		117,470			52,534			26,357			15,559

Loss from operations		(111,570	)		(47,893	)		(17,710	)		(6,327	)
Foreign currency loss		(2,949	)		—			—			—
Other (expense) income, net		(451	)		(427	)		—			217

Net loss		(114,970	)		(48,320	)		(17,710	)		(6,110	)
Preferred stock deemed dividend		—			(2,056	)		—			—

Net loss attributable to common stockholders	$	(114,970	)	$	(50,376	)	$	(17,710	)		(6,110	)

Net loss per common share, basic and diluted ⁽¹⁾	$	(4.63	)	$	(4.23	)	$	(13.73	)	$	(7.72	)

Shares used to compute basic and diluted net loss per common share ⁽¹⁾		24,827			11,916			1,289			791

⁽¹⁾

See Note 2 of our notes to consolidated financial statements appearing elsewhere in this Annual Report for an explanation of the method used to calculate basic and diluted net loss per common share and the number of shares used in the computation of the per share data.


	December 31,
	2014			2013			2012			2011
Consolidated balance sheet data:
Cash, cash equivalents and short-term investments	$	671,929		$	69,490		$	5,427		$	11,336
Working capital		647,012			54,263			(6	)		5,172
Total assets		678,007			71,228			6,903			12,899
Total long-term debt and other obligations, net of current portion		—			4,292			928			1,618
Convertible preferred stock		—			—			39,816			27,260
Additional paid-in capital		860,384			146,680			7,604			7,310
Accumulated deficit		(210,879	)		(95,909	)		(47,589	)		(29,879	)
Total stockholders’ equity (deficit)		649,487			50,795			(39,983	)		(22,567	)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk Factors” included elsewhere in this Annual Report.

Overview

developing our lead asset, ozanimod, as an oral therapy for the treatment of Relapsing Multiple Sclerosis (RMS) and Inflammatory Bowel Disease (IBD), which consists of Ulcerative Colitis (UC) and Crohn’s Disease (CD). We are developing our second asset, RPC4046, for the treatment of an allergic/immune-mediated disorder, Eosinophilic Esophagitis (EoE), which is an Orphan Disease. Our strategy is to develop best-in-class (by mechanism of action) drug candidates and selectively pursue first-in-class (based on projected timing of approval) market positions. The mechanism of action for each of our product candidates has been validated in one or more immunology indications. Ozanimod was selected for pharmaceutic properties with potential to demonstrate best-in-class differentiation in RMS. In IBD and EoE, our product candidates ozanimod and RPC4046, respectively, have the potential to be the first in their respective classes to be approved.

Since our inception, we have focused our attention on, and devoted substantial resources to, developing ozanimod and RPC4046. We are currently focusing on three indications for ozanimod, one of which is currently the subject of two Phase 3 studies and the others for which Phase 3 studies are planned. We have also initiated a randomized Phase 2 study of RPC4046. In addition, we have a research program developing oral, small molecule, positive allosteric modulators (PAMs) of the glucagon-like peptide-1 receptor (GLP-1R) for the treatment of Type 2 Diabetes.

We have entered into various collaboration arrangements and a license arrangement related to our G protein-coupled receptor (GPCR) structure-based drug design technology platform, all of which, except for one, have been completed or terminated. Under these agreements we received upfront payments, license fees, research and development funding and research and/or development milestones. We have not generated any revenue from product sales. Through December 31, 2014, we have funded our operations primarily through the sale of our stock and through the receipt of upfront payments, research funding and preclinical milestones from our collaboration arrangements.

We have incurred significant operating losses since our inception in 2008 and, as of December 31, 2014, we had an accumulated deficit of $210.9 million. Substantially all of our operating losses resulted from expenses incurred in connection with our drug candidate development programs, our research activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. In the near term, we anticipate that our expenses will increase substantially as we:

•

advance the current Phase 3 studies of ozanimod in RMS;

•

advance the current Phase 2 study, and prepare for and initiate our planned Phase 3 study of ozanimod in UC;

•

prepare for and initiate a Phase 3 study of ozanimod in CD;

•

advance our current Phase 2 study of RPC4046 in EoE;

•

advance our GLP-1R PAM program through preclinical development;

•

continue research efforts;

•

maintain, expand and protect our intellectual property portfolio; and

•

hire additional staff, including clinical, scientific, operational, financial and management personnel.

To fund future operations we will likely need to raise additional capital. Our existing cash, cash equivalents and short-term investments will not be sufficient for us to commercialize any product candidate which may receive approval. Accordingly, we will continue to require substantial additional capital for our clinical development and potential commercialization activities. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources, such as potential collaboration arrangements. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategies.

Financial Operations Overview

Revenues

Our revenues to date had been generated from payments under various collaborative research and development arrangements and a license agreement with pharmaceutical and biotechnology companies, all of which except for one have been completed or terminated. Under our arrangements, we received upfront payments, license fees and, research and development funding, In addition we received payments upon achievement of certain research, development and technology transfer milestones. Certain milestone payments have been based solely upon our counterparty’s performance.

In the future, we may generate revenue from a combination of product sales as well as upfront payments, license fees, research and development funding, milestone payments and royalties pursuant to collaborative agreements. We expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing and amount of any upfront payments, license fees, research and development funding, milestone and other payments we may receive pursuant to any collaborative agreements, and the payments we may receive upon the sale of our product candidates, to the extent that any are approved and successfully commercialized.

Research and development expenses

Research and development (R&D) expenses primarily consist of costs associated with our research activities, including our drug discovery efforts, and the preclinical and clinical development of our product candidates. Our R&D expenses include:

•

external R&D expenses incurred under arrangements with third parties, such as contract research organizations (CROs), consultants and our scientific advisory board;

•

employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;

•

license and royalty fees; and

•

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

We expense R&D costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future R&D activities as expenses when the services have been performed or when the goods have been received. We do not track our employee and facility related R&D costs by project, as we typically use our employee and infrastructure resources across multiple R&D programs as well as to provide support for our collaborative agreements with third parties. We believe that the allocation of such costs would be arbitrary and would not be meaningful.

To date, we have conducted research on two classes of GPCR-targeted therapeutics, sphingosine 1-phosphate 1 receptor (S1P1R) modulators and glucagon-like-peptide-1 receptor (GLP-1R) positive allosteric modulators (PAMs), including through the utilization of our GPCR technology platform, with the goal of identifying product candidate characteristics that may lead to best-in-class profiles. Our development is focused on three indications for our lead asset ozanimod, one of which is currently the subject of two Phase 3 studies and the others of which are in the planning stages for Phase 3 studies. In the near future, we anticipate the majority of our financial resources will continue to be dedicated to development of ozanimod. We have also initiated clinical development for an in-licensed asset, RPC4046, and we are advancing our GLP-1R PAM program through preclinical development. We expect our R&D expenses to increase for the foreseeable future as we advance our clinical and preclinical development programs.

During the first quarter of 2011, we began tracking external development costs once our lead product candidate development program entered the clinical stage. Such costs were not significant prior to that time.

From the beginning of 2011 through December 31, 2014, costs associated with developing ozanimod have been our largest research-related expenditure, representing 67.5% of our total R&D expenses. Such costs totaled $71.9 million, or 70.8% of R&D expenses, for the year ended December 31, 2014. We have contracted with a CRO to manage our clinical trials under an agreed upon budget for each study, with oversight by our clinical program managers. Any deviations from the budgets must be approved by us in writing, prior to commencement of the work. Our internal R&D costs are controlled through our internal budget and forecast process and subject to quarterly review and analysis of budget versus actual expenditures.

The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:

•

per patient trial costs;

•

the number of sites included in the trials;

•

the countries in which the trials are conducted;

•

the length of time required to enroll eligible patients;

•

the number of patients that participate in the trials;

•

the number of doses that patients receive;

•

the cost of comparative agents used in trials;

•

the drop-out or discontinuation rates of patients;

•

potential additional safety monitoring or other studies requested by regulatory agencies;

•

the duration of patient follow-up; and

•

the efficacy and safety profile of the product candidate.

We are responsible for all of the R&D costs for the ozanimod and GLP-1R PAM programs, unless and to the extent that we partner these programs in the future. We are responsible for the Phase 2 development costs for RPC4046 in EoE and, depending upon whether AbbVie Bahamas Ltd. and AbbVie Inc., which we refer to together as AbbVie, elects to exercise its option to collaborate with us following the availability of Phase 2 results, we may be responsible for half or all of the development costs for RPC4046 in the future. Under our agreement with Ono, we were responsible for assisting Ono with technology transfer regarding our GPCR technology platform, however Ono has full responsibility for advancing any development candidate.

Our lead product, ozanimod, is in late stage clinical development for three indications, RMS, UC and CD, and our second clinical product, RPC4046, is the subject of a Phase 2 study in EoE. Our GLP-1R PAM research program is at the stage of lead series determination. Successful development of current and future product candidates from our clinical development and research programs is highly uncertain. Completion dates and completion costs for our clinical development programs as well as our research program can vary significantly for each current and future product candidate and are difficult to predict. We therefore cannot estimate with any degree of certainty the costs we will incur in connection with development of our product candidates. We anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of research programs, the results of ongoing and future clinical trials, and our ability to enter into collaborative agreements with respect to each program or potential product candidate, as well as ongoing assessments as to each current or future product candidate’s commercial potential. We will need to raise substantial additional capital and may seek collaborative agreements in the future in order to advance our various programs.

General and administrative expenses

General and administrative (G&A) expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, corporate development and support functions. Other

G&A expenses include allocated facility-related costs not otherwise included in R&D expenses, travel expenses and professional fees for audit, tax, patent costs and legal services.

We expect that G&A expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly traded company and complying with exchange listing and Securities and Exchange Commission requirements, including the additional complexities and related costs of our transition at the beginning of 2015 from an “emerging growth company” to a “large accelerated filer” under the rules of the SEC. These increases will likely include higher legal fees, accounting fees, directors’ and officers’ liability insurance premiums and fees associated with investor relations activities.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with generally accepted accounting principles in the US (GAAP). The preparation of these consolidated 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 consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on 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. Our actual results may differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

Clinical Trial Accruals

We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on the facts and circumstances known to us at that time. Our expense accruals for clinical trials are based on estimates of the fees associated with services provided by clinical trial investigational sites and CROs. Payments under some of the contracts we have with such parties depend on factors such as successful enrollment of patients, site initiation and the completion of clinical trial milestones. 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 possible, we obtain information regarding unbilled services directly from these service providers. However, we may be required to estimate these services based on other information available to us. If we underestimate or overestimate the activity or fees associated with a study or service at a given point in time, adjustments to R&D expenses may be necessary in future periods. Historically, our estimated accrued expenses have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in our accruals.

Stock-Based Compensation

We account for stock-based compensation expense related to stock options granted to employees and members of our board of directors by estimating the fair value of each stock option on the date of grant using the Black-Scholes options-pricing model. In estimating fair value for options issued under the 2013 Plan, expected volatility was based on historical volatility of comparable publicly-traded companies. As our historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term, we used the simplified method. Expected life is calculated in two tranches based on the employment level defined as director or employee. The risk-free rate used in calculating fair value of stock options for periods within the expected term of the option is based on the U.S. Treasury yield bond curve in effect on the date of grant. For awards subject to time-based vesting conditions, we recognize stock-based compensation expense using the

straight-line method. In accordance with the authoritative accounting literature, our options subject to both performance and time-based vesting conditions are expensed using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), we recognize compensation expense over the requisite service period for each separately vesting tranche of the award as though the award was in substance multiple awards, resulting in accelerated expense recognition during the earlier vesting periods.

We account for stock options granted to non-employees, which primarily consists of founders and members of our scientific advisory board, using the fair value approach. Stock options granted to non-employees are subject to periodic revaluation over their vesting terms.

Results of Operations

The period-to-period comparison of our consolidated financial results below is not necessarily indicative of consolidated financial results that will be achieved in future periods.

Comparison of Fiscal Years Ended December 31, 2014 and 2013

The following table summarizes the results of our operations for the years ended December 31, 2014 and 2013 (in thousands):


	December 31,				Increase (Decrease)
	2014		2013		Increase (Decrease)
Collaborative revenue	$	5,900	$	4,641	$	1,259
Research and development expenses		101,663		43,585		58,078
General and administrative expenses		15,807		8,949		6,858
Foreign currency loss		2,949		—		2,949
Deemed dividend		—		2,056		(2,056	)

Collaborative Revenue. The following table summarizes our sources of revenue for the periods indicated (in thousands):


Partner	Upfront Fees and Non- Substantive Milestone Payments		Milestone Payments		Research & Development Funding Payments		Total Revenue
Ono Pharmaceutical Co., Ltd.	$	5,650	$	250	$	—	$	5,900

Total for the year ended December 31, 2014	$	5,650	$	250	$	—	$	5,900

Ono Pharmaceutical Co., Ltd.	$	1,680	$	250	$	2,711	$	4,641

Total for the year ended December 31, 2013	$	1,680	$	250	$	2,711	$	4,641

Collaborative revenues was $5.9 million for the year ended December 31, 2014, compared to $4.6 million for the year ended December 31, 2013. Revenue during these periods consisted primarily of amortization of upfront fees and milestone payments, which were recognized over our estimated period of performance, and R&D funding received from our collaborative arrangements. In August 2014, we received notice that all deliverables specified by the amended agreement between Ono and us had been satisfied in full. The increase in our collaborative revenue during 2014 in comparison to the prior year reflects the recognition of all previously deferred revenue associated with this collaboration, as well as recognition of a $1.3 million non-substantive technology transfer milestone payment received from Ono. We do not have any active collaborations, however we are eligible to receive potential future milestone payments.

Research and Development Expenses. The following table summarizes our R&D expenses for the periods indicated (in thousands):


	December 31,				Increase
	2014		2013		Increase
Third-party clinical trial costs:
ozanimod — RMS study costs	$	60,949	$	25,482	$	35,467
ozanimod — UC study costs		10,988		5,908		5,080
RPC4046 — EoE study costs		3,394		478		2,916

Total external clinical trial costs		75,331		31,868		43,463
Unallocated R&D costs		26,332		11,717		14,615

Total R&D expenses	$	101,663	$	43,585	$	58,078

R&D expenses were $101.7 million for the year ended December 31, 2014, compared to $43.6 million for the same period of 2013. The increase in R&D costs is primarily related to increased activity in of our clinical development programs.

General and Administrative Expenses. G&A expenses were $15.8 million for the year ended December 31, 2014, compared to $8.9 million for the same period of 2013. The increase in G&A expenses is primarily related to a $5.0 million increase in personnel costs of which $4.0 million relates to additional stock-based compensation, and additional expenditures associated with being a publicly traded company, including consulting costs, accounting fees and insurance.

Foreign Currency Loss. We maintain a Swiss franc denominated bank account for purposes of settling certain obligations arising outside the United States. We recognized net foreign currency losses of $2.9 million for the year ended December 31, 2014. This loss primarily reflects the impact of declining foreign exchange rates during the second half of 2014 on our Swiss franc denominated bank account. We did not maintain such bank account in 2013.

Deemed Dividend. On March 27, 2013, pursuant to the terms of the Series B Preferred Stock Purchase Agreement dated February 3, 2012, we closed the sale of 8.2 million shares of Series B Convertible Preferred Stock, at $1.03 per share, for aggregate net proceeds of $8.4 million. The shares issued in this financing were sold at a price per share below the reassessed deemed fair value of our common stock at that time. Accordingly, we recorded a deemed dividend charge of $2.1 million in the first quarter of 2013 associated with the issuance of such shares, which is equal to the number of shares of Series B Convertible Preferred Stock sold on that date multiplied by the difference between the estimated value of the underlying common stock and the Series B conversion price per share on that date. There was no similar charge during 2014.

Comparison of Fiscal Years Ended December 31, 2013 and 2012

The following table summarizes the results of our operations for the years ended December 31, 2013 and 2012 (in thousands):


	December 31,				Increase/ (Decrease)
	2013		2012		Increase/ (Decrease)
Collaborative revenue	$	4,641	$	8,647	$	(4,006	)
Research and development expenses		43,585		22,927		20,658
General and administrative expenses		8,949		3,430		5,519
Deemed dividend		2,056		—		2,056

Collaborative Revenue. The following table summarizes our sources of revenue for each of the periods indicated (in thousands):


Partner	Upfront Fees and Non- Substantive Milestone Payments		Milestone Payments		Research & Development Funding Payments		Total Revenue
Ono Pharmaceutical Co., Ltd	$	1,680	$	250	$	2,711	$	4,641

Total for the year ended December 31, 2013	$	1,680	$	250	$	2,711	$	4,641

Ono Pharmaceutical Co., Ltd	$	1,537	$	2,000	$	2,551	$	6,088
Eli Lilly and Company		2,480		—		—		2,480
Ortho-McNeil-Janssen		—		79		—		79

Total for the year ended December 31, 2012	$	4,017	$	2,079	$	2,551	$	8,647

Collaborative revenue was $4.6 million for the year ended December 31, 2013, compared to $8.6 million for the year ended December 31, 2012. Revenue during these periods consisted primarily of amortization of upfront fees and milestone payments, which were recognized over the estimated period of performance, and R&D funding received from our collaborative arrangements. Our 2012 results include the recognition of $2.5 million of upfront payments under our contract with Lilly, which was completed in December 2012. The decrease in our collaborative revenue in 2013 in comparison to the prior year reflects the completion of this contract which more than offset the increase in revenue received under our collaborative arrangement with Ono. Additionally, our 2012 results reflect the recognition of $2.0 million in substantive milestones under our agreement with Ono, compared to $250,000 recognized in 2013.

Research and Development Expenses. The following table summarizes our R&D expenses for the periods indicated (in thousands):


	December 31,				Increase
	2013		2012		Increase
Third-party clinical trial costs
ozanimod – RMS study costs	$	17,152	$	6,998	$	10,154
ozanimod – UC study costs		5,908		2,181		3,727
ozanimod – Joint development study costs		8,329		4,626		3,703

Total external clinical trial costs		31,389		13,805		17,584
Unallocated R&D costs		12,196		9,122		3,074

Total R&D expenses	$	43,585	$	22,927	$	20,658

R&D expenses were $43.6 million for the year ended December 31, 2013, compared to $22.9 million for the year ended December 31, 2012. The increase in R&D costs is primarily related to increased Phase 2 trial activity and Phase 3 startup costs for our Phase 2/3 trial of ozanimod in RMS, and commencement of the Phase 2 trial of ozanimod in UC.

General and Administrative Expenses. G&A expenses were $8.9 million for the year ended December 31, 2013, compared to $3.4 million for the year ended December 31, 2012. The increase in G&A expenses is primarily related to the expansion of our operating activities and costs associated with being a publicly-traded company, and is comprised of an increase in personnel costs related to additional headcount, additional stock-based compensation expense of $1.6 million, and additional expenditures on outside services, including consulting costs, legal and accounting fees, market research and insurance.

Deemed Dividend. On March 27, 2013, pursuant to the terms of the Series B Preferred Stock Purchase Agreement dated as of February 3, 2012, we closed a third tranche financing for 8.2 million shares of Series B Convertible Preferred Stock, at $1.03 per share, for aggregate net proceeds of $8.4 million. The Series B Convertible Preferred Stock issued in the third tranche financing was sold at a price per share below the reassessed deemed fair value of our common stock at that time. Accordingly, we recorded a deemed dividend charge of $2.1 million in the first quarter of 2013 associated with the issuance of such shares, which is equal to the number of shares of Series B Convertible Preferred Stock sold on that date multiplied by the difference between the estimated value of the underlying common stock and the Series B conversion price per share on that date.

Liquidity and Capital Resources

Overview

We have incurred losses since our inception and negative cash flows from operating activities since our inception and, as of December 31, 2014, we had an accumulated deficit of $210.9 million and cash, cash equivalents and short-term investments of $671.9 million. At December 31, 2014, none of our available-for-sale securities was in a material unrealized loss position. We reviewed our investment holdings as of December 31, 2014 and determined that our unrealized losses were not considered to be other-than-temporary based upon (i) the financial strength of the issuing institution and (ii) the fact that all securities have been in an unrealized loss position for less than 12 months. As such, we have not recognized any such impairment in our financial statements. We did not realize any significant gains or losses on sales of available-for-sale securities for the year ended December 31, 2014. The fair value of our financial instruments is obtained from quoted market prices, and/or calculated price or quotes from third-party pricing services. We validate fair value through independent valuation testing and review of portfolio valuations provided by our investment managers.

We anticipate that we will continue to incur net losses into the foreseeable future as we: (i) continue the development and commercialization of our drug candidates; (ii) work to develop additional drug candidates through research and development programs; and (iii) expand our corporate infrastructure to support our growth. We plan to continue to fund losses from operations and capital funding needs through future debt and equity financing, as well as potential additional collaborations. The sale of additional equity or convertible debt could result in additional dilution to our stockholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations. No assurances can be provided that financing will be available in the amounts we need or on terms acceptable to us, if at all. If we are not able to secure adequate additional funding we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs.

Based on our current business plan, we believe that our existing cash, cash equivalents and short-term investments will be sufficient to fund our operations for at least the next 12 months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations may differ materially from actual results.

Cash Flows

The following table summarizes our cash flows for the fiscal years ended December 31, 2014, 2013 and 2012 (in thousands):


	December 31,
	2014			2013			2012
Net cash provided by (used in):
Operating activities	$	(92,249	)	$	(36,827	)	$	(18,418	)
Investing activities		(170,611	)		(45,813	)		(214	)
Financing activities		697,333			101,018			12,723

Net increase (decrease) in cash and cash equivalents	$	434,473		$	18,378		$	(5,909	)

Operating Activities. Net cash used in operating activities was $92.2 million for the year ended December 31, 2014, compared to $36.8 million used during the same period of the prior year, an increase of $55.4 million. The increase in net cash used in operating activities was primarily due to a $66.7 million higher net loss for the year ended December 31, 2014 compared to the same period of the prior year, partially offset by increases in non-cash stock-based compensation expense of $8.2 million and increases of approximately $2.9 million in net operating liabilities. During the years ended December 31, 2014, 2013, and 2012, the primary use of cash was to fund our clinical trial and other R&D activities. The increase in R&D costs year over year is a result of increased activity in each of our clinical development activities.

Investing Activities. During the years ended December 31, 2014 and 2013, net cash used in investing activities was $170.6 million and $45.8 million, respectively. During 2014, we made net purchases of marketable securities of $170.0 million with a portion of the proceeds from our secondary offerings of common stock in January, June and November of 2014. During that same time period, we also purchased $0.6 million in equipment to further support our research and development activities. During 2013, we purchased $45.7 million of marketable securities with a portion of the proceeds from our IPO in May 2013. Investing activities during 2012 represented equipment purchased to further support our R&D activities.

Financing Activities. During the years ended December 31, 2014 and 2013, net cash provided by financing activities was $697.3 million and $101.0 million, respectively. During the year ended December 31, 2014, the net cash provided by financing activity was primarily attributable to the net proceeds from three secondary offerings of our common stock which occurred in January, June and November of 2014, totaling $701.6 million in net proceeds, after giving effect to accrued offering costs at December 31, 2014 of approximately $0.3 million, partially offset by $5.3 million used to repay our borrowings under our term loan. During 2013, net cash provided by financing activities was primarily attributable to $75.0 million in net proceeds of our IPO. In 2013 we also raised $21.2 million from the sale of Series B Convertible Preferred Stock (which later converted into common stock in connection with our IPO) and $5.0 million from borrowings under our term loan arrangement with MidCap. During 2012, we generated proceeds of $12.6 million from the sale of Series B Convertible Preferred Stock and additional proceeds of $0.2 million from the exercise of stock options and common stock warrants.

Off-Balance Sheet Arrangements

Through December 31, 2014, we have not entered into and did not have any relationships with unconsolidated entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose.

Contractual Obligations

The following table summarizes our long-term contractual obligations as of December 31, 2014 (in thousands):


	Total		Less Than 1 Year		1 to 3 Years		3 to 5 Years		More Than 5 Years
Operating lease obligation related to facility	$	17,613	$	494	$	3,429	$	3,638	$	10,052
Study drug obligation		21,248		21,248		—		—		—
Other long-term obligations		10,618		10,618		—		—		—

Total	$	49,479	$	32,360	$	3,429	$	3,638	$	10,052

Recent Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued accounting guidance on the recognition of revenue from customers that supersedes most current revenue recognition guidance, including

industry-specific guidance. The guidance provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The guidance allows for either full retrospective or modified retrospective adoption and will become effective for us in the first quarter of 2017. We are evaluating the alternative transition methods and the potential effects of the adoption of this update on our financial statements.

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

In June 2014, the FASB issued an accounting standards update (ASU), which updated the guidance on performance stock awards. The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early application is permitted. We do not expect the application of the updated guidance will have a material impact on our financial position, results of operations or cash flows.

Presentation of Financial Statements—Going Concern

In August 2014, the FASB issued an ASU, which requires management of public and private companies to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that fact. Management will be required to make this evaluation for both annual and interim reporting periods, if applicable. Management is also required to evaluate and disclose whether its plans alleviate that doubt. The standard is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. We do not believe the adoption of this standard will have a material impact on our financial position, results of operations or related financial statement disclosures.

Income Statement—Extraordinary and Unusual

In January 2015, the FASB issued an ASU which eliminates the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We do not believe the adoption of this standard will have a material impact on our financial position, results of operations or related financial statement disclosures.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Fluctuation Risk

Some of the securities in which we invest have market risk in that a change in prevailing interest rates may cause the principal amount of the marketable securities to fluctuate. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. We invest our cash primarily in commercial paper and debt instruments of financial institutions, corporations, US government-sponsored agencies and the US Treasury. The primary objectives of our investment activities are to ensure liquidity and to preserve principal while at the same time maximizing the income we

receive from our marketable securities without significantly increasing risk. We have established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity. Because of the short-term maturities of our cash equivalents and marketable securities, we do not believe that an increase in market rates would have any significant impact on the realized value of our marketable securities. If a 100 basis point change in interest rates were to have occurred on December 31, 2014, the fair value of our investment portfolio as of that date could have changed by approximately $1.4 million.

Foreign Currency Exchange Risk

We contract with CROs and investigational sites in several foreign countries, including countries in Eastern and Western Europe and the Asian Pacific. In addition, we purchase certain supplies outside the US, including comparator drug supply for our Phase 3 program in RMS. We are therefore subject to fluctuations in foreign currency rates in connection with these agreements. We have elected to manage a portion of these cash flow exposures through the purchase of Swiss francs. Our Swiss franc holdings are marked to market at the end of each period and any change is recorded as gains or losses in the consolidated statements of operations and comprehensive loss. As of December 31, 2014 we held $30.3 million in Swiss francs. A 10% change in the exchange rate existing at December 31, 2014 would have increased/decreased our unrealized foreign currency loss on our Swiss franc holdings by approximately $3.0 million.

Inflation Risk

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our business, financial condition or results of operations during the years ended December 31, 2014, 2013 or 2012.

Item 8. Financial Statements and Supplementary Data.

The consolidated financial statements required pursuant to this item are included in Item 15 of this report and are presented beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the requirements of the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2014, the end of the period covered by this report. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2014.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2014.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our independent registered public accounting firm has audited the effectiveness of our internal control over financial reporting as of December 31, 2014, as stated in their attestation report which is included below.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. During the quarter ended December 31, 2014, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Receptos, Inc.

We have audited Receptos, Inc. internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Receptos, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made

only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Receptos, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Receptos, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive loss, consolidated statements of convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2014 of Receptos, Inc. and our report dated March 2, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

San Diego, California

March 2, 2015

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item and not set forth below will be set forth in the section headed “Election of Directors” and “Executive Officers” in our Proxy Statement for our 2015 Annual Meeting of Stockholders, or Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2014, and is incorporated herein by reference.

We have adopted a code of ethics for directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our website at http://www.receptos.com under the Corporate Governance section of our Investor Relations page. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals that is required to be disclosed pursuant to SEC rules and regulations, the name of such person who is granted the waiver and the date of the waiver.

Item 11. Executive Compensation.

The information required by this item will be set forth in the section headed “Executive Compensation” in our Proxy Statement and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item will be set forth in the section headed “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement and is incorporated herein by reference.

The information required by Item 201(d) of Regulation S-K will be set forth in the section headed “Executive Compensation” in our Proxy Statement and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item will be set forth in the section headed “Transactions With Related Persons” in our Proxy Statement and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

The information required by this item will be set forth in the section headed “Ratification of Selection of Independent Registered Public Accounting Firm” in our Proxy Statement and is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

Financial Statements. We have filed the following documents as part of this Annual Report:


	Page
Report of Independent Registered Public Accounting Firm		F-2
Balance Sheets		F-3
Statements of Operations and Comprehensive Loss		F-4
Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)		F-5
Statements of Cash Flows		F-6
Notes to Financial Statements		F-7

Financial Statement Schedules. No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.

Exhibits


Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed June 20, 2013).

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed June 20, 2013).

4.1		Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.2		Third Amended and Restated Investors’ Rights Agreement, dated February 3, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.3		Omnibus Approval and Amendment with Respect to Series B Preferred Stock Purchase Agreement and Third Amended and Restated Investors’ Rights Agreement, dated February 23, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.4 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.4		Omnibus Approval and Amendment with Respect to Series B Preferred Stock Purchase Agreement and Third Amended and Restated Investors’ Rights Agreement, dated March 6, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.5		Approval with Respect to Series B Preferred Stock Purchase Agreement, dated March 6, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.6 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.6		Third Amended and Restated Right of First Refusal and Co-Sale Agreement, dated February 3, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.7 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).



4.7		Form of Omnibus Acknowledgment and Agreement with Respect to Potential Initial Public Offering, dated April 18, 2013, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.8 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.1#		Form of Indemnification Agreement between Receptos, Inc. and its officers and directors (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.2#		2008 Stock Plan, as amended to date (incorporated by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.3#		Form of Stock Option Agreement for options granted under 2008 Stock Plan (incorporated by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.4#		Form of Stock Option Agreement—Early Exercise for options granted under 2008 Stock Plan (incorporated by reference to Exhibit 10.4 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.5#		2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.6#		Form of Non-Qualified Stock Option Agreement and Form of Restricted Stock Agreements for awards granted under the 2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.7#		Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.7 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.8		Lease, dated August 24, 2007, between Apoptos, Inc. (predecessor to Receptos, Inc.) and BMR-10835 Road to the Cure, LLC (incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.9		First Amendment to Lease, dated March 30, 2008, by and between Apoptos, Inc. (predecessor to Receptos, Inc.) and BMR-10835 Road to the Cure, LLC (incorporated by reference to Exhibit 10.9 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.10		Second Amendment to Lease, dated May 11, 2009, by and between Apoptos, Inc. (predecessor to Receptos, Inc.) and BMR-10835 Road to the Cure, LLC (incorporated by reference to Exhibit 10.10 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.11		Amended and Restated Second Amendment to Lease, dated September 15, 2009, by and between Apoptos, Inc. (predecessor to Receptos, Inc.) and BMR-10835 Road to the Cure, LLC (incorporated by reference to Exhibit 10.11 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.12		Assignment, dated June 8, 2010, by and between Apoptos, Inc. and Receptos, Inc. (incorporated by reference to Exhibit 10.12 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).



10.13		Third Amendment to Lease, dated January 6, 2012, by and between Receptos, Inc. and BMR Road to the Cure, LP (successor-in-interest to BMR-10835 Road to the Cure, LLC) (incorporated by reference to Exhibit 10.13 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.14		Fourth Amendment to Lease, dated September 30, 2013, by and between Receptos, Inc. and BMR Road to the Cure, LP (successor-in-interest to BMR-10835 Road to the Cure, LLC) (incorporated by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-193074), originally filed on December 24, 2013).

10.15†		License Agreement, dated June 18, 2009, by and between Receptos, Inc. and The Scripps Research Institute (incorporated by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.16†		First Amendment to License Agreement, dated June 13, 2011, by and between Receptos, Inc. and The Scripps Research Institute (incorporated by reference to Exhibit 10.15 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.17†		Amendment to License Agreement, dated April 2, 2012, by and between Receptos, Inc. and The Scripps Research Institute (incorporated by reference to Exhibit 10.16 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.18†		License Agreement, dated April 21, 2009, by and between Receptos, Inc. (formerly known as Receptor Pharmaceuticals, Inc.) and The Scripps Research Institute (incorporated by reference to Exhibit 10.17 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.19†		Collaboration Agreement, dated December 20, 2010, by and between Receptos, Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 10.18 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.20†		First Amendment to Collaboration Agreement, dated March 14, 2011, by and between Receptos, Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 10.19 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.21†		Second Amendment to Collaboration Agreement, dated March 1, 2011, by and between Receptos, Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 10.20 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.22†		License and Technology Transfer Agreement, dated December 28, 2010, by and between Receptos, Inc. and Ortho- McNeil-Janssen Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.21 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.23†		Collaboration Agreement, dated December 5, 2011, by and between Receptos, Inc. and Ono Pharmaceutical Co., Ltd. (incorporated by reference to Exhibit 10.22 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.24†		Development License and Option Agreement, dated October 3, 2012, by and among Receptos, Inc., AbbVie Bahamas Ltd. and AbbVie Inc. (incorporated by reference to Exhibit 10.23 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).



10.25		First Amendment to Development License and Option Agreement, dated January 28, 2013, by and among Receptos, Inc., AbbVie Bahamas Ltd. and AbbVie Inc. (incorporated by reference to Exhibit 10.24 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.26#		Restricted Stock Issuance Agreement, dated November 19, 2010, between Receptos, Inc. and Faheem Hasnain (incorporated by reference to Exhibit 10.32 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.27#		Restricted Stock Issuance Agreement, dated July 30, 2009, between Receptos, Inc. and Robert J. Peach (incorporated by reference to Exhibit 10.35 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.28#		Restricted Stock Issuance Agreement, dated July 30, 2009, between Receptos, Inc. and Marcus F. Boehm (incorporated by reference to Exhibit 10.36 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.29#		Amended and Restated Consulting Agreement, dated January 24, 2013, between Receptos, Inc. and Edward Roberts (incorporated by reference to Exhibit 10.37 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.30#		Amended and Restated Consulting Agreement, dated January 24, 2013, between Receptos, Inc. and Hugh Rosen (incorporated by reference to Exhibit 10.38 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.31#		Credit and Security Agreement, dated April 19, 2013, between Receptos, Inc., Apoptos, Inc. and MidCap Funding III, LLC (incorporated by reference to Exhibit 10.40 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.32#		Pledge Agreement, dated April 19, 2013, between Receptos, Inc. and MidCap Funding III, LLC (incorporated by reference to Exhibit 10.41 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.33#		Secured Promissory Note, dated April 19, 2013, issued by Receptos, Inc. and Apoptos, Inc. to MidCap Funding III, LLC (incorporated by reference to Exhibit 10.42 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.34#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Faheem Hasnain (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.35#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Graham Cooper (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.36#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Sheila K. Gujrathi, M.D. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.37#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Robert Peach, Ph.D. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.38#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Marcus F. Boehm, Ph.D. (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).



10.39#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Chrysa Mineo (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.40#		Employment Agreement, dated November 26, 2013, by and between Receptos, Inc. and Christian Waage (incorporated by reference to Exhibit 10.40 To the Company’s Annual Report on Form 10-K filed March 6, 2014).

10.41††		First Amendment to Collaboration Agreement, dated December 6, 2013, by and between Receptos, Inc. and Ono Pharmaceutical Co., Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 10, 2013).

10.42#		Form of Notice of Stock Unit Award and Stock Unit Agreement for awards granted under the 2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed May 21, 2014

10.43		Lease Agreement, dated April 22, 2014, by and between Receptos, Inc. and ARE-SD Region No.35, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 28, 2014)

10.44		First Amendment to Lease, dated July 30, 2014, by and between Receptos, Inc. and ARE-SD Region No. 35, LLC (incorporated reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 18, 2015)

10.45		Second Amendment to Lease, dated February 13, 2015, by and between Receptos, Inc. and ARE-SD Region No. 35, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 18, 2015.

21.1		List of Subsidiaries (incorporated by reference to Exhibit 21.1 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

23.1		Consent of independent registered public accounting firm.

24.1		Power of Attorney (see signature page).

31.1		Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended.

32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

#	Management contract or compensatory arrangement.

†	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Faheem Hasnain and Graham Cooper, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ Faheem Hasnain Faheem Hasnain	Director, President & Chief Executive Officer (Principal Executive Officer)	February 26, 2015

/s/ Graham Cooper Graham Cooper	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	February 26, 2015

/s/ William H. Rastetter, Ph.D. William H. Rastetter, Ph.D.	Chairman of the Board of Directors	February 26, 2015

/s/ Kristina Burow Kristina Burow	Director	February 26, 2015

/s/ Mary Lynne Hedley, Ph.D. Mary Lynne Hedley, Ph.D.	Director	February 26, 2015

/s/ Richard Heyman, Ph.D. Richard Heyman, Ph.D.	Director	February 26, 2015

/s/ Erle T. Mast Erle T. Mast	Director	February 26, 2015

/s/ Mary Szela Mary Szela	Director	February 26, 2015

/s/ S. Edward Torres S. Edward Torres	Director	February 26, 2015

RECEPTOS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2014 and 2013		F-3
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014, 2013 and 2012		F-4
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2014, 2013 and 2012		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012		F-6
Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Receptos, Inc.

We have audited the accompanying consolidated balance sheets of Receptos, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive loss, consolidated statements of convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Receptos, Inc. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Receptos, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 2, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

San Diego, California

March 2, 2015

F-2

RECEPTOS, INC.

Consolidated Balance Sheets

(In thousands, except par value information)


	December 31,
	2014			2013
Assets
Current assets:
Cash and cash equivalents	$	458,278		$	23,805
Short-term investments		213,651			45,685
Prepaid expenses and other current assets		3,603			914

Total current assets		675,532			70,404
Property and equipment, net		966			269
Other assets		1,509			555

Total assets	$	678,007		$	71,228

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	7,909		$	5,096
Accrued expenses		16,161			7,612
Accrued compensation and benefits		4,450			1,998
Current portion of term loan		—			735
Current portion of deferred revenue		—			700

Total current liabilities		28,520			16,141
Term loan		—			4,180
Deferred rent		—			112

Total liabilities		28,520			20,433
Commitments and contingencies (Note 8)		—			—
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.001 par value; 200,000 shares authorized; 31,516 and 18,350 shares issued and outstanding at December 31, 2014 and 2013, respectively		31			18
Additional paid-in capital		860,384			146,680
Accumulated comprehensive (loss) income		(49	)		6
Accumulated deficit		(210,879	)		(95,909	)

Total stockholders’ equity		649,487			50,795

Total liabilities and stockholders’ equity	$	678,007		$	71,228

See accompanying notes to consolidated financial statements.

F-3

RECEPTOS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)


	Year ended December 31,
	2014			2013			2012
Collaborative revenue	$	5,900		$	4,641		$	8,647
Operating expenses:
Research and development		101,663			43,585			22,927
General and administrative		15,807			8,949			3,430

Total operating expenses		117,470			52,534			26,357

Loss from operations		(111,570	)		(47,893	)		(17,710	)
Other income (expense):
Interest income		428			27			18
Interest expense		(909	)		(443	)		—
Foreign currency loss		(2,949	)		—			—
Other income (expense)		30			(11	)		(18	)

Net loss		(114,970	)		(48,320	)		(17,710	)
Preferred stock deemed dividend		—			(2,056	)		—

Net loss attributable to common stockholders	$	(114,970	)	$	(50,376	)	$	(17,710	)

Net loss per share:
Net loss per common share, basic and diluted	$	(4.63	)	$	(4.23	)	$	(13.73	)

Weighted-average shares used to compute basic and diluted net loss per common share		24,827			11,916			1,289

Comprehensive loss:
Net loss	$	(114,970	)	$	(48,320	)	$	(17,710	)
Unrealized (loss) gain on marketable securities		(55	)		6			—

Comprehensive loss	$	(115,025	)	$	(48,314	)	$	(17,710	)

See accompanying notes to consolidated financial statements.

F-4

RECEPTOS, INC.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands)


	Series A convertible preferred stock						Series B convertible preferred stock						Common stock				Additional paid-in capital			Accumulated comprehensive (loss) income			Accumulated deficit			Total stockholders’ equity (deficit)
	Shares			Amount			Shares			Amount			Shares		Amount		Additional paid-in capital			Accumulated comprehensive (loss) income			Accumulated deficit			Total stockholders’ equity (deficit)
Balance at December 31, 2011		39,376		$	27,260			—		$	—			1,739	$	2	$	7,310		$	—		$	(29,879	)	$	(22,567	)
Net loss		—			—			—			—			—		—		—			—			(17,710	)		(17,710	)
Stock-based compensation expense		—			—			—			—			—		—		220			—			—			220
Issuance of Series B convertible preferred stock and common stock warrants		—			—			12,358			12,556			—		—		—			—			—			—
Issuance of common stock, net of repurchase liability and including vesting of stock option early exercises		—			—			—			—			550		—		43			—			—			43
Issuance of common stock upon exercise of warrants		—			—			—			—			128		—		10			—			—			10
Vesting of restricted common stock subject to repurchase		—			—			—			—			—		—		21			—			—			21

Balance at December 31, 2012		39,376			27,260			12,358			12,556			2,417		2		7,604			—			(47,589	)		(39,983	)
Net loss		—			—			—			—			—		—		—			—			(48,320	)		(48,320	)
Unrealized gain on marketable securities		—			—			—			—			—		—		—			6			—			6
Stock-based compensation expense		—			—			—			—			—		—		2,969			—			—			2,969
Issuance of Series B convertible preferred stock		—			—			20,596			21,192			—		—		—			—			—			—
Preferred stock deemed dividend		—			—			—			2,056			—		—		(2,056	)		—			—			(2,056	)
Conversion of convertible preferred stock into common		(39,376	)		(27,260	)		(32,954	)		(35,804	)		9,644		10		63,054			—			—			63,064
Initial public offering of common stock		—			—			—			—			5,933		6		75,003			—			—			75,009
Vesting of restricted common stock subject to repurchase		—			—			—			—			—		—		79			—			—			79
Issuance of common stock upon exercise of options and warrants		—			—			—			—			356		—		27			—			—			27

Balance at December 31, 2013		—			—			—			—			18,350		18		146,680			6			(95,909	)		50,795
Net loss		—			—			—			—			—		—		—			—			(114,970	)		(114,970	)
Unrealized loss on marketable securities					—			—			—			—		—		—			(55	)		—			(55	)
Stock-based compensation expense		—			—			—			—			—		—		11,148			—			—			11,148
Issuance of common stock in secondary offerings		—			—			—			—			13,056		13		701,615			—			—			701,628
Vesting of restricted common stock subject to repurchase and restricted stock units		—			—			—			—			2		—		(15	)		—			—			(15	)
Issuance of common stock upon exercise of options, net of repurchase of restricted common stock		—			—			—			—			108		—		956			—			—			956

Balance at December 31, 2014		—		$	—			—		$	—			31,516	$	31	$	860,384		$	(49	)	$	(210,879	)	$	649,487

See accompanying notes to consolidated financial statements.

F-5

RECEPTOS, INC.

Consolidated Statements of Cash Flows

(In thousands)


	Year ended December 31,
	2014			2013			2012
Cash flows from operating activities
Net loss	$	(114,970	)	$	(48,320	)	$	(17,710	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		11,148			2,969			220
Depreciation and amortization		236			350			656
Deferred rent		(112	)		(116	)		27
Amortization of discount on marketable securities		1,948			64			—
Accretion of debt discount and exit fee		434			126			—
Amortization of debt issuance costs		100			23			—
Change in operating assets and liabilities:
Prepaid expenses and other assets		(3,751	)		(363	)		(278	)
Restricted cash in connection with leased facility and corporate credit card		(162	)		(25	)		—
Accounts payable		2,522			4,077			557
Accrued expenses		8,606			5,643			122
Accrued compensation and benefits		2,452			970			216
Deferred revenue		(700	)		(2,225	)		(2,228	)

Net cash used in operating activities		(92,249	)		(36,827	)		(18,418	)

Cash flows from investing activities
Purchases of marketable securities		(324,094	)		(45,743	)		—
Maturities and sales of marketable securities		154,125			—			—
Purchases of property and equipment		(642	)		(70	)		(214	)

Net cash used in investing activities		(170,611	)		(45,813	)		(214	)

Cash flows from financing activities
Proceeds from issuance of common stock, net		701,887			75,009			—
Proceeds from exercise of common stock options and warrants, net of repurchase of restricted common stock		956			27			41
Proceeds from issuance of convertible preferred stock, net		—			21,192			12,556
Net proceeds from borrowings under term loan		—			4,790			—
Proceeds from early exercises of stock options		—			—			126
Other		(162	)		—			—
Repayment of borrowings under terms loan		(5,348	)		—			—

Net cash provided by financing activities		697,333			101,018			12,723

Net increase (decrease) in cash and cash equivalents		434,473			18,378			(5,909	)
Cash and cash equivalents at beginning of period		23,805			5,427			11,336

Cash and cash equivalents at end of period	$	458,278		$	23,805		$	5,427

Supplemental disclosure of cash flow information:
Conversion of Series A and B Preferred Stock to common stock	$	—		$	63,064		$	—

Accrued expenses relating to deferred offering costs	$	259		$	254		$	77

Release of repurchase liability for stock options and restricted stock shares	$	62		$	79		$	32

Amounts accrued for capital expenditures	$	291		$	—		$	—

Cash paid for interest	$	410		$	259		$	—

Non-cash financing activity:
Preferred stock deemed dividend	$	—		$	2,056		$	—

See accompanying notes to consolidated financial statements.

F-6

RECEPTOS, INC.

Notes to Consolidated Financial Statements

1. Description of Business

Receptos, Inc. is a biopharmaceutical company focused on discovering, developing and commercializing innovative therapeutics in immune disorders for specialty markets including for Relapsing Multiple Sclerosis (RMS), Inflammatory Bowel Disease (IBD) and Eosinophilic Esophagitis (EoE). The Company was incorporated in the state of Delaware on September 26, 2008 under the name Receptor Pharmaceuticals, Inc., and commenced significant operations in 2009. As used in this report, unless the context suggests otherwise, “the Company” and “Receptos” mean Receptos, Inc.

The consolidated financial statements include the accounts of Receptos, Inc. and its wholly owned subsidiaries, Apoptos, Inc. (Apoptos) and Receptos UK Ltd., which are both currently inactive. All intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

Liquidity

The Company has incurred losses and negative cash flows from operating activities since inception. As of December 31, 2014, the Company had an accumulated deficit of $210.9 million. The Company anticipates that it will continue to incur net losses into the foreseeable future as it: (i) continues the development and commercialization of its drug candidates; (ii) works to develop additional drug candidates through research and development programs; and (iii) expands its corporate infrastructure. The Company had cash, cash equivalents and short-term investments of $671.9 million as of December 31, 2014. Based on the Company’s current business plan, management believes that existing cash, cash equivalents and short-term investments will be sufficient to fund the Company’s obligations for at least the next twelve months. The Company plans to continue to fund its losses from operations and capital funding needs through cash and investments on hand, as well as future debt and equity financing and potential collaboration arrangements. If the Company is not able to secure adequate additional funding, it may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects.

2. Summary of Significant Accounting Policies

Use of Estimates

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the US (US GAAP). The preparation of the Company’s consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to clinical trial accruals and stock-based compensation expense. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment, operating primarily in the United States.

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Cash and Cash Equivalents

The Company classifies time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents. The carrying amounts approximate fair value due to the short maturities of these instruments. As of December 31, 2014, cash and cash equivalents include cash in readily available checking and money market accounts, as well as government sponsored entities. As of December 31, 2013, cash and cash equivalents include cash in readily available checking and money market accounts, as well as corporate debt securities.

Short-Term Investments

The Company carries short-term investments classified as available-for-sale at fair value as determined by prices for identical or similar securities at the balance sheet date. Short-term investments consist of both Level 1 and Level 2 financial instruments in the fair-value hierarchy. The Company records unrealized gains and losses as a component of other comprehensive loss within the statements of operations and comprehensive loss and as a separate component of stockholders’ equity. Realized gains or losses on available-for-sale securities are determined using the specific identification method and the Company includes net realized gains and losses in interest income.

At each balance sheet date, the Company assesses available-for-sale securities in an unrealized loss position to determine whether the unrealized loss is other-than-temporary. The Company considers factors including: the significance of the decline in value compared to the cost basis, underlying factors contributing to a decline in the prices of securities in a single asset class, the length of time the market value of the security has been less than its cost basis, the security’s relative performance versus its peers, sector or asset class, expected market volatility and the market and economy in general. An impairment loss is recognized at the time the Company determines that a decline in the fair value below its cost basis is other-than-temporary.

Restricted Cash

Restricted cash as of December 31, 2014 consists of $216,000 to secure lines of credit associated with leased facilities and $50,000 to secure the Company’s corporate credit card. The short term portion of restricted cash is grouped within prepaid expenses and other current assets while the long term portion of restricted cash is grouped with other assets.

Fair Value of Financial Instruments

The valuation of assets and liabilities are subject to fair value measurements using a three tiered approach and fair value measurement is classified and disclosed by the Company in one of the following three categories:

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2:

Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3:

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The carrying amounts of all cash equivalents, accounts payable, accrued expenses and accrued compensation and benefits are reasonable estimates of their fair value because of the short nature of these items. The Company reports its available-for-sale securities at their estimated fair value based on quoted market prices for identical or similar instruments.

F-8

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to preserve principal and liquidity.

Property and Equipment

Property and equipment is carried at cost and depreciation is computed using the straight-line method over the estimated useful lives of the assets (generally three to ten years). The Company amortizes leasehold improvements over the lease term or the useful life of the improvement, whichever is shorter (including any renewal periods that are deemed to be reasonably assured). The Company expenses repair and maintenance costs that do not improve service potential or extend economic life as such costs are incurred.

Impairment of Long-Lived Assets

The Company reviews property and equipment for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An impairment loss would be recognized when estimated future undiscounted cash flows relating to the asset are less than its carrying amount. An impairment loss is measured as the amount by which the carrying amount of an asset exceeds its fair value. While the Company’s current and historical operating losses and negative cash flows are possible indicators of impairment, management believes that the future cash flows to be generated by these assets support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses during the years ended December 31, 2014, 2013 and 2012.

Income Taxes

The accounting guidance for uncertainty in income taxes prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities based on the technical merits of the position.

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.

Revenue Recognition

The Company enters into arrangements with pharmaceutical and biotechnology partners that may involve multiple deliverables. The Company’s arrangements may contain upfront payments, license fees for research and development arrangements, research and development funding and milestone payments under collaborative agreements. Each deliverable in the arrangement is evaluated to determine whether it meets the criteria to be accounted for as a separate unit of accounting or whether it should be combined with other deliverables. Revenue

F-9

is recognized separately for each unit of accounting when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured.

Upfront Fees. When management determines the Company has a single unit of accounting under its collaborative arrangements, upfront fees received for collaborative agreements are recognized ratably over the expected performance period under each respective arrangement. As a result, management makes its best estimate of the period over which the Company expects to fulfill its performance obligations under an arrangement. Any amounts received under the arrangement in advance of performance, if deemed substantive, are recorded as deferred revenue and recognized as revenue as the Company completes its performance obligations.

Milestones. The Company evaluates all milestones at the beginning of the agreement to determine if they meet the definition of a substantive milestone. Revenue is recognized from milestone payments when earned, provided that (i) the milestone event is substantive, in that it can only be achieved based in whole or in part on either the Company’s performance or on the occurrence of a specific outcome resulting from the Company’s performance, and its achievability was not reasonably assured at the inception of the agreement, (ii) the Company does not have ongoing performance obligations related to the achievement of the milestone, and (iii) it would result in the receipt of additional payments. A milestone payment is considered substantive if all of the following conditions are met: (i) the milestone payment is non-refundable; (ii) achievement of the milestone was not reasonably assured at the inception of the arrangement; (iii) substantive effort is involved to achieve the milestone; and (iv) the amount of the milestone payments appears reasonable in relation to the effort expended, the other milestones in the arrangement and the related risk associated with the achievement of the milestone.

Deferred Revenue. Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized within the next 12 months are classified as non-current deferred revenue.

Research and Development

Research and development (R&D) expenses include the costs associated with the Company’s R&D activities, including salaries, benefits and occupancy costs. Also included in R&D expenses are third-party costs incurred in conjunction with contract manufacturing for the Company’s R&D programs and clinical trials, including the cost of clinical trial drug supply shipped to the Company’s clinical study vendors, costs incurred by contract research organizations (CROs) and regulatory expenses. R&D costs are expensed as incurred, except when accounting for nonrefundable advance payments for goods or services to be used in future R&D activities. These payments are capitalized at the time of payment and expensed as the related goods are delivered or the services are performed.

Stock-Based Compensation

The Company accounts for stock-based compensation expense related to stock options granted to employees and members of its board of directors by estimating the fair value of each stock option on the date of grant using the Black-Scholes options-pricing model, net of estimated forfeitures. In estimating fair value for options issued under the 2013 Plan, expected volatility was based on historical volatility of comparable publicly-traded companies. As our historical share option exercise experience does not provide a reasonable basis upon which to estimate the expected term, we used the simplified method. Expected life is calculated in two tranches based on the employment level defined as director or employee. The risk-free rate used in calculating fair value of stock options for periods within the expected term of the option is based on the U.S. Treasury yield bond curve in effect on the date of grant. For awards subject to time-based vesting conditions, stock-based compensation expense is recognized using the straight-line method. In accordance with the authoritative accounting literature, options subject to both performance and time-based vesting conditions are expensed using an accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting

F-10

method), compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as though the award was, in substance, multiple awards, resulting in accelerated expense recognition during the earlier vesting periods. The Company accounts for stock options granted to non-employees using the fair value approach. Stock options granted to non-employees are subject to periodic revaluation over their vesting terms.

For performance-based awards to employees (i) the fair value of the award is determined on the grant date, (ii) the Company assesses the probability of the individual milestones under the award being achieved and (iii) the fair value of the shares subject to the milestone is expensed over the implicit service period commencing once management believes achieving the performance criteria is probable. For performance-based awards to non-employees, no expense is recognized until such time as the milestone event is achieved. Upon achievement, the portion of the milestone subject to immediate vesting is expensed based upon the then fair value of the award. For the portion of the award further subject to time-based vesting restrictions, expense is recorded quarterly, at the then fair value, as the shares vest until such time as performance is complete.

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period due to transactions and other events and/or circumstances from non-owner sources.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration of common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. The calculation of the net loss per share during 2014 and 2013 includes the impact of the conversion of 72.3 million shares of convertible preferred stock into 9.6 million shares of common stock on May 14, 2013 in connection with the Company’s initial public offering. The calculation of the weighted-average number of shares outstanding excludes shares which have been issued upon the early exercise of stock options and are subject to future vesting and unvested restricted stock totaling 0.2 million, 0.5 million and 0.9 million shares as of December 31, 2014, 2013 and 2012, respectively.

Basic and diluted net loss per share are equivalent because the Company has incurred a net loss in all periods presented causing any potentially dilutive securities, consisting of common stock options, to be anti-dilutive. The calculation of net loss per share excludes potentially dilutive common stock options totaling 1.8 million and 3.8 million as of December 31, 2014 and 2013. Potentially dilutive securities not included in the calculation of diluted net loss per share as of December 31, 2012 were shares of convertible preferred stock convertible into shares of common stock and common stock options totaling 6.9 million.

Recent Accounting Pronouncements

Revenue Recognition

In May 2014, the FASB issued accounting guidance on the recognition of revenue from customers that supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The guidance allows for either full retrospective or modified retrospective adoption and will become effective for the Company in the first quarter of 2017. The

F-11

Company is evaluating the alternative transition methods and the potential effects of the adoption of this update on its financial statements.

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

In June 2014, the Financial Accounting Standards Board (FASB) issued an accounting standards update (ASU), which updated the guidance on performance stock awards. The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early application is permitted. The Company does not expect the application of the updated guidance will have a material impact on its financial position, results of operations or cash flows.

Presentation of Financial Statements—Going Concern

In August 2014, the FASB issued an ASU, which requires management of public and private companies to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that fact. Management will be required to make this evaluation for both annual and interim reporting periods, if applicable. Management is also required to evaluate and disclose whether its plans alleviate that doubt. The standard is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not believe the adoption of this standard will have a material impact on its financial position, results of operations or related financial statement disclosures.

Income Statement—Extraordinary and Unusual

In January 2015, the FASB issued an ASU which eliminates the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not believe the adoption of this standard will have a material impact on its financial position, results of operations or related financial statement disclosures.

3. Short-Term Investments

The Company invests its excess cash in available-for-sale securities consisting of money market funds, commercial paper, government-sponsored entities and debt instruments of financial institutions and corporations. Available-for-sale securities with maturities of three months or less from date of purchase are classified as part of cash equivalents in the accompanying consolidated balance sheets. Available-for-sale securities with maturities greater than three months from date of purchase are classified as part of short-term investments in the accompanying consolidated balance sheets.

Available-for-sale securities classified as cash equivalents amounted to $411.6 million and $19.1 million as of December 31, 2014 and 2013, respectively.

F-12

The carrying value of available for sale securities classified as short-term investments consisted of the following (in thousands):


	As of December 31, 2014
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Commercial paper	$	30,164	$	34	$	—		$	30,198
Government sponsored entities		73,623		—		(9	)		73,614
Corporate debt securities		109,913		—		(74	)		109,839

Total	$	213,700	$	34	$	(83	)	$	213,651


	As of December 31, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Commercial paper	$	18,927	$	17	$	—		$	18,944
Corporate debt securities		26,752		—		(11	)		26,741

Total	$	45,679	$	17	$	(11	)	$	45,685

All of the Company’s available-for-sale securities held at December 31, 2014 and December 31, 2013 had maturity dates of less than 17 months and 12 months, respectively. The Company has classified all of its available-for-sale investment securities, including those with maturities beyond one year, as current assets on the accompanying consolidated balance sheets based on the highly liquid nature of these investment securities and because these investment securities are considered available for use in current operations.

The following table summarizes the Company’s short-term investments which are in an unrealized loss position as of December 31, 2014, (in thousands):


	As of December 31, 2014
	Amortized Cost		Unrealized Losses			Fair Market Value
Government sponsored entities	$	55,259	$	(9	)	$	55,250
Corporate debt securities		106,101		(74	)		106,027

Total	$	161,360	$	(83	)	$	161,277

The following table summarizes the contract maturity of the available-for-sale securities the Company held as of December 31, 2014, (in thousands):


	Fair Market Value
Maturing within 1 year	$	193,926
Maturing after 1 year through 2 years	$	19,725

Total	$	213,651

At neither December 31, 2014 nor 2013, none of the Company’s available-for-sale securities was in a material unrealized loss position. The Company reviewed its investment holdings as of December 31, 2014 and determined that its unrealized losses were not considered to be other-than-temporary based upon (i) the financial strength of the issuing institution and (ii) the fact that all securities have been in an unrealized loss position for less than twelve months. As such, the Company has not recognized any such impairment in its financial statements. The Company did not realize any significant gains or losses on sales of available-for-sale securities for the years ended December 31, 2014 and 2013.

F-13

4. Fair Value Measurements

Available-for-sale investment securities are classified within the fair-value hierarchy as defined by authoritative guidance. The Company obtains the fair value of its Level 2 financial instruments from the custodian bank or from a professional pricing service. The Company’s Level 2 financial instruments are valued using market prices on less active markets and model-derived valuations with observable valuation inputs such as interest rates and yield curves. The Company obtains the fair value of Level 2 financial instruments from quoted market price, calculated price or quotes from third-party pricing services. The Company validates fair value through independent valuation testing and review of portfolio valuations provided by the Company’s investment managers. There were no transfers between Level 1 and Level 2 securities during the years ended December 31, 2014 and 2013.

The fair value of the Company’s investment holdings is summarized in the following tables (in thousands):


	As of December 31, 2014
	Total Fair Value		Fair Value Determined Under
	Total Fair Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	67,374	$	67,374	$	—	$	—
Commercial paper		30,198		—		30,198		—
Government sponsored entities		417,814		417,814		—		—
Corporate debt securities		109,839		—		109,839		—

Total	$	625,225	$	485,188	$	140,037		—


	As of December 31, 2013
	Total Fair Value		Fair Value Determined Under
	Total Fair Value		(Level 1)		(Level 2)		(Level 3)
Money market funds	$	8,147	$	8,147	$	—	$	—
Commercial paper		18,944		—		18,944		—
Corporate debt securities		37,649		—		37,649		—

Total	$	64,740	$	8,147	$	56,593		—

5. Balance Sheet Details

Prepaid Expenses and Other Current Assets

The following table summarizes major classes of prepaid expenses and other current assets (in thousands):


	December 31,
	2014		2013
Prepaid research and development services	$	751	$	—
Interest receivable		1,035		277
Prepaid-insurance		986		321
Prepaid contract research costs		90		—
Other prepaid costs		741		316

Total	$	3,603	$	914

F-14

Property and Equipment

The following table summarizes major classes of property and equipment (in thousands):


	Useful		December 31,
	life		2014		2013
Laboratory equipment		3 years	$	3,054	$	2,860
Computer equipment and software		3 years		36		19
Furniture and fixtures		5 to 10 years		812		131
Leasehold improvements		5 to 10 years		880		854

				4,782		3,864
Less accumulated depreciation and amortization				3,816		3,595

Property and equipment, net			$	966	$	269

Accrued Expenses

The following table summarizes major classes of accrued expenses (in thousands):


	December 31,
	2014		2013
Accrued clinical trial services	$	11,149	$	3,197
Accrued royalty payable		—		550
Other accrued expenses		5,012		3,865

Total	$	16,161	$	7,612

6. Collaborative Arrangements

In December 2011, the Company entered into a co-exclusive Collaboration Agreement with Ono Pharmaceutical Co., Ltd., or Ono, to utilize the Company’s proprietary GPCR structure determination technologies for the identification of a high resolution novel protein crystal structure of an Ono proprietary GPCR drug discovery target. In December 2011, Ono paid the Company an upfront fee as consideration for technology access. The Company determined there was one unit of accounting under the Collaboration Agreement, and as such, recognized the upfront fee as collaborative revenue on a straight-line basis over the expected period of performance of the arrangement. The Collaboration Agreement also provided for certain other milestone payments which the Company concluded did not meet the definition of a substantive milestone, inasmuch as achievability was reasonably assured at the inception of the Collaboration Agreement. Such milestone payments were also deferred and were amortized over the estimated period of performance of the arrangement. In December 2013, the Collaboration Agreement was amended to allow for the early termination of the research term and the Company agreed to perform technology transfer and training with respect to, and to grant Ono a non-exclusive sublicense to, the Company’s GPCR technology platform for high-resolution crystal structure determination (the Amendment). Pursuant to the Amendment, the Company received upfront license and collaborative research termination fees totaling $3.7 million in the first quarter of 2014. The Company determined there was one unit of accounting under the Amendment. As such, the upfront fees of $3.7 million, along with the remaining deferred revenue of $0.7 million from the Collaboration Agreement, were amortized over the revised expected period of performance of 12 months.

The Company received notice from Ono in August 2014 that all deliverables specified by the Amendment had been satisfied in full, and as such, the Company recognized all previously deferred revenue associated with the collaboration with Ono. During the third quarter of 2014, the Company also recognized collaborative revenue of $1.3 million associated with a technology transfer milestone payment received in connection with the Amendment.

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Revenue under the Collaboration Agreement, as amended, with Ono for the years ended December 31, 2014 and 2013 was $5.9 million and $4.6 million, respectively.

The Company remains eligible for (i) future technology transfer milestone payments of up to an additional $0.8 million (upon satisfaction of certain predetermined criteria), (ii) research milestone payments of up to another $1.8 million based on successful completion of certain research activities and (iii) development milestone payments of up to $13.5 million for the achievement of development milestones based solely upon Ono’s performance.

7. Term Loan and Security Agreement

In April 2013, the Company entered into a credit and security agreement with MidCap Funding III, LLC. under which it borrowed $5.0 million. The loan was recorded at its initial carrying value of $5.0 million, less the debt discount of $0.2 million. The debt discount included an initial fee and certain reimbursed transaction costs paid to the lender. The agreement also called for the Company to pay an exit fee based on a percentage (7%) of borrowings under the facility, as well as a prepayment fee on any amounts repaid prior to loan maturity. In August 2014, the Company terminated this facility and repaid the loan, as well as exit and prepayment fees totaling $0.5 million. The Company has no further obligations under this agreement, and there are no further encumbrances on the Company’s assets associated with the security provisions of this agreement.

8. Commitments and Contingencies

License Agreements

The Company has license agreements with The Scripps Research Institute, or TSRI, that require it to make annual license maintenance payments and future payments upon the success of licensed products that include milestones and/or royalties. The Company’s agreements with TSRI include the following:

S1P1R Modulators License Agreement. In April 2009, the Company entered into a License Agreement with TSRI, whereby the Company received an exclusive worldwide license under the Licensed Patent Rights (as defined in the license agreement) for S1P1R modulators and a non-exclusive worldwide license to the Licensed Materials (as defined in the license agreement). In consideration, the Company (i) agreed to pay a nominal annual maintenance fee, (ii) is responsible for paying royalties on annual net sales of Licensed Product (as defined in the license agreement) ranging between 1.5% and 2.0%, until such time as the expiration of the last valid claim in the Licensed Patent rights , (iii) is responsible for paying royalties ranging between 0.75% and 1.0%, on annual net sales of Non-Patent Product (as defined in the license agreement) until such time as one or more generic versions of such Non-Patent Product are commercially sold and the Company demonstrates to TSRI that sales of such generic products account for a specific percentage of aggregate unit sales in a calendar quarter, (iv) is responsible for paying product development milestone payments not to exceed $4.4 million, and (v) is responsible for paying a percentage of any sublicense revenue payments received by the Company.

During the years ended December 31, 2014, 2013 and 2012, consideration paid to TSRI under this agreement was $0.3 million, $25,000 and $10,000, respectively. Included in accrued expenses in the consolidated balance sheet as of December 31, 2013 are accrued royalties associated with this agreement of $0.3 million. As of December 31, 2014, the Company was not required to record an accrual for royalties.

Technology Platform License Agreement. In June 2009, the Company entered into a Technology Platform License Agreement with TSRI whereby the Company received an exclusive worldwide license under the Licensed Patent Rights (as defined in the agreement), and a non-exclusive worldwide license under the Know-How (as defined in the agreement). In consideration, the Company (i) agreed to pay a nominal annual maintenance fee beginning after June 18, 2011, which is credited against running royalties during the term of the agreement, (ii) agreed to pay running royalties at a de minimus rate of annual net sales of Company Products (as defined in the agreement) until June 18, 2019, (iii) agreed to pay product development milestone payments not to

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exceed approximately $1.0 million and (iv) is required to make non-creditable, non-refundable Aggregate Technology Income, or ATI (as defined in the agreement) payments of 7.5% of the first $100 million of cumulative ATI, except that no ATI payments is due on the first $2.5 million in cumulative ATI and a reduced percentage of that portion of cumulative ATI that is in excess of $100 million. All product development milestone and ATI payments are payable up to June 18, 2027.

Royalty consideration paid to TSRI under this agreement for the years ended December 31, 2014, 2013 and 2012, was $0.3 million, $0.2 million and $0.5 million, respectively. Included in accrued expenses in the consolidated balance sheet as of December 31, 2013 are accrued royalties associated with this agreement of $0.2 million. As of December 31, 2014, the Company was not required to record an accrual for royalties.

Operating Lease

On December 24, 2014, the Company moved into its new laboratory and office space headquartered in San Diego, California, The lease commenced in December 2014 and expires in December 2024. The lease can be terminated by the Company after five years, subject to payment of a lease termination fee as well as certain other costs. The Company has the option to extend the term of this lease for an additional five-year period with a base rent equal to the then market rate. Under the terms of the lease the Company maintains a letter of credit totaling $0.1 million which is included in other assets in the accompanying consolidated balance sheets. During construction, under the appropriate accounting guidance, the Company was considered to be the owner of the property and accordingly capitalized the asset at fair value and an offsetting lease liability in its consolidated balance sheets. Upon completion of the construction, under the appropriate accounting guidance the Company is no longer considered to be the owner of the property and accordingly has removed the associated asset and liability from its consolidated balance sheets.

The Company previously occupied laboratory and office space under a lease which expires in January 2015. Under the terms of the lease the Company maintains a letter of credit totaling $0.1 million which is included in other assets in the accompanying consolidated balance sheets. The Company recognizes minimum rent payments and escalation clauses on a straight-line basis over the lease term. The Company accounts for the difference between the minimum lease payments and the straight-line amount as deferred rent. The Company also pays property taxes, maintenance and insurance, in addition to rent. Rent expense for the years ended December 31, 2014, 2013 and 2012 was $0.6 million, $0.9 million and $0.8 million, respectively.

Future minimum lease payments due under facility leases are as follows (in thousands):


2015	$	494
2016		1,689
2017		1,740
2018		1,792
2019		1,846
Thereafter		10,052

Total future minimum lease payments due facility leases	$	17,613

Litigation

From time to time, the Company may be involved in various lawsuits, legal proceedings, or claims that arise in the ordinary course of business. Management does not believe any legal proceedings or claims pending at December 31, 2014, will have, individually or in the aggregate, a material adverse effect on its business, liquidity, financial position or results of operations. Litigation, however, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.

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9. Stockholders’ Equity

Common Stock

Restricted Common Stock.

The Company’s 2008 Stock Plan allowed for the early exercise of option awards issued under the plan. As of December 31, 2014, options for the purchase of 982,000 shares of the Company’s common stock (net of repurchased shares) have been exercised, of which 133,000 are unvested and subject to repurchase. Under the authoritative guidance, early exercise is not considered an exercise for accounting purposes and, therefore, any payment for unvested shares is recognized as a liability at the original exercise price. This repurchase obligation is included in accrued expenses in the consolidated balance sheets and is not material for any period presented. During the years ended December 31, 2014 and 2013, the Company repurchased from terminated employees 19,000 and 123 unvested shares of common stock, respectively, associated with early exercised option grants. During the year ended December 31, 2012, no shares were repurchased by the Company.

Prior to 2013, the Company issued restricted common stock to certain founders and officers of the Company with both performance-based and time-based vesting provisions. As of December 31, 2014, all remaining outstanding restricted shares are subject to time-based vesting that will lapse over the next year. As of December 31, 2014, 46,000 shares associated with these restricted stock awards were subject to repurchase by the Company.

Public Offerings of Common Stock.

In May 2013, the Company completed the initial public offering of its common stock (the IPO) of 5,933,277 shares of common stock at an offering price of $14.00 per share. The Company received net proceeds of approximately $75.0 million, after deducting underwriting discounts, commissions and offering-related transaction costs of $8.1 million.

During January 2014, the Company completed an underwritten public offering of 3,818,000 shares of its common stock at an offering price of $30.75 per share. The Company received net proceeds from this offering of approximately $109.9 million, after deducting underwriting discounts, commissions and offering-related expenses of $7.5 million.

During June 2014, the Company completed an underwritten public offering of 5,097,950 shares of its common stock at an offering price of $40.25 per share. The Company received net proceeds from this offering of approximately $195.0 million, after deducting underwriting discounts, commissions and offering-related expenses of $10.1 million.

During November 2014, the Company completed an underwritten public offering of 4,140,000 shares of its common stock at an offering price of $100.00 per share. The Company received net proceeds from this offering of approximately $396.7 million, after deducting underwriting discounts, commissions and offering-related expenses of $17.3 million.

10. Stock-Based Compensation and Equity Plans

2013 Stock Incentive Plan

Prior to the completion of the IPO, the Company issued stock options under its 2008 Stock Plan. Effective upon the closing of the IPO, the Company’s board of directors and stockholders approved the 2013 Stock Incentive Plan (the 2013 Plan). The 2013 Plan provides for the granting of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to employees and the granting of nonstatutory stock options, restricted stock, stock appreciation rights, stock units and cash-based awards to employees, non-employee directors, advisors and consultants. The Company has issued under the 2008 Plan and intends to continue to issue under the 2013 Plan both performance-based and time-based stock options and restricted stock

F-18

awards. Performance-based awards generally vest 25% upon achievement of a milestone event, with monthly time-based vesting over the subsequent 36 months, while time-based awards generally vest over a four-year period commencing on the first anniversary of the date of grant. Milestone events are specific to corporate goals. Awards generally expire ten years from the date of grant.

As of December 31, 2014, the number of shares authorized for issuance under the 2013 Plan was 1,899,307 of which 360,301 remain available for future issuance. Under the evergreen provision in the 2013 Plan, an additional 1,260,656 shares became authorized and available for future grant on January 1, 2015.

Stock Options

The following table summarizes stock option activity for the year ended December 31, 2014 (in thousands except weighted-average amounts):


	# Shares			Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value⁽¹⁾
Outstanding at December 31, 2013		1,398		$	14.78		9.4
Granted		749			43.68
Exercised		(127	)		7.51
Cancelled / forfeited		(93	)		18.68

Outstanding at December 31, 2014		1,927		$	26.31		8.8	$	185,392.6

Vested or expected to vest at December 31, 2014⁽²⁾		2,060		$	24.84		9.0	$	201,266.4

Exercisable at December 31, 2014		472		$	16.40		8.4	$	50,064.8

⁽¹⁾	The aggregate intrinsic value of options as of December 31, 2014 is calculated as the difference between the exercise price of the underlying options and the closing market price of the Company’s common stock on that date, which was $122.51

⁽²⁾

A portion of the Company’s stock options have been early exercised and are not outstanding. As of December 31, 2014, vested or expected to vest included 133,000 options which were early exercised and are still subject to future vesting (and which may be repurchased by the Company in the event the option holder ceases to provide services to the Company).

The aggregate intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was approximately $7.3 million, $0.3 million and $24,000, respectively, determined as of the date of exercise. The Company did not recognize any income tax benefits from stock option exercises as it continues to record a full valuation allowance on its deferred tax assets. The fair value of options vested during the years ended December 31, 2014, 2013 and 2012 was $5.8 million, $0.6 million and $1.1 million, respectively.

Stock Compensation Expense

The Company uses the Black-Scholes model to estimate the grant date fair value of its stock options. The weighted-average assumptions underlying the calculation of grant date fair value include the following:


	Year ended December 31,
	2014			2013			2012
Risk free interest rate		2.0	%		1.4	%		1.1	%
Expected term (years)		6.1			6.1			6.0
Expected volatility		114.7	%		105.9	%		94.2	%
Expected dividend yield		0	%		0	%		0	%

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The weighted-average grant date fair value of options granted during the years ended December 31, 2014, 2013 and 2012 was approximately $38.63, $15.28 and $0.30, respectively.

The following table summarizes share-based compensation expense for all awards granted (in thousands):


	Year ended December 31,
	2014		2013		2012
Research and development	$	5,497	$	1,360	$	192
General and administrative		5,651		1,609		28

Total share-based compensation expense	$	11,148	$	2,969	$	220

As of December 31, 2014, unrecognized compensation expense related to non-vested stock options totaled $33.4 million. Such compensation expense is expected to be recognized over a weighted-average period of 2.9 years.

Employee Stock Purchase Plan

Effective upon closing of the IPO, the Company’s board of directors and the stockholders approved the Employee Stock Purchase Plan (the ESPP). The purpose of the ESPP is to assist employees in acquiring a stock ownership interest in the Company and to encourage them to remain employees of the Company. The ESPP is qualified under Section 423 of the Code and upon activation, permits eligible employees to purchase common stock at a discount through payroll deductions during specified six-month offering periods. No employee may purchase more than $25,000 worth of stock in any calendar year or 1,500 shares in any on offering period.

As of December 31, 2014, the number of shares authorized for issuance under the ESPP was 343,000. Under the evergreen provision in the ESPP, an additional 315,000 shares became authorized and available for future grant on January 1, 2015. The Company has not yet activated the ESPP plan, and accordingly, the Company has not issued any shares under the ESPP and has not recognized any stock-based compensation related to the ESPP.

11. Income Taxes

The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax provision (in thousands):


	Year ended December 31,
	2014			2013			2012
Expected income tax benefit at federal statutory tax rate	$	(39,090	)	$	(16,429	)	$	(6,021	)
State income taxes, net of federal benefit		(6,431	)		(2,694	)		(1,019	)
Permanent items		1,260			558			82
Research credits		(2,631	)		(2,393	)		(477	)
Removal of net operating losses and research and development credits		42,561			20,527			6,774
Change in valuation allowance		4,331			431			661

Income tax (benefit) expense	$	—		$	—		$	—

F-20

The following table summarizes the significant components of deferred tax assets (in thousands):


	December 31,
	2014		2013
Deferred tax assets:
Depreciation and amortization	$	447	$	499
Deferred revenue		—		279
Stock options		3,331		543
Unrealized foreign currency exchange loss		1,174		—
Accrued expenses and reserves		1,426		705

Total deferred tax assets		6,378		2,026
Less: Valuation allowance		6,378		2,026

Net deferred tax assets	$	—	$	—

At December 31, 2014, the Company had net deferred tax assets of $6.4 million. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the weight of all available evidence, including the Company’s history of losses from inception, management has determined that it is not more likely than not that the net deferred tax assets will be realized. Accordingly, a full valuation allowance has been established to offset the net deferred tax asset for all periods presented.

As of December 31, 2014, the Company had federal and California net operating loss carryforwards of $189.0 million and $187.7 million, respectively, which will begin to expire in 2027 and 2017, respectively. At December 31, 2014, the Company had federal and California research and development tax credit carryforwards of $6.3 million and $3.0 million, respectively. The federal research and development tax credit carryforwards will begin to expire in 2027. The California research and development tax credit carryforwards are available indefinitely.

The future utilization of the Company’s net operating loss and research and development credit carryforwards to offset future taxable income may be subject to limitation as a result of ownership changes and restructurings that have occurred previously or that could occur in the future. The Tax Reform Act of 1986 (the Act) limits a company’s ability to utilize certain tax credit carryforwards and net operating loss carryforwards in the event of a cumulative change in ownerships in excess of 50% as defined in the Act. The Company has not completed its analysis to determine what, if any, impact the ownership change and restructuring would have on the Company’s ability to utilize its net operating loss and research and development credit carryforwards. Until this analysis has been completed, the Company has removed the deferred tax assets for net operating losses of $74.5 million and tax credits of $8.2 million generated through 2014 from its deferred tax asset schedule and has recorded a corresponding decrease to its valuation allowance. When this analysis is finalized, the Company plans to update its unrecognized tax benefits. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.

The Company recognizes excess tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net operating losses resulting from excess tax benefits. As of December 31, 2014, deferred tax assets do not include approximately $0.8 million of these excess tax benefits from employee stock option exercises that are a component of the Company’s net operating loss carryforwards. Accordingly, additional paid-in capital will increase $0.8 million if and when such excess tax benefits are realized. During 2014, no excess tax benefits were realized.

The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no unrecognized tax benefits recorded by the Company as of the date of adoption. As a result of the implementation, the Company did not recognize an increase in the liability for unrecognized tax benefits. There are no

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unrecognized tax benefits included in the consolidated balance sheets that would, if recognized, affect the effective tax rate.

The Company is subject to taxation in the US and California and various other states. The Company is subject to tax examination by tax authorities in those jurisdictions for 2009 and forward. The Company’s practice is to recognize interest or penalties related to income tax matters as income tax expense. The Company has no accruals for interest or penalties on its accompanying consolidated balance sheets as of December 31, 2014 and 2013, and has not recognized interest or penalties in its consolidated statements of operations and comprehensive loss for all periods presented.

12. Employee Benefits

The Company has a defined contribution 401(k) plan for all employees. Employees are eligible to participate in the plan beginning on the first day of the month following date of hire. Under the terms of the plan, employees may make voluntary contributions as a percent of compensation. During the years ended December 31, 2014 and 2013, the Company did not make any matching contributions.

13. Selected Quarterly Financial Information (Unaudited)

The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods. Summarized quarterly data for 2014 and 2013 are as follows (in thousands, except per share data):


	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2014:
Collaborative revenue	$	1,350		$	1,100		$	3,450		$	—
Operating expenses	$	22,766		$	24,171		$	33,374		$	37,159
Net loss	$	(21,500	)	$	(23,154	)	$	(32,165	)	$	(38,151	)
Basic and diluted net loss per common share ⁽¹⁾	$	(1.01	)	$	(1.04	)	$	(1.19	)	$	(1.32	)
2013:
Collaborative revenue	$	1,488		$	1,238		$	1,142		$	773
Operating expenses	$	9,082		$	11,030		$	16,550		$	15,872
Net loss	$	(9,649	)	$	(9,918	)	$	(15,565	)	$	(15,244	)
Basic and diluted net loss per common share ⁽¹⁾	$	(5.46	)	$	(0.98	)	$	(0.88	)	$	(0.86	)

⁽¹⁾	Net loss per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per-share calculations will not necessarily equal the annual per share calculation.

14. Subsequent Events

In February 2015, the Company amended the lease agreement for its corporate headquarters to increase the leased space by approximately 23,478 square feet, and in connection therewith, also increased the letter of credit for the security deposit held by the landlord from $0.1 to $0.2 million. The Company anticipates occupying the additional space in July 2015.

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EXHIBIT INDEX


Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed June 20, 2013).

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed June 20, 2013).

4.1		Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.2		Third Amended and Restated Investors’ Rights Agreement, dated February 3, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.3		Omnibus Approval and Amendment with Respect to Series B Preferred Stock Purchase Agreement and Third Amended and Restated Investors’ Rights Agreement, dated February 23, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.4 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.4		Omnibus Approval and Amendment with Respect to Series B Preferred Stock Purchase Agreement and Third Amended and Restated Investors’ Rights Agreement, dated March 6, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.5		Approval with Respect to Series B Preferred Stock Purchase Agreement, dated March 6, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.6 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.6		Third Amended and Restated Right of First Refusal and Co-Sale Agreement, dated February 3, 2012, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.7 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

4.7		Form of Omnibus Acknowledgment and Agreement with Respect to Potential Initial Public Offering, dated April 18, 2013, between Receptos, Inc. and certain investors (incorporated by reference to Exhibit 4.8 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.1#		Form of Indemnification Agreement between Receptos, Inc. and its officers and directors (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.2#		2008 Stock Plan, as amended to date (incorporated by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.3#		Form of Stock Option Agreement for options granted under 2008 Stock Plan (incorporated by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.4#		Form of Stock Option Agreement—Early Exercise for options granted under 2008 Stock Plan (incorporated by reference to Exhibit 10.4 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).



10.5#		2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.6#		Form of Non-Qualified Stock Option Agreement and Form of Restricted Stock Agreements for awards granted under the 2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.7#		Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.7 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.8		Lease, dated August 24, 2007, between Apoptos, Inc. (predecessor to Receptos, Inc.) and BMR-10835 Road to the Cure, LLC (incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.9		First Amendment to Lease, dated March 30, 2008, by and between Apoptos, Inc. (predecessor to Receptos, Inc.) and BMR-10835 Road to the Cure, LLC (incorporated by reference to Exhibit 10.9 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.10		Second Amendment to Lease, dated May 11, 2009, by and between Apoptos, Inc. (predecessor to Receptos, Inc.) and BMR-10835 Road to the Cure, LLC (incorporated by reference to Exhibit 10.10 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.11		Amended and Restated Second Amendment to Lease, dated September 15, 2009, by and between Apoptos, Inc. (predecessor to Receptos, Inc.) and BMR-10835 Road to the Cure, LLC (incorporated by reference to Exhibit 10.11 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.12		Assignment, dated June 8, 2010, by and between Apoptos, Inc. and Receptos, Inc. (incorporated by reference to Exhibit 10.12 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.13		Third Amendment to Lease, dated January 6, 2012, by and between Receptos, Inc. and BMR Road to the Cure, LP (successor-in-interest to BMR-10835 Road to the Cure, LLC) (incorporated by reference to Exhibit 10.13 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.14		Fourth Amendment to Lease, dated September 30, 2013, by and between Receptos, Inc. and BMR Road to the Cure, LP (successor-in-interest to BMR-10835 Road to the Cure, LLC) (incorporated by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-193074), originally filed on December 24, 2013).

10.15†		License Agreement, dated June 18, 2009, by and between Receptos, Inc. and The Scripps Research Institute (incorporated by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.16†		First Amendment to License Agreement, dated June 13, 2011, by and between Receptos, Inc. and The Scripps Research Institute (incorporated by reference to Exhibit 10.15 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.17†		Amendment to License Agreement, dated April 2, 2012, by and between Receptos, Inc. and The Scripps Research Institute (incorporated by reference to Exhibit 10.16 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).


10.18†		License Agreement, dated April 21, 2009, by and between Receptos, Inc. (formerly known as Receptor Pharmaceuticals, Inc.) and The Scripps Research Institute (incorporated by reference to Exhibit 10.17 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.19†		Collaboration Agreement, dated December 20, 2010, by and between Receptos, Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 10.18 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.20†		First Amendment to Collaboration Agreement, dated March 14, 2011, by and between Receptos, Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 10.19 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.21†		Second Amendment to Collaboration Agreement, dated March 1, 2011, by and between Receptos, Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 10.20 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.22†		License and Technology Transfer Agreement, dated December 28, 2010, by and between Receptos, Inc. and Ortho- McNeil-Janssen Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.21 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.23†		Collaboration Agreement, dated December 5, 2011, by and between Receptos, Inc. and Ono Pharmaceutical Co., Ltd. (incorporated by reference to Exhibit 10.22 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.24†		Development License and Option Agreement, dated October 3, 2012, by and among Receptos, Inc., AbbVie Bahamas Ltd. and AbbVie Inc. (incorporated by reference to Exhibit 10.23 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.25		First Amendment to Development License and Option Agreement, dated January 28, 2013, by and among Receptos, Inc., AbbVie Bahamas Ltd. and AbbVie Inc. (incorporated by reference to Exhibit 10.24 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.26#		Restricted Stock Issuance Agreement, dated November 19, 2010, between Receptos, Inc. and Faheem Hasnain (incorporated by reference to Exhibit 10.32 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.27#		Restricted Stock Issuance Agreement, dated July 30, 2009, between Receptos, Inc. and Robert J. Peach (incorporated by reference to Exhibit 10.35 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.28#		Restricted Stock Issuance Agreement, dated July 30, 2009, between Receptos, Inc. and Marcus F. Boehm (incorporated by reference to Exhibit 10.36 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.29#		Amended and Restated Consulting Agreement, dated January 24, 2013, between Receptos, Inc. and Edward Roberts (incorporated by reference to Exhibit 10.37 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.30#		Amended and Restated Consulting Agreement, dated January 24, 2013, between Receptos, Inc. and Hugh Rosen (incorporated by reference to Exhibit 10.38 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.31		Credit and Security Agreement, dated April 19, 2013, between Receptos, Inc., Apoptos, Inc. and MidCap Funding III, LLC (incorporated by reference to Exhibit 10.40 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).



10.32		Pledge Agreement, dated April 19, 2013, between Receptos, Inc. and MidCap Funding III, LLC (incorporated by reference to Exhibit 10.41 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.33		Secured Promissory Note, dated April 19, 2013, issued by Receptos, Inc. and Apoptos, Inc. to MidCap Funding III, LLC (incorporated by reference to Exhibit 10.42 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).

10.34#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Faheem Hasnain (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.35#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Graham Cooper (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.36#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Sheila K. Gujrathi, M.D. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.37#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Robert Peach, Ph.D. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.38#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Marcus F. Boehm, Ph.D. (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.39#		Amended and Restated Employment Agreement, dated September 17, 2013, by and between Receptos, Inc. and Chrysa Mineo (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed October 31, 2013).

10.40#		Employment Agreement, dated November 26, 2013, by and between Receptos, Inc. and Christian Waage (incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-K filed March 6, 2014).

10.41†		First Amendment to Collaboration Agreement, dated December 6, 2013, by and between Receptos, Inc. and Ono Pharmaceutical Co., Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 10, 2013).

10.42#		Form of Notice of Stock Unit Award and Stock Unit Agreement for awards granted under the 2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed May 21, 2014

10.43		Lease Agreement, dated April 22, 2014, by and between Receptos, Inc. and ARE-SD Region No.35, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 28, 2014)

10.44		First Amendment to Lease, dated July 30, 2014, by and between Receptos, Inc. and ARE-SD Region No. 35, LLC (incorporated reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 18, 2015)

10.45		Second Amendment to Lease, dated February 13, 2015, by and between Receptos, Inc. and ARE-SD Region No. 35, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 18, 2015.

21.1		List of Subsidiaries (incorporated by reference to Exhibit 21.1 of the Company’s Registration Statement on Form S-1, as amended (File No. 333-187737), originally filed on April 4, 2013).



23.1		Consent of independent registered public accounting firm.

24.1		Power of Attorney (see signature page).

31.1		Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended.

32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

#	Management contract or compensatory arrangement.

†	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company