~~our anticipated cash needs and our estimates regarding our capital requirements and our needs for additional financing;~~

• federal, state, and non-U.S. regulatory requirements, including regulation of our current or any other future product candidates by the U.S. Food and Drug Administration ~~(the “FDA”~~(“FDA”);

•

~~the success, timing and cost of our current Phase 3 program for~~~~trabodenoson~~ as a monotherapy and planned Phase 3 and other clinical trials and anticipated Phase 2 program for our fixed-dose combination product candidate, including statements regarding the timing of initiation and completion of the trials;

• the timing of and our ability to submit regulatory filings with the FDA and to obtain and maintain FDA or other regulatory authority approval of, or other action with respect to, our product candidates;

• our ~~commercialization, marketing~~competitors’ activities, including decisions as to the timing of competing product launches, generic entrants, pricing and ~~manufacturing capabilities and strategy, including with respect to our potential sales force in the United States and our partnering and collaboration efforts outside the United States;~~

discounting;

~~third-party payor reimbursement for our current product candidates or any other potential products;~~

~~our expectations regarding the clinical~~• whether safety ~~tolerability~~ and efficacy results of our clinical trials and other required tests for approval of our product candidates ~~and results~~provide data to warrant progression of ~~our~~ clinical ~~trials;~~

~~the glaucoma patient market size and the rate and degree~~trials, potential regulatory approval or further development of ~~market adoption~~any of our product candidates;

• our ability to develop, acquire and advance product candidates ~~by ophthalmologists, optometrists~~into, and ~~patients;~~

~~the timing, cost~~successfully complete, clinical studies, and our ability to apply for and obtain regulatory approval for such product candidates, within currently anticipated timeframes, or ~~other aspects of a potential commercial launch of~~at all;

• our ability to establish key collaborations and vendor relationships for our product candidates and ~~potential future sales of our current product candidates or~~ any other ~~potential products if any are approved for marketing;~~

~~our expectations regarding licensing, acquisitions and strategic operations;~~

~~the potential advantages of our~~future product candidates;

~~our competitors and their product candidates, including our expectations regarding those competing product candidates;~~

• our ability to ~~protect~~successfully develop and ~~enforce~~commercialize any technology that we may in-license or products we may acquire;

• unanticipated delays due to manufacturing difficulties, supply constraints or changes in the regulatory environment;

• our ~~intellectual property rights,~~ability to successfully operate in non-U.S. jurisdictions in which we currently or in the future do business, including ~~our patented~~compliance with applicable regulatory requirements and ~~trade secret protected proprietary rights in~~laws;

• uncertainties associated with obtaining and enforcing patents to protect our product ~~candidates;~~candidates, and

our ability to successfully defend ourselves against unforeseen third-party infringement claims;

• anticipated trends and challenges in our business and the markets in which we ~~operate.~~

operate;

• our estimates regarding our capital requirements; and

• our ability to obtain additional financing and raise capital as necessary to fund operations or pursue business opportunities.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Form 10-K.

Any forward-looking statements in this Annual Report on Form 10-K reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and

other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part I, Item 1A. Risk Factors and elsewhere in this Annual Report on Form 10-K. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

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PART I

~~Item 1. Business~~

Item 1. Business

Merger of Inotek Pharmaceuticals Corporation and Rocket Pharmaceuticals, Ltd.

On January 4, 2018, Inotek Pharmaceuticals Corporation (“Inotek”) and privately held Rocket Pharmaceuticals, Ltd. (“Rocket Ltd”) completed a business combination in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of September 12, 2017, by and among Inotek, Rome Merger Sub, a wholly owned subsidiary of Inotek (“Merger Sub”), and Rocket Ltd, pursuant to which Merger Sub merged with and into Rocket Ltd, with Rocket Ltd surviving as a wholly owned subsidiary of Inotek. This transaction is referred to as the “Reverse Merger.” Immediately following the Reverse Merger, Inotek changed its name to “Rocket Pharmaceuticals, Inc.” In connection with the closing of the Reverse Merger, our common stock began trading on The Nasdaq Global Market under the ticker symbol “RCKT” on January 5, 2018.

The Reverse Merger has been accounted for as a reverse merger under the acquisition method of accounting. After reviewing the relative voting rights, the composition of the board of directors and the composition of senior management of the combined company after the Reverse Merger, it was determined that Rocket Ltd will be treated as the accounting acquirer and Inotek will be treated as the “acquired” company for financial reporting purposes under the acquisition method of accounting.

Overview

~~We are~~

Rocket Pharmaceuticals, Inc., together with its subsidiaries (collectively, “Rocket” or the “Company”), is a clinical-stage, ~~biopharmaceutical~~multi-platform biotechnology company focused on the development of first or best-in-class gene therapies, with direct on-target mechanism of action and clear clinical endpoints, for rare and devastating pediatric diseases. We have clinical-stage lentiviral vector (“LVV”) programs currently undergoing clinical testing for Fanconi Anemia (“FA”), a genetic defect in the bone marrow that reduces production of blood cells or promotes the production of faulty blood cells and Leukocyte Adhesion Deficiency-I (“LAD-I”), a genetic disorder that causes the immune system to malfunction. FA has been in clinical stage testing in the EU since 2016, and in the United States (“U.S.”), Rocket received investigational new drug (“IND”) clearance for both FA and LAD-I in late 2018. Two additional pre-clinical stage LVV programs include Pyruvate Kinase Deficiency (“PKD”), a rare red blood cell autosomal recessive disorder that results in chronic non-spherocytic hemolytic anemia; and Infantile Malignant Osteopetrosis (“IMO”), a genetic disorder characterized by increased bone density and bone mass secondary to impaired bone resorption. In addition, we have an adeno-associated virus (“AAV”) program for Danon disease, a multi-organ lysosomal-associated disorder leading to early death due to heart failure. An IND filing was cleared in Danon disease in early 2019, which will permit the commencement of human clinical studies following approval. We have global commercialization and development rights to all of our product candidates under royalty-bearing license agreements, with the exception of the CRISPR/Cas9 development program (described below) for which we currently only have development rights.

Through our gene therapy platforms, we aim to restore normal cellular function by modifying the defective genes that cause each of the targeted disorders.

Gene Therapy Overview

Genes are composed of sequences of deoxyribonucleic acid (“DNA”), which code for proteins that perform a broad range of physiologic functions in all living organisms. Although genes are passed on from generation to generation, genetic changes, also known as mutations, can occur in this process. These changes can result in the lack of production of proteins or the production of altered proteins with reduced or abnormal function, which can in turn result in disease.

Gene therapy is a therapeutic approach in which an isolated gene sequence or segment of DNA is administered to a patient, most commonly for the purpose of treating a genetic disease that is caused by genetic mutations. Currently available therapies for many genetic diseases focus on administration of large proteins or enzymes and typically address only the symptoms of the disease. Gene therapy aims to address the disease-causing effects of absent or dysfunctional genes by delivering functional copies of the gene sequence directly into the patient’s cells, offering the potential for curing the genetic disease, rather than simply addressing symptoms.

We are using modified non-pathogenic viruses for the development of our gene therapy treatments. Viruses are particularly well suited as delivery vehicles because they are adept at penetrating cells and delivering genetic material inside a cell. In creating our viral delivery vehicles, the viral (pathogenic) genes are removed and are replaced with a functional form of the missing or mutant gene that is the cause of the patient’s genetic disease. The functional form of a missing or mutant gene is called a therapeutic gene, or the “transgene.” The process of inserting the transgene is called “transduction.” Once a virus is modified by replacement of the viral genes with a transgene, the modified virus is called a “viral vector.” The viral vector delivers the transgene into the targeted tissue or organ (such as the cells inside a patient’s bone marrow). We have two types of viral vectors in development, LVV and AAV. We believe that our LVV and AAV-based programs have the potential to offer a significant therapeutic benefit to patients that is durable (long-lasting).

The gene therapies can be delivered either (1) ex vivo (outside the body), in which case the patient’s cells are extracted and the vector is delivered to these cells in a controlled, safe laboratory setting, with the modified cells then being reinserted into the patient, or (2) in vivo (inside the body), in which case the vector is injected directly into the patient, either intravenously (“IV”) or directly into a specific tissue at a targeted site, with the aim of the vector delivering the transgene to the targeted cells.

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We believe that scientific advances, clinical progress, and the greater regulatory acceptance of gene therapy have created a promising environment to advance gene therapy products as these products are being designed to restore cell function and improve clinical outcomes, which in many cases include prevention of death at an early age. The FDA approval of Novartis’s treatment for pediatric acute lymphoblastic leukemia indicates that there is a regulatory pathway forward for gene therapy products.

Essential Terminology.

Set forth below is an abbreviated index of certain key terms and optimal ranges of values used in the discussion of LVV and AAV gene therapies.


Term	Definition	Optimal Ranges
LVV Therapy (hematopoietic disorders)

CD34+ cell(s)	Hematopoietic Stem Cell (most CD34+ cells are not true stem cells, but this continues to be the most clinically useful measure)	Will depend on underlying disorder, generally > 1 million CD34+ cells/kg.

Vector copy number (VCN) [product]	The average number of gene copies per infused stem cell (as determined by DNA analysis; this is an average ratio, not a precise value)	2.0 (“normal” value) 0.5 to 2 has been target in some LVV clinical studies (5.0 considered maximum)

Vector copy number (VCN) [in vivo, post-treatment]	The average number of gene copies per peripheral blood or bone marrow cell (as determined by DNA analysis; this is an average ratio, not a precise value)	Will depend on underlying disorder, but many disorders may be correctable with in vivo VCNs << 1.0

AAV Therapy

Vector copy number (VCN) [in vivo, post-treatment]	The average number of gene copies per cell in the organ of interest (as determined by DNA analysis; this is an average ratio, not a precise value)	Will depend on underlying disorder, but many disorders may be correctable with in vivo VCNs << 1.0

Pipeline Overview

LVV Programs. Rocket’s LVV-based programs utilize third-generation, self-inactivating lentiviral vectors to target selected rare diseases. Currently, Rocket is developing LVV programs to treat FA, LAD-I, PKD, and IMO.

The chart below shows the current phases of development of Rocket’s programs and product candidates:

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Descriptions of these conditions and the Rocket programs for each is set forth below.

Fanconi Anemia Complementation Group A (FANCA):

Fanconi Anemia Overview

FA, a rare and life-threatening DNA-repair disorder, generally arises from a mutation in a single FA gene. An estimated 60 to 70% of cases arise from mutations in the Fanconi-A (“FANCA”) gene, which is the focus of the current Rocket program.

FA results in bone marrow failure, developmental abnormalities, myeloid leukemia and other malignancies, often during the early years and decades of life. Bone marrow aplasia, which is bone marrow that no longer produces any or very few red and white blood cells and platelets leading to infections and bleeding, is the most frequent cause of early morbidity and mortality in FA, with a median onset before 10 years of age. Leukemia is the next most common cause of mortality, ultimately occurring in about 20% of patients later in life. Solid organ malignancies, such as head and neck cancers, can also occur, although at lower rates during the first two to three decades of life.

Although improvements in allogeneic (donor-mediated) hematopoietic stem cell transplant (“HSCT”), currently the most frequently utilized therapy for FA, have resulted in more frequent hematologic correction of the disorder, HSCT is associated with both acute and long-term risks, including transplant-related mortality, graft versus host disease (“GVHD”), a sometimes fatal side effect of allogeneic transplant characterized by painful ulcers in the GI tract, liver toxicity and skin rashes, as well as increased risk of subsequent cancers. Rocket’s gene therapy program in FA is designed to enable a minimally toxic hematologic correction using a patient’s own stem cells during the early years of life. Rocket believes that the development of a broadly applicable autologous gene therapy can be transformative for these patients.

Current Therapy

Allogeneic HSCT may be curative for the hematologic manifestations of FA and is currently considered a standard-of-care in FA. However, HSCT is limited in that not all patients have a suitable donor and there is associated short term mortality and potential for acute and chronic GVHD with HSCT, especially in patients who do not receive an allograft from a sibling-human leukocyte antigen (“HLA”)-matched donor. 100-day mortality following allogeneic HSCT continues to be in the 10 to 15% range due to infection, graft failure and other complications. In a European Group for Blood and Marrow Transplant 2013 publication, a retrospective analysis detailed results from 795 FA patients receiving HSCT from 1972 to 2010 in which Grade 2-4 Acute GVHD was reported in 19 to 36% of patients and Chronic GVHD was identified in 16 to 20% of patients.

HSCT likely increases the already high risk of subsequent solid tumor malignancies for patients with FA, most notably squamous carcinoma of the head and neck (“SCCHN”). Based on the findings in one series of data, HSCT was associated with a 4-fold increase in SCCHN risk relative to FA patients who did not receive a transplant, with cancers developing at an earlier age.

Other therapies utilized for FA include androgens, corticosteroids and hematopoietic growth factors, although the benefits of these therapies are considered modest and transient for the majority of patients. Side effects may also be considerable. For androgens, for example, these include masculinization, short stature, hepatitis, liver adenomas and hepatocellular carcinoma.

Because of the severity of the disease and limitations with existing standards-of-care, additional, minimally-toxic therapies are urgently needed in FA, especially if these can be administered with reduced short- and long-term toxicity relative to allogeneic HSCT.

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Rationale for Gene Therapy in FA

Gene therapy has been considered a compelling investigative therapeutic option in FA since the genetic basis of the disorder was characterized, and has been the subject of studies in both preclinical models and in several clinical studies. In addition to the monogenic nature of each patient’s disease, Rocket believes there are several critical factors that will lead Rocket’s gene therapy programs into the next generation of promising therapy:

The ability of HSCT to cure the hematologic component of FA is proof-of-principle that gene therapy will work in FA. If a sufficient number of hematopoietic stem cells (“HSCs) with a correct (non-FA) gene are able to engraft in the bone marrow of an FA patient, the blood component of FA can be eradicated, including both the risk of bone marrow failure and of leukemia. Rocket believes that gene therapy with a patient’s own gene-corrected blood stem cells will work in a similar manner, but likely with fewer side effects than those resulting from an allogeneic transplant and with reduced long-term treatment cost burden.

Mosaicism in FA patients: this is a condition in which a second mutation enables formation of a functional FA protein and leads to stabilization or correction of blood counts, in some cases enabling decades of bone-marrow-failure free survival. Mosaicism occurs because gene-corrected FA stem and progenitor cells have a selective advantage over uncorrected FA cells; this phenomenon demonstrates that a modest number of gene corrected HSCs can repopulate a patient’s blood and bone marrow with corrected (non-FA) cells. This selective advantage also has been demonstrated by the results of the initial FANCOLEN-I gene therapy study in Madrid, Spain, in which patients received gene-corrected cells without any chemotherapy conditioning; the percentage of blood and bone marrow cells containing the corrected FA gene has increased progressively over time. These increases have been accompanied by increases in the percentage of cells that are resistant to DNA-damaging agents, indicating a reversal of the FA phenotype in the blood and bone marrow of these patients.

Improved vector design, stem cell selection methods, cell harvest and transduction procedures have the potential to substantially improve the quality of autologous gene therapy cell products; many of these improvements have been included in Rocket’s programs. As a result, Rocket believes that there is reliable potential to confer disease correction at levels comparable to allogeneic transplant, but without the chemotherapy conditioning and additional side effects associated with a transplant. For example, stem cell selection methods utilized by Rocket’s academic partners have increased both CD34+ cell yield and purity, while retaining select non-CD34+ populations that may be essential for successful engraftment of gene-corrected cells in the bone marrow.

Clinical Development Programs RP-L101 and RP-L102

Efforts underway at Rocket’s partners have incorporated the recommendations of an international FA working group that convened November 2010 with the intent of consolidating medical and scientific findings and optimization of future gene therapy clinical study design, with programs designed to overcome FA-specific gene therapy challenges. Rocket partners have demonstrated the ability to successfully mobilize and harvest target numbers of hematopoietic stem and progenitor cells (“HSPCs”) generally acknowledged to be required for successful therapy. This has been accomplished through the selection of younger patients, and mobilization with both granulocyte-colony stimulating factor (“G-CSF”) and plerixa for drug products, which are both FDA-approved drugs that increase the number of bone marrow-derived stem cells circulating in the blood. Improvements to cell processing, such as reduced transduction time requirements, optimized transduction conditions, and modified HSPC selection processes, have also led to substantive improvements in cell recovery and in vivo VCN.

Improvements in the clinical and cell-processing components of Rocket’s FA trials are expected to yield more robust and readily-identifiable disease-reversal, both for the RP-L101 and RP-L102 programs. These improvements include selection of younger patients and identification of blood count profiles that are indicative of adequate stem cell populations capable of mobilization and engraftment in numbers sufficient for reversal of the disorder.

In contrast to the high doses of cytotoxic conditioning required for allogeneic transplant in most bone marrow disorders, Rocket’s expectation is that the selective growth advantage of gene-corrected HSPCs in FA will enable treatment without conditioning agents to facilitate engraftment.

The engraftment of gene-corrected cells is likely to reduce the incidence of bone marrow failure. In addition, gene-corrected cells are likely to diminish the replicative stress in FA bone marrow, which has been increasingly implicated as a likely driver of the development or bone marrow failure or leukemia.

Rocket’s LVV-based programs utilize third-generation, self-inactivating lentiviral vectors to correct defects in patients’ HSCs, which are the cells found in bone marrow that are capable of generating blood cells over a patient’s lifetime. Defects in the genetic coding of HSCs can result in severe, and potentially life-threatening anemia, which is when a patient’s blood lacks enough properly functioning red blood cells to carry oxygen throughout the body. Stem cell defects can also result in severe and potentially life-threatening decreases in white blood cells resulting in susceptibility to infections, and in platelets responsible for blood clotting, which may result in severe and potentially life-threatening bleeding episodes. Patients with FA have a genetic defect that prevents the normal repair of genes and chromosomes within blood cells in the bone marrow, which frequently results in the development of acute myeloid leukemia (“AML”), a type of blood cancer, as well as bone marrow failure and congenital defects. The average lifespan of an FA patient is estimated to be 30 to 40 years. The prevalence of FA in the U.S. and European Union (“EU”) is estimated to be about 2,000, and given the efficacy seen in non-conditioned patients, the addressable annual market opportunity is now thought to be in the 400-500 range, or at least double previous estimates.

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We currently have one LVV-based program targeting FA, RP-L102. RP-L102 is our lead lentiviral vector based program that we in-licensed from Centro de Investigaciones Energéticas, Medioambientales y Tecnológicas (“CIEMAT”), which is a leading research institute in Madrid, Spain. RP-L102 is currently being studied in a Rocket-sponsored Phase 1 clinical trial treating FA patients initially at the Center for Definitive and Curative Medicine at Stanford University School of Medicine (“Stanford”). A modified process under an Investigational Medicinal Product Dossier (“IMPD”), is being studied in a trial sponsored by CIEMAT. We are entitled to the data from this clinical study and have the commercial rights to the drug being studied under this IMPD.

At the American Society of Cell and Gene Therapy (“ASGCT”) Annual Meeting in May 2018, updated data from the ongoing Phase 1/2 clinical trial of RP-L102 sponsored by CIEMAT was presented, which included data from four patients that had been followed for 12 to 24 months and a fifth patient, treated with transduction-enhanced RP-L102, that was followed for two months. All patients demonstrated continued improvement in engraftment following administration of RP-L102 with sustained phenotypic reversals and earlier evidence of gene correction seen in higher-dosed patients. The progressive increases of corrected versus non-corrected peripheral blood leukocytes indicate the potential of RP-L102 to restore the functionality of bone marrow hematopoietic stem cells. The first patient that received transduction enhanced RP-L102 showed the highest transduction efficiency seen to date in all five patients treated, with a preliminary drug product vector copy number (“VCN”) of ~2.5 to3, and a cell dose considered below the ideal target level of at least 500,000K CD34+/kg.

In June 2018, we were notified that the European Medicines Agency (“EMA”) classified RP-L102 as an Advanced Therapy Medicinal Product (“ATMP”). The ATMP classification recognizes and defines medicines for human use that are considered gene-, tissue-or cell-based therapies. The key benefit of ATMP classification is the early involvement and guidance from the EMA’s Committee of Advanced Therapies, which is the regulatory reviewing body for gene therapies in the EU.

In July 2018, we were notified that we received Rare Pediatric Disease designation from the FDA for RP-L102 for the treatment of FANCA. The FDA defines a “rare pediatric disease” as a serious and life-threatening disease that affects less than 200,000 people in the U.S. that are aged between birth to 18 years. The Rare Pediatric Disease designation program allows for a sponsor who receives an approval for a product to potentially qualify for a voucher that can be redeemed to receive a priority review of a subsequent marketing application for a different product.

In August 2018, at our request, the Fred Hutchinson Cancer Center (“Hutch”), withdrew the IND for RP-L101, a program that we in-licensed from Hutch.

Additional FA data was presented at the October 2018 Annual Congress of European Society of Gene and Cell Therapy (“ESGCT”). At ESGCT, we presented clinical data from patients that had been followed for more than 12 months from the ongoing Phase 1/2 clinical trial of RP-L102 for FA under the first generation un-optimized process. The results continue to demonstrate improvement in engraftment with increased resistance to mitomycin-C and chromosomal stability of T-lymphocytes in the presence of diepoxybutane, two key diagnostic measures of functional and phenotypic correction of bone marrow cells. Data also showed evidence of stabilization of bone marrow failure in all four patients and progressive increases of corrected versus non-corrected peripheral blood leukocytes.

We submitted an IND to initiate clinical studies of RP-L102 in the U.S. in September 2018 and were notified by the FDA of its clearance in November 2018. In the second quarter of 2019, Rocket plans to treat patients in the U.S. under a Rocket-sponsored IND and in the EU with “Process B” RP-L-102. The planned clinical trial of RP-L102 is expected to enroll patients at Stanford beginning in March 2019. This new optimized process incorporates higher cell doses, transduction enhancers, and commercial-grade vector.

In November 2018, we were notified that the FDA granted Regenerative Medicine Advanced Therapy (“RMAT”), and Fast Track designations for RP-L102. RMAT designation was granted based on the positive efficacy and safety results from the ongoing Phase 1/2 clinical trial of RP-L102 being conducted in Europe.

Regulatory Status

The FA program in the EU is in the clinical-stage with an IMPD in place with the Spanish Agency for Medicines and Health Products. The program is also in the clinical stage in the U.S., with patients being enrolled in the first half of 2019. Both the FDA and the EMA have granted orphan drug designation for the “Lentiviral vector carrying the Fanconi anemia-A (FANCA) gene for the treatment of Fanconi anemia type A.”

Leukocyte Adhesion Deficiency-I (LAD-I):

Overview of LAD-I

LAD-I is a rare autosomal recessive disorder of white blood cell adhesion and migration, resulting from mutations in the ITGB2 gene encoding for the Beta-2 Integrin component, CD18. Deficiencies in CD18 result in an impaired ability for neutrophils (a subset of infection-fighting white blood cells) to leave blood vessels and enter into tissues where these cells are needed to combat infections. As is the case with many rare diseases, true estimates of incidence are difficult; however, several hundred cases (both living and deceased) have been reported to date.

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Most LAD-I patients are believed to have the severe form of the disease. Severe LAD-I is notable for recurrent, life-threatening infections and substantial infant mortality in patients who do not receive an allogeneic HSCT. Mortality for severe LAD-I has been reported as 60 to 75% by age two in the absence of allogeneic HCST.

Current Therapy

Allogeneic HSCT is the only known curative therapy, with survival rates of approximately 75% in recent studies. Allogeneic HSCT in LAD-I has been associated with frequent severe and chronic GVHD, and high rates of subsequent non-bacterial infections (most notably cytomegalovirus (“CMV”) and other viral and systemic fungal infections).

Because LAD-I is the result of mutations in a single gene (ITGB2), Rocket is developing RP-L201, an LVV based program, to enable a potentially curative therapy utilizing patients’ own HSPCs, without the dependency on the rapid identification of an appropriate donor required in allogeneic HSCT therapy. It is anticipated that autologous therapy with RP-L201 will also enable definitive correction of this life-threatening disorder with reduced short- and long-term toxicity relative to allogeneic HSCT.

Rationale for Gene Therapy in LAD-I

We believe there are two key reasons why gene therapy could have a transformative role in the treatment of LAD-I: (1) the existence of evidence that even modest correction of the expression of the genetic mutation will increase patient survival in the severe form of the disease, and (2) consistent and robust improvements in transduction and cell processing. Of note, proprietary transduction protocols currently yield product VCNs ≥ 1 and transduction efficiencies of > 50%. In addition, with the addition of either of two transduction enhancing agents, at least a doubling of product VCN has been demonstrated in preliminary experiments.

We believe that combined with a relatively straightforward cell harvest procedure in LAD-I and the likely modest CD18 expression required for clinical impact, RP-L201 can yield a gene therapy product that confers disease resolution comparable to allogeneic HSCT, and without the severe HSCT-associated acute and chronic toxicities.

Preclinical Proof of Concept

Preclinical results have indicated correction of LAD-I in mouse models, including restoration of neutrophils’ ability to adhere to endothelial surfaces and migrate from blood vessels towards inflammatory sources. Specifically, gene correction has been shown to restore functional CD18 expression in a CD18 hypomorphic mouse (CD18^HYP) model, in which a mouse is conferred a CD18 gene mutation resulting in impaired inflammatory responses, leukocytosis (high white blood cell count) and hepatosplenomegaly (swelling of the liver and spleen).

Rocket currently has one program targeting LAD-I, RP-L201. RP-L201 is a clinical program that Rocket in-licensed from CIEMAT.. The planned open-label, single-arm, Phase 1 portion of the clinical trial of RP-L201 is expected to enroll two severe LAD-I patients in the U.S or E.U. The Phase 2 portion of the clinical trial of RP-L201 is expected to be a registration-enabling global study with clinical sites in the U.S., U.K. and Spain.

Regulatory Status

We submitted an IND to initiate clinical studies of RP-L201 in the U.S. in October 2018 and were notified by the FDA of its clearance in November 2018. In November 2018, we were notified that we received Rare Pediatric Disease designation and in December 2018 we received Fast Track designation from the FDA for RP-L201.

In January 2019, we were notified that the EMA, classified RP-L201 as an ATMP. We plan to initiate Rocket sponsored clinical studies of RP-L201 in 2019 in the U.S. and Spain.

In the EU, the IMPD was approved by Spanish Agency for Medicines and Health in November 2018.

Pyruvate Kinase Deficiency (PKD):

Overview of PKD

Red blood cell PKD is a rare autosomal recessive disorder resulting from mutations in the pyruvate kinase L/R (“PKLR”) gene encoding for a component of the red blood cell (“RBC”) glycolytic pathway. PKD is characterized by chronic non-spherocytic hemolytic anemia, a disorder in which RBCs do not assume a normal spherical shape and are broken down, leading to decreased ability to carry oxygen to cells, with anemia severity that can range from mild (asymptomatic) to severe forms that may result in childhood mortality or a requirement for frequent, lifelong RBC transfusions. The pediatric population is the most commonly and severely affected subgroup of patients with PKD, and PKD often results in splenomegaly (abnormal enlargement of the spleen), jaundice and chronic iron overload which is likely the result of both chronic hemolysis and the RBC transfusions used to treat the disease. The variability in anemia severity is believed to arise in part from the large number of diverse mutations that may affect the PKLR gene. Estimates of disease incidence have ranged between 3.2 and 51 cases per million in the white U.S. and EU population. Industry estimates suggest at least 2,500 cases in the U.S. and EU have already been diagnosed despite the lack of FDA-approved molecularly targeted therapies.

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Current Therapy

Therapy for PKD is largely supportive, comprised of RBC transfusions and splenectomy for patients who require frequent transfusions. Chronic RBC transfusions alleviate anemia symptoms, but are associated with increased morbidity, predominantly from iron overload which may result in cirrhosis, which is a loss of liver cells and irreversible scarring of the liver, and cardiomyopathy, a chronic disease of the heart muscle that leads to a larger and bulky but inefficient heart, if not diligently managed. Iron chelation, is often considered essential to offset the iron overload associated with chronic hemolysis and RBC transfusions. Iron chelation entails continuous oral or injected therapy, often for the duration of a patient’s lifetime and has been associated with diminished quality of life.

Splenectomy may confer a benefit in PKD, frequently yielding increased hemoglobin (“Hb”) levels of 1-3g/dL and a reduction in transfusion requirements. However, some patients do not benefit from this procedure, and it is estimated that a substantial proportion of PKD patients remain transfusion-dependent despite splenectomy. Splenectomy does not eliminate hemolysis, iron overload or the need for iron chelation. It also confers an increased susceptibility to serious bacterial infections, and potentially increases the risk of other PKD-associated or other complications such as venous thromboembolism and aplastic or hemolytic crises.

Allogeneic HSCT has been performed successfully for a small number of PKD patients, with reported correction of the clinical and laboratory features of the disorder. Although reports of HSCT in PKD suggest that correction of the genetic defect in hematopoietic stem cells may be curative of the disorder, HSCT requires identification of an appropriate HLA-matched donor, is associated with considerable short- and long-term complications including transplant-related mortality and is not considered a standard-of-care in PKD.

Rationale for Gene Therapy in PKD

Patients with heterozygous PKLR mutations have 50% of normal enzyme activity and are phenotypically normal. This suggests that it is not necessary for a therapy to achieve normal enzyme levels to have a clinically meaningful effect. In PKD-affected mice transplanted with normal marrow, the presence of 10% normal marrow was sufficient to restore normal red blood cells. Rocket has conducted experiments in which bone marrow cells from healthy mice are transplanted into PKD affected mice and these results suggest that significant improvement in PKD may be achieved with 20% correction of bone marrow, and complete clinical resolution is likely achieved when the percentage of bone marrow gene-corrected cells is in the 20 to 40% range. An additional study showed that a PKD-affected dog treated with an ex vivo gene therapy was rendered transfusion independent with a normalization of lactate dehydrogenase, despite only partial gene correction.

Of note, proprietary transduction protocols in PKD now yield product VCNs of 2, with VCNs increasing to ≥ 4 with the addition of transduction enhancers. We expect that mobilization and harvesting procedures will be relatively straightforward for PKD patients.

Preclinical Proof-of-Concept

Preclinical results have demonstrated that RP-L301 corrects multiple components of the disorder in a PKD mouse model, including increases in hemoglobin (in both primary and secondary transplant recipients), reduction in reticulocytosis, which is an increase in immature red blood cell production, correction of splenomegaly and reduction in hepatic erythroid clusters and iron deposits.

We currently have one LVV-based program targeting PKD, RP-L301. RP-L301 is a preclinical program that we in-licensed from CIEMAT. This program is currently being developed through an ongoing collaboration with CIEMAT. New market research indicates the application of gene therapy to broader populations could increase the market opportunity from approximately 250 to 500 per year.

Regulatory Status

In the EU, the PKD program has been discussed with the EMA via a Scientific Advisory meeting in 2016. This program has been granted EMA orphan drug disease designation and FDA orphan drug disease designation. A rolling IMPD is expected to be filed in the next few months. We expect to initiate a Phase 1 clinical trial of RP-L301 in the second half of 2019.

Infantile Malignant Osteopetrosis (IMO):

Overview of Infantile Malignant Osteopetrosis

IMO is a genetic disorder characterized by increased bone density and bone mass secondary to impaired bone resorption. Normally, small areas of bone are constantly being broken down by special cells called osteoclasts, then made again by cells called osteoblasts. In IMO, the cells that break down bone (osteoclasts) do not work properly, which leads to the bones becoming thicker and not as healthy. Untreated IMO patients may suffer from a compression of the bone-marrow space, which results in bone marrow failure, anemia and increased infection risk due to the lack of production of white blood cells. Untreated IMO patients may also suffer from a compression of cranial nerves, which transmit signals between vital organs and the brain, resulting in blindness, hearing loss and other neurologic deficits.

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IMO represents the autosomal recessive, severe variants of a group of disorders characterized by increased bone density and bone mass secondary to impaired bone resorption. IMO typically presents in the first year of life and is associated with severe manifestations leading to death within the first decade of life in the absence of allogeneic HSCT, although HSCT results have been limited to-date and notable for frequent graft failure, GVHD and other severe complications.

Approximately 50% of IMO results from mutations in the TCIRG1 gene, resulting in cellular defects that prevent osteoclast bone resorption. As a result of this defect, bone growth is markedly abnormal. It is estimated that IMO occurs in 1 out of 250,000-300,000 within the general global population, although incidence is higher in specific geographic regions including Costa Rica, parts of the Middle East, the Chuvash Republic of Russia, and the Vasterbotten Province of Northern Sweden.

IMO is characterized by increased bone mass and density, multiple deformities and a propensity for fractures in patients surviving infancy. Skull deformities include macrocephaly and frontal bossing. Thoracic size may be decreased. Bone sclerosis impinges cranial nerve and spinal foramina with resulting neurologic abnormalities, including hydrocephalus, progressive blindness and auditory impairment. Compression of bone marrow space results in bone marrow failure with compensatory hepatosplenomegaly and increased infection risk secondary to neutropenia.

Current Therapy

Allogeneic HSCT is potentially curative, but notable for considerable rates of engraftment failure, GVHD and pulmonary and hepatic complications. In a recent multicenter retrospective series, long-term survival rates for HSCT recipients with IMO were approximately 60% for matched-sibling recipients, and 40% for those with mismatched or unrelated allografts.

Preclinical Proof-of-Concept

Because osteoclasts are derived from the monocyte/macrophage lineage, correction of the TCIRG1 gene in hematopoietic stem cells will enable development of functional, bone-resorbing osteoclasts, as has been demonstrated in preclinical models. Preclinical results demonstrate that gene correction of HSPCs from IMO patients is feasible, and that these HSPCs can engraft in immunocompromised mice. Osteoclasts from these mice demonstrate increased bone resorption in vitro, as measured by increased calcium and collagen fragment CTX-I.

Additional preclinical experiments have demonstrated correction of an osteopetrotic (IMO) phenotype displayed by the oc/oc mouse model, in which even limited engraftment of wild-type murine bone marrow cells (including 4 to 5% wild-type engraftment) has been associated with reversal of the osteopetrosis phenotype.

Regulatory status

Rocket currently has one LVV-based program targeting IMO, RP-L401. RP-L401 is a preclinical program that Rocket in-licensed from Lund University, Sweden. This program has been granted ODD from the FDA.

AAV Program.

Overview of Danon Disease

Danon disease is a multi-organ lysosomal-associated disorder leading to early death due to heart failure. RP-A501 is in preclinical development as an in vivo therapy for Danon disease, which is estimated to have a prevalence of 15,000 to 30,000 patients in the U.S. and the EU, however new market research is being performed and the prevalence of patients may be updated in the future. Danon disease is caused by mutations in the gene encoding lysosome-associated membrane protein 2 (LAMP-2), a mediator of autophagy. This mutation results in the accumulation of autophagic vacuoles, predominantly in cardiac and skeletal muscle. Male patients often require heart transplantation and typically die in their teens or twenties from progressive heart failure. Along with severe cardiomyopathy, other Danon disease symptoms can include skeletal muscle weakness, liver disease, and intellectual impairment. There are no specific therapies available for the treatment of Danon disease.

Preliminary preclinical studies have indicated that clinically feasible AAV doses can restore functional levels of protein in knockout mouse models, and that gene/protein restoration is associated with marked histologic and hemodynamic improvement in the organs in which the disorder causes extensive morbidity and mortality. Rocket’s AAV program is designed to enable a single-injection definitive therapy for this devastating disease, in which there exists no reliably curative treatment option.

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Figure 1

FIGURE 1: Representative electron microscopy tissue images from animal model of undisclosed AAV program. Left panels indicate wild-type (normal) animals; middle panels indicate diseased animals treated with control (“EGFP”) vector; and right panels indicate RP-A501 mediated restoration of architecture and resolution of additional abnormalities.

In November 2018, we announced our AAV-based RP-A501 program for the treatment of Danon disease, along with animal study data providing preclinical proof-of-concept for the RP-A501 program. Preclinical efficacy studies were performed in LAMP-2 knockout mice. Four doses of vector were tested for optimal transduction of the heart, skeletal muscle, and liver. Toxicology studies were conducted in wild-type mice and non-human primates. The results from these studies are summarized as follows:

Increased survival rates were observed at higher doses of RP-A501 along with dose-dependent improvements and restoration of cardiac function.

RP-A501 elicited phenotypic reversals at a structural and molecular level in cardiac, liver, and skeletal muscle tissue.

There were no treatment-related adverse events or deaths associated with RP-A501. All doses were observed to be well-tolerated in Good Laboratory Practice biodistribution and toxicology studies in both wildtype mice and additional studies in non-human primates.

In January 2019, we announced the clearance of our IND application by the FDA for RP-A501. University of California San Diego Health will be the initial and lead center for the planned Phase 1 clinical trial. In February 2019, we were notified by the FDA that we were granted Fast Track designation for RP-A501.

CRISPR/Cas9 gene editing in Fanconi Anemia:

In addition to its LVV and AAV programs, Rocket also has a program evaluating CRISPR/Cas9-based gene editing for FA. This program is currently in the discovery phase. CRISPR/Cas9-based gene editing is a different method of correcting the defective genes in a patient, where the editing is very specific and targeted to a particular gene sequence. “CRISPR/Cas9” stands for Clustered, Regularly Interspaced Short Palindromic Repeats (“CRISPR”) Associated protein-9. The CRISPR/Cas9 technology can be used to make “cuts” in DNA at specific sites of targeted genes, making it potentially more precise in delivering gene therapies than traditional vector-based delivery approaches. CRISPR/Cas9 can also be adapted to regulate the activity of an existing gene without modifying the actual DNA sequence, which is referred to as gene regulation.

Regulatory Status

This program is currently in the discovery stage of drug development.

Strategy

We seek to bring hope and relief to patients with devastating, undertreated, rare pediatric diseases through the development and commercialization of ~~therapies~~potentially curative first-in-class gene therapies. To achieve these objectives, we intend to develop into a fully-integrated biotechnology company. In the near- and medium-term, we intend to develop our first-in-class product candidates, which are targeting devastating diseases with substantial unmet need. In the medium and long-term, we expect to develop proprietary in-house analytics and manufacturing capabilities, commence registration trials for ~~glaucoma~~our currently planned programs and ~~other diseases of the eye. Glaucoma is a disease of the eye that is typically characterized by structural evidence of optic nerve damage, vision loss~~submit our first biologics license applications (“BLAs”), and ~~consistently elevated intraocular pressure, or IOP. Our lead product candidate,~~~~trabodenoson~~~~, is a first-in-class selective adenosine mimetic~~establish our gene therapy platform and expand our pipeline to target additional indications that we ~~rationally designed~~believe to ~~lower IOP by restoring~~be potentially compatible with our gene therapy technologies. In addition, during that time, we believe that our currently planned programs will become eligible for priority review vouchers from the ~~eye’s natural pressure control mechanism.~~FDA that provide for expedited review. We ~~developed this molecule~~have assembled a leadership and research team with expertise in cell and gene therapy, rare disease drug development and commercialization.

We believes that our competitive advantage lies in our disease-based selection approach, a rigorous process with defined criteria to selectively stimulate a particular adenosine subreceptor in the eye with the effect of augmenting the intrinsic function of the eye’s trabecular meshwork, or TM. The TM regulates the pressure inside the eye and is also the main outflow path for the fluid inside of the eye that often builds up pressure in patients with glaucoma.identify target diseases. We believe that this approach to asset development differentiates us as a gene therapy company and potentially provides us with a first-mover advantage.

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Intellectual Property

Rocket strives to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to the development of its business, including seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties. Rocket also relies on trade secrets relating to its proprietary technology platform and on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain its proprietary position in the field of gene therapy that may be important for the development of Rocket’s business. Rocket additionally intends to rely on regulatory protection afforded through orphan drug designations, data exclusivity, market exclusivity, and patent term extensions where available.

Rocket’s commercial success may depend in part on its ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to its business; defend and enforce its patents; preserve the confidentiality of its trade secrets; and operate without infringing the valid enforceable patents and proprietary rights of third parties. Rocket’s ability to stop third parties from making, using, selling, offering to sell or importing its future products may depend on the extent to which Rocket has rights under valid and enforceable patents or trade secrets that cover these activities. With respect to both licensed and company-owned intellectual property, Rocket cannot be sure that patents will be granted with respect to any of its pending patent applications or with respect to any patent applications filed by ~~restoring~~Rocket in the ~~natural function~~future, nor can Rocket be sure that any of its existing patents or any patents that may be granted to us in the future will be commercially useful in protecting its commercial products and methods of manufacturing the same.

Rocket has in-licensed numerous patent applications and possesses substantial know-how and trade secrets relating to the development and commercialization of gene therapy products. Rocket’s proprietary intellectual property, including patent and non-patent intellectual property, is generally directed to gene expression vectors and methods of using the same for gene therapy. As of March 1, 2019, Rocket’s patent portfolio includes five in-licensed patent families relating to its product candidates and related technologies, discussed more fully below..

Fanconi Anemia

Rocket’s Fanconi Anemia program includes two in-licensed patent families. The first family includes a pending patent application in the U.S., EU, Japan, China and other countries with claims directed to polynucleotide cassettes and expression vector compositions containing Fanconi Anemia complementation group genes and methods for using such vectors to provide gene therapy in mammalian cells for treating Fanconi Anemia. This application was exclusively in-licensed from CIEMAT, Centro de Investigacion Biomedica En Red, (“CIBER”), Fundacion Instituto de investigacion Sanitaria Fundacion Jimenez Diaz, (“FIISFJD”), and Fundacion Para la Investigacion Biomedica del Hospital Del Nino Jesus. Rocket expects any patents in this family, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire in 2037, absent any patent term adjustments or extensions.

The second family includes pending U.S., Japanese, and European patent applications related to a portable platform for use in hematopoietic stem/progenitor cell-based gene therapy. This patent family was exclusively in-licensed from the Fred Hutchinson Cancer Research Center. Rocket expects any patents in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire in 2036, absent any patent term adjustments or extensions.

Pyruvate Kinase Deficiency (PKD)

Rocket’s PKD patent portfolio includes a pending patent application in the U.S., EU, Japan, China and other countries with claims directed to polynucleotide cassettes and expression vector compositions containing pyruvate kinase genes and methods for using such vectors to provide gene therapy in mammalian cells for treating pyruvate kinase deficiency. This application was exclusively in-licensed from CIEMAT, CIBER, and FIISFJD. Rocket expects any patents in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire in 2037, absent any patent term adjustments or extensions.

Rocket’s objective is to continue to expand its portfolio of patents and patent applications in order to protect Rocket’s gene therapy product candidates and manufacturing processes. From time to time, Rocket may also evaluate opportunities to sublicense its portfolio of patents and patent applications that it owns or exclusively licenses, and Rocket may enter into such licenses from time to time. The term of individual patents depends upon the legal term of the ~~TM and this outflow path, rather than changing the fundamental dynamics of pressure regulation~~patents in the ~~eye,~~~~trabodenoson~~~~’s mechanism~~countries in which they are obtained. In most countries in which Rocket files, the patent term is 20 years from the date of ~~action should result~~filing the non-provisional application. In the U.S., a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a ~~lower risk~~patent, or may be shortened if a patent is terminally disclaimed over an earlier-filed patent.

The term of ~~unintended side effects~~a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration of a U.S. patent as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and ~~long~~only one patent applicable to an approved drug may be extended. Moreover, a patent can only be extended once, and thus, if a single patent is applicable to multiple products, it can only be extended based on one product. Similar provisions are available in Europe and other foreign jurisdictions to extend the term ~~safety issues than~~of a patent that covers an approved drug. When possible, depending upon the length of clinical trials and other ~~mechanisms of action. Additionally,~~~~trabodenoson~~~~’s unique mechanism of action~~factors involved in the ~~TM should complement~~filing of a BLA, Rocket expects to apply for patent term extensions for patents covering Rocket’s product candidates and their methods of use.

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Rocket may rely, in some circumstances, on trade secrets to protect its technology. However, trade secrets can be difficult to protect. Rocket seeks to protect its proprietary technology and processes, in part, by entering into confidentiality agreements with its employees, consultants, scientific advisors and third parties. Rocket also seeks to preserve the ~~activity~~integrity and confidentiality of ~~existing glaucoma therapies~~its data and trade secrets by maintaining physical security of its premises and physical and electronic security of its information technology systems. While Rocket has confidence in these individuals, organizations and systems, agreements or security measures may be breached, and Rocket may not have adequate remedies for any breach. In addition, Rocket’s trade secrets may otherwise become known or be independently discovered by competitors. To the extent that ~~exert~~Rocket’s consultants or collaborators use intellectual property owned by others in their ~~IOP-lowering effects~~work for Rocket, disputes may arise as to the rights in related or resulting know-how and inventions.

Material Contracts

License Agreements with Fred Hutchinson Cancer Research Center (“Hutch”)

In November 2015, Rocket entered into an exclusive license agreement with Hutch granting Rocket worldwide, sublicensable, exclusive rights to certain patents, materials and other intellectual property relating to lentiviral vector-based technology for patient stem cell transduction useful for, among other things, treating Fanconi Anemia.

As consideration for the licensed rights, in November 2015, Rocket issued to Hutch ordinary shares valued at $0.3 million as an upfront license fee. Rocket is obligated to make aggregate cash milestone payments of up to $1.6 million to Hutch upon the achievement of specified development and regulatory milestones. With respect to any commercialized products covered by the license, Rocket is obligated to pay a low to mid-single digit percentage royalty on ~~different parts~~net sales, subject to specified adjustments, by Rocket or its sublicensees or affiliates. In the event that Rocket enters into a sublicense agreement with a sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicenses in specified circumstances.

In December 2015, Rocket entered into an exclusive license agreement with Hutch granting Rocket worldwide, sublicensable, exclusive rights to certain patents covering Hutch’s “Prodigy” platform, a portable platform for hematopoietic stem/progenitor cell gene therapy.

As consideration for the licensed rights, in January 2016 Rocket issued to Hutch ordinary shares valued at $0.1 million as an upfront license that was expensed as research and development costs. Rocket is obligated to make aggregate milestone payments of up to $0.2 million, which may include amounts already paid, to Hutch upon the achievement of specified development and regulatory milestones. In the event that Rocket enters into a sublicense agreement with a sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicenses in specified circumstances.

Rocket may terminate this agreement at any time by providing Hutch with 180 days advance notice. The agreement will expire upon the expiration, lapse, abandonment or invalidation of the ~~in-flow and out-flow system~~last claim of the ~~eye.~~

~~Our~~licensed patent rights to expire, lapse or become abandoned or unenforceable in all countries worldwide.

License Agreements with CIEMAT

In March 2016, Rocket entered into a license agreement with CIEMAT, CIBER, and FIISFJD, (collectively, “CIEMAT”), granting Rocket worldwide, exclusive rights to certain patents, know-how and other intellectual property relating to lentiviral vectors containing the human PKLR gene solely within the field of treating PKD. Under the terms of the agreement, Rocket is obligated to use commercially reasonable efforts to (a) develop and obtain regulatory approval for one or more products or processes covered by the licensed intellectual property, introduce such products or processes into the commercial market and then make them reasonably available to the public (b) develop or commercialize at least one product ~~pipeline includes~~~~trabodenoson~~ ~~monotherapy delivered~~or process covered by the licensed intellectual property in at least one country for at least two uninterrupted years following regulatory approval, and (c) use the licensed intellectual property in an ~~eye drop formulation,~~adequate, ethical and legitimate manner. In exchange for the license, Rocket is obligated to pay CIEMAT an up-front payment, royalty payments based on net sales of products or processes involving any of the licensed intellectual property, developmental and regulatory milestone payments, and sublicense revenue payments. Rocket is responsible for prosecuting and maintaining the licensed patents at Rocket’s expense, in cooperation with CIEMAT. Rocket also has the first responsibility to enforce and defend the licensed patents against infringement and/or challenge, in cooperation with CIEMAT. For five years following the effective date of the license agreement, Rocket has a right of first refusal to license any improvements to the licensed intellectual property obtained by CIEMAT at market value. Rocket is obligated to license (without charge) to CIEMAT for non-commercial use any improvements to the licensed intellectual property that Rocket creates.

As consideration for the licensed rights, Rocket paid CIEMAT an initial upfront license fee of €0.03 million (approximately $0.03 million) which was expensed as ~~well~~research and development costs. Rocket is obligated to make aggregate milestone payments of up to €1.4 million (approximately $1.5 million) to CIEMAT upon the achievement of specified development and regulatory milestones. With respect to any commercialized products covered by the PKD license, Rocket is obligated to pay a low to mid-single digit percentage royalty on net sales, subject to specified adjustments, by Rocket or its sublicensees or affiliates. In the event that Rocket enters into a sublicense agreement with a sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances.

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Rocket may terminate this agreement at any time by providing CIEMAT with 90 days advance notice. The license is in effect for a duration for each of the countries defined in this agreement for as long as a ~~fixed-dose combination,~~license right exists that covers the licensed product or ~~FDC,~~process in such country, or until the end of~~trabodenoson~~ ~~with~~~~latanoprost~~ ~~given once-daily, or QD. We are also evaluating the potential of~~~~trabodenoson~~ ~~to slow the loss of vision associated with glaucoma and degenerative retinal diseases. Statistically significant results~~ any additional legal protection that should be obtained for the ~~primary endpoint~~license rights in each country.

In July 2016, Rocket entered into a license agreement with CIEMAT granting Rocket worldwide, exclusive rights to certain patents, know-how, data and other intellectual property relating to lentiviral vectors containing the Fanconi Anemia-A gene solely within the field of ~~our completed Phase 2 clinical trial indicate~~human therapeutic uses of VSV-G packaged integration component lentiviral vectors for Fanconi Anemia type-A gene therapy. This license is only sublicensable with the prior consent of CIEMAT, not to be unreasonably withheld. Under the terms of the agreement, Rocket is obligated to use commercially reasonable efforts to (a) develop and obtain regulatory approval for one or more products or processes covered by the licensed intellectual property, introduce such products or processes into the commercial market and then make them reasonably available to the public (b) develop or commercialize at least one product or process covered by the licensed intellectual property in at least one country for at least two uninterrupted years following regulatory approval, and (c) use the licensed intellectual property in an adequate, ethical and legitimate manner. In exchange for the license, Rocket is obligated to pay CIEMAT an up-front payment, royalty payments based on net sales of products or processes involving any of the licensed intellectual property, regulatory and financing milestone payments, and sublicense revenue payments. Rocket is responsible for prosecuting and maintaining the licensed patents at Rocket’s expense, in cooperation with CIEMAT. Rocket also has the first responsibility to enforce and defend the licensed patents against infringement and/or challenge, in cooperation with CIEMAT. For five years following the effective date of the license agreement, Rocket has a right of first refusal to license any improvements to the licensed intellectual property obtained by CIEMAT at market value. Rocket is obligated to license (without charge) to CIEMAT for non-commercial use any improvements to the licensed intellectual property that~~trabodenoson~~ ~~monotherapy has IOP-lowering effects in line with existing therapies,~~ Rocket creates.

As consideration for the licensed rights, Rocket paid CIEMAT an initial upfront license fee of €0.1 million (approximately $0.1 million), which was expensed as research and development costs. Rocket is obligated to make aggregate milestone payments of up to €5.0 million (approximately $6.0 million) to CIEMAT upon the achievement of specified development and regulatory milestones. With respect to any commercialized products covered by the license, Rocket is obligated to pay a mid-single digit percentage royalty on net sales, subject to specified adjustments, by Rocket or its sublicensees or affiliates. In the event that Rocket enters into a sublicense agreement with a ~~favorable safety~~sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances.

Rocket may terminate this agreement at any time by providing CIEMAT with 90 days’ advance notice. The license is in effect for a duration for each of the countries defined in this agreement for as long as a license right exists that covers the licensed product or process in such country, or until the end of any additional legal protection that should be obtained for the license rights in each country.

Contract Research and ~~tolerability profile at all doses tested. Our completed Phase 2 trial~~Collaboration Agreement with Lund University and J. Richter

In August 2016, Rocket entered into a research and collaboration agreement with Lund University and Johan Richter, M.D., Ph.D. under which Dr. Richter granted to Rocket an exclusive, perpetual, sublicensable, worldwide license to certain intellectual property rights of~~trabodenoson~~ ~~co-administered~~ Dr. Richter relating to lentiviral-mediated gene transfer to treat IMO. In exchange for the license, Rocket is obligated to make an up-front payment, certain clinical and commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the licensed intellectual property) and sublicense revenue payments to Dr. Richter. Under the terms of the agreement, Lund University and Dr. Richter are obligated to perform contract research for Rocket regarding the use of lentiviral-mediated gene transfer to treat IMO. Intellectual property resulting from the contract research created by Dr. Richter is included in the license described above and also subject to an option for Rocket to purchase ownership of such rights. Intellectual property created by Lund University in conducting such research is non-exclusively licensed to Rocket for non-commercial use and also subject to an option for Rocket to purchase or license such intellectual property under commercially reasonable terms. Rocket is obligated to pay for the contract research according to an agreed budget in quarterly installments in advance.

As consideration for an option to acquire rights from Lund University on commercially reasonable terms and conditions, Rocket paid Lund University an upfront license fee of €0.02 million (approximately $0.02 million), which was expensed as research and development costs. Rocket is obligated to make aggregate milestone payments of up to €0.1 million (approximately $0.1 million) to Lund University and Dr. Richter upon the achievement of specified development and regulatory milestones. With respect to any commercialized products covered by the Lund University agreement, Rocket is obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments, by Rocket or its sublicensees or affiliates. In the event that Rocket enters into a sublicense agreement with~~latanoprost~~, a ~~prostaglandin analogue, or PGA, demonstrated IOP-lowering~~sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicensees in ~~patients who have previously had inadequate responses to treatment with~~~~latanoprost~~~~. These patients represent PGA poor-responders, as evidenced by persistently elevated IOP at levels that typically require the addition of a second drug to further lower IOP.~~

Wespecified circumstances.

The research agreement had an ~~End-of-Phase 2 meeting~~initial term of 24 months. In August 2018, the research and collaboration agreement was renewed for an additional year expiring August 2019. Rocket may terminate this agreement at any time by providing Lund University and Dr. Richter with 90 days’ advance notice.

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License Agreement for LAD-I with CIEMAT and UCLB

Rocket entered into a license agreement in November 2017, effective September 2017, with CIEMAT and UCL Business PLC (“UCLB”), collectively referred to as (“Licensors”), granting Rocket worldwide, exclusive rights to certain patents, know-how and other intellectual property relating to lentiviral vectors containing the ~~FDA~~human LAD-I gene solely within the field of treating LAD-I. Under the terms of the agreement, Rocket is obligated to use commercially reasonable efforts to (a) develop and obtain regulatory approval for one or more products or processes covered by the licensed intellectual property, introduce such products or processes into the commercial market and then make them reasonably available to the public, (b) develop or commercialize at least one product or process covered by the licensed intellectual property in ~~2015 to discuss our Phase 3 program~~at least one country for~~trabodenoson~~ ~~monotherapy,~~ at least two uninterrupted years following regulatory approval, and ~~to confirm~~(c) use the ~~design~~licensed intellectual property in an adequate, ethical and ~~endpoints~~legitimate manner. In exchange for the ~~Phase 3 pivotal trials. At~~license, Rocket is obligated to pay Licensors an up-front payment, royalty payments in the ~~meeting, we reached agreement on the design of our initial Phase 3 study, as well as the overall regulatory path for~~~~trabodenoson~~~~. We started our Phase 3 program for~~~~trabodenoson~~ ~~monotherapy in October 2015, and,~~mid-single digit percentages based on ~~our estimate~~net sales of products or processes involving any of the ~~rate of patient enrollment, we expect to report top-line data from~~licensed intellectual property, developmental and regulatory milestone payments, and sublicense revenue payments. Rocket is responsible for prosecuting and maintaining the licensed patents at Rocket’s expense, in cooperation with Licensors. Rocket also has the first ~~pivotal trial~~responsibility to enforce and defend the licensed patents against infringement and/or challenge, in cooperation with Licensors. For five years following the ~~program by late 2016. If the primary objectives of all~~effective date of the ~~trials in our Phase 3 program are met, we plan~~license agreement, Rocket has a right of first refusal to ~~submit a New Drug Application, or NDA,~~license any improvements to the ~~FDA~~licensed intellectual property obtained by Licensors at market value. Rocket is obligated to license (without charge) to Licensors for ~~marketing approval~~non-commercial use any improvements to the licensed intellectual property that Rocket creates.

As consideration for the licensed rights, Rocket paidLicensors an initial upfront license fee of~~trabodenoson~~ €0.03 million (approximately $0.04 million), which was expensed as research and development costs. Rocket is obligated to make aggregate payments of up to €1.4 million (approximately $1.5 million) to Licensors upon the achievement of specified development and regulatory milestones. With respect to any commercialized products covered by the LAD-I license, Rocket is obligated to pay a mid-single digit percentage royalty on net sales, subject to specified adjustments, by Rocket or its sublicensees or affiliates. In the event that Rocket enters into a sublicense agreement with a sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances.

Rocket may terminate this agreement at any time by providing Licensors with 90 days’ advance notice. The license is in effect for a duration for each of the countries defined in this agreement for as long as a license right exists that covers the licensed product or process in such country, or until the end of any additional legal protection that should be obtained for the license rights in each country.

License Agreement for Danon Disease

In February 2017, we entered into a License Agreement with The Regents of the University of California, represented by its San Diego campus (“UCSD”), under which UCSD granted us an exclusive, sublicensable, worldwide license to certain intellectual property rights for the treatment of ~~glaucoma~~lysosomal storage diseases, including Danon disease. In exchange for the license, we became obligated to make an up-front payment, certain clinical and commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the licensed intellectual property), maintenance fees and sublicense revenue payments.

The upfront license fee of $0.05 million was expensed as research and development costs. We are obligated to make aggregate milestone payments of up to $1.5 million to UCSD upon the achievement of specified development and regulatory milestones for the treatment of Danon disease. A reduced schedule of milestone payments applies to achieving the same milestones for additional indications. With respect to any commercialized products covered by the agreement, we are obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments. If we enter into a sublicense agreement with a sublicensee, we will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances. We are also subject to certain diligence milestones for development of a product using the intellectual property licensed from UCSD under this agreement.

The term of the license agreement with UCSD is through the expiration of the licensed patents, some of which are still in the ~~United States. We plan~~pending application phase.

REGENXBIO, Inc. License

On November 19, 2018, the Company through its wholly-owned subsidiary Rocket Pharmaceuticals, Ltd., entered into a License Agreement (the “License Agreement”) with REGENXBIO Inc. (“RGNX”), pursuant to ~~submit a marketing authorization application, or MAA, in Europe after filing our NDA~~which the Company obtained an exclusive license for ~~approval of~~~~trabodenoson~~ ~~in the United States.~~

According to IMS Health sales of glaucoma drugs in 2013 were approximately $2.0 billion in the United States and $5.6 billion worldwide. According to the British Journal of Ophthalmology, there were an estimated 2.8 million Americans with glaucoma in 2010. Once glaucoma develops, it is a chronic condition that requires life-long treatment. PGAs are the most widely prescribed drug class for glaucoma and include the most widely prescribed glaucoma drug,~~latanoprost.~~When PGA monotherapy is insufficient to control IOP or is poorly tolerated, non-PGA products, such as beta blockers, alpha agonists and carbonic anhydrase inhibitors, are generally used either as an add-on therapy to the PGA or as an alternative monotherapy. Both PGAs and non-PGAs can cause adverse effects in the eye. In addition, non-PGA drugs can have adverse effects in the rest of the body and have been shown to have poor tolerability profiles. As a result, we believe there is a significant unmet need for a treatment that effectively lowers IOP by restoring outflow and the natural pressure control by the TM, that has a favorable safety and tolerability profile, and that works effectively in combination with other treatments.

Additionally, no existing treatments offer the potential to directly treat the underlying cause of glaucoma associated vision loss: the death of retinal ganglion cells, or RGCs, the nerve tissue in the retina that relays the visual signal to the brain. We believe that a drug with the potential to make these cells more resilient to the stress caused by glaucoma would achieve broad market acceptance as the treatment preferred among patients and physicians.

~~We own worldwide rights to~~ all ~~indications for our current product candidates and have~~U.S. patents and ~~pending~~ patent applications related to ~~the composition of matter, pharmaceutical compositions and methods of use for~~~~trabodenoson~~~~, certain of which extend to 2031 with respect to our issued patents and 2034 with respect to our pending patent applications. If~~~~trabodenoson~~ ~~receives marketing approval in the United States, we plan to commercialize it by establishing our own specialty sales force in the United States.~~

~~Our Strategy~~

Our goal is to become a leading biopharmaceutical company focused on the discovery, development and commercialization of novel therapies to treat glaucoma. The key elements of our strategy are as follows:

•

~~Complete clinical development and seek marketing approval for our lead product candidate, trabodenoson monotherapy~~~~. In 2012, we completed a Phase 2 trial of~~~~trabodenoson~~~~monotherapy, which demonstrated statistically significant IOP-lowering and a favorable safety profile. We had an End-of-Phase 2 meeting with the FDA in 2015 to discuss our Phase 3 program for~~~~trabodenoson~~ monotherapy and to confirm the design and endpoints for the Phase 3 pivotal trials. At the meeting, we reached agreement on the design of our initial Phase 3 study, as well as the overall regulatory path for~~trabodenoson~~. Based on our estimates of the rate of patient enrollment we expect to have top-line data from the initial Phase 3 trial by late 2016. If the primary objectives of our Phase 3 program are met, we plan to submit an NDA to the FDA for marketing approval of~~trabodenoson~~ ~~monotherapy for the treatment of glaucoma in the United States. We plan to submit an MAA in Europe after filing our NDA for approval of~~~~trabodenoson~~ ~~monotherapy in the United States.~~

•

~~Complete clinical development and seek marketing approval of a fixed-dose combination product that includes both trabodenoson and latanoprost~~. As many as half of glaucoma patients, typically those with more severe disease, need to use two or more glaucoma drugs to sufficiently reduce their IOP. The initial treatment for glaucoma patients is usually the use of a prescription eye drop from the PGA drug class. However, as PGAs are often unable to lower IOP sufficiently to reach the patient’s medically targeted level, non-PGA products are used either as an add-on therapy to the PGA or as an alternative monotherapy in place of PGAs. There are currently no FDC products approved for use in the United States that include a PGA. We intend to formulate and conduct clinical development in order to seek marketing approval for an FDC product that includes both~~trabodenoson~~ ~~and~~~~latanoprost~~~~, the best-selling PGA. We believe that the favorable safety and tolerability profile and complementary mechanism of action of~~~~trabodenoson~~ ~~could, if approved, make an FDC with~~~~latanoprost~~ a highly effective, well-tolerated and more convenient QD regimen for treating glaucoma in patients who have a less functional TM and therefore need additional help lowering their IOP. Our completed Phase 2 trial of~~trabodenoson~~ ~~co-administered with the PGA,~~~~latanoprost~~~~, demonstrated IOP-lowering in patients who have previously had inadequate responses to the PGA,~~~~latanoprost~~~~. These patients represent PGA poor-responders, as evidenced by persistently elevated IOP at levels that typically require the addition of a second drug to further lower IOP.~~

•

~~Establish a specialty sales force to maximize the commercial potential of trabodenoson in the United States~~~~. We have retained worldwide commercial rights to~~~~trabodenoson~~~~. If~~~~trabodenoson~~ receives marketing approval in the United States, we plan to commercialize it by establishing a glaucoma-focused specialty sales force of approximately 150 people targeting ophthalmologists and optometrists throughout the United States. For markets outside the United States, we intend to explore partnership opportunities through collaboration and licensing arrangements.

• ~~Evaluate the potential of trabodenoson to slow the loss of vision associated with glaucoma and degenerative retinal diseases or for additional ophthalmic indications.~~ ~~Based on an animal model that indicated~~~~trabodenoson~~’s potential to directly protect RGCs, the nerve tissue in the retina that relays the visual signal to the brain, we plan to conduct clinical trials to measure the rate of vision loss over time, rather than IOP control, in patients treated with ~~trabodenoson. Should the results of these trials be positive, we plan to seek labeling indicative of~~~~trabodenoson~~’s potential to change the course of glaucoma-related vision loss, beyond that of IOP-lowering effect alone. In addition, this effect, if proven, could address the subset of glaucoma patients that do not have high IOPs, but still suffer from vision loss over time. We are also evaluating other potential indications where therapy with~~trabodenoson~~ ~~may be beneficial. To begin this process, we are conducting pre-clinical trials for optic neuropathies and degenerative retinal diseases.~~

~~Glaucoma Overview~~

Glaucoma is a disease of the eye in which damage to the optic nerve leads to progressive, irreversible vision loss. Its characteristics can include structural evidence of optic nerve damage, vision loss and consistently elevated IOP.

~~Physiology of the Eye~~

The eye is a fibrous sack which must stay “inflated” with a fluid that maintains the eye’s form, known as aqueous humor, at the proper pressure in order to maintain its shape and effectively focus light to the retina where the light stimulus is then relayed to the brain and converted into a visual image. To maintain the eye’s pressure—and therefore its shape—and as a means to provide nutrients to eye tissue, aqueous humor is constantly produced inside the eye by a tissue known as the ciliary body. The ciliary body sits just behind the iris, which is the colored part of the eye. Aqueous humor flows forward through a hole in the center of the iris, called the pupil, and down into the angle defined by the front of the iris and the back of the cornea, which is the clear covering on the front of the eye. This angle is the same angle referred to in Primary Open Angle Glaucoma, or POAG, the most common form of glaucoma. Below is a diagram depicting certain parts of the eye, including the ciliary body, iris and the angle defined by the front of the iris and the back of the cornea:

In this angle, in front of the outer rim of the iris, is the TM, a natural, pressure-regulating drain. It is here that in a healthy, well-functioning eye, approximately 70% of the aqueous humor exits and flows into a drainage canal known as Schlemm’s canal, which empties back into the venous drainage system. The remaining approximately 30% of the aqueous humor leaves the eye through a secondary pathway called the uveoscleral pathway. The diagram below reflects the TM and the uveoscleral pathway, the two pathways for the aqueous humor to leave the eye.

~~Development of High IOP and its Effects on Glaucoma~~

In a typical glaucoma patient, there is resistance to drainage of the aqueous fluid (i.e., not enough aqueous humor exits the eye), creating excess pressure and compressing the retina, the layer of tissue covering the inside of the back half of the eye that actually converts light into nerve impulses. For people to “see,” these impulses—the visual signal—must be relayed through the optic nerve back to the brain for processing. The cells in the retina require nutrients and oxygen that are delivered via blood vessels entering and exiting the eye through the same opening as the nerve fibers carrying the visual signal. However, when IOP is too high, it is more difficult to pump blood enriched in oxygen and nutrients into the retina. The diagram below reflects the anatomy of the eye and how elevated IOP can impair the nerve tissue in the retina and the optic nerve head.

The deprivation of blood supply to the retina may damage RGCs, the nerve tissue in the retina that relays the visual signal to the brain. These RGCs have long tails called axons that extend back to the brain to carry the visual image. In fact, the optic nerve is nothing more than a bundle of these axons extending to the vision processing center of the brain. When an RGC dies, one of the connections between the retina and the brain is lost, and like most cases when a nerve is damaged or cut—like in a spinal cord injury—there is no known way to repair the damage and, as a result, some portion of vision is permanently lost. Therefore, the root cause of vision loss in glaucoma is not high IOP per se, but the impact of high IOP on the retina, and specifically the RGCs.

~~Clinical Definition of Glaucoma~~

There are two key elements to the clinical definition of glaucoma: structural evidence of optic nerve damage and vision loss. Common risk factors include age, family history, corneal thickness and high IOP, commonly measured in millimeters of mercury, or mmHg. Currently, the only known way to treat glaucoma and slow the progression of vision loss is to reduce IOP. While treatment approaches are based on an assessment of the patient’s risk factors for vision loss, elevated IOP is by far the best understood contributor to development of glaucoma. We believe that the general treatment patterns in the figure below, relative to a patient’s IOP, are typical.

The Ocular Hypertension Treatment Study, or the OHTS, was a large, randomized academic trial published in 2002 that followed a total of 1,636 participants who initially had no evidence of glaucoma-related damage. The OHTS found that higher IOPs generally indicate a higher risk for progression to glaucoma. An IOP of 10 to 21 mmHg is generally considered in the normal range. Individuals with IOPs greater than 21 and up to 25 mmHg will often not be prescribed drug therapy unless they have evidence of both structural changes and some vision loss, or some combination of these and other risk factors for future vision loss. In fact, the United Kingdom’s National Institute of Health and Care Excellence Guidelines, or NICE Guidelines,RGNX’s NAV AAV-9 vector for the treatment of ~~suspected glaucoma (structural changes but without vision loss) plus elevated IOP, does not recommend treatment~~Danon disease in humans by in vivo gene therapy using AAV-9 to deliver any known LAMP2 transgene isoforms and all possible combinations of ~~eyes with corneal thickness of 555-590 nm and IOP of 25 mmHg or below. Drug treatment is much more common when patients have IOPs greater than 25 mmHg.~~

~~Glaucoma Market~~

According to the British Journal of Ophthalmology, there were an estimated 2.8 million Americans with glaucoma in 2010. According to the Archives of Ophthalmology, that number will reach approximately 3.4 million by 2020. Approximately 120,000 of these patients are suffering from blindness as a result of destruction to their optic nerve. Glaucoma can affect patients of all ages and ethnicities. However, according to the Archives of Ophthalmology, the prevalence rateLAMP2 transgene isoforms (the proportion of people in the population that have glaucoma) increases with age. The most significant increases in prevalence rates occur above 55 years of age. The prevalence in the population aged 65 years and younger is approximately twice that of the population

55 years or younger. Glaucoma is a chronic condition with no known cure and as a result patients are typically treated for the rest of their lives. Patients with glaucoma report decreased quality-of-life, difficulties with daily functioning, including driving, and are more likely to report falls and motor vehicle collisions.

According to IMS Health, in 2013, 31.2 million prescriptions were written for glaucoma medications in the United States. According to IMS Health, approximately two-thirds of these prescriptions were for generic drugs, including~~latanoprost~~ ~~and~~~~timolol~~, which are the top two selling drugs for the treatment of glaucoma. Due to the lack of innovation in medications for glaucoma, most of the drugs used to treat glaucoma are generic drugs. Sales of glaucoma drugs in 2012 were approximately $1.9 billion in the United States and $5.5 billion worldwide. In 2013, sales of glaucoma drugs were approximately $2.0 billion in the United States and $5.6 billion worldwide, and IMS Health projects U.S. sales to be $3.1 billion in 2018, an increase of approximately 54% over 2013 sales.

~~Existing Glaucoma Treatments~~

The initial treatment for glaucoma patients is typically the use of a prescription eye drop from a class of drugs called PGAs. According to IMS Health, prescriptions for PGAs make up more than half of all prescriptions for glaucoma medications. The PGAs’ primary mechanism of action for treating glaucoma is thought to be increasing fluid outflow through the uveoscleral pathway. A number of adverse effects are known to occur in all drugs in the PGA class and, as a result, these side effects are assumed to be associated with the mechanism of action. Most notable of these side effects is eye redness, or conjunctival hyperemia.

When PGAs are insufficient to control IOP or are poorly tolerated, non-PGA products are used either as an add-on therapy to the PGA or as an alternative monotherapy in place of a PGA. Non-PGAs can include a beta-blocker, an alpha (adrenergic) agonist or a carbonic anhydrase inhibitor alone. FDC products containing these non-PGAs are dominated by beta-blocker combinations, which can take the form of a beta-blocker combined with an alpha agonist (Combigan^®“Field”), ~~or a beta-blocker combined with a carbonic anhydrase inhibitor (Cosopt~~^® ~~or generic equivalent). Finally, there is a non-PGA combination (Simbrinza~~^®) which consist solely of an alpha agonist and a carbonic anhydrase inhibitor. Non-PGA drugs generally have poorer tolerability in the eye than PGA drugs, and some have systemic adverse effects that limit the patient population in which they can be used safely. Moreover, their IOP-lowering effect is generally less than that of PGAs and the vast majority of non-PGAs are required to be dosed multiple times daily.

~~The existing classes of treatment available for glaucoma each have varying mechanisms of action, levels of IOP-lowering, side effects and other adverse effects, as described in the following table.~~

~~Summary of Existing Glaucoma Treatments:~~


~~Drug Classification~~ *~~(Generic Names)~~*	~~Mechanism of~~ Action*	~~IOP~~ Reduction**	Known Side Effects*	~~Other Precautions,~~ ~~Warnings,~~ ~~Contraindications and~~ Adverse Effects*

~~Prostaglandin analog~~ ~~latanoprost~~ ~~Travatan~~~~(travoprost)~~ ~~Lumigan~~~~(bimatoprost)~~	~~Increase uveoscleral and/or trabecular outflow~~	~~6-8 mmHg~~ ~~(25%-33%)~~	~~- Eye redness (conjunctival hyperemia)~~ ~~- Visual disturbances (blurred vision, loss of visual acuity)~~ ~~- Itching (pruritis)~~ ~~- Burning~~ ~~- Stinging~~ ~~- Eye pain~~ ~~- Darkening of the eyelids (periocular hyperpigmentation)~~ ~~- Permanent eye (iris) color change~~	~~- Macular edema~~ ~~- History of herpetic keratitis~~ ~~- Ocular edema~~

~~Drug Classification~~
~~(Generic Names)~~
~~Mechanism of~~
Action*
~~IOP~~
Reduction**
Known Side Effects*
~~Other Precautions,~~
~~Warnings,~~
~~Contraindications and~~
Adverse Effects*
~~Beta-adrenergic antagonist, or beta-blocker~~
~~timolol~~
~~Decrease aqueous production~~
~~N/A mmHg~~
~~(20%-25%)~~
~~-   Burning~~
~~-   Stinging~~
~~-   Eye lid swelling (Blepharitis)~~
~~-   Corneal inflammation (keratitis)~~
~~-   Itching (pruritis)~~
~~-   Eye pain~~
~~-   Dry eyes, foreign body sensation~~
~~-   Visual disturbances~~
~~-   Drooping eye lids (ptosis)~~
~~-   Swelling of retina (cystoid macular edema)~~
~~-   Muscle weakness~~
~~-   Anaphylaxis~~
~~-   Severe respiratory and cardiac reactions~~
-   Contraindicated in bronchial asthma (or history of), severe chronic obstructive pulmonary disease, sinus bradycardia (slower heart rate), second or third degree atrioventricular block, overt cardiac failure, cardiogenic shock
~~Alpha-adrenergic agonist, or alpha agonist~~
~~brimonidine~~
~~Decrease aqueous production; increase uveoscleral outflow~~
~~2-6 mmHg~~
~~(20%-25%)~~
~~-   Allergic conjunctivitis~~
~~-   Eye redness (conjunctival hyperemia)~~
~~-   Itchy eyes (eye pruritis)~~
~~-   Severe cardiovascular disease~~
~~-   Depression~~
~~-   Cerebral or coronary insufficiency~~
~~-   High blood pressure (orthostatic hypertension)~~
~~-   Contraindicated in patients on monoamine oxidase inhibitor therapy~~
~~Carbonic anhydrase inhibitor~~
~~dorzolamide~~
~~brinzolamide~~
~~Decrease aqueous production~~
~~3-5 mmHg~~
~~(15%-20%)~~
~~-   Bitter taste~~
~~-   Burning~~
~~-   Stinging~~
~~-   Allergic conjunctivitis~~
~~-   Corneal inflammation (superficial punctate keratitis)~~
~~-   Conjunctivitis~~
~~-   Eye lid reactions~~
~~-   Sulfonamide allergy~~

*	~~According to FDA-approved labeling.~~

**	~~mmHg, according to FDA-approved labeling; % from baseline, according to American Academy of Ophthalmology Glaucoma Panel.~~

~~The chart below illustrates the respective proportions of glaucoma prescriptions issued in 2013 by class, according to IMS Health.~~

~~Glaucoma Treatments Currently in Development.~~

~~We believe there are currently two leading classes of new drugs in clinical development for glaucoma: Rho kinase inhibitors and adenosine mimetics.~~

A Rho kinase inhibitor is currently in Phase 3 clinical trials and is the furthest along of the potential new glaucoma drug therapies: Aerie Pharmaceuticals, Inc.’s AR-13324. Like with PGAs, conjunctival hyperemia has been reported with the Rho kinase inhibitor class.

Adenosine mimetics are compounds that mimic or simulate some of the actions or effects of adenosine, a naturally-occurring molecule with many, diverse biologic effects. There are four known subreceptors that are specific to adenosine: A1, A2a, A2b and A3. These subreceptors can cause many effects if stimulated. In the adenosine mimetic group, there are compounds targeting three different adenosine subreceptors: A1, A2a and A3. We believe that A1 selectivity is necessary for optimal IOP-lowering effect. To our knowledge, the two compounds being developed by other companies that were selective for the A2a subreceptor have been discontinued from clinical development for glaucoma. A third compound being developed that we believe targets both the A1 (IOP-lowering) and the A3 (IOP-increasing) subreceptors is still being studied. We believe that because this third compound is dosed orally, it is challenging to isolate its pharmacologic effects solely to the eye. We believe we are the only company to be developing an adenosine mimetic highly selective for the A1 subreceptor for ophthalmic indications.

~~Market Opportunity~~

Since 1996, there have been no new drug classes approved in the United States for glaucoma. As a result, there are persistent inadequacies in the tools that ophthalmologists use to manage patients with glaucoma. Thus, we believe there is a need for an innovative glaucoma treatment that offers:

~~significant IOP-lowering;~~

~~a favorable safety and tolerability profile;~~

~~a novel mechanism of action that complements existing therapies; and~~

~~convenient dosing.~~

~~Our Solution—~~~~Trabodenoson~~

~~Trabodenoson~~ is a first-in-class selective adenosine mimetic that is designed to lower IOP with a mechanism of action that we believe augments the natural function of the TM. In addition, by enhancing a naturally occurring process to make the eye function more like that of a younger, healthier eye, rather than changing the fundamental dynamics of pressure regulation in the eye, we believe there is a lower risk of unintended side effects that could result in safety or tolerability issues in the long term. We believe~~trabodenoson~~ ~~enhances metabolic activity in the TM, which helps clear the pathway for the aqueous humor, the fluid in the eye, to flow out of the eye, thereby lowering IOP. We believe that~~~~trabodenoson~~~~’s mechanism of action improves the function of the eye, and that~~~~trabodenoson~~ ~~has the potential to be used as a monotherapy in place of current glaucoma treatments. In addition, we expect that~~~~trabodenoson~~~~’s purported mechanism of action in the TM should complement the activity of all currently-approved glaucoma drugs that work in other ways to lower IOP.~~

~~We believe the following elements of~~~~trabodenoson~~~~’s product profile will drive its adoption, if approved, in the glaucoma market:~~

•

~~Meaningful IOP-Lowering.~~ ~~After four weeks of monotherapy treatment in a Phase 2 clinical trial in glaucoma patients who had discontinued any other medications,~~~~trabodenoson~~ (500 mcg) lowered IOP by an average of 4.0 to 7.0 mmHg from study baseline and 3.5 to 5.0 mmHg from diurnal baseline, over the dosing interval. Moreover, IOP-lowering at week four was significantly better than IOP-lowering at week two.

• ~~Favorable Safety Profile.~~ ~~In four completed~~~~trabodenoson~~ ~~clinical trials over a wide range of doses, no patients have been withdrawn due to a~~~~trabodenoson~~-related side effect in the eye. In our multiple-dose Phase 2 monotherapy clinical trial, we did not observe side effects in the eye that would indicate a tolerability problem at any of the doses tested. Specifically, there was no change in the background rate of conjunctival hyperemia in the patient population when treatment with~~trabodenoson~~ ~~was initiated or continued for up to four weeks, even at the highest dose tested. Furthermore, in our most recently completed multiple-dose Phase 2 trial of~~~~trabodenoson~~~~co-administered with~~~~latanoprost~~in a population of PGA poor-responders, there also was no change in the rate of hyperemia from study baseline after four, eight or 12 weeks of treatment. No systemic effects of the drug have been identified, despite rigorous monitoring including cardiac and renal function, when administered as an eye drop. We believe this safety profile could be important in the potential for~~trabodenoson~~ ~~to become a preferred treatment alternative for patients that experience undesired side effects with existing therapies.~~

•

~~Unique, Complementary Mechanism of Action.~~ ~~We believe that~~~~trabodenoson~~’s mechanism of action augments a naturally occurring process by clearing the path for aqueous humor outflow in the TM. We expect that this mechanism of action should complement all currently-approved glaucoma drugs which work in other ways to lower IOP, including by reducing aqueous humor production and increasing outflow through the uveoscleral pathway. This complementary mechanism was confirmed in patients already receiving~~latanoprost~~ ~~therapy in a recently completed multiple-dose Phase 2 trial. In this Phase 2 trial of~~~~trabodenoson~~~~co-administered with~~~~latanoprost~~~~in a population of PGA poor-responders, patients on~~~~latanoprost~~ ~~experienced an additional 5.8 mmHg IOP lowering from their study baseline and 4.3 mmHg from their diurnal baseline after 12 weeks treatment (eight weeks BID plus four weeks QD). These results make~~~~trabodenoson~~~~, with its favorable safety profile, a candidate to add to other glaucoma medications when a further reduction of the IOP is desirable.~~

•

~~Convenient Dosing.~~ ~~Current Phase 2 clinical data indicate that QD dosing with~~~~trabodenoson~~ in PGA poor-responders is well tolerated and lowers IOP significantly. We believe a QD dosing regimen minimizes the burden on patients to remember to take their medication, thus, we believe, potentially improving compliance with the therapy. If confirmed and approved in our Phase 3 program, QD dosing would make~~trabodenoson~~ ~~easier to use than most non-PGA products, and~~~~trabodenoson~~~~’s dosing frequency would match the best-in-class PGAs, which would facilitate an FDC with a PGA that could be dosed QD.~~

~~We believe that~~~~trabodenoson~~’s IOP-lowering results, complementary mechanism of action, dosing and safety profile make it well suited for use in an FDC with a PGA, which could be a convenient option for patients currently using two or more glaucoma drugs to lower IOP.

~~Trabodenoson Discovery—Background~~

Adenosine is a naturally occurring molecule that has a broad array of biological effects. Its effects are mediated through activity at four known adenosine-specific subreceptors: A1, A2a, A2b and A3. These subreceptors are present throughout the body on the cells of different tissues, and at different concentrations. When adenosine binds and activates these different subreceptors, it can cause many diverse effects.

In 1995, a study was published in the Journal of Pharmacology and Experimental Therapeutics describing how adenosine mimetics can lower IOP by activating adenosine A1 subreceptors in rabbits. In 2001, an animal study published by the University of Pennsylvania School of Medicine confirmed that stimulation of A1 lowered IOP, but that stimulating A2a or A3 subreceptors increased IOP.

Our scientists began a rational deconstruction of this complex biology in order to isolate the protective activity of adenosine and to incorporate it into novel therapeutics. Beginning with the structure of adenosine, we created a series of molecules to bind with, and therefore induce the biological effects associated with stimulation

of a single adenosine subreceptor. In this way, the undesired biological actions of native adenosine were systematically removed, one by one by eliminating the activity at non-target subreceptors. This rational drug design process relied heavily on our understanding of structure activity relationships, which relate the variation in the structure of the adenosine mimetics and their ability to bind and activate ideally just one adenosine subreceptor. Ultimately, a number of molecules emerged from these efforts with isolated and specialized activity, including some adenosine mimetics that only targeted the A1 subreceptor, leading to the discovery of~~trabodenoson~~.

~~The high affinity binding of~~~~trabodenoson~~ to the A1 subreceptor is shown by the small Ki in the table below, and its selectivity for this IOP-lowering activity is indicated by much higher Ki’s for A2a and A3 receptors where its binding is relatively weak.

~~Trabodenoson is a Potent and Selective A1 Adenosine Mimetic~~

   A1
(Ki, nM)    A2a
(Ki, nM)    A3
(Ki, nM)    Selectivity Ratios
Compound
            A2a/A1    A3/A1
Trabodenoson
   0.97       4,690       704       4,835x       725x

~~Trabodenoson~~’s ~~key characteristics include:~~

~~Potency—Ki in single-digit nM range (0.97nM);~~

~~High Selectivity—over A2a> 1000-fold and A3>500-fold;~~

~~Ease of Fat Solubility—allowing corneal penetration so it can reach the TM; and~~

~~A high compatibility with the often sensitive tissues in the front of the eye.~~

~~We believe that~~~~trabodenoson~~ is the only adenosine mimetic with high selectivity for the single desired target of action, the A1 subreceptor, and that stimulation of this subreceptor in the TM effects a meaningful improvement in the metabolic activity in the TM that helps to clear the pathway for the aqueous humor to flow out of the eye, lowering IOP. This metabolic activity takes the form of an increase or up-regulation of proteases—such as Protease A or MMP-2—that digests and removes accumulated proteins that can block the healthy flow of the aqueous humor out of an eye with glaucoma. This metabolic activity is a naturally occurring or endogenous process that is enhanced by treatment with~~trabodenoson~~. We believe this process does not radically change the way the TM controls eye pressure, but rather restores the natural process of pressure control in the TM, which is different from other therapies that decrease aqueous humor production or increase the permeability of the eye to increase outflow.

~~Product Pipeline~~

~~Our product pipeline includes~~~~trabodenoson~~~~, as a monotherapy delivered in an eye drop formulation,~~ as well as an ~~FDC that includes~~~~trabodenoson~~ ~~plus~~~~latanoprost~~exclusive option to license (the “Option Right”) all U.S. patents and patent applications for two additional NAV AAV vectors in ~~an eye drop formulation, which we refer to as our FDC product candidate. We are also evaluating~~ the ~~potential~~Field (each, a “LicensedPatent” and collectively, the “Licensed Patents”).

Table of Contents

In consideration for~~trabodenoson~~ ~~to directly target optic neuropathies and degenerative retinal diseases. The following table summarizes key information about our product development programs.~~

~~Trabodenoson~~

~~Our first product candidate,~~~~trabodenoson~~~~, is a monotherapy dosed in an eye drop. Our clinical trials have shown that~~~~trabodenoson~~ ~~has significant IOP-lowering effects, convenient dosing and also has a favorable safety profile when compared~~ the rights granted to the ~~currently available glaucoma treatments, such as PGAs and non-PGAs.~~

~~Trabodenoson-Latanoprost Fixed-Dose Combination~~

~~As many as half~~Company under the License Agreement, the Company made an upfront payment to RGNX of ~~glaucoma patients, typically those with more severe disease, need~~$7.0 million which was expensed to ~~use two or more glaucoma drugs to sufficiently reduce their IOP. The available FDC products increase IOP-lowering but also have unpleasant tolerability challenges~~R&D costs in the ~~eye, as well as~~consolidated financial statement. A fee of $2.0 million per additional vector would be due if the adverse effects, safety warnings, precautions and contraindications that the two individually-dosed drugs carry in their FDA-approved package inserts. An FDC product containing a PGA plus a non-PGA has not yet been approvedCompany exercises its Option Right to purchase additional vectors. The License Agreement provides for royalties payable to RGNX in the ~~United States. We believe that none have gained FDA approval because~~high-single digits to low-teens on net sales levels of products incorporating the ~~modest incremental benefit~~Licensed Patents (the “Licensed Products”) during the royalty term. If successful, the Company will be required to make milestone payments to RGNX of up to $13.0 million for each Licensed Product upon the achievement of specified clinical development and regulatory milestones in ~~IOP-lowering seen when~~the U.S. and EU. In addition, the Company shall pay RGNX 20% of the payment fees received from a ~~non-PGA is added~~priority review voucher issued in connection with or otherwise related to a ~~PGA is too small~~Licensed Product. These royalty obligations are subject to specified reductions if additional licenses from third parties are required. The Company must also pay RGNX a portion of all non-royalty sublicense income (if any) received from sublicensees.

Competition

The biotechnology and pharmaceutical industries, including in the ~~context~~field of ~~the added side effects and clinical risks that come with the combined drugs. In contrast, based on our completed Phase 2 study in which~~~~trabodenoson~~gene therapy, ~~was co-administered with~~~~latanoprost~~~~, we believe that an FDC containing a PGA and~~~~trabodenoson~~ ~~would be well received in the glaucoma market, especially for use in patients with higher IOPs that currently use two or more glaucoma drugs to lower IOP.~~

~~Our second product candidate is a combination of~~~~trabodenoson~~ ~~with a PGA,~~~~latanoprost~~~~, to create an FDC. While our FDC product candidate has not yet been formulated as an FDC or administered to humans, we expect that~~~~trabodenoson~~ ~~will not adversely affect the safety profile of~~~~latanoprost~~~~, or any other currently-approved PGA, because of its favorable safety and tolerability profile from our completed Phase 2 trial in which~~~~trabodenoson~~ ~~and~~~~latanoprost~~ ~~were co-administered. We believe that~~~~trabodenoson~~~~’s mechanism for lowering IOP complements the mechanism of action of~~~~latanoprost~~ ~~and other PGAs, which work primarily on the secondary uveoscleral outflow, because~~~~trabodenoson~~ is believed to act through the TM, the largest aqueous humor outflow path in the eye. In fact, our IOP-lowering studies in cynomolgus monkeys have shown that IOP-lowering is significantly better when the eye is treated with both~~trabodenoson~~ ~~and~~~~latanoprost~~~~, as compared to treatment with~~~~latanoprost~~ ~~alone.~~

~~Our completed Phase 2 trial of~~~~trabodenoson~~~~co-administered with~~~~latanoprost~~ ~~also demonstrated IOP-lowering in patients who have previously had inadequate responses to~~~~latanoprost~~~~. These patients represent PGA poor-responders, as evidenced by persistently elevated IOP at levels that typically require the addition of a second drug to further lower IOP. The safety profile of~~~~trabodenoson~~~~co-administered with~~~~latanoprost~~ ~~is similar to that of~~~~trabodenoson~~ ~~monotherapy. Moreover,~~~~trabodenoson~~ ~~had a sufficiently long duration of action, allowing it to be effectively dosed QD in conjunction with~~~~latanoprost~~~~. Assuming the~~~~trabodenoson~~ ~~safety profile remains favorable, a~~~~trabodenoson~~-~~latanoprost~~ ~~FDC therapy could present a much improved risk/benefit profile over other combinations of currently-approved PGAs and non-PGAs.~~

~~Trabodenoson for Optic Neuropathy and Degenerative Retinal Diseases~~

~~The neuroprotective potential of~~~~trabodenoson~~ is supported by the basic biology of adenosine, which has shown that the stimulation of the A1 receptor can protect tissues of the central nervous system. A pre-clinical study of the impact of high IOP on RGCs showed that~~trabodenoson~~ could protect this key population of cells in the retina that, when lost, result in the irreversible vision loss associated with glaucoma. While we have not yet conducted a formal program of studies to prove neuroprotection, we plan to study the potential of~~trabodenoson~~ monotherapy and our FDC product candidate to slow the loss of vision significantly more than attributable to IOP lowering alone, either in glaucoma patients or in other rarer forms of optic neuropathies.

~~Clinical Data and Development Strategy~~

~~Our Phase 3 program for~~~~trabodenoson~~ as a monotherapy will incorporate the FDA-acceptable clinical endpoint of IOP, in studies with three months of treatment. We had an End-of-Phase 2 meeting with the FDA in 2015 to discuss our Phase 3 program for~~trabodenoson~~ monotherapy, and to confirm the design and endpoints for the Phase 3 pivotal trials. At the meeting, we reached agreement on the design for our initial Phase 3 study, as well as the overall regulatory path for~~trabodenoson. The trial design for the initial Phase 3 study is a five-arm superiority trial that will include three doses of~~~~trabodenoson~~~~. The primary endpoint of the study is IOP, determined at four timepoints during the day, after 4, 6 and 12 weeks of treatment. The IOP of the~~~~trabodenoson~~ ~~treated subjects will be statistically compared to those of placebo treated subjects. A timolol arm will be included for study validation, but not for statistical comparison.~~

~~We initiated our Phase 3 program for~~~~trabodenoson~~ ~~monotherapy in October 2015 and we expect to report top-line data from the first pivotal trial in the program by late 2016. If the primary objectives of all of the trials in our Phase 3 program~~ are ~~met, we plan to submit an NDA. We are planning to commence our Phase 3 program for the FDC of~~~~trabodenoson~~ ~~and~~~~latanoprost~~ ~~in early 2018.~~

~~Clinical Results~~

~~Trabodenoson Phase 2 Tolerability, Safety and Efficacy of Monotherapy in Glaucoma Patients~~

~~In 2012, we completed a successful Phase 2 dose-ranging clinical trial in 144 patients with OHT (ocular hypertension with no visual field loss) or POAG, which demonstrated a clear dose response to~~~~trabodenoson~~~~. Statistically significant results for the primary endpoint of our Phase 2 clinical trials indicate that~~~~trabodenoson~~ has IOP-lowering effects in line with the best existing therapies, with a favorable safety and tolerability profile at all doses tested. The trial was randomized, double-masked, placebo-controlled, and evaluated the efficacy, tolerability, safety, and pharmacokinetics of~~trabodenoson~~ ~~over two or four weeks of BID dosing with eye drops. Separate groups of patients received~~~~trabodenoson~~ doses of 50, 100 or 200 mcg for two weeks, or 500 mcg for four weeks, and their IOP-lowering efficacy and safety data were compared to groups of patients dosed concurrently with placebo eye drops, also BID. To enter the trial, otherwise healthy patients had to have elevated IOPs (greater than or equal to 24 mmHg and less than or equal to 34 mmHg) when off of all glaucoma drugs, and a diagnosis of either OHT or POAG.

The primary efficacy endpoint was IOP (measured throughout the day). The primary efficacy analysis calculated the reduction in IOP from the patients’ IOP at the beginning of the study (recorded before active drug was administered at the study 8 AM baseline). A second analysis calculated the reduction in IOP from a time-matched diurnal baseline. The IOP drop from baseline for each dose group (50, 100, 200 and 500 mcg) was then compared statistically to the IOP drop of a matched placebo group treated concurrently.

Safety evaluations included recording of withdrawals or terminations and adverse events. In each patient, the treated eye was evaluated at regular intervals with internal eye exams (including pupil dilation with slit lamp examination of the inside of the eye) and external eye examinations (of the outside surface of the eye, eye lids and surrounding tissue). Visual function was also assessed. Overall health was assessed by physical exam, vital signs (including heart rate and blood pressure), electrocardiograms, or ECGs, for heart function and analysis of urine and blood samples (clinical chemistry), and plasma samples were collected to analyze the pharmacokinetic parameters, such as the half-life of any drug detected in the systemic circulation.

~~Results~~

Patient Population: The characteristics of the patients in the dose groups were similar, including their ages, baseline IOPs, and diagnoses (OHT or POAG). The table below reflects information regarding the demographics of the patient populations that participated in the study, and shows that both diagnoses groups had similar baseline IOPs, and that groups treated with~~trabodenoson~~ ~~had characteristics that were similar to the placebo groups to which they were compared.~~

~~Baseline Demographics and IOP~~

      Trabodenoson Dose
   Placebo    50 mcg    100 mcg    200 mcg    500 mcg    Total Active
Mean Age
   59       56.6       55.6       53.8       57.6       56.3
n
   59       17       17       17       34       85
Baseline IOP (mmHg)
   26.6       26.1       25.6       26.1       26.2       26
OHT n(%)
   22(37.3)       6(35.3)       8(47.1)       6(35.3)       14(41.2)       34(40.0)
Baseline IOP (mmHg)
   26.7       27.2       25       27.1       26.3       26.3
POAG n(%)
   37(62.7)       11(64.7)       9(52.9)       11(64.7)       20(58.8)       51(60.0)
Baseline IOP (mmHg)
   26.5       25.5       26.1       25.5       26.1       25.9

~~Efficacy~~

Both the 200 mcg dose and the 500 mcg doses at day 14, and the 500 mcg dose at day 28, met the primary endpoint demonstrating statistically significant improvements in IOP relative to the matched placebo (p<0.05 indicating a greater than 95% probability that the result was not a random event). Moreover, a clear increase in IOP-lowering efficacy was seen with increasing doses of~~trabodenoson~~ ~~(i.e. a dose response), and the most efficacious~~~~trabodenoson~~ ~~dose tested was the highest dose of 500 mcg.~~~~Trabodenoson~~’s primary efficacy endpoint (IOP drop from baseline) measured after four weeks of treatment (at day 28) had improved significantly from the same endpoint when measured after two weeks of treatment (at day 14). This improvement with additional treatment time was statistically significant (p=0.016). In the figure below, a clear trend for increasing IOP-lowering efficacy with increasing dose is evident. For the 500 mcg dose, the statistically significant increase in efficacy between day 14 and day 28 is illustrated on the right side of the figure.

~~On average, doubling doses between 50 and 500 mcg increases IOP lowering from diurnal baseline by approximately 0.7 mmHg.~~

The IOP-lowering at the highest and most efficacious dose (500 mcg) was evaluated in various patient sub-populations to gain a sense of the ability to generalize the results over a diverse patient population. The figure below compares the IOP drop from study baseline (the primary endpoint analysis) for all patients (far left) to various sub-populations to the right of that. All of these patient subgroups responded to~~trabodenoson’s IOP-lowering effect.~~

~~When we rationally designed~~~~trabodenoson~~, our primary objective was to restore pressure regulation in eyes with high IOP, a risk factor for glaucoma. A healthy eye has a natural circadian rhythm that dictates a pattern of IOP over the day. We found that this pattern, or the shape of the IOP circadian rhythm curve throughout the day, is relatively unchanged by~~trabodenoson~~ ~~treatment, except that the overall IOP during the day is reduced by~~~~trabodenoson~~ treatment as intended. We believe this indicates that the TM has been restored to an improved function resulting in a more normal average pressure, and that this normal daily IOP pattern indicates that the fundamental biology of pressure management in the eye has been preserved. The natural daily changes in IOP still exist, but at a significantly lower average pressure that we believe is less damaging to RGCs and the optic nerve. The figure below shows the primary efficacy parameter for the trial, IOP, at several timepoints throughout the day (diurnal IOP) for the highest dose tested and the placebo group at day 28.

~~Furthermore, after 28 days of BID dosing, the IOP-lowering effect persisted for an additional 24 hours after the last dose of medication, which we believe indicates the potential for~~~~trabodenoson~~ ~~monotherapy to be dosed QD.~~

~~Safety and Tolerability~~

There were no serious adverse events or patients that withdrew due to safety findings that occurred once the drug was given. There were no signs of systemic safety issues in any of the non-ocular examinations, ECG evaluations or laboratory tests performed. Systemically, administration of~~trabodenoson~~ eye drops was found to be well-tolerated. There were no changes noted from internal eye examinations or visual testing during drug treatment. The rate of conjunctival hyperemia in patients treated with~~trabodenoson~~ ~~was unchanged from the placebo run-in period (study baseline). There was no maximum tolerated dose determined because all doses tested were well-tolerated.~~

~~Trabodenoson Phase 2 Co-Administered with Latanoprost in Glaucoma Patients~~

~~In October 2014, we received top-line results from a Phase 2 trial in patients with POAG or OHT, in which~~ ~~trabodenoson~~ ~~eye drops were co-administered with~~~~latanoprost~~~~eye drops. The objective of the study was to evaluate the safety and additional IOP-lowering effect of~~ ~~trabodenoson~~ ~~when added either BID or QD to~~~~latanoprost~~~~. This trial enrolled 101 patients who had IOPs of greater than or equal to 24 mmHg despite one month of previous treatment with~~~~latanoprost~~. These patients are considered PGA poor-responders, as evidenced by persistently elevated IOP at levels that typically require the addition of a second drug to further lower IOP. The trial was randomized, double-masked, placebo- and active- controlled.

~~Following four weeks of~~ ~~latanoprost~~~~eye drops, otherwise healthy patients with an IOP greater than 24 mmHg and a diagnosis of either OHT or POAG were randomized for Part 1 of the study. In Part 1, the study arm consisted of BID-dosed~~~~trabodenoson~~ ~~(1.5%; 500 mcg nominal dose) plus~~~~latanoprost~~~~0.005%, at the approved dose, QD. The control arm consisted of~~~~timolol~~~~0.5%, an approved BID dose plus~~~~latanoprost~~~~0.005% QD. Patients in both arms were treated for a total of eight weeks in Part 1 of the study to evaluate the additive effects of trabodenoson BID to~~~~latanoprost~~ ~~QD, with an active control consisting of~~~~timolol~~ ~~BID.~~

~~At the end of Part 1, after eight weeks of treatment, patients began Part 2 of the study. In Part 2, the study arm was switched to a QD dose of~~~~trabodenoson~~ ~~(3.0%, 1,000 mcg nominal dose) plus~~~~latanoprost~~ ~~0.005% QD, and patients in the control arm were switched to placebo QD plus~~~~latanoprost~~ ~~0.005% QD. Part 2 was designed to measure the additive effects of~~~~trabodenoson~~ ~~QD to~~~~latanoprost~~ ~~QD over an additional four weeks. The number of patients planned for enrollment was ~100 (50 patients per arm) for Part 1 and ~80 (40 patients per arm) for Part 2. This trial is outlined below.~~

The primary efficacy endpoint was IOP, measured throughout the day. The efficacy analyses calculated the reduction in IOP from the patients’ IOP at study baseline and diurnal baseline (recorded after taking~~latanoprostfor four weeks but before~~~~trabodenoson~~ or ~~timololwere added). In Part 1, these IOP drops from baseline, on~~~~latanoprost,~~~~were compared to the IOP drops of the control arm treated concurrently with~~~~timolol~~~~. In Part 2, the IOP drop from baseline in patients receiving~~~~trabodenoson~~~~QD plus~~~~latanoprost~~~~QD was compared to patients receiving placebo QD plus~~~~latanoprost~~ ~~QD.~~

Safety evaluations included recording of withdrawals or terminations and adverse events, or AEs. In each patient, both eyes were evaluated at regular intervals with internal eye exams (including pupil dilation with slit lamp examination of the inside of the eye) and external eye examinations (of the outside surface of the eye, eye lids and surrounding tissue). Visual function was also assessed. Overall health was assessed by physical exam, vital signs (including heart rate and blood pressure), electrocardiograms, or ECGs, for heart function and analysis of urine and blood samples (clinical chemistry). Plasma samples were collected to analyze the pharmacokinetic parameters, such as the half-life of any drug detected in the systemic circulation.

~~Results~~

~~Patient Population: The characteristics of the patients in the dose groups were similar, including their age, and baseline IOPs, which were not adequately controlled following a four-week run-in using~~~~latanoprost~~~~therapy. The table below includes information on the demographics of the patients that participated in the study.~~

~~Baseline Demographics and IOP~~

   Part 1    Part 2
ITT population
   Trabodenoson
BID    Timolol
BID    Trabodenoson
QD    Placebo
QD
n
   50       51       37       43
Mean Age
   62       61       63       61
Baseline IOP usinglatanoprost (mmHg)
   25.71       25.86       25.68       25.86
OHT n (%)
   23(46%)       13(25.5%)       15(40.5%)       12(28%)
Baseline IOP usinglatanoprost (mmHg)
   25.78       25.65       25.93       25.29
POAG n (%)
   27(54%)       38(74.5%)       22(59.5%)       31(72%)
Baseline IOP usinglatanoprost (mmHg)
   25.65       25.93       25.50       26.08

~~Discontinuations:~~

~~In Part 1, there were four discontinuations due to either protocol violations or exclusionary criteria (three patients were in the~~~~trabodenoson~~ ~~group and one was in the~~~~timolol~~ ~~group). In Part 2, there were two discontinuations; one was discontinued due to an AE and the other did not to return during follow-up, but provided no explanation (both were in the placebo group).~~

~~Efficacy~~

~~After eight weeks of BID dosing in Part 1, patients treated with~~~~trabodenoson~~ ~~co-administered with~~~~latanoprost~~~~experienced further mean reductions of IOP of 3.4 and 4.9 mmHg from diurnal and study baselines, respectively, beyond the IOP-lowering of~~ ~~latanoprost~~~~. After switching to QD~~ ~~trabodenoson~~ ~~in Part 2, and treating for an additional four weeks, QD dosing with~~~~trabodenoson~~ ~~resulted in a mean reduction in IOP of 4.3 and 5.8 mmHg from diurnal and study baseline, respectively, from the IOP on~~~~latanoprost~~~~alone. At the end of Part 2 (after 12 weeks), the IOP-lowering seen in the Study Eye (the eye treated with~~~~trabodenoson)~~ ~~was statistically significantly greater than the IOP drop of the patient’s Control Eye (the patient’s other eye that only received QD~~~~latanoprost~~).

~~In Part 1 the IOP drop at the end of 8 weeks of treatment, in this population of~~~~latanoprost~~ ~~poor-responders, was less than~~~~timolol~~ ~~BID (0.5%) which dropped pressure 6.1 and 7.6 mmHg, on average from diurnal and study baselines, respectively.~~

~~In Part 2 of the trial, QD~~~~trabodenoson~~ ~~lowered IOP an additional 4.3 and 5.8 mmHg from diurnal and study baseline, respectively, beyond the effect of~~~~latanoprost~~ ~~alone in this population of~~~~latanoprost~~ ~~poor-responders.~~

~~Consistency of Results across Phase II Studies~~

Mean reductions in IOP from study baseline ranging from 5.0 mmHg after four weeks of BID treatment to 5.8 mmHg after four weeks of QD treatment in the trial were similar to the 6.5 mmHg IOP reduction seen at the end of the four week~~Trabodenoson Phase 2 Tolerability, Safety and Efficacy of Monotherapy in Glaucoma Patients~~ ~~trial (the monotherapy trial). In the monotherapy trial, patients received only~~ ~~trabodenoson~~~~. The patients in the 2014 additivity trial represented a different patient population than those studied in the monotherapy trial. These patients had inadequate responses to~~~~latanoprost,~~~~as evidenced by persistently high IOP, despite~~~~latanoprost~~ treatment for four weeks prior to randomization. This patient population typically requires the addition of a second drug to their PGA therapy to further lower IOP. Patients in the monotherapy trial, by contrast, were removed from all glaucoma medications, and thus represented a typical patient population studied in a Phase 3 glaucoma trial. Despite these differences in the patient populations, the efficacy of ~~trabodenoson~~ ~~was consistent across trials, suggesting that~~~~trabodenoson~~~~’s mechanism of action is effective across a wide-range of glaucoma disease severity.~~

~~Both OHT and POAG patients responded to~~~~trabodenoson~~ ~~with POAG subjects showing the largest IOP drops.~~

~~Safety and Tolerability~~

~~With the exception of a single patient who received placebo plus~~~~latanoprost~~~~, no patients dropped out of the trial as a result of a drug-related adverse effect or due to drug intolerability.~~~~Trabodenoson~~ was well tolerated in the eye, with no drug related hyperemia detectable by ocular exam at four, eight or 12 weeks. Mild hyperemia seen on the first day of dosing in a minority of patients was back to baseline by the 1 week post dose ocular exams.~~Trabodenoson~~ ~~had no detectable systemic effects in any of the non-ocular examinations, ECG evaluations or laboratory tests performed. Overall adverse events were similar in the BID phase (~~~~Trabodenoson~~ ~~36%;~~~~Timolol~~ ~~29%), with the~~~~trabodenoson~~ ~~rate dropping to 26% without the first-day hyperemias, and were also similar in the QD phase (~~~~Trabodenoson~~ ~~16%; Placebo 14%) between treatment groups. However,~~~~timolol~~ ~~(dosed in one eye only) had systemic adverse events associated with systemic beta blockade, including: dizziness, headache, fatigue and symptomatic sinus bradycardia.~~

~~Patients randomized to~~~~timolol~~~~also had lower pulse rates than in the~~~~trabodenoson~~ group (the pulse rate was measured 30 minutes and one hour after dosing). This difference was statistically significant in the overall data (p=0.033) as well as at the individual timepoints (p=0.041 and p=0.030 at the 30 minute and one hour post-dose timepoints, respectively).

The pulse rates for both groups are shown in the boxplot below, which includes the minimum and maximum values, median (white line), and the boundaries of the upper and lower quartiles (top and bottom of the box).

~~Trabodenoson Repeat-Dose Safety and Tolerability in Adult Healthy Volunteers~~

We conducted a randomized, double-masked, placebo-controlled, dose-escalation trial in healthy volunteers, aged 35-65, with the primary objective of characterizing the safety and tolerability profile of~~trabodenoson~~ ~~and identifying a maximum tolerated dose (a dose that was associated with limiting or intolerable side effects).~~

~~Ten subjects were assigned to each of seven consecutive cohorts (six to active~~~~trabodenoson~~ ~~and four to matched placebo). Cohorts 1 through 6 consisted of sequential, escalating doses (200, 400, 800, 1600, 2400 and 3200 mcg of~~~~trabodenoson~~~~) which were given topically to a single eye, BID, for 14 days. The 3200 mcg dose was the highest dose that could be administered to a single eye at one time due to, among others, the limitations~~

~~of the formulation. Cohort 7 included eight step-wise escalating doses of~~~~trabodenoson~~, given in both eyes. Doses given to this cohort ranged from 200-3200 mcg in a single eye and totaled 1800-6400 mcg for both eyes combined. Dose escalation to the next dose level proceeded only after masked review of the safety data from the preceding dose level.

Systemic safety assessments included: adverse events, other medications used, physical examinations, vital signs, clinical laboratory tests of blood and urine samples, extensive monitoring of cardiac function and health (12-lead ECG tracings, continuous cardiac monitoring and cardiac troponin concentrations), lung function testing (FEV₁~~), sleep (Karolinska Sleepiness Scale), kidney function and withdrawals or terminations. No systemic safety signals were found at any of the doses tested.~~

Ocular safety assessments included vision tests (visual acuity), IOP measurements, as well as internal and external eye examinations. No significant changes were seen in IOP measurements and examination of the periorbital area, eyelids, eyelashes, pupils, cornea, iris and sclera. The only ocular finding was short-lived, self-limited conjunctival hyperemia that was dose-related, usually mild in severity, decreased with continuing exposure, and was not accompanied by evidence that it was related to inflammation, such as persistent anterior chamber cells or flare. The incidence of clinically significant eye redness reported as an adverse event was extremely low (1 of 42) in subjects randomized to~~trabodenoson~~.

~~Early Terminations and Withdrawals~~

Three subjects randomized to placebo were terminated early from the study for reasons unrelated to the study drug. Only one subject assigned to active study drug was withdrawn. The study subject’s laboratory tests revealed findings consistent with gallbladder disease (chronic cholecystitis), so the subject was withdrawn from the clinical trial (without unmasking the subject’s treatment assignment) and referred for a surgical consult resulting in the subject having chronic gallbladder stones removed.

~~Pharmacokinetic Data~~

~~The pharmacokinetics data indicated that the exposure to~~~~trabodenoson~~ generally increased in a dose-dependent manner. At the highest three doses, there were no apparent increases in systemic exposure with increasing dose. This plateau effect suggests that little additional drug is absorbed into systemic circulation following doses above 4800 mcg (2400 mcg per eye), as reflected in the figure below.

~~Conclusions~~

In conclusion, no safety or tolerability issues were identified in either the eye or the body as a whole. Due to the lack of clinically significant findings following in depth safety testing for systemic and ocular effects of~~trabodenoson, no maximum tolerated dose could be identified. Systemic exposure to~~~~trabodenoson~~ ~~appeared to be limited above ocular doses totaling 4800 mcg, indicating an apparent limitation to the amount of drug that can be delivered to the body by dosing in the eye.~~

~~Trabodenoson Monotherapy Tolerability, Safety and Efficacy~~

We conducted a Phase 1/2 multi-center, randomized, double-masked, placebo-controlled, dose-escalation trial in 70 adults with POAG and OHT with the primary objective of characterizing the safety and tolerability of increasing doses of a pilot formulation of~~trabodenoson~~ ~~monotherapy.~~

~~Subjects were sequentially assigned to one of seven consecutive cohorts (eight to active~~~~trabodenoson~~ ~~and four to matched placebo); consisting of sequential, escalating single-doses of 2.5, 7.5, 20, 60, 180, 350 or 700 mcg of~~~~trabodenoson~~ ~~given topically to a single study eye.~~

Efficacy (IOP-lowering), tolerability, safety and pharmacokinetics assessments were performed following study drug administration, and dose escalation from one cohort to the next cohort proceeded only after masked review of the safety data from the preceding cohort.

~~Conclusions~~

~~In conclusion,~~~~trabodenoson~~ ~~monotherapy ophthalmic solution up to and including 700 mcg were well-tolerated. This preliminary formulation of~~~~trabodenoson~~ ~~demonstrated activity at lowering IOP following single doses of 350 mcg and 700 mcg in patients with POAG or OHT.~~

~~Development Plans~~

~~Having completed our Phase 2 trials and End-of-Phase 2 Meeting with the FDA, we plan to continue developing~~~~trabodenoson~~ ~~as a monotherapy and an FDC with~~~~latanoprost~~, along with the neuroprotective potential of both to slow the loss of vision significantly more than attributable to IOP-lowering alone either in glaucoma patients or other rarer forms of optic neuropathy. The figure below shows our plans for upcoming clinical trials.

~~Trabodenoson~~

~~We had an End-of-Phase 2 meeting with the FDA in 2015 to discuss our Phase 3 program for~~~~trabodenoson~~ monotherapy and to confirm the design and endpoints for the Phase 3 pivotal trials. At the meeting, we reached agreement on the design of our initial Phase 3 study, as well as the overall regulatory path for~~trabodenoson. We commenced our Phase 3 program for~~~~trabodenoson~~ monotherapy in October 2015. We expect to report top-line data from the first pivotal trial in the program by late 2016. If the primary objectives of all of the trials in the Phase 3 program are met, we plan to submit an NDA.

~~The overall program will encompass a total subject exposure to~~~~trabodenoson~~ of at least 1,300 patients. The final design of the second Phase 3 trial will be impacted by the findings of the initial Phase 3 trial. Following a run-in period, both trials are expected to run for at least 12 weeks of active treatment with the primary endpoint of IOP-lowering over the day.

~~The initial Phase 3 trial will be a three-month study with five treatment arms, for a total of approximately 400 patients. There will be 3~~~~trabodenoson~~ ~~treatment arms. The~~~~trabodenoson~~ doses to be evaluated are 1,000 mcg QD, 2,000 mcg QD, and 1,500 mcg BID. The trial will investigate both once-daily (QD) and twice-daily (BID) dosing, as some patients may benefit from a twice daily dosing regimen. The primary efficacy endpoint of the study is IOP, measured at four time points during the day after 4, 6 and 12 weeks of treatment. The IOP of the~~trabodenoson~~ ~~treated subjects will be statistically compared to those of placebo treated subjects. A timolol arm will be included for study validation, but not for statistical comparison.~~

~~The FDA requires that a total of at least 1,300 patients be exposed to at least a single dose of~~~~trabodenoson~~~~, and the complete submission package must also contain safety data from at least 300 patients treated with~~~~trabodenoson~~ ~~for at least six months, and at least 100 patients treated for at least a year. These longer-term~~

~~treatments will be accomplished in a long-term safety trial conducted at the highest anticipated~~~~trabodenoson~~ dose, and are expected to begin in late 2016. If the enrollment projections are met, the first data from our Phase 3 program is anticipated in late 2016. We are planning to complete the long-term safety study in late 2018. If the primary objectives of all trials in our Phase 3 program are met, we plan to submit an NDA to the FDA for marketing approval of~~trabodenoson~~ ~~for the treatment of glaucoma in the United States.~~

~~Fixed-Dose Combination of Trabodenoson and Latanoprost~~

~~We are also developing an FDC of~~~~trabodenoson~~ ~~and~~~~latanoprost~~~~. We have not filed a separate investigational new drug application, or IND, for the FDC, as we expect to be able to rely on the existing~~~~trabodenoson~~ ~~IND. Similarly, we have not conducted a Phase 1 trial for the FDC as we were able to rely on the safety and tolerability data generated in our completed trials for~~~~trabodenoson~~ ~~as a monotherapy.~~

~~The results of the Phase 2 trial that evaluated the efficacy and safety of the combination of~~~~latanoprost~~ ~~and~~~~trabodenoson~~, at two dose levels, and when given QD and BID, will inform the design and format of the next study which will be structured to evaluate the safety and efficacy of various dose combinations and dosing patterns of an FDC of~~latanoprost~~ ~~and~~~~trabodenoson~~. Once FDC clinical supplies are available, based on discussion at our End-of-Phase 2 meeting with the FDA we believe that the FDA will allow us to continue the Phase 2 development using several FDC formulations with various dose combinations. However, the commencement of our Phase 2 program for the FDC product candidate will depend on successful cGMP manufacturing of stable FDC dosage forms. We expect to initiate our Phase 2 program in 2016 and plan to start our Phase 3 FDC program in early 2018. We expect our FDC product candidate to benefit many patients with higher IOPs and more severe disease that typically require more aggressive medical treatment. For this reason, the patient population for the FDC program is expected to carry a higher disease burden. As with the monotherapy product development, the FDA requirements for long-term dosing data (at least 300 patients treated with the FDC for at least six months, and at least 100 patients treated for at least a year) will require the program to include a long-term safety study.

~~Neuroprotection and Degenerative Retinal Diseases~~

~~We plan to study the neuroprotective potential of~~~~trabodenoson~~ monotherapy and our FDC product candidate to slow the loss of vision significantly more than attributable to IOP-lowering alone either in glaucoma patients or other rarer forms of optic neuropathy. While supported by the basic biology of adenosine, we have not yet conducted a formal program of studies to prove neuroprotection and have not filed an IND related to this program. This evaluation may include longer longitudinal studies in glaucoma patients, as potentially smaller patient groups with rapidly-progressing optic nerve damage. Although treatment times will be measured in years rather than months, this effort can run in parallel to the normal development trials, or may be included in the objectives of the planned long-term safety trials. The regulatory path for such an indication is thus far uncharted, so significant regulatory as well as clinical risk is anticipated for such a program and close interaction with regulatory agencies will be required. Due to the speculative nature of the development, it is difficult at this time to predict if or when an NDA submission in support of neuroprotection indication may be submitted. We plan to continue pre-clinical and proof-of-concept trials for optic neuropathies and degenerative retinal diseases beginning in 2016.

~~Competition~~

~~The pharmaceutical industry is~~ characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary ~~products.~~products and novel therapies. While ~~we believe~~Rocket believes that ~~our~~its experience and scientific knowledge ~~provide us~~provides it with competitive advantages, ~~we face~~Rocket faces potential competition from ~~established branded~~many different sources, including larger and ~~generic~~better-funded pharmaceutical and biotechnology companies, ~~such as Novartis International AG~~new market entrants and ~~its subsidiary Alcon Labs, Pfizer/Allergan Inc., Bausch + Lomb, Inc. (now a unit of Valeant Pharmaceuticals International, Inc.), Merck & Co., Inc., Santen Inc., Aerie~~

~~Pharmaceuticals, Inc. and smaller biotechnology and pharmaceutical companies,~~new technologies, as well as from academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat ~~glaucoma.~~the indications targeted by Rocket’s pipeline that have not yet been conceived. Any product candidates that weRocket successfully ~~develop~~develops and ~~commercialize~~commercializes will compete with existing therapies such as bone marrow transplantation and new therapies that may become available in the future. ~~We believe~~Rocket believes that the key competitive factors affecting the success of ~~our~~Rocket’s product candidates, if approved, are likely to be efficacy, safety, convenience, price, pharmaco-economic value, tolerability and the availability of coverage and adequate reimbursement from governmental authorities and other third-party payors.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Glaukos Corporation recently commercialized a trabecular micro-bypass stent that is implanted in the eye during cataract surgery and allows fluid to flow from the anterior of the eye into the collecting channels, bypassing the TM. In addition, early-stage companies that are also developing glaucoma treatments, such as Aerie Pharmaceuticals, Inc., which is developing a Rho kinase/norepinephrine transport inhibitor, may prove to be significant competitors. We expect that our competitors will continueRocket intends to develop ~~new glaucoma treatments,~~single treatment curative therapies for clinical indications that address mortality or high morbidity, which could differentiate Rocket from potential competitors developing alternative competitive therapies that may ~~include eye drops, oral treatments, surgical procedures, implantable devices~~require chronic or ~~laser treatments.~~

repetitive treatment.

Other early-stage companies may also compete through collaborative arrangements with large and established companies. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of ~~our competitors.~~companies developing gene therapies. These ~~competitors~~companies also compete with usRocket in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, ~~our~~Rocket’s programs.

~~Our~~

Rocket anticipates that it will face intense and increasing competition as new drugs and therapeutic modalities enter the market and advanced technologies become available. Rocket’s commercial opportunity could be reduced or eliminated if ~~our~~Rocket’s potential competitors develop and commercialize products that are safer, more effective, have fewer adverse effects, are more convenient or are less expensive than any products that weRocket may develop. ~~Our~~Rocket’s potential competitors also may obtain FDA or other regulatory approval for their products more rapidly than weRocket may obtain approval for ~~ours. In addition, our ability to compete may be affected because~~its products.

Manufacturing

Rocket’s gene therapy platform has two main components: the production of LVV vectors and AAV vectors and the target cell transduction process, which results in many cases physicians, insurers or other third-party payors may encourage the use of generic products. The market for glaucoma prescriptions is highly competitive and is currently dominated by generic drugs, such as~~latanoprost~~ ~~and~~~~timolol~~, and additional products are expected to become available on a generic basis over the coming years. If any of our product candidates are approved, we expect that they will be priced at a premium over competitive generic products and consistent with other branded glaucoma drugs.

~~Manufacturing~~

~~Trabodenoson~~ ~~is a small molecule that is capable of being manufactured in reliable and reproducible synthetic processes from readily available starting materials. We believe the chemistry used to manufacture~~~~trabodenoson~~ ~~is amenable to a scale up and~~drug product. Rocket does ~~not require unusual equipment in the manufacturing process. We do~~ not currently operate manufacturing facilities for clinical or commercial production of ~~our~~its product candidates. WeIn the future, Rocket may supplement or replace current supply arrangements with its own direct manufacturing capabilities. Rocket currently ~~rely~~relies on third-party manufacturers to produce the ~~active pharmaceutical ingredient~~plasmids, vectors, cell banks and final drug product for ~~our~~its clinical trials. ~~We manage~~Rocket manages such production with ~~all our~~its vendors on a purchase order basis in accordance with applicable master service and supply agreements. ~~We do~~Rocket has not ~~have~~yet entered into long-term agreements with these manufacturers or any other third-party ~~suppliers.~~~~Latanoprost~~ ~~and~~~~timolol~~~~, used~~suppliers, as it is customary in ~~our clinical trials, are available in~~the industry to enter into commercial ~~quantities from multiple reputable third-party manufacturers. We intend~~supply agreements upon either achievement of proof-of-concept or as a company approaches registration trials. Rocket, however, intends to procure quantities on a purchase order basis from redundant and multiple sources for ~~our~~Rocket’s clinical and commercial ~~production.~~production to mitigate risk. If any of ~~our~~Rocket’s existing third-party suppliers should become unavailable to usRocket for any reason, ~~we believe~~Rocket believes that there are a number of potential replacements, although weRocket might experience a delay in ~~our~~its ability to obtain alternative suppliers. WeRocket also dodoes not have any current contractual relationships for the manufacture of commercial supplies of ~~our~~its product candidates if they ~~are approved.~~become registered. With respect to commercial production of ~~our~~Rocket’s product candidates in the future, ~~we plan~~Rocket plans to ~~outsource~~pursue multiple options including outsourcing production of the active pharmaceutical (drug substance) ingredients ~~and~~as well as final drug product manufacturing (drug product) to contract manufacturing organizations if ~~they~~these products are approved and registered for marketing authorization by the applicable regulatory ~~authorities.~~

~~We expect~~bodies.

Rocket expects to continue to develop drug candidates that can be produced in a cost effective manner at contract manufacturing facilities. However, should a supplier or manufacturer on which ~~we have~~Rocket has relied to produce a product candidate provide usRocket with a faulty product or such product is later recalled, weRocket would likely experience delays and additional costs, each of which could be significant.

~~Intellectual Property~~

Our success depends in part on our ability to obtain and maintain proprietary protection for our products and product candidates, technology and know-how, to operate without infringing the proprietary rights

Table of ~~others and to prevent others from infringing our proprietary rights.~~

~~We own a patent portfolio covering the~~~~trabodenoson~~ compound that includes issued patents in the United States, Europe, Japan, and several other countries. These composition-of-matter patents are scheduled to expire by early 2026 in the United States and by mid-2025 abroad. We also own an issued U.S. patent and have pending patent applications in Europe and Japan relating to the use of~~trabodenoson~~ for reducing IOP. The issued U.S. patent is scheduled to expire in 2031 and the pending foreign patent applications, if issued, are scheduled to expire by 2030. We recently had a U.S. composition-of-matter patent issued that covers polymorphs of~~trabodenoson.This patent is scheduled to expire in 2033. A detailed freedom-to-operate analysis has been conducted and we are not aware of any third party rights or impediments to commercializing~~~~trabodenoson~~ ~~for use in ophthalmic indications in the United States or Europe.~~

~~Our patent portfolio includes issued U.S. patents relating to combinations of~~~~trabodenoson~~ ~~with carbonic anhydrase inhibitors, beta blockers and prostaglandins (PGAs). These U.S. patents are scheduled to expire in 2031 and 2032.~~

~~We are also pursuing additional patent applications in the United States and abroad relating to:~~

•

~~combinations of~~~~trabodenoson~~ ~~with PGAs, carbonic anhydrase inhibitors or beta blockers, in patent applications which, if issued, are scheduled to expire by 2031;~~

•

~~polymorphs of~~~~trabodenoson~~~~, in patent applications which, if issued, are scheduled to expire by 2033;~~

•

~~formulations of~~~~trabodenoson~~~~, in patent applications which, if issued, are scheduled to expire by 2034; and~~

•

~~ocular neuroprotective uses of~~~~trabodenoson~~~~, in patent applications which, if issued, are scheduled to expire by 2034.~~

~~As we advance the development of our~~~~trabodenoson~~ products and clinical development we continue to look at opportunities to file additional patent applications covering new and innovative developments to ensure we have a patent portfolio that is multifaceted. For such additional applications, we will continue to seek patent protection in the United States and other jurisdictions that are important in the ophthalmic markets.

In addition to our patents and patent applications, we keep certain of our proprietary information as trade secrets, which we seek to protect by confidentiality agreements with our employees and third parties, and by seeking to maintain the physical security of our premises and physical and electronic security of our information technology systems.

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Government Regulation

FDA Regulation and Marketing Approval

In the ~~United States,~~U.S., the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act ~~or FDCA,~~(“FDCA”), and ~~related regulations. Drugs are also subject to~~biologics under the Public Health Service Act, the regulations promulgated under both laws and other federal, state and local statutes and regulations. Failure to comply with the applicable ~~United States~~U.S. regulatory requirements at any time during the product development

process, approval process or after approval may subject an applicant to administrative or judicial sanctions and non-approval of product candidates. These sanctions could include, among other things, the imposition by the FDA ~~or an Institutional Review Board, or IRB,~~ of a clinical hold on trials, the FDA’s refusal to approve pending applications or related supplements, withdrawal of an approval, untitled or warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, restitution, disgorgement, civil penalties or criminal prosecution. Such actions by government agencies could also require us to expend a large amount of resources to respond to the actions. Any agency or judicial enforcement action could have a material adverse effect on us.

The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, approval, manufacture, distribution and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, post-approval monitoring, advertising, promotion, sampling and import and export of our products. ~~Our~~Rocket’s drugs must be approved by the FDA through the ~~NDA~~BLA process, before they may be legally marketed in the ~~United States. See “The NDA Approval Process” below.~~

U.S.

Within the FDA, the FDA’s Center for Biologics Evaluation and Research (“CBER”) regulates gene therapy products and has published guidance documents with respect to the development these types of products. The FDA also has published guidance documents related to, among other things, gene therapy products in general, their preclinical assessment, observing subjects involved in gene therapy studies for delayed adverse events, potency testing, and chemistry, manufacturing and control information in gene therapy INDs.

The process required by the FDA before ~~drugs~~a biologic may be marketed in the United States generally involves the following:

completion of non-clinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory ~~Practices, or GLP,~~Practice (“GLP”), or other applicable regulations;

submission of an IND, which allows clinical trials to begin unless FDA objects within 30 days;

performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug or biologic for its intended use or uses conducted in accordance with FDA regulations and Good Clinical Practices ~~or GCP,~~(“GCP”), which are international ethical and scientific quality standards meant to ensure that the rights, safety and well-being of trial participants are protected and that the ~~roles~~integrity of ~~clinical trial sponsors, administrators, and monitors are well defined;~~the data is maintained;

preparation and submission to the FDA of ~~an NDA;~~a BLA;

review of the product by an FDA advisory committee, where appropriate or if applicable;

satisfactory completion of pre-approval inspection of manufacturing facilities and clinical trial sites at which the product, or components thereof, are produced to assess compliance with cGMP requirements and of selected clinical trial sites to assess compliance with GCP requirements; and

FDA approval of ~~an NDA~~a BLA which must occur before a ~~drug~~biologic can be marketed or sold.

Preclinical Studies

Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or active pharmaceutical ingredient and the formulated drug or drug product, as well as in vitro and animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, are submitted to the FDA as part of an IND.

Companies usually must complete some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the drug in commercial quantities in accordance with ~~cGMP~~current Good Manufacturing Practice (“cGMP”) requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, the manufacturer must develop methods for

testing the identity, strength, quality and purity of the final drug product. 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 shelf life.

IND and Clinical Trials

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Prior to commencing the first clinical trial, an initial IND, which contains the results of preclinical testing along with other information, such as information about product chemistry, manufacturing and controls and a proposed protocol, must be submitted to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA unless the FDA within the 30-day time period raises concerns or questions about the drug product or the conduct of the clinical trial and imposes a clinical hold. A clinical hold may also be imposed at any time while the IND is in effect. In such a case, the IND sponsor must resolve any outstanding concerns with the FDA before the clinical trial may ~~begin.~~begin or re-commence. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to ~~commence.~~

commence or continue.

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Where a gene therapy trial is conducted at, or sponsored by, institutions receiving National Institutes of Health (“NIH”), funding for recombinant DNA research, prior to the submission of an IND to the FDA, a protocol and related documentation is submitted to and the study is registered with the NIH Office of Biotechnology Activities, pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules (“NIH Guidelines”). Compliance with the NIH Guidelines is mandatory for investigators at institutions receiving NIH funds for research involving recombinant DNA; however, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them.

A sponsor who wishes to conduct a clinical trial outside the ~~United States~~U.S. may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of ~~an NDA~~a BLA or IND so long as the clinical trial is conducted in compliance with GCP, and the FDA is able to validate the data from the study through an onsite inspection if the agency deems it necessary.

A separate submission to the existing IND must be made for each successive clinical trial to be conducted during product development. Further, an independent ~~IRB~~Institutional Review Board (“IRB”) for each site ~~proposing to conduct~~at which the clinical trial will be conducted must review and approve the ~~study for any~~ clinical trial before it commences at that site. Informed written consent must also be obtained from each trial subject. Regulatory authorities, including the FDA, an IRB, a data safety monitoring board or the sponsor, may suspend or terminate a clinical trial at any time on various grounds, including a finding that the participants are being exposed to an unacceptable health risk or that the clinical trial is not being conducted in accordance with FDA requirements.

~~For purposes of NDA approval, human~~

Human clinical trials ~~are~~for BLA approval typically ~~conducted in sequential~~involve a three-phase process, although some phases ~~that~~ may ~~overlap:~~

overlap or be combined. Phase 1–1, the initial clinical evaluations, consists of administering the drug ~~is initially given to healthy human subjects or patients~~ and ~~tested~~testing for safety ~~dosage tolerance, absorption, metabolism, distribution~~ and ~~excretion. These trials may also provide early~~tolerated dosages and in some indications such as rare disease, as preliminary evidence ~~on effectiveness. During Phase 1 clinical trials, sufficient information about the investigational drug’s pharmacokinetics and pharmacologic effects may be obtained to permit the design~~ of ~~well-controlled and scientifically valid~~efficacy in humans. Phase 2 ~~clinical trials.~~

~~Phase 2– trials are conducted in~~involves a ~~limited number~~study to evaluate the effectiveness of ~~patients in~~ the ~~target population~~drug for a particular indication and to determine optimal dosage and dose interval and to identify possible adverse side effects and ~~safety~~ risks ~~to determine the~~in a larger patient group. When a product is found safe, and initial efficacy ~~of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Multiple~~is established in Phase 2, ~~clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensive~~it is then evaluated in Phase 3 clinical trials.

~~Phase 3– when Phase 2 evaluations demonstrate that a dosage range of the product appears effective and has an acceptable safety profile, and provide sufficient information for the design of~~ Phase 3 trials ~~Phase 3 trials are undertaken to provide statistically significant evidence~~consist of ~~clinical~~expanded multi-location testing for efficacy and to further test for safety in an expanded patient population at multiple clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the drug has been obtained, and are intended to further evaluate dosage, effectiveness and safety to ~~establish~~evaluate the overall ~~benefit-risk~~

benefit-to-risk index of the investigational drug in relationship to the disease treated. The results of preclinical and human clinical testing are submitted to the FDA in the form of an NDA for approval to commence commercial sales.

relationship of the investigational drug and to provide an adequate basis for product labeling and approval by the FDA. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug.

All clinical trials must be conducted in accordance with FDA regulations, GCP requirements and their protocols in order for the data to be considered reliable for regulatory purposes. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all.

An investigational drug product that is a combination of two different drugs in a single dosage form must comply with an additional rule that requires that each component make a contribution to the claimed effects of the drug product and the dosage of each component (amount, frequency, duration) is such that the combination is safe and effective for a significant patient population requiring such concurrent therapy as defined in the labeling of the drug product. This typically requires larger studies that test the drug against each of its components. In addition, typically, if a drug product is intended to treat a chronic disease, as is the case with our products, safety and efficacy data must be gathered over an extended period of time, which can range from six months to three years or more.

Government regulation may delay or prevent marketing of product candidates or new drugs for a considerable period of time and impose costly procedures upon our activities.

Disclosure of Clinical Trial Information

Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to ~~discuss~~disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been ~~approved.~~approved up to a maximum of two years. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

The ~~NDA~~BLA Approval Process

In order to obtain approval to market a drug in the ~~United States,~~U.S., a marketing application must be submitted to the FDA that provides data establishing to the FDA’s satisfaction the safety and effectiveness of the investigational drug for the proposed indication. Each ~~NDA~~BLA submission requires a substantial user fee payment unless a waiver or exemption applies. The application includes all relevant data available from pertinent non-clinical or preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators that meet GCP requirements.

During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the End-of-Phase 1 or 2, and before ~~an NDA~~a 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, for the FDA to provide advice and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the End-of-Phase 2 meetings to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 trials that they believe will support approval of the new drug.

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The results of product development, non-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of ~~an NDA~~a BLA requesting approval to market the product. The FDA reviews all ~~NDAs~~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 a ~~NDA~~BLA for filing. In this event, the ~~NDA~~BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. The FDA has 60 days from its receipt of ~~an NDA~~a BLA to conduct an initial review to determine whether the application will be accepted for filing based on the agency’s threshold determination that the application is sufficiently complete to permit substantive review. ~~If the NDA submission is accepted for filing, the~~The FDA reviews ~~the NDA~~a BLA to determine, among other things, whether the proposed product is safe and potent, or effective, for its intended use, and has an acceptable purity profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA has agreed to specific performance goals on the review of ~~NDAs and seeks to review standard NDAs in 12 months from submission of the NDA.~~BLA’s. The review process may be extended by the FDA for three additional months to consider certain late-submitted information or information intended to clarify information already provided in the submission. After the FDA completes its ~~initial~~substantive review of ~~an NDA,~~a BLA, it will communicate to the sponsor that the drug will either be approved, or it will issue a complete response letter to communicate that the ~~NDA~~BLA will not be approved in its current form and inform the sponsor of changes that must be made or additional clinical, non-clinical or manufacturing data that must be received before the application can be approved, with no implication regarding the ultimate approvability of the application or the timing of any such approval, if ever. If or when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the ~~NDA,~~BLA, the FDA ~~will~~may issue an approval letter. FDA has committed to reviewing such resubmissions in two to six months depending on the type of information included. The FDA may refer applications for novel drug products or drug products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving ~~an NDA,~~a BLA, the FDA typically will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving ~~an NDA,~~a BLA, the FDA may inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it typically will outline the deficiencies and often will request additional testing or information. This may significantly delay further review of the application. If the FDA finds that a clinical site did not conduct the clinical trial in accordance with GCP, the FDA may determine the data generated by the clinical site should be excluded from the primary efficacy analyses provided in the ~~NDA.~~BLA. Additionally, notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase 4 trials may be made a condition to be satisfied for continuing drug approval. The results of Phase 4 trials can confirm the effectiveness of a product candidate and can provide important safety information. In addition, the FDA has authority to require sponsors to conduct post-marketing trials to specifically address safety issues identified by the agency. See “Post-Marketing Requirements” below.

The FDA also has authority to require a Risk Evaluation and Mitigation Strategy ~~or a REMS,~~(“REMS”), from manufacturers to ensure that the benefits of a drug outweigh its risks. A sponsor may also voluntarily propose a REMS as part of the ~~NDA~~BLA submission. The need for a REMS is determined as part of the review of the ~~NDA.~~BLA. Based on statutory standards, elements of a REMS may include “Dear Doctor letters,” a medication guide, more elaborate targeted educational programs, and in some cases distribution and use restrictions, referred to as elements to assure safe ~~use, or ETASU.~~use(“ETASU”). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only

under certain circumstances, special monitoring and the use of patient registries. These elements are negotiated as part of the ~~NDA~~BLA approval, and in some cases the approval date may be delayed. Once adopted, REMS are subject to periodic assessment and modification.

Changes to some of the conditions established in an approved application, including changes in indications, labeling, manufacturing processes or facilities, require submission and FDA approval of a new ~~NDA~~BLA or ~~NDA~~BLA supplement before the change can be implemented. ~~An NDA~~A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing ~~NDA~~BLA supplements as it does in reviewing ~~NDAs.~~

BLAs.

Even if a product candidate receives regulatory approval, the approval may be limited to specific disease states, patient populations and dosages, or might contain significant limitations on use in the form of warnings, precautions or contraindications, or in the form of onerous risk management plans, restrictions on distribution or use, or post-marketing trial requirements. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product, including safety labeling or imposition of a REMS, the requirement to conduct post-market studies or clinical trials or even complete withdrawal of the product from the market. Delay in obtaining, or failure to obtain, regulatory approval for our products, or obtaining approval but for significantly limited use, would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future ~~United States~~U.S. or foreign governmental action.

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The Hatch-Waxman Amendments

Under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, a portion of a product’s U.S. patent term that was lost during clinical development and regulatory review by the FDA may be restored by returning up to five years of patent life for a patent that covers a new product or its use. This period is generally one-half the time between the effective date of an IND (falling after issuance of the patent) and the submission date of ~~an NDA,~~a BLA, plus the time between the submission date of ~~an NDA~~a BLA and the approval of that application, provided that the sponsor acted with diligence. Patent term restorations, however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended and the extension must be applied for prior to expiration of the patent. The ~~USPTO,~~U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.

Market Exclusivity

Market exclusivity provisions under the FDCA ~~also~~ can delay the submission or the approval of certain competing applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the ~~United States~~U.S. to the first applicant to gain approval of ~~an NDA~~a BLA 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, with certain exceptions, the FDA may not accept for review ~~an Abbreviated New Drug Application, or ANDA, or~~ a ~~505(b)(2) NDA~~BLA submitted by another company for ~~another version~~a drug product that contains the protected active moiety.

In addition, under the Orphan Drug Act, FDA may designate a biologic product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the U.S., or more in cases in which there is no reasonable expectation that the cost of ~~such drug where~~developing and making a biologic product available in the ~~applicant~~U.S. for treatment of the disease or condition will be recovered from sales of the product). Orphan product designation must be requested before submitting a BLA. After FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by FDA. Orphan product designation does not ~~own~~convey any advantage in, or ~~have a legal right of reference to all~~shorten 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 to one~~duration of, the ~~patents listed~~regulatory review and approval process. If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, meaning that FDA may not approve any other applications to market the same drug or biologic product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or if the party holding the exclusivity fails to assure the availability of sufficient quantities of the drug to meet the needs of patients with the ~~FDA by~~disease or condition for which the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing 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 thedrug was designated. Competitors, however, may receive approval of different products for the ~~application,~~same indication for ~~example, for new indications, dosages or strengths of an existing drug. This three-year~~which the orphan product has 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 approval for the same product but for a ~~right of reference to all of~~different indication for which the ~~non-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.~~

orphan product has exclusivity. Orphan medicinal product status in the EU has similar, but not identical, benefits.

Pediatric exclusivity is another type of non-patent marketing exclusivity in the ~~United States~~U.S. and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent exclusivity. This six-month exclusivity may be granted if ~~an NDA~~a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data.

Expedited Development and Review Programs

FDA is authorized to expedite the review of BLAs in several ways. Under the Fast Track program, the sponsor of a biologic product candidate may request FDA to designate the product for a specific indication as a Fast Track product concurrent with or after the filing of the IND. Biologic products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product candidate and the specific indication for which it is being studied. In addition to other benefits, such as the ability to have greater interactions with FDA, FDA may initiate review of sections of a Fast Track BLA before the application is complete, a process known as rolling review.

Any product submitted to FDA for marketing, including under a Fast Track program, may be eligible for other types of FDA programs intended to expedite development and review, such as breakthrough therapy designation, priority review and accelerated approval.

Breakthrough therapy designation. To qualify for the breakthrough therapy program, product candidates must be intended to treat a serious or life-threatening disease or condition and preliminary clinical evidence must indicate that such product candidates may demonstrate substantial improvement on one or more clinically significant endpoints over existing therapies. FDA will seek to ensure the sponsor of a breakthrough therapy product candidate receives: intensive guidance on an efficient drug development program; intensive involvement of senior managers and experienced staff on a proactive, collaborative and cross-disciplinary review; and rolling review.
Priority review. A product candidate is eligible for priority review if it treats a serious condition and, if approved, it would be a significant improvement in the safety or effectiveness of the treatment, diagnosis or prevention of a serious condition compared to marketed products. FDA aims to complete its review of priority review applications within six months as opposed to 10 months for standard review.

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Accelerated approval. Drug or biologic products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval. Accelerated approval means that a product candidate may be approved on the basis of adequate and well-controlled clinical trials establishing that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity and prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, FDA may require that a sponsor of a drug or biologic product candidate receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, FDA currently requires as a condition for accelerated approval pre-approval of promotional materials.

Fast Track designation, breakthrough therapy designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process.

Finally, with passage of the 21st Century Cures Act, or the Cures Act, in December 2016, Congress authorized FDA to accelerate review and approval of products designated as regenerative advanced therapies. A product is eligible for this designation if it is a regenerative medicine therapy (which may include a cell therapy) that is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such disease or condition. The benefits of a regenerative advanced therapy designation include early interactions with FDA to expedite development and review, benefits available to breakthrough therapies, potential eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.

Post-Marketing Requirements

Following approval of a new product, a pharmaceutical company and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse experiences with the product, providing the regulatory authorities with updated safety and efficacy information, product sampling and distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling, or off-label use, limitations on industry-sponsored scientific and educational activities and requirements for promotional activities involving the internet. Although physicians may, in their independent professional medical judgment, prescribe legally available drugs for off-label uses, manufacturers typically may not market or promote such off-label uses. Modifications or enhancements to the product or its labeling or changes of the site of manufacture are often subject to the approval of the FDA and other regulators, who may or may not grant approval or may include a lengthy review process.

Prescription drug advertising is subject to federal, state and foreign regulations. In the ~~United States,~~U.S., the FDA regulates prescription drug promotion, including direct-to-consumer advertising. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Any distribution of prescription drug products and pharmaceutical samples must comply with the U.S. Prescription Drug Marketing Act, ~~or the PDMA,~~ a part of the FDCA.

In the ~~United States,~~U.S., once a product is approved, its manufacturing is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMP. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. These regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities. ~~NDA~~BLA holders using contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions that interrupt the operation of any such product or may result in restrictions on a product, manufacturer, or holder of an approved ~~NDA,~~BLA, including, among other things, recall or withdrawal of the product from the market.

In addition, the manufacturer and/or sponsor under an approved ~~NDA~~BLA are subject to annual product and establishment fees. These fees are typically increased annually.

The FDA also may require post-marketing testing, also known as Phase 4 testing, ~~REMS~~ to monitor the effects of an approved product or place conditions on an approval via a REMS that could restrict the distribution or use of the product. Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative

enforcement, untitled or warning letters from the FDA, mandated corrective advertising or communications with doctors, withdrawal of approval, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.

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Coverage and Reimbursement

Sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors, including government healthcare program administrative authorities, managed care organizations, private health insurers, and other entities. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all of part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Therefore, our products, once approved, may not obtain market acceptance unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

The process for determining whether a third-party payor will provide coverage for a drug product typically is separate from the process for setting the price of a drug product or for establishing the reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of our products once approved. Moreover, a third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular drug product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payor separately and will be a time-consuming process.

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for drug products and medical services, examining the medical necessity and reviewing the cost effectiveness of drug products and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit.

In particular, our success may depend on our ability to obtain coverage and adequate reimbursement through Medicare Part D plans for our products that obtain regulatory approval. The Medicare Part D program provides a voluntary prescription drug benefit to 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 Parts A and B, Part D coverage is not standardized. In general, Part D prescription drug plan sponsors have flexibility regarding coverage of 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, with certain exceptions. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutics committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive regulatory approval. However, any negotiated prices for our future products covered by a Part D prescription drug plan will likely be discounted, thereby lowering the net price realized on our sales to pharmacies. Moreover, while the Part D program 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 that results from Medicare Part D may result in a similar reduction in payments from non-government 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 U.S. 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 our product candidates, 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, once approved. If third-party payors do not consider our products to be cost-effective compared to other available 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.

In addition, in some foreign countries, 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 ~~European Union~~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 ~~European Union~~EU do not follow price structures of the ~~United States~~U.S. and generally tend to be significantly lower.

Anti-Kickback and False Claims Laws and Other Regulatory Matters

In the ~~United States,~~U.S., among other things, the research, manufacturing, distribution, sale and promotion of drug products and medical devices are potentially subject to regulation and enforcement by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the ~~United States~~U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, state Attorneys General and other state and local government agencies. Our current and future business activities, including for example, sales, marketing and scientific/educational grant programs must comply with healthcare regulatory laws, as applicable, which may include the Federal Anti-Kickback Statute, the Federal False Claims Act, as amended, the privacy and security regulations promulgated under the Health Insurance Portability and Accountability Act ~~or HIPAA,~~(“HIPAA”), as amended, physician payment transparency laws, and similar state laws. Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. ~~The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable~~

~~child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act.~~ All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.

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The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

The Federal Anti-Kickback Statute makes it illegal for any person or entity, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully, directly or indirectly, in cash or in kind, solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Additionally, the intent standard under the Federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act ~~or collectively~~(collectively, the ~~ACA,~~“ACA”), to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal False Claims Act. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar to the Federal Anti-Kickback Statute. Some of these state prohibitions apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, and the potential for additional legal or regulatory change in this area, it is possible that our future business activities, including our sales and marketing practices and/or our future relationships with ~~ophthalmologists~~physicians and ~~optometrists~~the medical community might be challenged under anti-kickback laws, which could harm us.

Federal false claims and false statement laws, including the civil False Claims Act, prohibits any person or entity from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent. This statute has been interpreted to prohibit presenting claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. For example, pharmaceutical companies have been found liable under the Federal ~~civil~~Civil False Claims Act in connection with their off-label promotion of drugs. Penalties for a civil False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each separate false claim, the potential for exclusion from participation in federal healthcare programs, and, although the Federal False Claims Act is a civil statute, conduct that results in a False Claims Act violation may also implicate various federal

criminal statutes. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and may suffer a decline in our stock price. In addition, private individuals have the ability to bring actions under the Federal ~~civil~~Civil False Claims Act and certain states have enacted laws modeled after the Federal False Claims Act.

Additionally, HIPAA created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

There are also an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. In addition, as discussed below, a similar federal requirement under the Physician Payments Sunshine Act, requires certain manufacturers to track and report to the federal government certain payments provided to physicians and teaching hospitals made in the previous calendar year, as well as certain ownership and investment interests held by physicians and their immediate family members. These laws may affect our sales, marketing and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state and federal authorities.

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In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, ~~or HITECH,~~ and their respective implementing regulations, including the Final Omnibus Rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information on certain types of individuals and organizations. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, certain state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other and from HIPAA in significant ways and may not have the same effect, thus complicating compliance efforts.

The failure to comply with regulatory requirements subjects us to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, refusal to allow us to enter into supply contracts, including government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

We plan to develop a comprehensive compliance program that establishes internal controls to facilitate adherence to the law and program requirements to which we will or may become subject because we intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental healthcare programs.

Changes in law or the interpretation of existing law could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling;

(iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

Research and Development (“R&D”)

For the years ended December 31, 2018, 2017 and 2016, Rocket’s research and development expenses were $53.3 million, $14.9 million and $6.0 million, respectively.

Employees

We had 33 full-time employees as of March 1, 2019, and an additional 6 consultants responsible for critical functions. None of our employees are represented by any collective bargaining unit. We believe that we maintain good relations with our employees.

Corporate Information

We were incorporated in Delaware in 1999 as Inotek Pharmaceuticals Corporation. In January 2018, Inotek merged with Rocket Pharmaceuticals, Ltd. and changed our name to Rocket Pharmaceuticals, Inc. Our principal executive offices are located at The Empire State Building, 350 Fifth Avenue, Suite 7530, New York, NY 10118, and our telephone number is (646) 440-9100. Our internet address is www.rocketpharma.com. We use our website as means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. We make available on our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Our SEC reports can be accessed through the Investors section of our website. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. The information found on our website is not incorporated by reference into this report or any other report we file with or furnish to the SEC. Our common stock is listed on the Nasdaq Global Market under the symbol “RCKT.”

Item 1A.
Risk Factors

We operate in an industry that involves numerous risks and uncertainties. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Annual Report on Form 10-K, including our financial statements and related notes hereto. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. The risks and uncertainties described below may change over time and other risks and uncertainties, including those that we do not currently consider material, may impair our business. In these circumstances, the market price of our common stock could decline.

Risks Related to Our Financial Position

We have a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for the foreseeable future. If we fail to obtain additional funding to conduct our planned research and development effort, we could be forced to delay, reduce or eliminate our product development programs or commercial development efforts.

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We are an early-stage gene therapy company with a limited operating history on which to base your investment decision. Gene therapy product development is a highly speculative undertaking and involves a substantial degree of risk. Our operations to date have been limited primarily to organizing and staffing our company, business planning, raising capital, acquiring and developing product and technology rights and conducting preclinical research and development activities for our product candidates. We have never generated any revenue from product sales. We have not obtained regulatory approvals for any of our product candidates, and have funded our operations to date through proceeds from sales of our stock.

We have incurred net losses since our inception. We incurred net losses of $74.5 million, $19.6 million and $7.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, we had an accumulated deficit of $105.9 million. Substantially all of our operating losses have resulted from costs incurred in connection with our research and development programs and from general and administrative (“G&A”) costs associated with our operations. We expect to continue to incur significant expenses and operating losses over the next several years and for the foreseeable future as we intend to continue to conduct research and development, clinical testing, regulatory compliance activities, manufacturing activities, and, if any of our product candidates is approved, sales and marketing activities that, together with anticipated G&A expenses, will likely result in us incurring significant losses for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our accumulated deficit and working capital.

We may need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our licensing activities, product development efforts or other operations.

We expect to require substantial future capital in order to seek to broaden licensing of our gene therapy platforms, complete preclinical and clinical development for our current product candidates and other future product candidates, if any, and potentially commercialize these product candidates. We expect our spending levels to increase in connection with our preclinical and clinical trials. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant expenses related to product sales, medical affairs, marketing, manufacturing and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate certain of our licensing activities, our research and development programs or other operations.

Our operations have consumed significant amounts of cash since inception. As of December 31, 2018, our cash, cash equivalents and investments was $213.1 million. Our future capital requirements will depend on many factors, including:

the timing of enrollment, commencement, completion and results of our clinical trials;

the production of LVV and AAV gene therapy products to support preclinical and clinical needs

the results of our preclinical studies for our current product candidates and any subsequent clinical trials;

the scope, progress, results and costs of drug discovery, laboratory testing, preclinical development and clinical trials, if any, for our internal product candidates; the costs associated with building out additional laboratory and research capacity;

the costs, timing and outcome of regulatory review of our product candidates;

the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

our current licensing agreements or collaborations remaining in effect;

our ability to establish and maintain additional licensing agreements or collaborations on favorable terms, if at all;

the extent to which we acquire or in-license other product candidates and technologies; and

the costs associated with being a public company.

Many of these factors are outside of our control. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory and marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.

To the extent that additional capital is raised through the sale of equity or equity-linked securities, the issuance of those securities could result in substantial dilution for our current stockholders and the terms may include liquidation or other preferences that adversely affect the rights of our current stockholders. Adequate additional financing may not be available to us on acceptable terms, or at all. We also could be required to seek funds through arrangements with partners or otherwise that may require us to relinquish rights to our intellectual property, our product candidates or otherwise agree to terms unfavorable to us.

Our limited operating history may make it difficult for us to evaluate the success of our business to date and to assess our future viability.

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Our operations to date have predominantly focused on organizing and staffing our company, business planning, raising capital, acquiring our technology, administering and expanding our gene therapy platforms, identifying potential product candidates, undertaking research, preclinical studies and clinical trials of our product candidates and establishing licensing arrangements and collaborations. We have not yet completed clinical trials of our product candidates, obtained marketing approvals, manufactured a commercial-scale product or conducted sales and marketing activities necessary for successful commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, as a relatively new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We are still in the early stages of transitioning from a drug-discovery company with a licensing and research focus to a clinical-stage company that is supporting clinical development activities, and we may need to transition to supporting commercial activities in the future. We cannot guarantee that we will be successful in these transitions.

We have never generated any revenue from product sales and may never be profitable.

Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory, pricing and reimbursement approvals necessary to commercialize our product candidates. We do not anticipate generating revenues from product sales for the foreseeable future, if ever. Our ability to generate future revenues from product sales depends heavily on our success in:

completing research and preclinical and clinical development of our product candidates;

seeking and obtaining regulatory and marketing approvals for product candidates for which we complete clinical studies;

developing a sustainable, commercial-scale, reproducible, and transferable manufacturing process for our vectors and product candidates;

establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) products and services to support clinical development and the market demand for our product candidates, if approved;

launching and commercializing product candidates for which we obtain regulatory and marketing approval, either by collaborating with a partner or, if launched independently, by establishing a sales force, marketing and distribution infrastructure;

obtaining sufficient pricing and reimbursement for our product candidates from private and governmental payors

obtaining market acceptance of our product candidates and gene therapy as a viable treatment option;

addressing any competing technological and market developments;

identifying and validating new gene therapy product candidates;

negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; and

maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how.

Even if one or more of the product candidates that we will develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the EMA, or other regulatory agencies, domestic or foreign, to perform clinical and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

Risks Related to Product Regulatory Matters

Our gene therapy product candidates are based on novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval. Currently, only a few gene therapy products have been approved in the United States and the European Union.

We have concentrated our research and development efforts to date on a gene therapy platform, and our future success depends on the successful development of viable gene therapy product candidates. We cannot guarantee that we will not experience problems or delays in developing current or future product candidates or that such problems or delays will not cause unanticipated costs, or that any such development problems or delays can be resolved. We may also experience unanticipated problems or delays in developing our manufacturing capacity or transferring our manufacturing process to commercial partners, which may prevent us from completing our clinical studies or commercializing our products on a timely or profitable basis, if at all.

In addition, the clinical study requirements of the FDA, the EMA, and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or more extensively studied pharmaceutical or other product candidates. Currently, only a few gene therapy products have received marketing authorization in the U.S. or the EU, including Novartis Pharmaceuticals’ Kymriah, Kite Pharma’s Yescarta, GlaxoSmithKline’s Strimvelis and Spark Therapeutics’ Luxturna. It is therefore difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in the U.S., the EU or other jurisdictions. Approvals by the EMA may not be indicative of what the FDA may require for approval. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approvals necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue and our business, financial condition, results of operations and prospects could be materially harmed.

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Regulatory requirements governing gene therapy products have evolved and may continue to change in the future. For example, CBER may require us to perform additional nonclinical studies or clinical trials that may increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our gene therapy product candidates or lead to significant post-approval limitations or restrictions.

In addition, the EMA’s Committee for Advanced Therapies (“CAT”) and other regulatory review committees and advisory groups and any new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups, and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of certain of our product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate product revenue, and our business, financial condition, results of operations and prospects would be materially harmed.

We may encounter substantial delays in commencement, enrollment or completion of our clinical trials or may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities, which could prevent us from commercializing our current and future product candidates on a timely basis, if at all.

Before obtaining marketing approval from regulatory authorities for the sale of our current and future product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates. Clinical trials are expensive, time-consuming, and outcomes are uncertain.

Our experience with clinical trials has been limited. Our clinical programs to date have been performed under an IMPD, in Spain sponsored by CIEMAT, and in the U.S. sponsored by Hutch. The clinical trials performed by these sponsors were for a lentiviral treatment for FA, a rare mutation of the FANC-A gene. We have now initiated Rocket-sponsored clinical trials for FA and LAD-I , but have not completed any clinical trials to date. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A clinical trial may be delayed or halted at any stage of testing for various reasons, including:

failure of patients to enroll in the studies at the rate we expect;

ineffectiveness of our product candidates;

patients experiencing unexpected side effects or other safety concerns being raised during treatment;

changes in governmental regulations or administrative actions;

failure to conduct studies in accordance with required clinical practices;

inspection of clinical study operations or study sites by the FDA, the EMA or other regulatory authorities, resulting in a clinical hold;

insufficient financial resources;

insufficient supplies of drug product to treat the patients in the studies;

political unrest at foreign clinical sites;

a shutdown of the U.S. government, including the FDA; or

natural disasters at any of our clinical sites.

In addition, to the extent we seek to obtain regulatory approval for our product candidates in foreign countries, our ability to successfully initiate, enroll and complete a clinical study in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:

difficulty in establishing or managing relationships with CROs, and physicians;

different standards for the conduct of clinical trials;

absence in some countries of established groups with sufficient regulatory expertise for review of LVV and AAV gene therapy protocols;

our inability to locate qualified local partners or collaborators for such clinical trials; and

the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment.

Moreover, we intend to rely on the nonclinical studies and clinical trials performed by CIEMAT, and the FDA or the regulatory authority in any other country in which we decide to perform clinical trials or seek approval may not accept that results of the CIEMAT studies and trials. Any inability to successfully complete preclinical studies and clinical trials could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties.

If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate planned clinical trials, the occurrence of any of which would harm our business, financial condition, results of operations and prospects.

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Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics, to complete clinical trials in a timely manner. Patient enrollment and trial completion is affected by numerous factors including:

severity of the disease under investigation;

design of the study protocol;

size of the patient population;

eligibility criteria for the study in question;

perceived risks and benefits of the product candidate under study, including as a result of adverse effects observed in similar or competing therapies;

proximity and availability of clinical study sites for prospective patients;

availability of competing therapies and clinical studies;

efforts to facilitate timely enrollment in clinical studies;

patient referral practices of physicians; and

ability to monitor patients adequately during and after treatment.

In particular, each of the conditions for which we plan to evaluate our current product candidates are rare genetic diseases with limited patient pools from which to draw for clinical studies. Additionally, the process of finding and diagnosing patients may prove costly. In some cases, potential patients may be located outside of the U.S., and immigration related issues, including government policy changes, may introduce additional delays into the enrollment process. Finally, the treatment process requires that the cells be obtained from patients and then shipped to a transduction facility within the required timelines, and this may introduce unacceptable shipping-related delays to the process.

We have not completed any clinical studies of our current product candidates. Initial or interim results in our ongoing clinical studies may not be indicative of results obtained when these studies are completed. Furthermore, success in early clinical studies may not be indicative of results obtained in later studies.

Our FA gene therapy treatment was studied in clinical trials conducted by our partners. We have now initiated Rocket sponsored clinical trials for FA and LAD-I , but have not completed any clinical trials to date. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Our other gene therapy programs are in the preclinical stages. Study designs and results from previous or ongoing studies and clinical trials are not necessarily predictive of future study or clinical trial results, and initial or interim results may not continue or be confirmed upon completion of the study or trial. Positive data may not continue or occur for subjects in our clinical studies or for any future subjects in our ongoing or future clinical studies, and may not be repeated or observed in ongoing or future studies involving our product candidates. Furthermore, our product candidates may also fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through initial clinical studies. We cannot guarantee that any of these studies will ultimately be successful or that preclinical or early stage clinical studies will support further clinical advancement or regulatory approval of our product candidates.

Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.

Even if we successfully complete the necessary preclinical studies and clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize a product candidate and the approval may be for a more narrow indication than we seek.

We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. We have not received approval from regulatory authorities in any jurisdiction to market any of our product candidates. Even if our product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner, issue a complete response letter, or ultimately, we may not be able to obtain regulatory approval. In addition, we may experience delays or rejections if an FDA Advisory Committee recommends disapproval or restrictions on use. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative actions, or changes in regulatory authority policy during the period of product development, clinical trials and the review process. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of data obtained from preclinical and clinical testing could delay, limit or prevent the receipt of marketing approval for a product candidate.

Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings or REMS. These regulatory authorities may require precautions or contra-indications with respect to conditions of use or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates and materially harm our business, financial condition, results of operations and prospects.

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Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.

Even if we obtain regulatory approval in a jurisdiction, the applicable regulatory authority may still impose significant restrictions on the indicated uses or marketing of our product candidates, or impose ongoing requirements for potentially costly post-approval studies, post-market surveillance or patient or drug restrictions. Additionally, the holder of an approved BLA, is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. The holder of an approved BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. FDA guidance advises that patients treated with some types of gene therapy undergo follow-up observations for potential adverse events for as long as 15 years. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.

In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with GMP, and current good tissue practice, as well as adherence to commitments made in the BLA. If we or a regulatory agency discover previously unknown problems with a product such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

If we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory agency may take a variety of actions, including:

issue a warning letter asserting that we are in violation of the law;

seek an injunction or impose civil or criminal penalties or monetary fines;

suspend any ongoing clinical studies;

refuse to approve a pending marketing application, such as a BLA or supplements to a BLA submitted by us;

seize products; or

refuse to allow us to enter into supply contracts, including government contracts.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenues and could harm our business, financial condition, results of operations and prospects.

In addition, the FDA’s policies, and those of comparable foreign regulatory authorities, may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative actions, either in the U.S. or abroad. 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 which we may have obtained and we may not achieve or sustain profitability, which would materially harm our business, financial condition, results of operations and prospects.

We may never obtain FDA or EMA approval for any of our product candidates in the United States or the EU, and even if we do, we may never obtain approval for or commercialize any of our product candidates in any other jurisdiction, which would limit our ability to realize our full market potential.

In order to eventually market any of our product candidates in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements regarding safety and efficacy on a jurisdiction-by-jurisdiction basis. Approval by the FDA in the U.S. or the EMA in the EU, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, preclinical studies and clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. The foreign regulatory approval process involves similar risks to those associated with FDA and EMA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets, nor have we attempted to obtain such approval. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be unrealized.

Our product candidates may cause undesirable and unforeseen side effects or be perceived by the public as unsafe, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative consequences.

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Gene therapy is still a relatively new approach to disease treatment and adverse side effects could develop with our product candidates. There also is the potential risk of delayed adverse events following exposure to gene therapy products due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material.

Possible adverse side effects that could occur with treatment with gene therapy products include an immunologic reaction soon after administration which could substantially limit the effectiveness and durability of the treatment. If certain side effects are observed in testing of our potential product candidates, we may decide or be required to halt or delay further clinical development of our product candidates.

In addition to side effects caused by the product candidate, the administration process or related procedures associated with a given product candidate also can cause adverse side effects. If any such adverse events occur, our clinical trials could be suspended or terminated. Under certain circumstances, the FDA, the European Commission, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications. Moreover, if we elects or are required, to not initiate or to delay, suspend or terminate any future clinical trial of any of our product candidates, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may harm our business, financial condition and prospects significantly.

Furthermore, if undesirable side effects caused by our product candidate are identified following regulatory approval of a product candidate, several potentially significant negative consequences could result, including:

regulatory authorities may suspend or withdraw approvals of such product candidate;

regulatory authorities may require additional warnings on the label;

we may be required to change the way a product candidate is administered or conduct additional clinical trials; and

our reputation may suffer.

Any of these occurrences may harm our business, financial condition and prospects significantly.

Risks Related to Manufacturing, Development and Commercialization of Our Product Candidates

Products intended for use in gene therapies are novel, complex and difficult to manufacture. We could experience production problems that result in delays in our development or commercialization programs, limit the supply of our products or otherwise harm our business.

We currently have development, manufacturing and testing agreements with third parties to manufacture supplies of our product candidates. Several factors could cause production interruptions, including equipment malfunctions, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error or disruptions in the operations of suppliers.

Our product candidates require processing steps that are more complex than those required for small molecule pharmaceuticals.

We may encounter problems contracting with, hiring and retaining the experienced scientific, quality control and manufacturing personnel needed to operate our manufacturing process which could result in delays in our production or difficulties in maintaining compliance with applicable regulatory requirements.

Any problems in our manufacturing process or the facilities with which we contract could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to attractive development programs. Problems in third-party manufacturing processes or facilities also could restrict our ability to meet market demand for our products. Additionally, should our manufacturing agreements with third parties be terminated for any reason, there may be a limited number of manufacturers who would be suitable replacements and it could take a significant amount of time to transition the manufacturing to a replacement.

Even if approved, we may not successfully commercialize our drug candidates.

Our gene therapy product candidates are subject to the risks of failure inherent in the development of pharmaceutical products based on new technologies, and our failure to develop safe, commercially viable products would severely limit our ability to become profitable or to achieve significant revenues. Even if one or more of our drug candidates is approved, we may be unable to successfully commercialize our product candidates for several reasons, including:

some or all of our product candidates may be found to be unsafe or ineffective or otherwise fail to meet applicable regulatory standards or receive necessary regulatory clearances;

our product candidates, if safe and effective, may nonetheless not be able to be developed into commercially viable products;

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it may be difficult to manufacture or market our product candidates on a scale that is necessary to ultimately deliver our products to end-users;

proprietary rights of third parties may preclude us from marketing our product candidates;

the nature of our indications as rare diseases means that the potential market size may be limited; and

third parties may market superior or equivalent drugs which could adversely affect the commercial viability and success of our product candidates.

Our ability to successfully develop and commercialize our product candidates will substantially depend upon the availability of reimbursement funds for the costs of the resulting drugs and related treatments.

Market acceptance and sales of our product candidates may depend on coverage and reimbursement policies and health care reform measures. Decisions about formulary coverage as well as levels at which government authorities and third-party payors, such as private health insurers and health maintenance organizations, reimburse patients for the price they pay for our products as well as levels at which these payors pay directly for our products, where applicable, could affect whether we are able to successfully commercialize these products. We cannot guarantee that reimbursement will be available for any of our product candidates, nor can we guarantee that coverage or reimbursement amounts will not reduce the demand for, or the price of, our product candidates. We have not commenced efforts to have our product candidates reimbursed by government or third-party payors. If coverage and reimbursement are not available or are available only at limited levels, we may not be able to successfully commercialize our products. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the PPACA, was signed into law, and in recent years, numerous proposals to change the health care system in the U.S. have been made. These reform proposals include measures that would limit or prohibit payments for certain medical treatments or subject the pricing of drugs to government control. In addition, in many foreign countries, particularly the countries of the EU, the pricing of prescription drugs is subject to government control. If our products are or become subject to government regulation that limits or prohibits payment for our products, or that subjects the price of our products to governmental control, we may not be able to generate revenue, attain profitability or commercialize our products.

In addition, third-party payors are increasingly limiting both coverage and the level of reimbursement of new drugs. They may also impose strict prior authorization requirements and/or refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patients for their use of newly-approved drugs. If we are unable to obtain adequate levels of reimbursement for our product candidates, our ability to successfully market and sell our product candidates will be harmed. The manner and level at which reimbursement is provided for services related to our product candidates (e.g., for administration of our product to patients) is also important to successful commercialization of our product candidates. Inadequate reimbursement for such services may lead to physician resistance and limit our ability to market or sell our products.

We face intense competition and rapid technological change and the possibility that our competitors may develop therapies that are more advanced or effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.

We are engaged in gene therapy for severe genetic and rare diseases, which is a competitive and rapidly changing field. Although we are not currently aware of any gene therapy competitors addressing any of the same indications as those in our pipeline, we may have competitors both in the U.S. States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions.

Our potential competitors may have substantially greater financial, technical and other resources, such as larger research and development staff, manufacturing capabilities and experienced marketing and manufacturing organizations. These competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization and market penetration than us. Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against those of our competitors.

In addition, if our patent rights were to expire or be successfully challenged, we could face increased litigation with respect to the validity and/or scope of patents relating to our competitors’ products. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize, thereby causing harm to our business, financial condition, results of operations and prospects.

We may not be successful in our efforts to build a pipeline of additional product candidates.

Our business model is centered on applying our expertise in rare genetic diseases by establishing focused selection criteria to develop and advance a portfolio of gene therapy product candidates through development into commercialization. We may not be able to continue to identify and develop new product candidates in addition to the pipeline of product candidates that our research and development efforts to date have resulted in. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development. If we do not successfully develop and commercialize product candidates based upon our approach, we will not be able to obtain product revenue in future periods, which would likely result in significant harm to our financial position and results of operations.

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The success of our research and development activities, clinical testing and commercialization, upon which we primarily focus, is uncertain.

Our primary focus is on our research and development activities and the clinical testing and commercialization of our product candidates and we anticipate that we will remain principally engaged in these activities for an indeterminate, but substantial, period of time. Research and development was our most significant operating expense for the year ended December 31, 2018. Research and development activities, including the conduct of clinical studies, by their nature, preclude definitive statements as to the time required and costs involved in reaching certain objectives. Actual research and development costs, therefore, could significantly exceed budgeted amounts and estimated time frames may require significant extension. Cost overruns, unanticipated regulatory delays or demands, unexpected adverse side effects or insufficient therapeutic efficacy will prevent or substantially slow our research and development effort and our business could ultimately suffer.

Risks Related to Third Parties

We rely on third parties to conduct certain aspects of our preclinical studies and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business, financial condition and results of operations could be substantially harmed.

We have relied upon and plan to continue to rely upon third parties, including CROs, medical institutions, and contract laboratories for certain aspects of our ongoing preclinical and clinical programs. Nevertheless, we maintain responsibility for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our vendors are required to comply with current requirements on GMP, good clinical practice (“GCP”), and good laboratory practice (“GLP”), which are a collection of laws and regulations enforced by the FDA, the EMA or comparable foreign authorities for all of our drug candidates in clinical development.

Regulatory authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors, principal investigators, preclinical study and clinical trial sites, and other contractors. If we or any of our vendors fail to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign authorities may require us to perform additional preclinical studies and 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. In addition, our clinical trials must be conducted with products produced consistent with GMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the development and regulatory approval processes.

If any of our relationships with these third parties, medical institutions, clinical investigators or contract laboratories terminate, we may not be able to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. 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 ongoing preclinical and clinical programs.

If our 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 data they obtain is compromised due to the failure to adhere to our 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. CROs may also generate higher costs than anticipated. As a result, our business, financial condition and results of operations and the commercial prospects for our product candidates could be materially and adversely affected, our costs could increase, and our ability to generate revenue could be delayed.

Switching or adding additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work replacing a previous CRO. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, we cannot guarantee that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse effect on our business, financial condition or results of operations.

We expect to rely on third parties to conduct some or all aspects of our drug product manufacturing, research and preclinical and clinical testing, and these third parties may not perform satisfactorily.

We do not expect to independently conduct all aspects of our gene therapy production, product manufacturing, research and preclinical and clinical testing. We currently rely, and expect to continue to rely, on third parties with respect to these items. In some cases, these third parties are academic, research or similar institutions that may not apply the same quality control protocols utilized in certain commercial settings.

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Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations and study protocols. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may be delayed in completing, the preclinical and clinical studies required to support future product submissions and approval of our product candidates.

Generally, these third parties may terminate their engagements with us at will upon notice. If we need to enter into alternative arrangements, it could delay our product development activities.

We expect to rely solely on third-party manufacturers to manufacture supplies of our product candidates. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:

the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;

reduced control as a result of using third-party manufacturers for all aspects of manufacturing activities;

the risk that these activities are not conducted in accordance with our study plans and protocols;

termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and

disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier.

Any of these events could lead to clinical study delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize future products. Some of these events could be the basis for FDA action, including an injunction, recall, seizure or total or partial suspension of production.

We may not be successful in finding strategic collaborators for continuing development of certain of our product candidates or successfully commercializing our product candidates.

We may seek to establish strategic partnerships for developing and/or commercializing certain of our product candidates due to relatively high capital costs required to develop the product candidates, manufacturing constraints or other reasons. We may not be successful in our efforts to establish such strategic partnerships or other alternative arrangements for our product candidates for several reasons, including because our research and development pipeline may be insufficient, our product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view our product candidates as having the requisite potential to demonstrate efficacy or market opportunity. In addition, we may be restricted under existing agreements from entering into future agreements with potential collaborators.

If we are unable to reach agreements with suitable licensees or collaborators on a timely basis, on acceptable terms or at all, we may have to curtail the development of a product candidate, reduce or delay our development program, delay our potential commercialization, reduce the scope of any sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to independently fund development or commercialization activities, we may need to obtain additional expertise and additional capital, which may not be available on acceptable terms or at all. If we fail to enter into collaboration arrangements and does not have sufficient funds or expertise to undertake necessary development and commercialization activities, we may not be able to further develop our product candidates and our business, financial condition, results of operations and prospects may be materially harmed.

The commercial success of any of our product candidates will depend upon our degree of market acceptance by physicians, patients, third-party payors and others in the medical community.

Ethical, social, legal and other concerns about gene therapy could result in additional regulations restricting or prohibiting our products. Even with the requisite approvals from the FDA in the U.S., the EMA in the EU and other regulatory authorities internationally, the commercial success of our product candidates will depend, in part, on the acceptance of physicians, patients and health care payors of gene therapy products in general, and our product candidates in particular, as medically beneficial, cost-effective and safe. Any product that we commercialize may not gain acceptance by physicians, patients, health care payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of gene therapy products and, in particular, our product candidates, if approved for commercial sale, will depend on several factors, including:

the efficacy and safety of such product candidates as demonstrated in preclinical studies and clinical trials;

the potential and perceived advantages of product candidates over alternative treatments;

the cost of our treatment relative to alternative treatments;

the clinical indications for which the product candidate is approved by the FDA or the EMA;

patient awareness of, and willingness to seek, gene therapy;

the willingness of physicians to prescribe new therapies;

the willingness of physicians to undergo specialized training with respect to administration of our product candidates;

the willingness of the target patient population to try new therapies;

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the prevalence and severity of any side effects;

product labeling or product insert requirements of the FDA, the EMA or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling;

relative convenience and ease of administration;

the strength of marketing and distribution support;

the timing of market introduction of competitive products;

publicity concerning our products or competing products and treatments; and

sufficient third-party payor coverage and reimbursement.

Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be fully known until after it is approved and launched. The failure of any of our product candidates to achieve market acceptance could materially harm our business, financial condition, results of operations and prospects.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

We rely on third parties to manufacture our products and to perform quality testing, and because we collaborate with various organizations and academic institutions for the advancement of our gene therapy platform, we must, at times, share our proprietary technology and confidential information, including trade secrets, with them. We seek to protect our proprietary technology, in part, by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know‑how and trade secrets, a competitor’s discovery of our proprietary technology and confidential information or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business, financial condition, results of operations and prospects.

Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets by third parties. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business, financial condition, results of operations and prospects.

Risks Related to Personnel and Other Risks Related to Our Business

Our business could suffer if it loses the services of, or fails to attract, key personnel.

We are highly dependent upon the efforts of our senior management, including our Chief Executive Officer, Gaurav Shah, MD; our Chief Medical Officer and Head of Clinical Development, Jonathan Schwartz, MD; and our Chief Operating Officer and Head of Development, Kinnari Patel, PharmD, MBA. The loss of the services of these individuals and other members of our senior management could delay or prevent the achievement of research, development, marketing, or product commercialization objectives. Our employment arrangements with the key personnel are “at-will.” We do not maintain any “key-man” insurance policies on any of the key employees nor do we intend to obtain such insurance. In addition, due to the specialized scientific nature of our business, we are highly dependent upon our ability to attract and retain qualified scientific and technical personnel and consultants. There is intense competition among major pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions for qualified personnel in the areas of our operations, and we may be unsuccessful in attracting and retaining these personnel.

We may need to expand our organization and may experience difficulties in managing this growth, which could disrupt our operations.

As of March 1, 2019, we had 33 full-time employees. As our business activities expand, we may expand our full-time employee base and hire more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational setbacks, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced and we may not be able to implement our business strategy.

Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

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We are exposed to the risk of fraud or other misconduct by our employees, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the U.S. and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation or could cause regulatory agencies not to approve our product candidates. We have a code of business ethics and conduct applicable to all employees, but it is not always possible to identify and deter employee or third-party misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Our internal computer systems, or those of our third-party collaborators or other contractors, may fail or suffer security breaches, which could result in a material disruption of our development programs.

Our internal computer systems and those of our current and any future collaborators and other consultants are vulnerable to damage from computer viruses, unauthorized access, cyberattacks, data breaches, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident, attack or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we endeavor to ensure that our employees, consultants and independent contractors 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 our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Given our commercial relationships outside of the United States, in particular in the European Union, a variety of risks associated with international operations could harm our business.

We engage in various commercial relationships outside the U.S. and we may commercialize our product candidates outside of the U.S.. In many foreign countries, it is common for others to engage in business practices that are prohibited by U.S. laws and regulations applicable to us, including the Foreign Corrupt Practices Act. Although we may implement policies and procedures specifically designed to comply with these laws and policies, there can be no assurance that our employees, contractors and agents will comply with these laws and policies. If we are unable to successfully manage the challenges of international expansion and operations, our business and operating results could be harmed.

We may be, and to the extent we commercialize our product candidates outside the United States, expect to be subject to various risks associated with operating internationally, including:

different regulatory requirements for approval of drugs and biologics in foreign countries;

reduced protection for intellectual property rights;

unexpected changes in tariffs, trade barriers and regulatory requirements;

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

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

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

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

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

business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires, or from economic or political instability;

compliance with foreign laws, regulations, standards and regulatory guidance governing the collection, use, disclosure, retention, security and transfer of personal data, including the European Union General Data Privacy Regulation (“GDPR”); and

greater difficulty with enforcing our contracts in jurisdictions outside of the United States.

These and related risks could materially harm our business, financial condition, results of operations and prospects.

Affordable Care Act and Other Reform Initiatives

In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.

By way of example, in March 2010, the ACA was enacted. The ACA includes measures that have or will significantly change the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA of greatest importance to the pharmaceutical industry are the following:

The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the U.S. Department of Health and Human Services in exchange for state Medicaid coverage of most of the manufacturer’s drugs. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs and biologic agents to 23.1% of average manufacturer price ~~or AMP,~~(“AMP”) and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP.

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The ACA expanded the types of entities eligible to receive discounted 340B pricing, although, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs used in orphan indications. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discounts to increase. The ACA imposed a requirement on manufacturers of branded drugs and biologic agents to provide a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D beneficiaries in the coverage gap (i.e., “donut hole”).

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The ACA imposed 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, although this fee would not apply to sales of certain products approved exclusively for orphan indications.

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The ACA included the Federal Physician Payments Sunshine Act, which requires certain pharmaceutical manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exception, to track certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” provided, as well as any ownership or investment interests held by physicians and their immediate family members. Covered manufacturers were required to begin collecting data on August 1, 2013 and submit reports on aggregate payment data to CMS for the first reporting period (August 1, 2013—December 31, 2013) by March 31, 2014, and were required to report detailed payment data for the first reporting period and submit legal attestation to the completeness and accuracy of such data by June 30, 2014. Thereafter, covered manufacturers must submit reports by the 90th day of each subsequent calendar year. The information reported was made publicly available on a searchable website in September 2014.

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The ACA established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. The research conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.

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The ACA created the Independent Payment Advisory Board which has the authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings.

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The ACA established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to improve quality of care and lower program costs of Medicare, Medicaid and the Children’s Health Insurance Program, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation through 2019.

Table of entities eligible to receive discounted 340B pricing, although, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs used in orphan indications. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discounts to increase. The ACA imposed a requirement on manufacturers of branded drugs and biologic agents to provide a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D beneficiaries in the coverage gap (i.e., “donut hole”).Contents

Many of the details regarding the implementation of the ACA are yet to be determined, and at this time, it remains unclear the full effect that the ACA ~~would~~will have on our business.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, in August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

European Union Drug Development

In the ~~European Union,~~EU, our products will also be subject to extensive regulatory requirements. As in the United States, medicinal products can only be marketed if ~~an MAA~~a marketing authorization application (“MAA”) from the competent regulatory agencies has been obtained, and the various phases of preclinical and clinical research in the ~~European Union~~EU are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trial regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved by two distinct bodies in each of the EU countries where the trial is to be conducted: the National Competent Authority ~~or NCA,~~(“NCA”) and one or more Ethics Committees ~~or ECs.~~(“ECs”). In addition, all serious adverse reactions to the investigated drug that occur during the clinical trial must be reported to the NCA and ECs of the Member State where they occurred.

The EU clinical trials legislation is currently undergoing a revision process mainly aimed at making more uniform and streamlining the clinical trials authorization process, simplifying adverse event reporting procedures, improving the supervision of clinical trials and increasing the transparency of clinical trials.

European Union Drug Review Approval

In the European Economic Area ~~or EEA,~~(“EEA”), which is comprised of the 28 Member States of the ~~European Union~~EU plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining an MAA. There are two types of MAAs: (1) the Community MAA, which is issued by the European Commission through the Centralized Procedure based on the opinion of the Committee for Medicinal Products for Human

Use, ~~or CHMP,~~ a body of the EMA, and which is valid throughout the entire territory of the EEA; and (2) the National MAA, which is issued by the competent authorities of the Member States of the EEA and only authorized marketing in that Member State’s national territory and not the EEA as a whole.

The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. The National MAA is for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MAA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MAA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MAA is sought, one of which is selected by the applicant as the Reference Member State ~~or RMS.~~(“RMS”). If the RMS proposes to authorize the product, and the other Member States do not raise objections, the product is granted a national MAA in all the Member States where the authorization was sought. Before granting the MAA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

In addition, in the EU, the EMA’s CAT is responsible for assessing the quality, safety and efficacy of advanced therapy medicinal products. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the EMA. The development and evaluation of a gene therapy medicinal product must be considered in the context of the relevant EU guidelines, and the EMA may issue new guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that we comply with these new guidelines.

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Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidates or any future product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product for which we obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or the Affordable Care Act, was passed, which substantially changed the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. Since January 2017, the Trump administration has signed two Executive Orders designed to delay the implementation of certain provisions of the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. One Executive Order directs federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the Affordable Care Act. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. Further, on June 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12 billion in Affordable Care Act risk corridor payments to third-party payors who argued were owed to them. The effects of this gap in reimbursement on third-party payors, the viability of the Affordable Care Act marketplace, providers, and potentially our business, are not yet known.

In July 2018, the CMS published a final rule permitting further collections and payments to and from certain Affordable Care Act-qualified health plans and health insurance issuers under the Affordable Care Act risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. In addition, CMS has recently published a final rule that would give states greater flexibility, starting in 2020, in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the Affordable Care Act for plans sold through such marketplaces. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act of 2017, the remaining provisions of the Affordable Care Act are invalid as well. While the Trump Administration and CMS have both stated that the ruling will have no immediate effect, and on December 30, 2018 the Texas District Court Judge issued an order staying the judgment pending appeal, it is unclear how this decision, subsequent appeals and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.

Since its enactment, some of the provisions of the Affordable Care Act have yet to be fully implemented, while certain provisions have been subject to judicial, congressional, or executive challenges. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the Affordable Care Act. The U.S. Supreme Court has upheld certain key aspects of the legislation, including a tax-based shared responsibility payment imposed on certain individuals who fail to maintain qualifying health coverage for all or part of a year or pay a penalty, which is commonly known as the “individual mandate.” However, as a result of tax reform legislation passed in December 2017, the individual mandate has been eliminated effective January 1, 2019. On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The Bipartisan Budget Act of 2018, or the BBA, among other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.”

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. In August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction, which triggered the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of, on average, 2% per fiscal year through 2025 unless Congress takes additional action. These reductions were extended through 2027 under the BBA. In January 2013, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

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There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product. Although a number of these, and other proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We expect that the healthcare reform measures that have been adopted 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 third-party payors.

The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

Other Regulations

We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.

~~Employees~~

~~We had seventeen employees as of March 15, 2016. None of our employees are represented by any collective bargaining unit. We believe that we maintain good relations with our employees.~~

~~Corporate Information~~

We were incorporated in Delaware in 1999. Our principal executive offices are located at 91 Hartwell Avenue, Lexington, MA 02421, and our telephone number is (781) 676-2100. Our internet address is www.inotekpharma.com. We use our website as means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. We make available on our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC reports can be accessed through the Investors section of our website. Further, a copy of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D. C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. The information found on our website is not incorporated by reference into this report or any other report we file with or furnish to the SEC. Our common stock is listed on the NASDAQ Global Market under the symbol “ITEK.”

~~Research and Development~~

~~For the years ended December 31, 2015 and 2014, our research and development expenses were $12.6 million and $5.6 million, respectively.~~

~~Item 1A. Risk Factors~~

We operate in an industry that involves numerous risks and uncertainties. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Annual Report on Form 10-K, including our financial statements and related notes hereto. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. The risks and uncertainties described below may change over time and other risks and uncertainties, including those that we do not currently consider material, may impair our business In these circumstances, the market price of our common stock could decline.

~~Risks Related to Our Financial Position and Need for Additional Capital~~

~~We currently have no source of revenue and may never become profitable.~~

We are a clinical-stage biopharmaceutical company with a limited operating history. Our ability to generate revenue and become profitable depends upon our ability to successfully complete the development of our product candidates for the treatment of glaucoma and obtain the necessary regulatory approvals for our product candidates. We have never been profitable, have no products approved for commercial sale and to date have not generated any revenue from product sales. Even if we receive regulatory approval for the sale of our product candidates, we do not know when such product candidates will generate revenue, if at all. Our ability to generate product revenue depends on a number of factors, including our ability to:

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~~successfully complete clinical development, and receive regulatory approval, for our product candidates, including~~~~trabodenoson~~ ~~monotherapy and~~~~trabodenoson~~ ~~with~~~~latanoprost~~ ~~as a fixed-dose combination, or FDC;~~

~~set an acceptable price for our product candidates and obtain coverage and adequate reimbursement from third-party payors;~~

~~establish sales, marketing and distribution systems for our product candidates;~~

~~add operational, financial and management information systems and personnel, including personnel to support our clinical, manufacturing and planned future commercialization efforts;~~

~~have commercial quantities of our product candidates manufactured at acceptable cost levels;~~

~~successfully market and sell our product candidates in the United States and enter into partnerships or other arrangements to commercialize our product candidates outside the United States; and~~

~~maintain, expand and protect our intellectual property portfolio.~~

In addition, because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, and comparable non-U.S. regulatory authorities, or other regulatory authorities to perform studies or clinical trials in addition to those that we currently anticipate. Even if our product candidates are approved for commercial sale, we anticipate incurring significant costs associated with the commercial launch of these products.

Our ability to become and remain profitable depends on our ability to generate revenue. Even if we are able to generate revenues from the sale of our product candidates, we may not become profitable and may need to

~~obtain additional funding to continue operations.~~ If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our Company and could impair our ability to raise capital, expand our business or continue our operations. A decline in the value of our Company could also cause you to lose all or part of your investment.

~~We have a history of net losses and anticipate that we will continue to incur net losses for the foreseeable future.~~

We have a history of losses and anticipate that we will continue to incur net losses for the foreseeable future. Our net losses were $68.0 million and $9.5 million for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015, we had an accumulated deficit of $196.0 million.

Investment in pharmaceutical product development is highly speculative because it entails substantial upfront expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. We have devoted most of our financial resources to research and development, including our non-clinical development activities and clinical trials. We are not currently generating revenues, and we cannot estimate with precision the extent of our future losses. We do not currently have any products that are available for commercial sale and we may never generate revenue from selling products or achieve profitability. We expect to continue to incur substantial and increasing losses through the projected commercialization of our product candidates. None of our product candidates have been approved for marketing in the United States and may never receive such approval. As a result of these factors, we are uncertain when or if we will achieve profitability and, if so, whether we will be able to sustain it. Our ability to produce revenue and achieve profitability is dependent on our ability to complete the development of our product candidates, obtain necessary regulatory approvals, and have our products manufactured and successfully marketed. We cannot assure you that we will be profitable even if we successfully commercialize our products. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.

We have financed our operations with a combination of private and public grants and contracts and equity and preferred stock offerings. From 1997 to 2004, we received non-dilutive funding totaling over $50 million through federal and private grants and contracts. Since 2004, we have raised additional equity capital with funding from biotechnology and pharmaceutical investors. In February 2004, we completed the sale of approximately $20 million of Series A preferred stock. In October 2005, we completed the sale of $35 million of Series B preferred stock. In October of 2007, we completed the sale of approximately $24 million of Series C preferred stock. In June 2011, we completed the sale of an aggregate of approximately $23.5 million of Series AA preferred stock in four separate closings during the preceding year. In February 2013, we completed the sale of approximately $3.5 million of convertible promissory notes in three separate closings during the preceding eight months. In July 2013, we completed the sale of an additional approximately $13.5 million of Series AA preferred stock, including the conversion of the convertible promissory notes, in two separate closings during the previous two months. In December 2014, we completed the issuance and sale of $2.0 million of subordinated convertible promissory notes.

In February 2015, we completed our initial public offering of 6,667,000 shares of our common stock at a price of $6.00 per share and a concurrent offering of $20.0 million aggregate principal amount of 5.0% Convertible Senior Notes due in 2020 (the “2020 Convertible Notes”). In March 2015, the underwriters exercised 299,333 shares of common stock at $6.00 per share and $1.0 million of the 2020 Convertible Notes pursuant to their overallotment options. We received net proceeds of approximately $36.5 million, after deducting underwriting discounts and offering-related costs, from our equity issuances and approximately $18.9 million in net proceeds, after deducting underwriting discounts and offering-related costs, from our debt issuances.

In August 2015, we completed an underwritten public offering of our common stock (the “Follow-on Offering”). We issued 6,210,000 shares of our common stock at a price of $12.75 per share, including 810,000 shares from the underwriters’ full exercise of their overallotment option, and we received net proceeds of $74.0 million, after deducting underwriting discounts and offering-related costs.

We expect our research and development expenses to continue to be significant in connection with our product development activities, including our planned Phase 2 clinical trials for our FDC product candidate and our planned Phase 3 programs. In addition, if we obtain regulatory approval for our product candidates, we expect to incur increased sales and marketing expenses. As a result, we expect to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have a material adverse effect on our stockholders’ deficit, financial position, cash flows and working capital.

We will need to obtain additional financing to fund our operations and, if we are unable to obtain such financing, we may be unable to complete the development and commercialization of our primary product candidates.

Our operations have consumed substantial amounts of cash since inception. At December 31, 2015, our cash and cash equivalents and short-term investments aggregated $111.3 million. We estimate that these funds will be sufficient to fund our projected operating requirements through 2017. We will need to obtain additional financing to conduct additional trials for the approval of our drug candidates and complete the development of any additional product candidates we might acquire. Moreover, our fixed expenses such as rent and other contractual commitments are substantial and are expected to increase in the future.

Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future potential commercialization efforts. Our forecast of the period of time through which our financial resources will be adequate to support our operating requirements is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this forecast on a number of assumptions that may prove to be wrong, and changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate.

~~Our future funding requirements will depend on many factors, including, but not limited to:~~

~~the progress, timing, scope and costs of our clinical trials, including the ability to enroll patients in our planned and potential future clinical trials in a timely manner;~~

~~the time and cost necessary to obtain regulatory approvals that may be required by regulatory authorities;~~

~~our ability to successfully commercialize our product candidates;~~

the amount of sales and other revenues from product candidates that we may commercialize, if any, including the selling prices for such product candidates and the availability of coverage and adequate reimbursement from third parties;

~~selling and marketing costs associated with our product candidates, including the cost and timing of expanding our marketing and sales capabilities;~~

~~the terms and timing of any potential future collaborations, licensing or other arrangements that we may establish;~~

~~cash requirements of any future acquisitions and/or the development of other product candidates;~~

~~the costs of operating as a public company;~~

~~the time and cost necessary to respond to technological and market developments;~~

~~the costs of maintaining and expanding our existing intellectual property rights; and~~

~~the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.~~

Until we can generate a sufficient amount of revenue, we may finance future cash needs through public or private equity offerings, license agreements, debt financings, collaborations, strategic alliances, marketing or distribution arrangements or a combination thereof. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. General market conditions or the market price of our common stock may not support capital raising transactions such as an additional public or private offering of our common stock or other securities. In addition, our ability to raise additional capital may be dependent upon our stock being quoted on The NASDAQ Global Market, or NASDAQ, or upon obtaining shareholder approval. There can be no assurance that we will be able to satisfy the criteria for continued listing on NASDAQ or that we will be able to obtain shareholder approval if it is necessary. If adequate funds are not available, we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts.

We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. In addition, if we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Our inability to obtain additional funding when we need it could seriously harm our business.

~~Additional capital that we may need to operate or expand our business may not be available.~~

We may require additional capital to operate or expand our business. If we raise additional funds through the issuance of equity or convertible securities, the percentage ownership of holders of our common stock could be significantly diluted and these newly issued securities may have rights, preferences or privileges senior to those of holders of our common stock. Furthermore, volatility in the credit or equity markets may have an adverse effect on our ability to obtain debt or equity financing or the cost of such financing. If we do not have funds available to enhance our solution, maintain the competitiveness of our technology and pursue business opportunities, this could have an adverse effect on our business, operating results and financial condition.

~~Risks Related to Development, Regulatory Approval and Commercialization~~

We depend substantially on the success of our product candidates, particularly trabodenoson monotherapy and trabodenoson FDC, which are still in development. If we are unable to successfully develop and commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

Our business and the ability to generate revenue related to product sales, if ever, will depend on the successful development, formulation and manufacturing, regulatory approval and commercialization of our product candidates ~~trabodenoson~~ ~~monotherapy and~~~~trabodenoson~~FDC, which are still in development, and other potential products we may develop or license. We have invested a significant portion of our efforts and financial resources in the development of our existing product candidates. The success of our product candidates will depend on several factors, including:

successful completion of clinical trials, and the supporting non-clinical toxicology, formulation development, and manufacturing of supplies for the clinical program in accordance with current Good Manufacturing Practices, or cGMP;

~~receipt of regulatory approvals from the FDA and other applicable regulatory authorities outside the United States;~~

~~establishment of arrangements with third-party manufacturers;~~

~~obtaining and maintaining patent and trade secret protection and regulatory exclusivity;~~

~~protecting our rights in our intellectual property;~~

~~launching commercial sales of our product candidates, if and when approved;~~

~~acceptance of any approved product by the medical community and patients;~~

~~obtaining coverage and adequate reimbursement from third-party payors for product candidates, if and when approved;~~

~~effectively competing with other products; and~~

~~achieving a continued acceptable safety and efficacy profile for our product candidates following regulatory approval, if and when received.~~

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully develop and commercialize our product candidates, which would materially harm our business and we may not be able to earn sufficient revenues and cash flows to continue our operations.

~~Our product candidates are~~~~trabodenoson~~ ~~as a monotherapy and as an FDC consisting of~~~~trabodenoson~~with a prostaglandin analog, or PGA. We have no other product candidates in our near term product pipeline. As a result, we are substantially dependent on the successful development and commercialization of~~trabodenoson. If the results of our chronic toxicology program were to identify a safety problem, or if our current and upcoming pivotal trials of~~~~trabodenoson~~ ~~monotherapy or our current Phase 2 program for the FDC product candidate were to demonstrate lack of efficacy in lowering intraocular pressure, or IOP, or any safety issues related to~~~~trabodenoson~~~~, our development strategy would be materially and adversely affected.~~

~~We have not obtained regulatory approval for any of our product candidates in the United States or in any other country.~~

We currently do not have any product candidates that have gained regulatory approval for sale in the United States or in any other country, and we cannot guarantee that we will ever have marketable products. Our business is substantially dependent on our ability to complete the development of, obtain regulatory approval for and successfully commercialize product candidates in a timely manner. We cannot commercialize product candidates in the United States without first obtaining regulatory approval to market each product from the FDA; similarly, we cannot commercialize product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. We have completed a Phase 2 trial in which we tested~~trabodenoson~~ ~~co-administered with~~~~latanoprost~~~~. We attended an End-of-Phase 2 meeting with the FDA for~~~~trabodenoson~~ monotherapy in the first half of 2015 and initiated a pivotal Phase 3 program in the fourth quarter of 2015, which consists of two Phase 3 monotherapy pivotal trials and a long-term safety study. We cannot predict whether any of our future trials, including our planned long-term safety trial of~~trabodenoson~~, will be successful or whether regulators will agree with our conclusions regarding the preclinical studies and clinical trials we have conducted to date or will conduct. Moreover, any determination of changes in a study design and its confirmation with the FDA could result in a significant range of costs for the Phase 3 pivotal and long-term safety trials.

Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication, we must demonstrate in preclinical studies and well-controlled clinical trials, and, with respect to approval in the United States, to the satisfaction of the FDA, that the product candidate is safe and effective for

use for that target indication and that the manufacturing facilities, processes and controls are adequate. In the United States, we have not submitted a New Drug Application, or NDA, for any of our product candidates. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and approval may not be obtained. If we submit an NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing. We cannot be certain that any submissions will be accepted for filing and review by the FDA.

~~Regulatory authorities outside of the United States, such as in Europe and Japan and in emerging markets, also have requirements for approval of drugs for commercial sale with which we must~~ comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our product candidates. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking non-U.S. regulatory approval could require additional non-clinical studies or clinical trials, which could be costly and time consuming. The non-U.S. regulatory approval process may include all of the risks associated with obtaining FDA approval or additional risks. For all of these reasons, we may not obtain non-U.S. regulatory approvals on a timely basis, if at all.

The process to develop, obtain regulatory approval for and commercialize product candidates is long, complex and costly both inside and outside of the United States, and approval is never guaranteed. Even if our product candidates were to successfully obtain approval from the regulatory authorities, any approval might significantly limit the approved indications for use, or require that precautions, contraindications, or warnings be included on the product labeling, or require expensive and time-consuming post-approval clinical trials or surveillance as conditions of approval. Following any approval for commercial sale of our product candidates, certain changes to the product, such as changes in manufacturing processes and additional labeling claims, will be subject to additional FDA review and approval. Also, regulatory approval for any of our product candidates may be withdrawn. If we are unable to obtain regulatory approval for our product candidates in one or more jurisdictions, or any approval contains significant limitations, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed. Furthermore, we may not be able to obtain sufficient funding or generate sufficient revenue and cash flows to continue the development of any other product candidate in the future.

Regulatory approval may be substantially delayed or may not be obtained for one or all of our product candidates if regulatory authorities require additional time or studies to assess the safety and efficacy of our product candidates.

We may be unable to initiate or complete development of our product candidates on schedule, if at all. To complete the studies for our product candidates, we will require additional funding. In addition, if regulatory authorities require additional time or studies to assess the safety or efficacy of our product candidates, we may not have or be able to obtain adequate funding to complete the necessary steps for approval for any or all of our product candidates. Preclinical studies and clinical trials required to demonstrate the safety and efficacy of our product candidates are time consuming and expensive and together take several years or more to complete. Delays in regulatory approvals or rejections of applications for regulatory approval in the United States, Europe, Japan or other markets may result from many factors, including:

~~our inability to obtain sufficient funds required for a clinical trial;~~

~~requests from regulatory authorities for additional analyses, reports, data, non-clinical and preclinical studies and clinical trials;~~

~~questions from regulatory authorities regarding interpretations of data and results and the emergence of new information regarding our product candidates or other products;~~

clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval to commence a clinical trial in countries that require such approvals;

~~failure to reach agreement with the FDA or comparable non-US regulatory authorities regarding the scope or design of our clinical trials;~~

our inability to enroll a sufficient number of patients who meet the inclusion and exclusion criteria in our clinical trials. For example, we are seeking patients with elevated levels of IOP for our clinical trials, which are more difficult to find;

~~our inability to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;~~

our inability to reach agreements on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

our inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indications targeted by our product candidates;

~~any determination that a clinical trial presents unacceptable health risks;~~

~~lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions;~~

~~our inability to obtain approval from Institutional Review Boards, or IRBs, to conduct clinical trials at their respective sites;~~

~~our inability to manufacture in a timely manner or obtain from third parties sufficient quantities or quality of the product candidates or other materials required for a clinical trial;~~

~~difficulty in maintaining contact with patients after treatment, resulting in incomplete data; and~~

~~unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results regarding the effectiveness of product candidates during clinical trials.~~

Changes in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols submitted to applicable regulatory authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial.

If the FDA requires us to change the design of our planned pivotal trials, the actual costs of these trials may be greater than what we estimated based on our current expectations regarding the design of these trials. If we are required to conduct additional clinical trials or other studies with respect to any of our product candidates beyond those that we initially contemplated, if we are unable to successfully complete our clinical trials or other studies or if the results of these studies are not positive or are only modestly positive, we may be delayed in obtaining regulatory approval for that product candidate, we may not be able to obtain regulatory approval at all or we may obtain approval for indications that are not as broad as intended. Our product development costs will also increase if we experience delays in testing or approvals and we may not have sufficient funding to complete the testing and approval process. Significant clinical trial delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products if and when approved. If any of this occurs, our business will be materially harmed.

We have not yet successfully formulated, and may be unable to formulate or manufacture our fixed-dose combination product candidate in a way that is suitable for clinical or commercial use. Any such delay or failure could materially harm our commercial prospects, result in higher costs and deprive us of product candidate revenues.

~~We completed a Phase 2 trial to evaluate the efficacy, tolerability and safety of~~~~trabodenoson~~ ~~when co-administered with commercially-available~~~~latanoprost~~ eye drops. However, we have not yet formulated our FDC product candidate to include these two drugs in a single combination dose, and we may never be able to formulate or manufacture our FDC product candidate in a way that is suitable for clinical or commercial use. Any delay or failure to develop a suitable product formulation or manufacturing process for our FDC product candidate could materially harm our commercial prospects, result in higher costs or deprive us of potential product revenues.

~~Failure can occur at any stage of clinical development. If the clinical trials for our product candidates are unsuccessful, we could be required to abandon development.~~

A failure of one or more clinical trials can occur at any stage of testing for a variety of reasons. The outcome of preclinical testing and early clinical trials may not be predictive of the outcome of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. In addition, adverse events may occur or other risks may be discovered in any clinical trials that will cause us to suspend or terminate our clinical trials. 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 but not limited to changes in or adherence to trial protocols, differences in size and type of the patient populations and the rates of dropout among clinical trial participants. Prior to initiation of our Phase 3 monotherapy clinical trial in October 2015, we had exposed 233 clinical trial subjects to~~trabodenoson. The FDA expects that a total of at least 1,300 patients will be exposed to at least a single dose of~~~~trabodenoson~~ ~~before submission of an NDA, and the complete NDA submission package must also contain safety data from at least 300 patients treated with~~~~trabodenoson~~ for at least six months, and at least 100 patients treated for at least a year. Our future clinical trial results therefore may not demonstrate safety and efficacy sufficient to obtain regulatory approval for our product candidates. Moreover, we still need to evaluate the long-term safety effects of our product candidates, the results of which could adversely affect our clinical development program.

Flaws in the design of a clinical trial may not become apparent until the clinical trial is well-advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support regulatory approval. In addition, clinical trials often reveal that it is not practical or feasible to continue development efforts. Further, we have never submitted an NDA for any product candidates.

We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. Further, regulatory agencies and IRBs may at any time order or data safety monitoring boards may at any time recommend to the sponsor the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable ~~regulatory requirements, or that they present an unacceptable safety risk to participants.~~

If the results of our clinical trials for our current product candidates or clinical trials for any future product candidates do not achieve the primary efficacy endpoints or demonstrate unexpected safety issues, the prospects for approval of our product candidates will be materially adversely affected. Moreover, preclinicalU.S. and ~~clinical~~foreign privacy and data ~~are often susceptible to varying interpretations~~protection laws and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have failed to achieve similar results in later clinical trials, including longer term trials, or have failed to obtain regulatory approval of their product candidates. Many compounds that initially showed promise in clinical trials or earlier stage testing have later been found to cause undesirable or unexpected adverse effects that have prevented further development of the compound. In addition, we have typically only tested our product candidates in a single eye, which may not

~~accurately predict the efficacy or safety of our product candidates when dosed in both eyes. Our current and planned Phase 3 pivotal trials and long-term safety study of~~~~trabodenoson~~ ~~monotherapy may not produce the results that we expect. Our current and planned clinical trials are also designed to test the use of~~~~trabodenoson~~ ~~in combination with~~~~latanoprost~~ in a single dosage form. Accordingly, the efficacy of our primary product candidates may not be similar or correspond directly to their efficacy when used as a monotherapy. Our current product candidates remain subject to the risks associated with clinical drug development as indicated above.

In addition to the circumstances noted above, we may experience numerous unforeseen events that could cause our clinical trials to be delayed, suspended or terminated, or which could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including:

clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or implement a clinical hold;

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

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

~~regulators or IRBs may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;~~

~~we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;~~

~~we may elect or be required to suspend or terminate clinical trials of our product candidates based on a finding that the participants are being exposed to health risks;~~

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

~~the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and~~

~~our product candidates may have undesirable adverse effects or other unexpected characteristics.~~

If we elect or are required to suspend or terminate a clinical trial of any of our product candidates, our commercial prospects will be adversely impacted and our ability to generate product revenues may be delayed or eliminated.

Our product candidates may have undesirable adverse effects, which may delay or prevent regulatory approval or, if approval is received, require our products to be taken off the market, require them to include safety warnings or otherwise limit their sales.

Unforeseen adverse effects from any of our product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. In particular, we are aware of the known potential of adenosine and adenosine-like drugs to affect the heart if present in the systemic circulation at high enough levels.

Any undesirable adverse effects that may be caused by our product candidates could interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA and comparable non-U.S. regulatory authorities for any or all targeted indications, and in turn prevent us from commercializing our product candidates and generating revenues from their sale. In addition, if any of our product candidates receives regulatory approval and we or others later identify undesirable adverse effects caused by the product, we could face one or more of the following consequences:

~~regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication, or other labeling changes;~~

~~regulatory authorities may withdraw their approval of the product;~~

~~regulatory authorities may seize the product;~~

~~we may be required to change the way that the product is administered, conduct additional clinical trials or recall the product;~~

regulations, we may be subject to ~~litigation or product liability claims, fines, injunctions, or criminal penalties; and~~

~~our reputation may suffer.~~

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing such product, which in turn could delay or prevent us from generating significant revenues from its sale.

~~Trabodenoson~~ is an adenosine mimetic. Adenosine is used therapeutically to manage cardiovascular arrhythmias, such as paroxysmal supraventricular tachycardia, a type of accelerated heart rate. All of our data to date reflectsliabilities that~~trabodenoson~~ ~~does not have systemic effects, including no impact on the cardiovascular system when dosed in the eye. However, we are still conducting additional trials for~~~~trabodenoson~~ ~~and systemic effects may arise in future trials. Furthermore, if~~~~trabodenoson~~ has the perception of having potential adverse effects because it is an adenosine mimetic, it may be negatively viewed by ophthalmologists and optometrists, patients, patient advocacy groups, third-party payors and the medical community which would adversely affect ~~the market acceptance of~~ our ~~product candidates. In addition, the use of our product candidates outside the indications approved for use, or off-label use, or the use of our product candidate in an inappropriate manner,~~business, operations and financial performance.

We may increase the risk of injury to patients. If approved, clinicians may use our products for off-label uses, as the FDA does not restrict or regulate a clinician’s choice of treatment within the practice of medicine. Off-label use of our products may increase the risk of product liability claims against us. Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us.

~~If our product candidates receive regulatory approval, we will be subject to ongoing regulatory requirements and we may face future development, manufacturing and regulatory difficulties.~~

~~Our product candidates, if approved, will~~ also be subject to ~~ongoing~~or affected by foreign laws and regulation, including regulatory ~~requirements for labeling, packaging,~~guidance, governing the collection, use, disclosure, security, transfer and storage ~~advertising, promotion, sampling, record-keeping, submission~~ of safety and other post-market approval information, importation and exportation. In addition, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA and European Medicines Agency, or EMA, requirements and the requirements of other similar agencies, including ensuring that quality control and manufacturing procedures conform to cGMP requirements. As such, we and our potential future contract manufacturers will be subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, we and others with whom we work will be required to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, EMA and other similar foreign agencies and to comply with certain requirements concerning advertising and promotion for our product candidates. Promotional communications with respect to prescription drugs also are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Accordingly, once approved, we may not promote our products, if any, for indications or uses for which they are not approved.

~~If a regulatory agency discovers previously unknown problems with a product,~~personal data, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions oninformation that ~~product or us, including requiring withdrawal of the product from the market. If our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:~~

~~issue warning letters or untitled letters;~~

~~require product recalls;~~

~~mandate modifications to promotional materials or require us to provide corrective information to~~we collect about patients and healthcare ~~practitioners;~~

require us or our potential future collaborators to enter into a consent decree or permanent injunction, which can include shutdown of manufacturing facilities, imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

~~impose other administrative or judicial civil or criminal penalties or pursue criminal prosecution;~~

~~withdraw regulatory approval;~~

~~refuse to approve pending applications or supplements to approved applications filed by us or by our potential future collaborators;~~

~~impose restrictions on operations, including costly new manufacturing requirements; or~~

~~seize or detain products.~~

~~If we are unable to effectively establish a direct sales force in the United States, our business may be harmed.~~

We currently do not have an established sales organization and do not have a marketing or distribution infrastructure. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. If~~trabodenoson~~ receives marketing approval in the United States, we plan to commercialize it by establishing a glaucoma-focused specialty sales force of approximately 150 people targeting high-prescribing ophthalmologists and optometrists throughout the United States. We will need to incur significant additional expenses and commit significant additional time and management resources to establish and train a sales force to market and sell our products. We may not be able to successfully establish these capabilities despite these additional expenditures.

~~Factors that may inhibit our efforts to successfully establish a sales force include:~~

our inability to compete with other pharmaceutical companies to recruit, hire, train and retain adequate numbers of effective sales and marketing personnel with requisite knowledge of our target market;

~~the inability of sales personnel to obtain access to adequate numbers of ophthalmologists and optometrists to prescribe any future approved products;~~

~~unforeseen costs and expenses associated with creating an independent sales and marketing organization; and~~

~~a delay in bringing products to market after efforts to hire and train our sales force have already commenced.~~

~~In the event we are unable to successfully market and promote our products, our business may be harmed.~~

We currently intend to explore the licensing of commercialization rights or other forms of collaboration outside of the United States, which will expose us to additional risks of conducting business in international markets.

The non-U.S. markets are an important component of our growth strategy. If we fail to obtain licenses or enter into collaboration arrangements with selling parties, or if these parties are not successful, our revenue-generating growth potential will be adversely affected. Moreover, international business relationships subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations, including:

~~efforts to enter into collaboration or licensing arrangements with third parties~~providers in connection with clinical trials and our ~~international sales, marketing~~other operations in the U.S. and ~~distribution efforts may increase our expenses or divert our management’s attention from~~abroad. For example, the ~~acquisition or development of product candidates;~~

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

~~differing regulatory~~E.U. has adopted the GDPR, which introduces strict requirements for ~~drug approvals~~processing personal data. The GDPR is likely to increase the compliance burden on us, including by mandating potentially burdensome documentation requirements and ~~marketing internationally, which could result in our being required~~granting certain rights to ~~conduct additional clinical trials or other studies before being able~~individuals to ~~successfully commercialize our product candidates in any jurisdiction outside the United States;~~

~~differing reimbursement regimes~~control how we collect, use, disclose, retain and ~~price controls in certain non-U.S. markets;~~

~~difficulty~~leverage information about them. The processing of ~~effective enforcement of contractual provisions in local jurisdictions;~~

~~potentially reduced protection for intellectual property rights;~~

~~potential third-party patent rights in countries outside of the United States;~~

~~unexpected changes in tariffs, trade barriers and regulatory requirements;~~

~~economic weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including several countries in Europe;~~

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

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

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

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

the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;

~~failure of our employees and contracted third parties to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act;~~

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

~~business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires.~~

~~These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.~~

We face competition from established branded and generic pharmaceutical companies and if our competitors are able to develop and market products that are preferred over our products, our commercial opportunity will be reduced or eliminated.

The development and commercialization of new drug products is highly competitive. We face competition from established branded and generic pharmaceutical companies, smaller biotechnology and pharmaceutical companies, as well as from academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat glaucoma. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Glaukos Corporation recently commercialized a trabecular micro-bypass stent that is implanted in the eye during cataract surgery and allows fluid to flow from the anterior of the eye into the collecting channels, bypassing the TM. In addition, early-stage companies that are also developing glaucoma treatments may prove to be significant competitors,sensitive personal data, such as ~~Aerie Pharmaceuticals,~~

~~Inc., which is developing a Rho kinase/norepinephrine transport inhibitor. We expect that our competitors will continue to develop new glaucoma treatments, which~~physical health conditions, may include eye drops, oral treatments, surgical procedures, implantable devices or laser treatments. Other early-stage companies may also compete through collaborative arrangements with large and established companies. Mergers and acquisitions inimpose heightened compliance burdens under the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer adverse effects, are more convenient or are less expensive than our product candidates. The market for glaucoma prescriptions is highly competitiveGDPR and is ~~currently dominated by generic drugs, such as~~~~latanoprost~~ ~~and~~~~timolol~~~~, and additional products are expected to become available on~~ a ~~generic basis over the coming years. If any~~topic of ~~our product candidates are approved, we expect that they will be priced at a premium over competitive generic products and consistent with other branded glaucoma drugs.~~

If our competitors market products that are more effective, safer, have fewer side effects or are less expensive than our product candidates or that reach the market sooner than our potential future products, if any, we may not achieve commercial success.

~~The commercial success of our product candidates will depend on the degree of market acceptance~~active interest among ~~ophthalmologists and optometrists, patients, patient advocacy groups, third-party payors and the medical community.~~

Our product candidates may not gain market acceptance among ophthalmologists and optometrists, patients, patient advocacy groups, third-party payors and the medical community. There are a number of available therapies marketed for the treatment of glaucoma. Some of these drugs are branded and subject to patent protection, but most others, including~~latanoprost~~ and many beta blockers, are available on a generic basis. Many of these approved drugs are well established therapies and are widely accepted by ophthalmologists and optometrists, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. Additionally, in patients with normal tension glaucoma whose IOP falls into the normal range, IOP is generally much more difficult to reduce. In these patients,~~trabodenoson~~ may offer little or no clinical benefit, which may ultimately limit its utility in this subpopulation of glaucoma patients. The degree of market acceptance of our product candidates will depend on a number of factors, including:

~~the market price, affordability and patient out-of-pocket costs of our product candidates relative to other available products, which are predominantly generics;~~

~~the degree to which our product candidates obtain coverage and adequate reimbursement;~~

~~the effectiveness of our product candidates as compared with currently available products and any products that may be approved in the future;~~

~~patient willingness to adopt our product candidates in place of current therapies;~~

~~varying patient characteristics including demographic factors such as age, health, race and economic status;~~

~~changes in the standard of care for the targeted indications for any of our product candidates;~~

~~the prevalence and severity of any adverse effects or perception of any potential side effects;~~

~~limitations or warnings contained in a product candidate’s FDA-approved labeling;~~

~~limitations in the approved clinical indications for our product candidates;~~

~~relative convenience and ease of administration;~~

~~the strength of our selling, marketing and distribution capabilities;~~

~~the quality of our relationship with patient advocacy groups;~~

~~sufficient third-party coverage and reimbursement; and~~

~~product liability claims.~~

foreign regulators. In addition, the ~~potential market opportunity~~GDPR provides for ~~our product candidates is difficult~~breach reporting requirements, more robust regulatory enforcement and fines of up to ~~precisely estimate. Our estimates~~20 million euros or up to 4% of annual global revenue. While the potential market opportunity for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. If any of these assumptions proves to be inaccurate, then the actual market for our product candidates could be smaller than our estimates of our potential market opportunity. If the actual market for our product candidates is smaller than we expect, our product revenue may be limited, and it may be more difficult for us to achieve or maintain profitability. If we fail to achieve market acceptance of our product candidates in the United States and abroad, our revenue will be more limited and it will be more difficult to achieve profitability.

~~If we fail to obtain and sustain coverage and an adequate level of reimbursement for our product candidates by third-party payors, potential future sales would be materially adversely affected.~~

~~The course of treatment for glaucoma patients primarily includes older drugs, and the leading products for the treatment of glaucoma currently in the market, including~~~~latanoprost~~ ~~and~~~~timolol~~, are available as generic brands. There will be no commercially viable market for our product candidates without coverage and adequate reimbursement from third-party payors, and any coverage and reimbursement policy may be affected by future healthcare reform measures. We cannot be certain that coverage and adequate reimbursement will be available for our product candidates or any other future product candidates we develop. Additionally, even if there is a commercially viable market, if the level of reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected.

Third-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. A current trend in the U.S. healthcare industry is toward cost containment. Large public and private payors, managed care organizations, group purchasing organizations and other similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for our product candidates, which could result in product revenues being lower than anticipated. We believe our drugs will be priced significantly higher than existing generic drugs and consistently with current branded drugs. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payors may not be willing to cover or provide adequate reimbursement for our drugs, which would significantly reduce the likelihood of them gaining market acceptance. In the United States, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor.

~~We expect that private insurers will consider the efficacy, cost effectiveness, safety and tolerability of our product candidates~~GDPR affords some flexibility in determining whether to approve coverage and set reimbursement levels for such products. Obtaining these approvals can be a time consuming and expensive process. Our business and prospects would be materially adversely affected if we do not receive approval for coverage and reimbursement of our product

candidates from private insurers on a timely or satisfactory basis. Limitations on coverage and reimbursement could also be imposed by government payors, such as the local Medicare carriers, fiscal intermediaries, or Medicare Administrative Contractors. Further, Medicare Part D, which provides a pharmacy benefit to certain Medicare patients, does not require participating prescription drug plans to cover all drugs within a class of products. Our business could be materially adversely affected if private or governmental payors, including Medicare Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our product candidates or other potential products.

Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. For example, reimbursement in the European Union must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.

If the prices for our product candidates decrease or if governmental and other third-party payors do not provide coverage and adequate reimbursement levels, our revenue, potential for future cash flows and prospects for profitability will suffer.

~~Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.~~

The pricing of prescription pharmaceuticals is also subject to governmental control outside of the United States. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.

If we are found in violation of federal or state “fraud and abuse” laws or other healthcare laws, we may face penalties, which may adversely affect our business, financial condition and results of operation.

In the United States, we are subject to various federal and state healthcare “fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended, among other things, to reduce fraud and abuse in federal and state healthcare programs. The Federal Anti-Kickback Statute makes it illegal for any person or entity, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration, directly or indirectly, in cash or in kind, that is intended to induce or reward the referral of business, including the purchase, lease, order or arranging for or recommending the purchase, lease or order of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements, many healthcare fraud and abuse laws are broadly written, and it may be difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the Federal Anti-Kickback Statute. The federal false claims and civil monetary penalties laws, including the civil False Claims Act prohibits any individual or entity from, among other things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare programs, claims for reimbursed drugs or services that are false or fraudulent, or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government. The civil False Claims Act has been interpreted to prohibit presenting claims for items or services that were not provided as claimed, or claims for medically unnecessary items or services. Cases have been brought under false claims laws alleging that off-label promotion of pharmaceutical products or the

provision of kickbacks have resulted in the submission of false claims to governmental healthcare programs. In addition, private individuals have the ability to bring actions on behalf of the government under the civil False Claims Act as well as under the false claims laws of several states. Under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, we are prohibited from, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services to obtain money or property of any healthcare benefit program.

Additionally, the federal Physician Payments Sunshine Act within the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act, or collectively the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to certain payments or other transfers of value provided to physicians and teaching hospitals, and certain ownership and investment interests held by physicians and their immediate family members.

Many states have adopted laws similar to the aforementioned laws, including state anti-kickback and false claims laws, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors. In addition, some states have passed laws that require pharmaceutical companies to comply with the ~~April 2003 U.S. Department of Health~~various requirements, significant effort and ~~Human Services Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or~~expense has been, and will continue to be, invested to ensure continuing compliance. Moreover, the ~~Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions~~requirements under the GDPR may change periodically or ~~require pharmaceutical companies to make marketing or price disclosures to the state. There~~ may be ~~ambiguities as~~modified by EU national law and could have an effect on our business operations if compliance becomes substantially more costly than under current requirements.

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The global legislative and regulatory landscape for privacy and data protection continues to ~~what~~evolve, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. This evolution may create uncertainty in our business, result in liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards is ~~required~~high and is likely to increase in the future.

It is possible that each of these privacy laws may be interpreted and applied in a manner that is inconsistent with our practices. Any failure or perceived failure by us to comply with ~~these~~federal, state, ~~requirements~~or foreign laws or self-regulatory standards could result in negative publicity, diversion of management time and ifeffort and proceedings against us by governmental entities or others. In many jurisdictions, enforcement actions and consequences for noncompliance are rising. As we ~~fail~~continue to ~~comply with an applicable state law requirement we could be subject to penalties.~~

~~In addition,~~expand into other foreign countries and jurisdictions, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, including the Final Omnibus Rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information on certain types of individuals and organizations. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other and from HIPAA in significant ways and may not have the same effect, thus complicating compliance efforts.

Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcareadditional laws and regulations ~~will involve substantial costs. It is possible~~ that the government could allege violations of, or convict us of violating, these laws. If we are found in violation of one of these laws, we could be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from governmental funded federal or state healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations. Were this to occur, our business, financial condition and results of operations and cash flows may be materially adversely affected.

~~Recently enacted and future legislation may increase the difficulty and cost of commercializing our product candidates and~~ may affect ~~the prices~~how we ~~may obtain.~~

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay regulatory approval of our product candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell our product candidates for which we obtain regulatory approval.

In March 2010, President Obama signed into law the ACA, a sweeping law intended to, among other things, 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 healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among other changes that affect the pharmaceutical industry, the ACA increased manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of average manufacturer price, or AMP, which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates, which previously had been payable only on fee-for-service utilization, to Medicaid managed care utilization, and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates due on those drugs. Further, the ACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products and requires manufacturers to provide a 50% point-of-sale discount off the negotiated price of applicable branded drugs dispensed to beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole.” Substantial new provisions affecting compliance have also been enacted, including the Physician Payments Sunshine Act, as described above. Although it is too early to determine the full effect of the ACA, the new law appears 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 been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach the required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

Legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or in countries outside of the United States in which we may do business in the future, or the effect any future legislation or regulation will have on us.

If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, and our products could be subject to restrictions or withdrawal from the market.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate revenues from our product sales, our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.

~~We may not be able to identify additional therapeutic opportunities for our product candidates or to expand our portfolio of products.~~

~~We may explore other therapeutic opportunities with~~~~trabodenoson~~ and seek to commercialize a portfolio of new ophthalmic drugs in addition to our product candidates that we are currently developing. We have no potential products in our research and development pipeline other than those potential products that are formulations of~~trabodenoson~~ ~~or that apply~~~~trabodenoson~~ ~~for the treatment of glaucoma, other neuropathies and degenerative retinal diseases.~~

Research programs to pursue the development of our product candidates for additional indications and to identify new potential products and disease targets require substantial technical, financial and human resources whether or not we ultimately are successful. Our research programs may initially show promise in identifying potential indications and/or potential products, yet fail to yield results for clinical development for a number of reasons, including:

conduct business.

~~the research methodology used may not be successful in identifying potential indications and/or potential products;~~

~~product candidates may, after further study, be shown to have harmful adverse effects or other characteristics that indicate they are unlikely to be effective drugs; or~~

it may take greater human and financial resources to identify additional therapeutic opportunities for our product candidates or to develop suitable potential products through internal research programs and clinical trials than we will possess, thereby limiting our ability to diversify and expand our product portfolio.

Because we have limited financial and managerial resources, we focus on research programs and product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other potential products or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our product candidates or to develop suitable potential products through internal research programs, which could materially adversely affect our future growth and prospects.

Risks Related to Our ~~Reliance on Third Parties~~

~~We currently depend on third parties~~Intellectual Property

Our rights to ~~conduct some of the operations of our clinical trials and other portions of our operations, and we may not be able to control their work as effectively as if we performed these functions ourselves.~~

We rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to oversee and conduct our clinical trials, and to perform data collection and analysis of our

product candidates. We expect to rely on these third parties to conduct clinical trials of any other potential products that we develop. These parties are not our employees and we cannot control the amount or timing of resources that they devote to our program. In addition, any CRO that we retain will be subject to the FDA’s regulatory requirements or similar foreign standards and we do not have control over compliance with these regulations by these providers. Our agreements with third-party service providers are on trial-by-trial and project-by-project bases. Typically, we may terminate the agreements with notice and occasionally the third party service provider may terminate the agreement without notice. Typically, we are responsible for the third party’s incurred costs and occasionally we have to pay cancellation fees. If any of our relationships with our third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or regulatory approval of our product candidates or commercialization of our product candidates, producing additional losses and depriving us of potential product revenue.

Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities, and we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan, the protocols for the trial and the FDA’s regulations and international standards, referred to as Good Clinical Practice, or GCP, requirements, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Preclinical studies must also be conducted in compliance with other requirements, such as Good Laboratory Practice, or GLP, and the Animal Welfare Act. Managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third-party providers.

Furthermore, these third parties may conduct clinical trials for competing drugs or may have relationships with other entities, some of which may be our competitors. As such, the ability of these third parties to provide services to us may be limited by their work with these other entities. The use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.

If these third parties do not successfully carry out their contractual duties or obligations and 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 to adhere to our clinical protocols according to regulatory requirements or for other reasons, our financial results and the commercial prospects for our current product candidates or our other potential products could be harmed, our costs could increase and our ability to obtain regulatory approval and commence product sales could be delayed.

~~We have no manufacturing capacity or experience and anticipate continued reliance on third-party manufacturers~~intellectual property for the development and commercialization of our product candidates ~~in accordance with manufacturing regulations.~~

We do not currently, nor currently intend to, operate manufacturing facilities for clinical or commercial production of our product candidates. We have no experience in drug formulation, and we lack the resources and the capabilities to manufacture our product candidates and potential products on a clinical or commercial scale. We do not intend to develop facilities for the manufacture of product candidates for clinical trials or commercial purposes in the foreseeable future. We currently rely on third-party manufacturers to produce the active pharmaceutical ingredient and final drug product for our clinical trials. We currently have only one supplier of active pharmaceutical ingredient. We manage such production with all our vendors on a purchase order basis in accordance with applicable master service and supply agreements. We do not have long-term agreements with any of these or any other third-party suppliers. To the extent we terminate our existing supplier arrangements in

the future and seek to enter into arrangements with alternative suppliers, we might experience a delay in our ability to obtain adequate supply for our clinical trials and commercialization. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates if and when they are approved. Our third-party manufacturers have made only a limited number of lots of our product candidates to date and have not made any commercial lots. The manufacturing processes for our product candidates have never been tested at commercial scale, and the process validation requirement has not yet been satisfied for any product candidate. These manufacturing processes and the facilities of our third-party manufacturers will be subject to inspection and approval by the FDA before we can commence the manufacture and sale of our product candidates, and thereafter on an ongoing basis. Some of our third-party manufacturers have never been inspected by the FDA and have not been through the FDA approval process for a commercial product. Some of our third-party manufacturers are subject to FDA inspection from time to time. Failure by these third-party manufacturers to pass such inspections and otherwise satisfactorily complete the FDA approval regimen with respect to our product candidates may result in regulatory actions such as the issuance of FDA Form 483 inspectional observations, warning letters or injunctions or the loss of operating licenses. Based on the severity of the regulatory action, our clinical or commercial supply of our product candidates could be interrupted or limited, which could have a material adverse effect on our business.

With respect to commercial production of our product candidates in the future, we plan on outsourcing production of the active pharmaceutical ingredients and final product manufacturing if and when approved for marketing by the applicable regulatory authorities. This process is difficult and time consuming and we can give no assurance that we will enter commercial supply agreements with any contract manufacturers on favorable terms or at all.

~~Reliance on third-party manufacturers entails risks, including:~~

manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of their agreements with us;

~~the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us;~~

~~the possible breach of the manufacturing agreement by the third party;~~

~~product loss due to contamination, equipment failure or improper installation or operation of equipment or operator error;~~

~~the failure of the third-party manufacturer to comply with applicable regulatory requirements; and~~

~~the possible misappropriation of our proprietary information, including our trade secrets and know-how.~~

Our manufacturers may not perform as agreed or may not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we may be unable to replace a third-party manufacturer in a timely manner and the production of our product candidates and potential products could be interrupted, resulting in delays and additional costs. We may also have to incur other charges and expenses for products that fail to meet specifications and undertake remediation efforts.

~~If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.~~

Before a third party can begin the commercial manufacturing of our product candidates and potential products, their manufacturing facilities, processes and quality systems must be in compliance with applicable regulations. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to initially pass federal, state or international regulatory inspections in a cost effective manner. If contract manufacturers fail to pass such inspection, our

commercial supply of drug substance will be significantly delayed and may result in significant additional costs. In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and comparable non-U.S. regulatory authorities, before and after product approval, and must comply with cGMP. Our contract manufacturers may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. In addition, contract manufacturers’ failure to achieve and maintain high manufacturing standards in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury, product liability claims, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, we may also be subject to fines, unanticipated compliance expenses, recall or seizure of our products, product liability claims, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions could materially adversely affect our financial results and financial condition.

Furthermore, changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, will require prior FDA review and/or approval of the manufacturing process and procedures in accordance with the FDA’s regulations, or comparable foreign requirements. This review may be costly and time consuming and could delay or prevent us from conducting our clinical trials or launching a product. The new facility will also be subject to pre-approval inspection. In addition, we have to demonstrate that the product made at the new facility is equivalent to the product made at the former facility by physical and chemical methods, which are costly and time consuming. It is also possible that the FDA may require clinical testing as a way to prove equivalency, which would result in additional costs and delay.

Any collaboration arrangement that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and future product candidates.

We plan to seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of our current and future product candidates outside of the United States. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we choose to enter into such arrangements, and the terms of the arrangements may not be favorable to us. If and when we collaborate 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. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. To the extent such collaborators have programs that are competitive with our product candidates, they may decide to focus time and resources on development of those programs rather than our product candidates.

Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.

~~If we are not able to establish collaborations, we may have to alter our development and commercialization plans.~~

The development and potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of ~~the proposed collaboration~~licenses granted to us by others.

We are heavily reliant upon licenses to certain patent rights and ~~the proposed collaborator’s evaluation of a number of factors. Those factors may include the design~~proprietary technology from third parties that are important or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidatenecessary to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our product candidates. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

~~If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail~~ the development of aour technology and products, including technology related to our manufacturing process and our gene therapy product ~~candidate, reduce or delay its development program or one or more~~candidates. These and other licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of ~~our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures~~use and ~~undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own,~~in all territories in which we may ~~need~~wish to ~~obtain additional expertise~~license our platform or develop or commercialize our technology and ~~additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake~~products in the ~~necessary development and commercialization activities,~~future. As a result, we may not be able to ~~further develop~~prevent competitors from developing and commercializing competitive products in territories not included in all of our ~~product candidates~~licenses.

Licenses to additional third-party technology that may be required for our licensing or ~~bring them to market and generate product revenue.~~

~~Risks Related to Intellectual Property~~

Wedevelopment programs may not be ~~able to protect our proprietary technology~~available in the ~~marketplace.~~

~~We depend~~future or may not be available on commercially reasonable terms, or at all, which could materially harm our business and financial condition.

In some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain or enforce the patents, covering technology that we license from third parties. If our licensors fail to maintain such patents, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated and our right to develop and commercialize any of our products that are the subject of such licensed rights could be impacted. In addition to the foregoing, the risks associated with patent rights that we license from third parties will also apply to patent rights we may own in the future.

Furthermore, the research resulting in certain of our licensed patent rights and technology was funded by the U.S. government. As a result, the government may have certain rights, or march-in rights, to such patent rights and technology. When new technologies are developed with government funding, the government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government to use the invention for non-commercial purposes. These rights may permit the government to disclose our confidential information to third parties and to exercise march-in rights to use or allow third parties to use our licensed technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the U.S. Any exercise by the government of such rights could harm our competitive position, business, financial condition, results of operations and prospects.

If we are unable to obtain and maintain patent protection for products and related technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to ~~protect~~successfully commercialize our proprietary technology. We rely largely on trade secret and patent laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. products may be harmed.

Our success depends, in large part, on our ability ~~and any future licensee’s ability~~ to obtain and maintain patent protection in the ~~United States~~U.S. and other countries with respect to our product candidates and our manufacturing technology. Our licensors have sought, and we may intend to seek, to protect our proprietary ~~technology~~position by filing patent applications in the U.S. and ~~products. We believe~~abroad related to many of our novel technologies and product candidates that are important to our business.

The patent prosecution process is expensive, time-consuming and complex, and we ~~will continue to~~may not be able to ~~obtain, through prosecution of our current pending~~file, prosecute, maintain, enforce or license all necessary or desirable patent applications ~~adequate~~at a reasonable cost or in a timely manner. In addition, certain patents in the field of gene therapy that may have otherwise potentially provided patent protection for certain of our ~~proprietary drug technology. If~~product candidates may expire prior to commercial launch of our products; this patent expiration risk could be partially addressed by pursuing and receiving 10 years Biologics regulatory exclusivity from the FDA, which would grant protection in later years where patent expiration may not exist. In some cases, the work of certain academic researchers in the gene therapy field has entered the public domain, which we believe precludes our ability to obtain patent protection for certain inventions relating to such work. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.

We are ~~compelled~~party to spend significant time and money protecting or enforcing our patents or patent applications, designing around patents held by others or licensing or acquiring, potentially for large fees, patents or other proprietary rights held by others,intellectual property license agreements with several entities, each of which is important to our business, and ~~financial prospects may be harmed.~~we expect to enter into additional license agreements in the future. Our patent portfolio consists primarily of patent applications in-licensed pursuant to those license agreements, and those agreements impose, and we expect that future license agreements will impose various diligence, development and commercialization timelines, milestone obligations, payments and other obligations on us. If we or our licensees fail to comply with our obligations under these agreements, or we are ~~unable~~subject to ~~effectively protect~~a bankruptcy, the ~~intellectual property~~licensor may have the right to terminate the license, in which event we could lose certain rights provided by the licenses, including that we ~~own, other companies~~ may not be able to ~~offer~~market products covered by the same or similar products for sale, which could materially adversely affect our competitive business position and harm our business prospects. Our patents may be challenged, narrowed, invalidated, or circumvented, which could limit our ability to stop competitors from marketing the same or similar products or limit the lengthlicense.

Table of ~~term of patent protection that we may have for our products.~~

Contents

The patent ~~positions~~position of biotechnology and pharmaceutical ~~products~~companies generally is highly uncertain, involves complex legal and factual questions and has, in recent years, been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are ~~often complex~~highly uncertain. Pending and ~~uncertain. The breadth of claims allowed~~future patent applications may not result in ~~pharmaceutical~~ patents ~~in the United States~~being issued which protect our technology or product candidates or which effectively prevent others from commercializing competitive technologies and many jurisdictions outside of the United States is not consistent. For example, in many jurisdictions the support standards for pharmaceutical patents are becoming increasingly strict. Some countries prohibit method of treatment claims in patents.product candidates. Changes in either the patent laws or ~~interpretations~~interpretation of the patent laws in the ~~United States~~U.S. and other countries may diminish the value of our patent rights or narrow the scope of our patent protection.

While we believe our intellectual property ~~or create uncertainty.~~allows us to pursue our current development programs, several companies and academic institutions are pursuing alternate approaches to gene therapy and have built intellectual property around these approaches and methods. For example, Institute Pasteur controls a patent family related to vector elements for lentiviral-based gene therapy. These patents relate to an element that improves nuclear localization. While these patents expire from 2019 to 2023, if our products were to launch before these dates, we may need to secure a license. In addition, publication of information related to our current product candidates and potential products may prevent us from obtaining or enforcing patents relating to these product candidates and potential products, including, without limitation, composition-of-matter patents, which are generally believed to offer the strongest patent protection.

Our intellectual property consists of issued patents and pending patent applications related to our product candidates and other proprietary technology which cover compositions of matter, methods of use, combinations with other glaucoma products, formulations, polymorphs and the protection of the optic nerve. For~~trabodenoson, the composition patents are scheduled to expire in 2025 and 2026, in Europe and the United States, respectively. The~~~~trabodenoson~~ polymorph US patent is scheduled to expire in 2033. See “Business—Intellectual Property” included in this Annual Report on Form 10-K for the year ended December 31, 2015, for further information about our issued patents and patent applications.

~~Patents that we own or may license in the future do not necessarily ensure the protection of our product candidates for a number of reasons, including without limitation the following:~~

we may not ~~have been~~be aware of all third-party intellectual property rights potentially relating to our technology and product candidates. Publications of discoveries in the scientific literature often lag the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot be certain that we were the first to make the inventions ~~covered by our~~claimed in any owned or any licensed patents or pending patent ~~applications;~~

applications, or that we ~~may not have been~~were the first to file for patent protection of such inventions.

Even if the patent applications ~~for these inventions;~~

~~any patents issued to us~~we license or may ~~not cover our products as ultimately developed;~~

~~our pending patent applications may not result~~own in ~~issued patents, and even if they~~the future do issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us or otherwise provide us with any competitive ~~advantages,~~advantage. Our competitors or other third parties may ~~be challenged and invalidated by third parties;~~

~~our patents may not be broad or strong enough to prevent competition from other products that are identical or similar to our product candidates;~~

~~there can be no assurance that the term~~avail themselves of ~~a patent can be extended~~safe harbor under the ~~provisions~~Drug Price Competition and Patent Term Restoration Act of ~~patent term extension afforded by U.S. law or similar provisions in foreign countries, where available;~~

•

~~our patents,~~1984 (Hatch-Waxman Amendments) to conduct research and ~~patents that we may obtain in the future, may not prevent generic entry into the U.S. market for our~~~~trabodenoson~~ ~~and other product candidates;~~

~~we may be required to disclaim part of the term of one or more patents;~~

~~there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim;~~

~~there may be patents issued to third parties that will affect our freedom to operate;~~

~~if our patents are challenged, a court could determine that they are invalid or unenforceable;~~

~~there might be significant changes in the laws that govern patentability, validity and infringement of our patents that adversely affects the scope of our patent rights;~~

~~a court could determine that a competitor’s technology or product does not infringe our patents;~~

~~our patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations or could be subject to compulsory licensing; and~~

~~we may fail to obtain patents covering important products and technologies in a timely fashion or at all.~~

In addition, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The United States Patent Office 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 have not yet become effective. 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, in particular the first-to-file provision, 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.

~~If we encounter delays in our development or~~ clinical trials ~~the period of time during which we could market our product candidates under patent protection would be reduced.~~

~~Our competitors may seek to invalidate our patents.~~

~~Our competitors~~and may be able to circumvent our ~~patents~~patent rights by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek to market generic versions of any approved products by submitting Abbreviated New Drug Applications, or ANDAs, to the FDA in which our competitors claim that our patents are invalid, unenforceable and/or not infringed. Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid and/or unenforceable. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

The issuance of a patent is not conclusive as to its inventorship, scope, ~~ownership, priority,~~ validity or ~~enforceability. In that regard, third parties~~enforceability, and our patent rights may ~~challenge our patents~~be challenged in the courts or patent offices in the ~~United States~~U.S. and abroad. Such challenges may result in loss of exclusivity or ~~freedom to operate or~~ in patent claims being narrowed, invalidated or held unenforceable, ~~in whole or in part,~~ which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of ~~our~~is technology and product candidates. ~~In addition, given~~Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

~~A significant portion of~~ As a result, our intellectual property ~~portfolio currently includes pending patent applications that~~may not provide sufficient rights to exclude others from commercializing products similar or identical to ours.

If we breach our license agreements, it could have ~~not yet issued as patents. If~~a material adverse effect on our ~~pending patent applications fail to issue our business will be adversely affected.~~

~~Our commercial success will depend significantly on maintaining and expanding patent protection~~commercialization efforts for our product ~~candidates, as well as successfully defending our current and future patents against third-party challenges. As~~candidates.

If we breach any of ~~December 31, 2015,~~the agreements under which we ~~own at least 50 issued patents and have at least 40 pending patent applications in the United States and a number of foreign jurisdictions~~license intellectual property relating to ~~our current product candidates~~the use, development and proprietary technology. See “Business—Intellectual Property” included in this Annual Report on Form 10-K for further information about our issued patents and patent applications. Our intellectual property consists of patents and pending patent applications relatedcommercialization rights to our product candidates or technology from third parties, we could lose license rights that are important to our business. Licensing of intellectual property is of critical importance to our business and ~~other proprietary technology which cover compositions of matter, methods of use, combinations with other glaucoma products, formulations, polymorphs~~involves complex legal, business and ~~the protection of the optic nerve. For~~~~trabodenoson~~~~, the composition of matter patents are scheduled~~scientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to ~~expire in 2025 and 2026, in Europe and the United States, respectively. The~~~~trabodenoson~~ ~~polymorph US patent is scheduled to expire in 2033.~~

There can be no assurance that our patent applications will issue as patents in the United States or foreign jurisdictions in which such applications are pending. Even if patents do issue on any of these applications, there can be no assurance that a ~~third party will not challenge their validity~~license agreement, including:

the scope of rights granted under the license agreement;

whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

our right to sublicense patent and other intellectual property rights to third parties under collaborative development relationships;

our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of is product candidates, and what activities satisfy those diligence obligations;

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

whether and the extent to which inventors are able to contest to the assignment of their rights to our licensors.

If disputes over intellectual property that we ~~will obtain sufficient claim scope in those patents to~~have in-licensed prevent ~~a third party from competing successfully with our products.~~

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

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. To the extent we are able to obtain patents or other intellectual property rights in any foreign jurisdictions, it may be difficult for us to prevent infringement of our patents or misappropriation of these intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affectimpair our ability to ~~obtain adequate protection for~~maintain our ~~technology~~current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the ~~enforcement~~affected product candidates. In addition, if disputes arise as to ownership of ~~intellectual property.~~

Obtaining and maintaining our 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.

The United States Patent and Trademark Office, or the USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In this event, competitors might be able to enter the market earlier than would otherwise have been the case.

~~We may infringe the~~licensed intellectual property, ~~rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our products.~~

~~Our commercial success depends significantly on~~ our ability to ~~operate without infringing~~pursue or enforce the ~~patents~~licensed patent rights may be jeopardized. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize our products could suffer.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use, our technology.

Table of ~~third parties. For example, there could be issued~~Contents

If we choose to engage in legal action to prevent a third-party from using the inventions claimed in our patents ofor patents which we license, that third-party has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third-party. These lawsuits are expensive and would consume time and other resources even if we were successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not ~~aware~~valid and that ~~our product candidates or potential products infringe. There also could be patents that we believe~~ we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe ~~but that we~~our rights to these patents.

Furthermore, a third-party may ~~ultimately be found to infringe.~~

Moreover, patent applications are in some cases maintained in secrecy until patents are accepted or issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our product candidates or potential products infringe. For example, pending applications may exist that claim or can be amended to claim subject matter that our product candidates or potential products infringe. Competitors may file continuing patent applications claiming priority to already issued patents in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent family and attempt to cover our product candidates.

~~Third parties may assert~~ that we are ~~employing their proprietary technology without authorization~~using inventions covered by the third-party’s patent rights and may ~~sue~~go to court to stop us ~~for patent~~from engaging in our normal operations and activities, including making or ~~other intellectual property infringement.~~selling our product candidates. These lawsuits are costly and could ~~adversely~~ affect our results of operations and divert the attention of managerial and ~~scientific~~technical personnel. There is a risk that a court would decide that we are infringing the third-party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having violated the other party’s patents. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our ~~product candidates, potential~~ products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are ~~invalid or unenforceable, and we may not be able to do this.~~invalid. Proving invalidity, ~~or unenforceability~~in particular, is ~~difficult. For example, in the United States, proving invalidity~~difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. ~~Even if~~Our competitors have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our in-licensed patent applications and could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we ~~are successful~~may have to participate in an interference proceeding declared by the U.S. Patent and Trademark Office, to determine priority of invention in the U.S. The costs of these proceedings ~~we may incur~~could be substantial, ~~costs~~ and ~~the time and attention~~it is possible that such efforts would be unsuccessful, resulting in a loss of our ~~management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources~~United States patent position with respect to ~~bring these actions to a successful conclusion. If a court holds that any third-party patents are valid, enforceable and cover~~such inventions.

Some of our ~~products or their use, the holders of any of these patents~~competitors may be able to ~~block our ability to commercialize our products unless~~sustain the costs of complex patent litigation more effectively than we acquire or obtain a license under the applicable patents or until the patents expire. We may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found tocan because they have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business.substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position may be harmed.

In addition to the protection afforded by patents, we rely upon unpatented trade secret protection, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our contractors, collaborators, employees and consultants. Nonetheless, we may ~~face claims~~not be able to prevent the unauthorized disclosure or use of ~~infringement, misappropriation~~our technical know-how or other ~~violations~~trade secrets by the parties to these agreements, however, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized uses and disclosures is difficult and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the ~~rights~~contractors, collaborators, employees and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation. As a result, we could lose our trade secrets. Enforcing a claim that a third-party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing or unwilling to protect trade secrets.

Our trade secrets could otherwise become known or be independently discovered by our competitors. Competitors could purchase our product candidates and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property ~~holders.~~

~~Pharmaceutical companies, biotechnology companies and academic institutions may~~rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with usus. If our trade secrets are not adequately protected or sufficient to provide an advantage over our competitors, our competitive position could be adversely affected, as could our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets.

If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to compete effectively in our markets.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our product candidates. The strength of patents in the ~~commercialization of~~~~trabodenoson~~ ~~for use in ophthalmic indications~~biotechnology and ~~filing~~pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications potentially relevant to our business. In order to contend with the strong possibility of third-party intellectual property conflicts, we periodically conduct freedom-to-operate studies, but such studies may not uncover all patents relevant to our business.

From time to time, we find it necessary or prudent to obtain licenses from third-party intellectual property holders. Where licenses are readily available at reasonable cost, such licenses are considered a normal cost of doing business. In other instances, however, we may use the results of freedom-to-operate studies to guide our early-stage research away from areas where we are likely to encounter obstacles in the form of third-party intellectual property. For example, where a third party holds relevant intellectual property and is a direct competitor, a license might not be available on commercially reasonable terms or available at all. We strive to identify potential third-party intellectual property issues in the early stages of research of our research programs, in order to minimize the cost and disruption of resolving such issues.

~~In spite of these efforts to avoid obstacles and disruptions arising from third-party intellectual property, it is impossible to establish with certainty that our products will be free of claims~~ that we ~~infringe, misappropriate~~own or ~~otherwise violate the rights of third-party intellectual property holders. Even with modern databases and online search engines, freedom-to-operate searches are imperfect and~~in-license may fail to ~~identify~~result in issued patents with claims that cover our product candidates in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to patents and ~~published applications. Even when~~patent applications owned or in-licensed by us have been found, which can invalidate a ~~third-party patent is identified, we may conclude that we do not infringe the~~ patent or ~~that the~~prevent a patent ~~is invalid. If the third-party~~from issuing from a pending patent owner disagrees with our conclusion and we continue with the business activity in question, patent litigation may result. We might decide to initiate litigation in an attempt to have a court declare the third-party patent invalid or non-infringed by our activity.

We may be subject to claims that we or our employees have misappropriated the intellectual property, including trade secrets, of a third party, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities, biotechnology companies or other pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the intellectual property and other proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed such intellectual property, including trade secrets or other proprietary information. Litigation may be necessary to defend against these claims. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management, but litigation may be necessary in the future 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.application. Even if ~~we are successful in defending against~~patents do successfully issue and even if such ~~claims, litigation could result in substantial costs and be a distraction to management.~~

~~In addition, while we typically require~~patents cover our ~~employees, consultants and contractors who~~product candidates, third parties may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own,challenge their validity, enforceability or scope, which may result in ~~claims by~~such patents being narrowed or ~~against~~invalidated. Furthermore, even if they are unchallenged, patents and patent applications that we own or in-license may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

Table of Contents

If the patent applications we hold or have in-licensed with respect to our programs or product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our product candidates, it could dissuade companies from collaborating with us ~~related~~ to ~~the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in~~develop product candidates, and threaten our ability to commercialize, future products. In addition to ~~paying monetary damages,~~our existing patent application filings, we ~~may lose valuable intellectual property rights. Even if~~expect to continue to file additional patent applications covering our product candidates. Further, we ~~are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction~~intend to ~~our management and scientific personnel.~~

~~We may be unable~~pursue additional activities to ~~adequately prevent disclosure of~~protect the patents, trade secrets and other ~~proprietary information.~~

intellectual property covering our product candidates. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we or the relevant licensor encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or the relevant licensor were the first to file any patent application related to a product candidate. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be initiated by a third-party to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available however the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic medications.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary ~~know-how~~technology and technological advances, especially where we have not filed a patent application or where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We relyprocesses, in part, onby entering into confidentiality agreements with our employees, consultants, ~~outside~~ scientific ~~collaborators, sponsored researchers~~advisors and ~~other~~contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to ~~protect~~our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other ~~proprietary information. However, any party with whom we have executed such an agreement may breach that agreement and disclose our~~confidential proprietary information ~~including~~will not be disclosed or that competitors will not otherwise gain access to our trade ~~secrets. Accordingly, these agreements may not effectively prevent disclosure of confidential~~secrets or independently develop substantially equivalent information and ~~may not provide an adequate remedy in the event of~~techniques. Misappropriation or unauthorized disclosure of ~~confidential information. Costly~~our trade secrets could impair our competitive position and ~~time-consuming litigation could be necessary~~may have a material adverse effect on our business. Additionally, if the steps taken to ~~enforce and determine the scope of~~maintain our ~~proprietary rights.~~trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secret. In addition, others may independently discover our trade secrets and proprietary information. ~~Further,~~For example, the FDA, as part of its Transparency Initiative, ~~a proposal by the FDA to increase disclosure and make data more accessible to the public,~~ is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. ~~Failure~~

Further, the laws of some foreign countries do not protect proprietary rights to ~~obtain~~the same extent or ~~maintain~~in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property, both in the United States and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, it may not be able to establish or maintain a competitive advantage in our market, which could ~~enable competitors to use~~materially adversely affect our ~~proprietary information to develop products that compete with our products or cause additional, material adverse effects upon our competitive~~ business, ~~position~~results of operations and financial ~~results.~~

Detecting the disclosure or misappropriation of a trade secret and enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

~~Any lawsuits relating to infringement~~condition.

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

Our commercial success depends in part on avoiding infringement of the patents and proprietary rights ~~brought by or against us will be costly and time consuming and may adversely impact the price~~ of ~~our common stock.~~

~~We may be required to initiate litigation to enforce or defend our intellectual property. These lawsuits can be very time consuming and costly.~~third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical ~~industry generally. Such litigation~~industries, including patent infringement lawsuits, interferences, oppositions, ex parte reexaminations, post-grant review, and inter partes review proceedings before the U.S. Patent and Trademark Office, or ~~proceedings could substantially increase~~U.S. PTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our ~~operating expenses~~product candidates may be subject to claims of infringement of the patent rights of third parties.

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Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications 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. In addition, third parties may obtain patents in the future and ~~reduce~~claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the ~~resources available for development activities~~manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any ~~future sales, marketing~~final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or ~~distribution activities.~~

until such patents expire. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In ~~any infringement litigation, any award of monetary damages we receive~~either case, such a license may not be available on commercially ~~valuable.~~ 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, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

We may not be successful in obtaining or maintaining necessary rights to gene therapy product components and processes for our development pipeline through acquisitions and in-licenses.

Presently we have rights to the intellectual property, through licenses from third parties and under patents that we own, to develop our gene therapy product candidates. Because our programs may involve additional product candidates that may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and these rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

For example, we sometimes collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such right of first negotiation for intellectual property, we may be unable to negotiate a license within the specified time frame or under terms that are acceptable to it. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.

In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experiences disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We are a party to a number of intellectual property license agreements that are important to our business and expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license.

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 that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current product candidates or future products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.

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In many cases, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing agreement, including:

the scope of rights granted under the license agreement and other interpretation-related issues;

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

the sublicensing of patent and other rights under our collaborative development relationships;

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

the priority of invention of patented technology.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

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 our licensors is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to 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 it a license on commercially reasonable terms. Our defense of 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 intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are resolved. Further, any claims we assert against a perceived infringerThere could provoke these parties to assert counterclaims against us alleging that we have infringed their patents. 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.

In addition, our patents and patent applications could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings, and other forms of post-grant review. In the United States, for example, post-grant review has recently been expanded. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management and scientific personnel’s time and attention.

~~In addition, there could~~also be public announcements of the results of hearings, motions or other interim proceedings or ~~developments, and if~~developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the ~~market~~ price of our common stock.

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.

On September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”), was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will ~~need~~be prosecuted and may also affect patent litigation. The U.S. PTO is currently developing regulations and procedures to ~~obtain FDA approval~~govern administration of ~~any proposed product names,~~the Leahy-Smith Act, and ~~any failure or delay~~many of the substantive changes to patent law associated with ~~such approval may adversely affect~~the Leahy-Smith Act, and in particular, the first to file provisions, were enacted March 16, 2013. It is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business.

~~Any name we intend to use for our product candidates will require approval from~~ However, the ~~FDA regardless of whether we have secured a formal trademark registration from~~Leahy-Smith Act and its implementation could increase the ~~USPTO. The FDA typically conducts a review of proposed product names, including an evaluation of~~uncertainties and costs surrounding the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies certain medical claims or contributes to an overstatement of efficacy. If the FDA objects to anyprosecution of our ~~proposed product names, we may be required to adopt an alternative name for our product candidates. If we adopt an alternative name, we would lose~~patent applications and the ~~benefit~~enforcement or defense of our existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rightsissued patents, all of ~~third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all,~~ which ~~would limit our ability to commercialize our product candidates.~~

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation extending the terms of our patents and obtaining data exclusivity for our product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA regulatory approval for our product candidates, one or more of our U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The

Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. Patent term restorations, however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval by the FDA.

The application for patent term extension is subject to approval by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term extension. 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. 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 earlier approval of competing products, and our ability to generate revenues could be materially adversely affected.

~~Risks Related to Our Business Operations and Industry~~

~~We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.~~

We are currently a small company with seventeen full-time employees as of March 22, 2016, and we outsource to consultants or other organizations a portion of our operations, including but not limited to research and development and conduct of clinical trials and certain administrative functions. In order to commercialize our product candidates, we will need to substantially increase our operations. We plan to continue to build our compliance, financial and operating infrastructure to ensure the maintenance of a well-managed company. We expect to significantly expand our employment base when we reach the full commercial stages of our current product candidates’ life cycle.

Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. 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:

~~manage our clinical trials and the regulatory process effectively;~~

~~manage the manufacturing of product candidates and potential products for clinical and commercial use;~~

~~integrate current and additional management, administrative, financial and sales and marketing personnel;~~

~~develop a marketing and sales infrastructure;~~

~~hire new personnel necessary to effectively commercialize our product candidates;~~

~~develop our administrative, accounting and management information systems and controls; and~~

~~hire and train additional qualified personnel.~~

Product candidates that we may acquire or develop in the future may be intended for patient populations that are large. In order to continue development and marketing of these product candidates, if approved, we would need to significantly expand our operations. Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to manage successfully future market opportunities or our relationships with customers and other third parties. In particular, we will need to build out our finance, accounting and reporting infrastructure to meet our reporting obligations as a public

~~company. Because we have never had this infrastructure, there may be increased risk that we will not be able to adequately meet these reporting obligations in a timely manner.~~

~~We are a clinical-stage company and it may be difficult for you to evaluate the success of our business to date and to assess our future viability.~~

We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of therapies for glaucoma. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, conducting research and developing our product candidates. We have not yet demonstrated our ability to successfully complete a pivotal Phase 3 clinical trial, obtain regulatory approval of a product candidate, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history and more experience with late stage development and commercialization of product candidates.

In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a product development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

~~We depend upon our key personnel and our ability to attract and retain employees.~~

Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our senior management team and our scientific founders, as well as the other principal members of our management and scientific teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the services of any member of our senior management or scientific team or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.

Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. In particular, the loss of David P. Southwell, our President and Chief Executive Officer, Rudolf A. Baumgartner, M.D., our Executive Vice President and Chief Medical Officer, William K. McVicar, Ph.D., our Executive Vice President and Chief Scientific Officer or Dale Ritter, our Vice President—Finance, could be detrimental to us if we cannot recruit suitable replacements in a timely manner. We do not currently carry “key person” insurance on the lives of members of executive management. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

~~Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.~~

We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, or SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

~~If we engage in acquisitions in the future, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.~~

We may attempt to acquire companies, businesses, technologies, services, products or other product candidates in the future that we believe are a strategic fit with our business. We have no present agreement regarding any material acquisitions. However, if we do undertake any acquisitions, the process of integrating an acquired business, technology, service, product candidates or potential products into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, actual or contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.

~~Our business is affected by macroeconomic conditions.~~

Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from current and future conditions in the global financial markets. For instance, if inflation or other factors were to significantly increase our business costs, it may not be feasible to pass through price increases to patients. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the value of our investments and our ability to liquidate our investments in order to fund our operations.

Interest rates and the ability to access credit markets could also adversely affect the ability of patients, payors and distributors to purchase, pay for and effectively distribute our products. Similarly, these macroeconomic factors could affect the ability of our potential future contract manufacturers, sole-source or single-source suppliers or licensees to remain in business or otherwise manufacture or supply product. Failure by any of them to remain in business could affect our ability to manufacture products.

~~If product liability lawsuits are successfully brought against us, our insurance may be inadequate and we may incur substantial liability.~~

We face an inherent risk of product liability claims as a result of the clinical testing of our product candidates. We will face an even greater risk if we commercially sell our product candidates or any other potential products that we develop. We maintain product liability insurance with an aggregate limit of $10 million that cover our clinical trials and we plan to maintain insurance against product liability lawsuits for commercial sale of our product candidates. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, we may be subject to claims in connection with our clinical trials and, in the future, commercial use of our product candidates, for which our insurance coverage may not be adequate, and the cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial.

For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:

~~reduced resources of our management to pursue our business strategy;~~

~~decreased demand for our product candidates or potential products that we may develop;~~

~~injury to our reputation and significant negative media attention;~~

~~withdrawal of clinical trial participants;~~

~~termination of clinical trial sites or entire trial programs;~~

~~initiation of investigations by regulators;~~

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

~~significant costs to defend resulting litigation;~~

~~diversion of management and scientific resources from our business operations;~~

~~substantial monetary awards to trial participants or patients;~~

~~loss of revenue; and~~

~~the inability to commercialize any products that we may develop.~~

We will need to increase our insurance coverage if our product candidates receive marketing approval and we begin selling them. However, the product liability insurance we will need to obtain in connection with the commercial sales of our product candidates, if and when they receive regulatory approval, may be unavailable in meaningful amounts or at a reasonable cost. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidates, if and when they obtain regulatory approval, which could materially adversely affect our business, financial condition, results of operations, cash flows and prospects.

Additionally, we do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, auto, property, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would materially adversely affect our financial position, cash flows and results of operations.

~~Business interruptions could delay us in the process of developing our products and could disrupt our sales.~~

Our headquarters is located in Lexington, Massachusetts. We are vulnerable to natural disasters, such as severe storms and other events that could disrupt our business operations. We do not carry insurance for natural disasters and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our business ~~operations.~~

~~Our business~~ and ~~operations would suffer in~~financial condition.

We may be subject to claims challenging the ~~event of system failures.~~

~~Despite the implementation of security measures, our internal computer systems, and those~~inventorship or ownership of our ~~CROs~~patents and other intellectual property.

We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may have in the future, ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

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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 U.S. PTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We and, to our knowledge, our licensors have systems in place to remind us and them to pay these fees, and we and, to our knowledge, our licensors employ outside firms and rely on our and their respective outside counsel to pay these fees due to non-U.S. patent agencies. The U.S. PTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We and, to our knowledge, our licensors employ reputable law firms and other professionals to help us and them comply, and 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 ~~we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If~~non-compliance 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, ~~were~~our competitors might be able to ~~occur~~enter the market and ~~cause interruptions in our operations, it could result in~~this circumstance would have a material ~~disruption of~~adverse effect on our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development ofbusiness.

Issued patents covering our product candidates could be ~~delayed.~~

~~Our employees, independent contractors, principal investigators, consultants, commercial~~found invalid or unenforceable if challenged in court.

If we or one of our licensing partners ~~and vendors may engage in misconduct~~ initiated legal proceedings against a third-party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or ~~other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.~~

We are exposed to the risk of fraud or other misconduct by employees and independent contractors, such as principal investigators, consultants, commercial partners and vendors. Misconduct by these parties could include failures to comply with the regulations of the FDA and comparable non-U.S. regulatory authorities, provide accurate information to the FDA and comparable non-U.S. regulatory authorities, comply with fraud and abuse and other healthcare lawsunenforceable. In patent litigation in the United States, ~~and abroad, report financial~~defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including patent eligible subject matter, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or ~~data accurately or disclose unauthorized activities to us. In particular, sales, marketing and other business arrangements~~made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the ~~healthcare industry are subject to extensive laws intended to prevent fraud, misconduct, kickbacks, self-dealing~~United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, and other abusive practices. These laws may restrict or prohibit a wide range of business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct could also involve the improper use of information obtainedequivalent proceedings in ~~the course of clinical trials, which~~foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in ~~regulatory sanctions and serious harm~~revocation or amendment to our ~~reputation. We adopted~~or our licensing partners’ patents in such a ~~code~~way that they no longer cover our product candidates. The outcome following legal assertions of ~~ethics, but it~~invalidity and unenforceability is ~~not always possible~~unpredictable. With respect to ~~identify and deter employee and other third-party misconduct,~~the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the ~~precautions~~patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we ~~take to detect~~would lose at least part, and ~~prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from~~perhaps all, of the patent protection on our product candidates. Such a ~~failure to comply with these laws. If any such actions are instituted against us resulting from such misconduct those actions could~~loss of patent protection would have a ~~significant~~material adverse impact on our ~~business, including~~business.

Changes in U.S. patent law could diminish the ~~imposition~~value of ~~significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation~~patents in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affectgeneral, thereby impairing our ability to ~~operate.~~

Weprotect our products.

As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involves both technological and legal complexity, and therefore obtaining and enforcing biotechnology patents is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ~~development partners, third-party manufacturers and suppliers use biological materials and may use hazardous materials, and any claims relating~~ability to ~~improper handling, storage or disposal~~obtain patents in the future, this combination of ~~these materials could be time consuming or costly.~~

~~We and our development partners, third-party manufacturers and suppliers may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous~~events has created uncertainty with respect to ~~human health and safety or~~ the ~~environment. Our operations~~value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the ~~operations of our third-party manufacturers and suppliers also produce hazardous waste products. Federal, state and local~~U.S. PTO, the laws and regulations ~~govern the use, generation, manufacture, storage, handling~~governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly,patents that it might obtain in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.

~~The availability of our common stock and securities linked to our common stock for sale in the future could reduce the market price of our common stock.~~

~~In the future, we may issue equity and equity-linked securities to raise cash for acquisitions or otherwise.~~ future.

We may also acquire interests in other companies by using a combination of cash and our common stock or just our common stock. We may also issue preferred stock or additional securities convertible into our common stock or preferred stock. Any of these events may dilute your ownership interest in our company and have an adverse effect on the price of our common stock.

~~Risks Related to Ownership of Our Common Stock~~

~~The market price of our common stock may be highly volatile, and you~~ may not be able to ~~resell your shares~~protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. 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 that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, 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 costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or ~~above~~interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the ~~offering price.~~

~~Our initial public offering was completed in February 2015. Therefore, there has only been~~damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a ~~public market for our common stock for a short period~~significant commercial advantage from the intellectual property that we develop or license.

Table of ~~time. Although our common stock is listed on NASDAQ. Since shares~~Contents

Risks related to ownership of our common stock ~~were sold in our initial public offering in February 2015 at $6.00 per share, our closing stock price has reached a high of $19.45 and a low of $4.68 through March 22, 2016.~~

~~The trading price~~

A significant number of our ~~common stock is likely to continue to~~total outstanding shares may be volatile, and you can lose all or part of your investment in us. The following factors, in addition to other factors described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2015, may have a significant impact onsold into the market ~~price of our common stock:~~

~~announcements of regulatory approval or a complete response letter, or specific label indications or patient populations for its use, or changes or delays~~ in the ~~regulatory review process;~~

~~announcements of therapeutic innovations or new products by us or our competitors;~~

~~adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;~~

~~any adverse changes to our relationship with manufacturers or suppliers;~~

~~the results of our testing and clinical trials;~~

~~the results of our efforts to acquire or license additional product candidates;~~

~~variations in the level of expenses related to our existing product candidates or preclinical and clinical development programs;~~

~~any intellectual property infringement actions in~~near future, which ~~we may become involved;~~

~~announcements concerning our competitors or the pharmaceutical industry in general;~~

~~achievement of expected product sales and profitability;~~

~~manufacture, supply or distribution shortages;~~

~~actual or anticipated fluctuations in our quarterly or annual operating results;~~

~~changes in financial estimates or recommendations by securities analysts;~~

~~trading volume of our common stock;~~

~~sales of our common stock by us, our executive officers and directors or our stockholders in the future;~~

~~sales by us of securities linked to our common stock, such as the 2020 Convertible Notes;~~

~~general economic and market conditions and overall fluctuations in the U.S. equity markets;~~

~~changes in accounting principles; and~~

~~the loss of any of our key scientific or management personnel.~~

In addition, the stock market, in general, and small pharmaceutical and biotechnology companies 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 affectcould cause the market price of our common stock ~~regardless of~~to drop significantly, even if our ~~actual operating performance. Further, a significant decline in the financial markets and other related factors beyond our control may cause our stock price to decline rapidly and unexpectedly.~~

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

Our share price has been and may continue to 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. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could adversely impact our business. Any adverse determination in litigation could also subject us to significant liabilities.

Our existing principal stockholders, executive officers and directors own a significant percentage of our common stock and will be able to exert a significant control over matters submitted to our stockholders for approval.

~~As of December 31, 2015, our officers and directors, and stockholders who own more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately 71% of our common stock.~~

This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. As a result, these stockholders, if they acted together, could significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. These stockholders may be able to determine all matters requiring stockholder approval. The interests of these stockholders may not always coincide with our interests or the interests of other stockholders. This may also 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 and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.

performing well.

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

~~Sales of a substantial number of shares of our common stock~~occur at any time. These sales, or ~~any of our securities linked to our common stock,~~the perception or the perception that ~~these~~such sales ~~might~~may occur, could ~~depress~~reduce the market price of our common ~~stock and could impair our ability to raise capital through the sale of additional equity securities or equity-linked securities. As of December 31, 2015, we have 26,423,394~~stock. Our outstanding shares of common stock ~~which excludes 1,631,677 shares of common stock issuable upon~~may be freely sold in the ~~exercise of stock options outstanding as of December 31, 2015,~~public market at ~~a weighted-average exercise price of $5.19 per share.~~

~~At December 31, 2015, holders of an aggregate of 8.6 million shares of our common stock have rights, subject~~any time to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Registration of these sharesthe extent permitted by Rules 144 and 701 under the Securities Act of 1933, as amended (the “Securities Act”), or to the ~~Securities Act, would result in the~~extent such shares ~~becoming freely tradable without restriction~~have already been registered under the Securities Act ~~except for shares~~and are held by non-affiliates of ours. In addition, certain of our ~~affiliates as defined in~~employees, executive officers, directors and affiliated stockholders have entered or may enter into Rule ~~144 under the Securities Act. Any~~10b5-1 plans providing for sales of ~~securities by these stockholders could have a material adverse effect on the trading price~~shares of our common ~~stock.~~

stock from time to time. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the employee, director or officer when entering into the plan, without further direction from the employee, officer, director or affiliated stockholder. A Rule 10b5-1 plan may be amended or terminated in some circumstances. Our employees, executive officers, directors and affiliated stockholders also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.

If securities ~~or industry~~ analysts do not publish ~~or cease publishing~~ research or reports about ~~us,~~ our business or ~~our market, or~~ if they ~~adversely change their recommendations or~~ publish negative ~~reports regarding our business or~~evaluations of our stock, the price of our stock ~~price and trading volume~~ could decline.

The trading market for our common stock ~~will be influenced by~~relies, in part, on the research and reports that industry or ~~securities~~financial analysts ~~may~~ publish about us ~~our business, our market~~ or our ~~competitors. We do not~~business. Although we have ~~any control over these analysts and we cannot provide any assurance that analysts will cover us~~obtained analyst coverage, if one or ~~provide favorable coverage. If any~~more of the analysts ~~who may cover us adversely change~~covering our business downgrade their ~~recommendation regarding~~evaluations of our stock, ~~or provide more favorable relative recommendations about~~the price of our ~~competitors, our~~ stock ~~price~~ could decline. If ~~any analyst who may~~one or more of these analysts cease to cover ~~us were to cease coverage of~~ our ~~company~~stock or fail to regularly publish reports on us, we could lose visibility in the ~~financial markets,~~market for our stock, which in turn could cause our stock price ~~or trading volume~~ to decline.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for our stockholders.

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

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

the success of competitive products or technologies;

commencement or termination of collaborations;

regulatory or legal developments in the United States and other countries;

developments or disputes concerning patent applications, issued patents or other proprietary rights;

the recruitment or departure of key personnel;

the level of expenses related to any of our product candidates or clinical development programs;

the results of our efforts to discover, develop, acquire or in-license additional product candidates;

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

negative publicity around gene therapy in general, or our product candidates;

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

changes in the structure of healthcare payment systems;

market conditions in the pharmaceutical and biotechnology sectors; and

general economic, industry and market conditions.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation often has been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources, which could seriously harm our business, financial condition, results of operations and prospects.

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RTW Investments, LP, our principal stockholder, may have the ability to significantly influence all matters submitted to stockholders for approval.

RTW Investments, LP (“RTW”), in the aggregate, beneficially owns approximately 36.50% of our outstanding shares of common stock. This concentration of voting power gives RTW the power to significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, RTW could significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.

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

We have never declared or paid cash dividends on ~~appreciation of the value~~our capital stock. We currently intend to retain all of our ~~common stock for any return on their investment.~~

~~We currently anticipate that we will retain~~ future earnings, ~~for~~if any, to finance the ~~development, operation~~growth and ~~expansion~~development of our ~~business and do not anticipate declaring or paying any cash dividends in the foreseeable future.~~business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be stockholders’ sole source of gain for the foreseeable future.

If we ~~expect that only appreciation~~are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock ~~if any, will provide a return to holders of our common stock for the foreseeable future.~~

~~If we are unable to substantially utilize our net operating loss (“NOL”) carryforward, our financial results will be adversely affected.~~

~~As of December 31, 2015 we had federal and state net operating losses of approximately $88 million and $47 million, respectively, which~~ may be utilized against future federal and state income taxes, respectively. In general, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through and aggregation rules) increases by more than fifty percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). Purchases of our common stock in amounts greater than specified levels, which are beyond our control, or prior issuances of our common stock, could create a limitation on our ability to utilize our NOLs for tax purposes in the future. Limitations imposed on our ability to utilize NOLs could cause federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs. Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs before they expire. If any of these events occur, or have occurred in the past, we may not derive some or all of the expected benefits from our NOLs. We have determined that we have experienced prior ownership changes occurring in 2005, 2007, and 2015. NOLs generated prior to these changes, although subject to an annual limitation, can be utilized in future years as well as any post change NOLs. In addition, at the state level there may be periods during which the use of NOLs is suspended or otherwise limited, which would accelerate or may permanently increase state taxes owed.

~~The requirements associated with being~~decline.

As a public company, ~~require significant company resources and management attention.~~

~~We are subject~~we will be required to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, the listing requirements of the securities exchange on which our common stock is traded and other applicable securities rules and regulations. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition and maintain ~~effective disclosure controls and procedures and~~ internal control over financial ~~reporting. In addition, subsequent rules~~

implemented by the SEC and NASDAQ may also impose various additional requirements on public companies. As a result, we incur substantial legal, accounting and other expenses. Further, the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy. We have made, and will continue to make, changes to our corporate governance standards, disclosure controls and financial reporting and ~~accounting systems~~ to meet our reporting obligations. However, the measures we take may not be sufficient to satisfy our obligations as a public company, which could subject us to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

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

~~Now that we are a public company, and particularly after~~report any material weaknesses in such internal control. Once we are no longer ~~considered~~ an ~~“emerging~~emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and The NASDAQ Stock Market have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

~~Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404,~~ we will be required to furnish a report by ~~our~~ management on the effectiveness of our internal control over financial reporting ~~including an attestation report on~~pursuant to Section 404 of the Sarbanes-Oxley Act. We are in the process of designing, implementing, and testing the internal control over financial reporting ~~issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be~~ required to ~~include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance~~comply with ~~Section 404 within the prescribed period, we will be engaged in a~~this obligation, which process ~~to document and evaluate our internal control over financial reporting, which~~ is ~~both~~time consuming, costly, and ~~challenging.~~complicated. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we noraddition, our independent registered public accounting firm will be ~~able~~required to ~~conclude~~attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 10-K following the date on which we are no longer an “emerging growth company.” If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, ~~as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.~~

The JOBS Act will allow us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of our common stock.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:

~~the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that~~or if our independent registered public accounting firm ~~provide~~is unable to express an ~~attestation report on~~opinion as to the effectiveness of our internal control over financial ~~reporting;~~

reporting when required, investors may lose confidence in the ~~“say on pay” provisions (requiring a non-binding stockholder vote to approve compensation~~accuracy and completeness of ~~certain executive officers)~~our financial reports and the ~~“say on golden parachute” provisions (requiring a non-binding stockholder vote~~market price of our common stock could be negatively affected, and we could become subject to ~~approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and~~

~~Consumer Protection Act, or Dodd-Frank Act, and some of the disclosure requirements of the Dodd-Frank Act relating to compensation of its chief executive officer;~~

the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Exchange Act, and instead provide a reduced level of disclosure concerning executive compensation; and

~~any rules that may be adopted~~investigations by the ~~Public Company Accounting Oversight Board requiring mandatory audit firm rotation~~stock exchange on which our securities are listed, the Securities and Exchange Commission, or ~~a supplement~~the SEC, or other regulatory authorities, which could require additional financial and management resources.

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

We are an “emerging growth company,” as defined in the ~~auditor’s report on~~Jumpstart Our Business Startups Act, or the ~~financial statements.~~

WeJOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of ~~these~~ exemptions ~~until we~~from various reporting requirements that are ~~no longer an “emerging~~applicable to other public companies that are not emerging growth ~~company.”~~companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We ~~would cease to~~could be an ~~“emerging~~emerging growth ~~company” upon the earliest of: (i)~~company until December 31, 2020; (ii) the last day of the first fiscal year in which our annual gross revenues are $1 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; or (iv) as of the end of any fiscal year in which2020, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates ~~exceeded~~exceeds $700 million as of ~~the end~~any June 30 before that time, in which case we would no longer be an emerging growth company as of the ~~second quarter of that fiscal year.~~

Although we are still evaluating the JOBS Act, we currently intend to take advantage of some, but not all, of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company.” For example, we have irrevocably elected under Section 107 of the JOBS Act not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an “emerging growth company,” which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an “emerging growth company,” we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company.following December 31. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more ~~volatile~~volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, ~~may decline.~~

~~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~~therefore, will 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 our bylaws as well as provisions of the Delaware General Corporation Law, or DGCL, 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, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

~~establishing a classified Board of Directors such that not all members of the board are elected at one time;~~

~~allowing the authorized number of our directors to be changed only by resolution of our Board of Directors;~~

~~limiting the removal of directors by the stockholders;~~

~~authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;~~

~~prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;~~

~~eliminating the ability of stockholders to call a special meeting of stockholders;~~

~~establishing advance notice requirements for nominations for election~~subject to the ~~Board of Directors~~same new or ~~for proposing matters~~revised accounting standards as other public companies that ~~can be acted upon at stockholder meetings; and~~

~~requiring the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal our bylaws.~~

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. In addition, we are subject to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our Board of Directors. This provision could have the effect of delaying or preventing a change of control, whether or not ~~it is desired by or beneficial to our stockholders.~~

~~Item 1B. Unresolved Staff Comments~~

emerging growth companies.

Item 1B.

Unresolved SEC Comments

None.

~~Item 2. Properties~~

Item 2.

Properties

Corporate Headquarters

Our corporate headquarters is located in ~~Lexington, Massachusetts,~~New York, New York at the Empire State Building, and consists of approximately ~~15,000~~6,600 square feet of leased office space under a lease that expires in May 2021.

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Laboratory Leases

We lease approximately 2,000 square feet of laboratory space at the Alexandria Center for Life Science in New York, New York with a term ending in July 2022.

In August 2018, we entered into a lease for approximately 92,000 rentable square feet in Cranbury, New Jersey, for internal process development and research activities to support our pipeline, this lease has an initial term which ends in 2034, with an option to renew for an additional two consecutive five-year renewal terms.

Facility in Lexington, Massachusetts

We currently lease approximately 15,000 square feet of office space in Lexington, Massachusetts under a lease that expires in February 2023. ~~We will require additional~~This space is the former headquarters of Inotek and ~~facilities~~is subleased through the remainder of the lease term.

Item 3.

Legal Proceedings

On January 6, 2017, a purported stockholder of Inotek filed a putative class action in the U.S. District Court for the District of Massachusetts, captioned Whitehead v. Inotek Pharmaceuticals Corporation, et al., No. 1:17-cv-10025. An amended complaint was filed on July 10, 2017, and a second amended complaint was filed on September 5, 2017. The second amended complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 against Inotek, David Southwell, and Rudolf Baumgartner based on allegedly false and misleading statements and omissions regarding Inotek’s phase 2 and phase 3 clinical trials of trabodenoson. The lawsuit sought, among other things, unspecified compensatory damages for purchasers of Inotek’s common stock between July 23, 2015 and July 10, 2017, as ~~our business expands.~~

~~Item 3. Legal Proceedings~~

~~We are not~~well as interest and attorneys’ fees and costs. The second amended complaint was dismissed with prejudice on June 27, 2018. Plaintiffs filed a ~~party~~notice of appeal to ~~any material legal proceedings at this time.~~ the First Circuit Court of Appeals on July 27, 2018, voluntarily dismissed their appeal on August 31, 2018, and the First Circuit entered judgment dismissing the action on September 5, 2018.

From time to time, we may be subject to other various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, we do not believe we are party to any other claim or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

~~Item 4. Mine Safety Disclosures~~

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~~

Item 5.

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

Market Information

~~On February 18, 2015, our~~

Our common stock ~~began trading~~is traded on the Nasdaq Global Select Market under the symbol ~~“ITEK”~~“RCKT”. Prior to that time, there was no public market for our common stock. Shares sold in our initial public offering were priced at $6.00 per share. The following table shows the high and low closing sale prices per share of our common stock as reportedEffective December 24, 2018, we began trading on the Nasdaq ~~Global Select Market for the period indicated:~~

2015
   High    Low
February 18, 2015 to March 31, 2015 (First Quarter)
   $ 6.20       $   5.05
Second Quarter
   $ 6.14       $ 4.75
Third Quarter
   $ 19.45       $ 4.82
Fourth Quarter
   $ 13.36       $ 9.01

~~On March 4, 2016, the closing price for our common stock as reported on the NASDAQ Global Market was $6.73.~~

Biotechnology Index (Nasdaq: NBI).

Stockholders

As of March ~~4, 2016,~~1, 2019, there were 4322 stockholders of record, which excludes stockholders whose shares were held in nominee or street name by brokers.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be made at the discretion of our board of directors. In addition, the terms of our outstanding indebtedness restrict our ability to pay cash dividends, and any future indebtedness that we may incur could preclude us from paying cash dividends. Investors should not purchase our common stock with the expectation of receiving cash dividends.

~~Securities authorized for issuance under equity compensation plans~~

~~Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K.~~

Recent Sales of Unregistered Securities

~~Set forth below is information regarding securities~~

On December 28, 2018, we sold ~~by us during~~100,000 shares of common stock to RTW Innovation Master Fund, Ltd. for an aggregate offering price of approximately $1.4 million, including reimbursement for our expenses incurred in connection with the ~~year ended December 31, 2015 that were not registered~~transaction. The offering and sale was completed as a private placement under ~~the Securities Act. Also included is the consideration, if any, received by us for the securities and information relating to the section~~Section 4(a)(2) of the Securities Act ~~or rule~~ of ~~the~~1933, as amended.

Table of Contents

Issuer Purchases of Equity Securities ~~and Exchange Commission, under which exemption from registration was claimed.~~

We deemed the offers, sales and issuances of the 2014 Bridge Notes described above to be exempt from registration under the Securities Act, in reliance on Section 4(2) of the Securities Act, including Regulation D and Rule 506 promulgated thereunder, relating to transactions by an issuer not involving a public offering. All purchasers of securities in transactions exempt from registration pursuant to Regulation D represented to us that they were accredited investors and were acquiring the shares for investment purposes only and not with a view

~~to, or for sale in connection with, any distribution thereof and that they could bear the risks of the investment and could hold the securities for an indefinite period of time.~~

The purchasers received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from such registration.

We deemed the grants and exercises of stock options described above to be exempt from registration under the Securities Act in reliance on Rule 701 of the Securities Act as offers and sales of securities under compensatory benefit plans and contracts relating to compensation in compliance with Rule 701. Each of the recipients of securities in any transaction exempt from registration either received or had adequate access, through employment, business or other relationships, tofollowing table provides information about ~~us.~~

~~Use~~purchases by the Company of ~~Proceeds from Registered Securities~~

~~In February 2015, we completed our (i) Initial Public Offering (the “IPO”)~~its shares of ~~6,667,000~~common stock during the three-month period ended December 31, 2018. The purchases were not made under any publicly announced plans or programs.

	(a) Total Number of Shares Purchased⁽¹⁾		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
October 1-31, 2018		—		—		—		—
November 1-30, 2018		—		—		—		—
December 1-31, 2018		100,000	$	13.93		—		—

(1) Our Board of Directors approved the repurchase of 100,000 shares of our common stock, ~~at a price of $6.00~~par value $0.01 per share, which was outside of a publicly-announced repurchase plan. On December 27 and (ii) the concurrent offering of $20.0 million aggregate principal amount of our 5.0% Convertible Senior Notes due 2020 (the “2020 Notes”). In March 2015 the underwriters purchased 299,333 shares of common stock at $6.00 per share and $1.0 million of the 2020 Notes upon exercise of their overallotment options. We received net proceeds of approximately $36.5 million, after deducting underwriting discounts and offering-related costs, from our equity issuances and approximately $18.9 million in net proceeds, after deducting underwriting discounts and offering-related costs, from our debt issuances. In July and August 2015, holders of $21,000 principal amount of the 2020 Convertible Notes elected to convert the principal into 3,333,319 shares of common stock. In addition, the Interest Make-Whole Payment (as defined in the notes to the consolidated financial statements) was settled with shares of common stock, at the election of28, 2018, the Company resulting in the issuance of 530,072 additional shares of common stock. There has been no material change in the use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b).

~~In August 2015, the Company completed an underwritten public offering of its common stock (the “Follow-on Offering”). The Company issued 6,210,000~~repurchased 100,000 shares of its common stock for aggregate consideration of approximately $1.4 million. The repurchases were made on the Nasdaq Stock Market at ~~a price~~prevailing market prices in accordance with SEC Rule 10b-18. 50,000 of ~~$12.75 per share, including 810,000~~the shares ~~from~~repurchased by the underwriters’ full exercise of their overallotment option, and received net proceeds of $74.0 million, after deducting underwriting discounts and offering-related costs. There has been no material change in the use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b).

~~Issuer Purchases of Equity Securities~~

~~There were no repurchases of shares of common stock made during the year ended~~Company settled on December 31, ~~2015.~~

~~Item 6. Selected Financial Data~~

~~We derived the selected statements of operations data for the years ended December 31, 2015 and 2014~~2018 and the ~~balance sheet data as of December 31, 2015 and 2014 from our audited financial statements appearing elsewhere in this annual report~~remaining 50,000 shares repurchased settled on ~~Form 10-K.~~

January 2, 2019

Item 6.

Selected Financial Data

The following selected consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this report. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes. Our historical results are not necessarily indicative of our future results.

   Year Ended December 31,
(in thousands, except share and per share data)    2015 2014
Statements of Operations Data:

Operating expenses:

Research and development
   $ (12,554 ) $ (5,592 )
General and administrative
   (7,842 ) (2,112 )


Loss from operations
   $ (20,396 ) $ (7,704 )
Interest income
   89 —
Interest expense
   (1,230 ) (980 )
Loss on extinguishment of debt
   (4,399 ) —
Change in fair value of warrant liabilities
   267    (845 )
Change in fair value of Convertible Bridge Notes redemption rights derivative
   480    (2 )
Change in fair value of 2020 Convertible Bridge Notes derivative liability
   (42,793 ) —


Net loss
   $ (67,982 ) $ (9,531 )


Net loss per common share—basic and diluted
   $ (3.72 ) $ (13.52 )


Weighted-average common shares outstanding—basic and diluted
   18,311,333    1,020,088

   Year Ended December 31,
(in thousands)    2015 2014
Balance Sheet Data:

Cash and cash equivalents
   $ 80,042    $ 3,618
Short-term investments
   31,238    —
Total assets
   113,321    5,520
Convertible notes payable
   —      1,541
Notes payable—current portion
   —      3,063
Notes payable, net of current portion
   —      2,550
Warrant liabilities and convertible notes redemption rights derivative
   —      962
Total liabilities
   4,508    10,278
Series AA redeemable convertible preferred stock
   —      46,253
Accumulated deficit
   (196,023 ) (128,041 )
Total stockholders’ equity (deficit)
   108,813    (51,559 )

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

For the Years Ended December 31,
Period from
July 14 to
December 31,

2018 2017 2016 2015
Consolidated Statements of Operations Data:
Operating expenses:
Research and development $ 53,270 $ 14,917 $ 5,994 $ 3,236
General and administrative 17,886 4,855 1,580 184
Loss from operations (71,156 ) (19,772 ) (7,574 ) (3,420 )
Research and development incentives 186 192 - -
Interest expense (6,039 ) - - (7 )
Interest and other income net 1,690 2 1 1
Accretion of discount on investments 801 - - -
Loss on debt conversion - - - (778 )
Net loss $ (74,518 ) $ (19,578 ) $ (7,573 ) $ (4,204 )
Net loss per common share—basic and diluted $ (1.89 ) $ (2.88 ) $ (1.11 ) $ (0.62 )
Weighted-average common shares outstanding—basic and diluted 39,377,666 6,795,627 6,833,718 6,833,718

As of December 31,
2018 2017
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments $ 213,132 $ 18,142
Total assets 251,313 20,147
Convertible notes 41,447 -
Total liabilities 57,276 4,628
Accumulated deficit (105,873 ) (31,355 )
Total shareholders’ equity 194,037 15,519

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 “Selected Financial Data” and our consolidated financial statements, related notes and other financial information included elsewhere in this Annual Report on Form ~~10-K .~~10-K. This discussion contains forward-looking statements that involve risks and uncertainties such as our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk Factors” included elsewhere in this ~~prospectus.~~

~~Overview~~

~~We are~~Annual Report on Form 10-K.

Table of Contents

Unless otherwise indicated, references to the terms the “combined company,” “Rocket,” the “Company,” “we,” “our” and “us” refer to Rocket Pharmaceuticals, Inc. (formerly known as Inotek Pharmaceuticals Corporation) and its subsidiaries after the reverse merger described herein. The term “Rocket Ltd” refers to privately-held Rocket Pharmaceuticals, Ltd. prior to its merger with Rome Merger Sub, a wholly owned subsidiary of Rocket Pharmaceuticals, Inc. The term “Inotek” refers to Inotek Pharmaceuticals Corporation and its subsidiaries prior to the reverse merger. For accounting purposes, the reverse merger is treated as a “reverse acquisition” under U.S. GAAP and Rocket Ltd is considered the accounting acquirer. Accordingly, the historical financial information included in this Annual Report on Form 10-K, unless otherwise indicated or as the context otherwise requires, is that of Rocket Ltd prior to the reverse merger.

Introduction

Rocket Pharmaceuticals, Inc., together with its subsidiaries (collectively, “Rocket” or the “Company”), is a clinical-stage, ~~biopharmaceutical~~multi-platform biotechnology company focused on the ~~discovery,~~ development of first or best-in-class gene therapies, with direct on-target mechanism of action and clear clinical endpoints, for rare and devastating pediatric diseases. We have clinical-stage LVV programs currently undergoing clinical testing for Fanconi Anemia (“FA”), a genetic defect in the bone marrow that reduces production of blood cells or promotes the production of faulty blood cells and Leukocyte Adhesion Deficiency-I (“LAD-I”), a genetic disorder that causes the immune system to malfunction. FA has been in clinical stage testing in the EU since 2016, and in the U.S., Rocket received investigational new drug (“IND”) clearance for both FA and LAD-I in late 2018. Two additional pre-clinical stage LVV programs include Pyruvate Kinase Deficiency (“PKD”), a rare red blood cell autosomal recessive disorder that results in chronic non-spherocytic hemolytic anemia; and Infantile Malignant Osteopetrosis (“IMO”), a genetic disorder characterized by increased bone density and bone mass secondary to impaired bone resorption. In addition, we have an AAV program for Danon disease, a multi-organ lysosomal-associated disorder leading to early death due to heart failure. An IND filing was cleared in Danon disease in early 2019, which will permit the commencement of human clinical studies following approval. We have global commercialization and development rights to all of ~~therapies for glaucoma. Glaucoma is a disease~~our product candidates under royalty-bearing license agreements, with the exception of the ~~eye~~CRISPR/Cas9 development program for which we currently only have development rights.

Recent Developments

Reverse Merger and Exchange Ratio

On January 4, 2018, Rome Merger Sub (“Merger Sub”), a wholly owned subsidiary of Inotek, completed its merger with and into Rocket Ltd, with Rocket Ltd surviving as a wholly owned subsidiary of Inotek. This transaction is referred to as the “Reverse Merger.” As a result of the Reverse Merger, each outstanding share of Rocket Ltd share capital (including shares of Rocket Ltd share capital to be issued upon exercise of outstanding share options) automatically converted into the right to receive approximately 76.185 shares of Inotek’s common stock, par value $0.01 per share (the “Exchange Ratio”). Following the closing of the Reverse Merger, holders of Inotek’s common stock immediately prior to the Reverse Merger owned approximately 18.643% on a fully diluted basis, and holders of Rocket Ltd common stock immediately prior to the Reverse Merger owned approximately 81.357% on a fully diluted basis, of Rocket Ltd’s common stock.

The Reverse Merger has been accounted for as a reverse acquisition under the acquisition method of accounting where Rocket Ltd is considered the accounting acquirer and Inotek is the acquired company for financial reporting purposes. Rocket Ltd was determined to be the accounting acquirer based on the terms of the Merger Agreement and other factors, such as relative voting rights and the composition of the combined company’s board of directors and senior management. The pre-acquisition financial statements of Rocket Ltd became the historical financial statements of Rocket following completion of the Reverse Merger. The historical financial statements, outstanding shares and all other historical share information have been adjusted by multiplying the respective share amount by the Exchange Ratio as if the Exchange Ratio had been in effect for all periods presented. The Company’s common stock remained listed on the NASDAQ Stock Market, with trading having commenced on a post-split basis and under the new name as of January 5, 2018. The trading symbol also changed on that ~~is typically characterized by structural evidence~~date from “ITEK” to “RCKT.”

On January 24, 2018, the Company entered into an underwriting agreement with Cowen and Company, LLC and Evercore Group L.L.C., as representatives (the “Representatives”) of ~~optic nerve damage, vision loss and consistently elevated intraocular pressure (“IOP”~~the several underwriters (collectively with the Representatives, the “Underwriters”), pursuant to which the Company sold 6,325,000 shares of common stock (the “Shares”), which includes 825,000 shares that were sold pursuant to an option granted to the Underwriters (the “Offering”). ~~Our~~The Shares were sold in the Offering at a public offering price of $13.25 per share in which the Company received gross proceeds of $83.8 million net of $5.3 million of offering costs, commission and legal and other expenses for net proceeds from the Offering of $78.5 million, after deducting the underwriting discounts and commissions and legal and accounting costs.

On May 16, 2018, Rocket and Stanford entered into a strategic collaboration to support the advancement of FA and PKD gene therapy research. Under the terms of the collaboration agreement, Stanford University will serve as the lead ~~product candidate,~~~~trabodenoson~~clinical trial research center in the U.S. for the planned FA registrational trial and would also be the lead U.S. site for PKD clinical trials. The project will also separately evaluate the potential for non-myeloablative, non-genotoxic antibody-based conditioning regimens as a future development possibility that may be applied across bone marrow-derived disorders. In addition, Rocket agreed to support expansion of Stanford University’s Laboratory for Cell and Gene Therapy (“LCGM”) in efforts to further enhance the development of Rocket’s internal pipeline. Rocket agreed to fund up to $3.5 million for the LCGM expansion upon which 40% or $1.4 million was due upon execution of the agreement and the balance is due upon the achievement of certain milestones. $1.4 million of the $3.5 million milestone payments were paid during the year ended December 31, 2018. As of December 31, 2018, none of the remaining milestones were met with regard to the LCGM. In January 2019, the Company and Stanford signed a Clinical Trial Agreement for the treatment of FA. Upon the signing of the Stanford Clinical Trial Agreement in January 2019, the second milestone of $1.4 million for the LGCM became due.

Table of Contents

On August 14, 2018, Rocket entered into a lease for approximately 92,000 rentable square feet in Cranbury, New Jersey, for office space, process development, research activities and potentially manufacturing to support the Company’s pipeline (the “NJ Lease Agreement”). The term of the NJ Lease Agreement will commence for 72,000 rentable square feet upon substantial completion of leasehold improvements (the “Commencement Date”), and the remaining 20,000 square feet will commence upon the earlier of the Company’s election to commence the lease of such additional space or thirty months from the Commencement Date. The NJ Lease Agreement has a term of fifteen years from the Commencement Date, with an option to renew for two consecutive five-year renewal terms. Estimated rent payments are $1.2 million per annum, payable in monthly installments, and subject to annual base rent increases of 3%. The total commitment under the lease is estimated to be approximately $26.5 million over the 15 year term of the lease. The Company delivered a ~~first-in-class selective adenosine mimetic that~~cash security deposit of $0.3 million to the landlord in connection with the NJ Lease Agreement which has been reflected in deposits in the consolidated balance sheets.

On November 19, 2018, the Company through our wholly-owned subsidiary Rocket Pharmaceuticals, Ltd., entered into a License Agreement (the “License Agreement”) with REGENXBIO Inc. (“RGNX”), pursuant to which we ~~rationally designed~~obtained an exclusive license for all U.S. patents and patent applications related to ~~lower IOP~~RGNX’s NAV AAV-9 vector for the treatment of Danon disease in humans by ~~restoring the eye’s natural pressure control mechanism. Our product pipeline includes~~~~trabodenoson~~ ~~monotherapy delivered~~ in ~~an eye drop formulation,~~vivo gene therapy using AAV-9 to deliver any known LAMP2 transgene isoforms and all possible combinations of LAMP2 transgene isoforms (the “Field”), as well as an exclusive option to license (the “Option Right”) all U.S. patents and patent applications for two additional NAV AAV vectors in the Field (each, a ~~fixed-dose combination~~“Licensed Patent” and collectively, the “Licensed Patents”). Under the terms of the License Agreement, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market, promote and sell products incorporating the Licensed Patents (“~~FDC”~~Licensed Products”)

In consideration for the rights granted to the Company under the License Agreement, we made an upfront payment to RGNX of~~trabodenoson~~ ~~with~~~~latanoprost~~, $7.0 million. A fee of $2.0 million per additional vector would be due if the Company exercises its Option Right to purchase additional vectors. The License Agreement provides for royalties payable to RGNX in the high-single digits to low-teens on net sales levels of Licensed Products during the royalty term. If successful, we will be required to make milestone payments to RGNX of up to $13.0 million for each Licensed Product upon the achievement of specified clinical development and regulatory milestones in the U.S. and EU. In addition, we shall pay RGNX 20% of the payment fees received from a ~~prostaglandin analogue (“PGA”), given once-daily. Our completed Phase 2 trial~~priority review voucher issued in connection with or otherwise related to a Licensed Product. These royalty obligations are subject to specified reductions if additional licenses from third parties are required. We must also pay RGNX a portion of~~trabodenosonco-administered with~~~~latanoprost~~ ~~demonstrated IOP-lowering in patients who have previously had inadequate response to~~~~latanoprost~~~~. These patients represent PGA poor-responders, as evidenced by persistently elevated IOP at levels that typically require~~ all non-royalty sublicense income (if any) received from sublicensees.

On November 30, 2018, we announced the ~~addition~~closing of a ~~second drug~~public offering of 4,082,500 shares of its common stock, which includes the full exercise of the underwriters’ option to ~~further lower IOP.~~

~~We had an End-of-Phase 2 meeting with~~purchase 532,500 additional shares of its common stock, at a public offering price of $15.50 per share. The gross proceeds to Rocket from the ~~U.S. Food~~public offering were approximately $63.3 million, net of $4.0 million of offering costs, commissions, legal and ~~Drug Administration (“FDA”)~~other expenses for a net proceeds from the offering of $59.3 million. BofA Merrill Lynch, Cowen and Company, LLC and Evercore Group, LLC acted as joint book-running managers for the offering. Oppenheimer & Co. acted as lead manager and Ladenburg Thalmann acted as co-manager.

In addition to the shares sold in the ~~first half of 2015 to discuss our Phase 3 program for~~~~trabodenoson~~ ~~monotherapy and to confirm the design and endpoints for the Phase 3 pivotal trials. Our End-of-Phase 2 meeting was a critical milestone for advancing the development of~~~~trabodenoson~~~~. At the meeting, we reached agreement on the design of our initial Phase 3 trial, as well as the overall regulatory path for~~~~trabodenoson~~~~. For our first Phase 3 trial, we agreed to three doses of~~~~trabodenoson~~~~, 1000 mcg once daily, 1500 mcg twice daily, and 2000 mcg once daily, to be tested against placebo as the primary comparator for statistical purposes. Dosing of patients in this trial for~~~~trabodenoson~~ ~~monotherapy commenced in October 2015.~~

~~In February 2015, we completed our initial~~ public offering, ~~(the “IPO”)~~on November 30, 2018, Rocket closed a concurrent sale of ~~(i) 6,667,000~~967,742 shares of common stock at a price of ~~$6.00~~$15.50 per share, for gross proceeds of $15.0 million, net of offering costs of $0.2 million for net proceeds of $14.8 million, in a private placement to RTW Investments, LP, an existing stockholder of the Company and ~~(ii) $20.0 million~~an affiliate of Roderick Wong, the chairman of Rocket’s board of directors. The sale of these shares was not registered under the Securities Act of 1933, as amended, and such shares are subject to customary resale restrictions. Additionally, RTW signed a 90-day lock-up with respect to all shares of Rocket beneficially held by RTW.

On December 27 and 28, 2018, we repurchased 100,000 shares of its common stock, par value $0.01 per share, for aggregate ~~principal amount~~consideration of ~~5.0% Convertible Senior Notes due 2020~~approximately $1.4 million. The repurchases were made on the Nasdaq Stock Market at prevailing market prices in accordance with SEC Rule 10b-18. Immediately following the foregoing stock repurchases (the ~~“2020 Convertible Notes”~~“Repurchases”)~~. In March 2015 the underwriters purchased 299,333~~, we sold 100,000 shares of common stock ~~at $6.00 per share~~(the “Shares”) to RTW Innovation Master Fund, Ltd. (“RTW Innovation”), which is an affiliate of Rocket and ~~$1.0 million~~is managed by RTW. RTW Innovation purchased the Shares for a per-Share price of the 2020 Convertible Notes pursuant to exercises of their overallotment options. We received net proceeds of $36.5 million after deducting underwriting discounts and offering-related costs, from our equity issuances and $18.9 million in net proceeds, after deducting underwriting discounts and offering-related costs, from our debt issuances (See Note 5 in the accompanying notes$13.93, plus an amount equal to the ~~financial statements). Prior to this we funded our operations primarily through the sale of preferred stock and issuance of convertible promissory notes and notes payable. In~~Company’s expenses incurred in connection with the ~~IPO, all of our outstanding 25,949,333 shares of Series AA~~Repurchases (including broker’s commissions) and ~~Series X preferred stock, including all accrued and unpaid dividends thereon, automatically converted into 8,002,650 shares of common stock.~~

~~In July and August 2015,~~ the ~~$21.0 million principal amount~~issuance of the ~~2020 Convertible Notes fully converted into 3,863,391 shares~~Shares. The offering and sale of ~~common stock (see Note 5 in~~ the ~~accompanying notes to~~Shares was completed as a private placement under Section 4(a)(2) of the ~~financial statements).~~

~~In August 2015, we completed an underwritten public offering~~Securities Act of ~~our common stock (the “Follow-on Offering”). We issued 6,210,000 shares~~1933, as amended.

Table of common stock at a price of $12.75 per share, including 810,000 shares from the underwriters’ full exercise of their overallotment option, and received net proceeds of $74.0 million, after deducting underwriting discounts and offering-related costs.

As of December 31, 2015, we had an accumulated deficit of $196.0 million and cash and cash equivalents and short-term investments aggregating $111.3 million. We estimate we have sufficient funding to sustain operations through 2017. See “Liquidity and Capital Resources.”

Contents

Financial Overview

Since our inception, ~~on July 7, 1999,~~ we have devoted substantially all of our resources to organizing and staffing the company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development ~~applying~~activities for the programs and ~~obtaining government~~planning for potential commercialization. We do not have any products approved for sale and ~~private grants, recruiting management,~~have not generated any revenue from product sales. From inception through December 31, 2018, Rocket raised net cash proceeds of approximately $195.2 million from investors through both equity and convertible debt financing to fund operating activities, including proceeds from the January 2018 and November 2018 public offerings.

Research and Development Expenses

Our research and ~~technical staff~~development program expenses consist primarily of external costs incurred for the development of our product candidates. These expenses include:

expenses incurred under agreements with research institutions that conduct research and ~~other personnel, acquiring operating assets, and undertaking~~development activities including, process development, preclinical, ~~studies~~ and clinical ~~trials~~activities on Rocket’s behalf;

costs related to process development, production of preclinical and clinical materials, including fees paid to contract manufacturers and manufacturing input costs for use in internal manufacturing processes;

consultants supporting process development and regulatory activities; and

costs related to in-licensing of rights to develop and commercialize our ~~lead~~ product ~~candidates.~~

candidate portfolio.

We ~~have~~recognize external development costs based on contractual payment schedules aligned with program activities, invoices for work incurred, and milestones which correspond with costs incurred by the third parties. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses.

Our direct research and development expenses are tracked on a program-by-program basis for product candidates and consist primarily of external costs, such as research collaborations and third party manufacturing agreements associated with our preclinical research, process development, manufacturing, and clinical development activities. Our direct research and development expenses by program also include fees incurred under license agreements. Our personnel, non-program and unallocated program expenses include costs associated with activities performed by our internal research and development organization and generally benefit multiple programs. These costs are not ~~completed development of any~~separately allocated by product candidate and consist primarily of:

salaries and personnel-related costs, including benefits, travel and share-based compensation, for our scientific personnel performing research and development activities;

facilities and other expenses, which include expenses for rent and maintenance of facilities, and depreciation expense; and

laboratory supplies and equipment used for internal research and development activities.

Our research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development. As a result, we ~~have therefore not generated any~~expect that research and development expenses will increase substantially over the next several years as we increase personnel costs, including share-based compensation, supports ongoing clinical studies, seeks to achieve proof-of-concept in one or more product candidates, advances preclinical programs to clinical programs, and prepares regulatory filings for product candidates.

We cannot determine with certainty the duration and costs to complete current or future clinical studies of product candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of its product ~~sales. Prior to 2012, we generated revenues primarily from research grants received from governmental agencies~~candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs, and ~~private companies~~timing of clinical studies and development of product candidates will depend on a variety of factors, including:

the scope, rate of progress, and expense of ongoing as well as ~~revenue earned under licensing and research collaboration contracts. All previously recognized revenue was unrelated to our current development efforts focused on our lead product candidate,~~~~trabodenoson,~~~~for the treatment of glaucoma~~any clinical studies and other ~~diseases~~research and development activities that we undertake;

future clinical study results;

uncertainties in clinical study enrollment rates;

changing standards for regulatory approval; and

the timing and receipt of ~~the eye.~~

~~Factors Affecting our Results of Operations~~

any regulatory approvals.

We expect ~~our~~research and development expenses to increase ~~substantially in connection with our ongoing activities, particularly~~for the foreseeable future as we continue to invest in research and development ~~and continue our Phase 3 program of~~~~trabodenoson~~, which we commenced in October 2015. We also expect our expenses to increase as we complete formulation and manufacturing activities of our FDC product candidate which is expected to commence clinical trials in 2016. In addition, if we successfully launch~~trabodenoson~~ ~~as a monotherapy or any other product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution of our products.~~

Furthermore, we expect to incur additional costs associated with operating as a public company. Operating expenses have increased substantially to support our increased infrastructure and expanded operations. Accordingly, we will need to obtain additional funding in connection with our continuing operations. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or any potential future commercialization efforts. We will need to generate significant revenues to achieve profitability, and we may never do so. As a result, we expect to incur significant expenses and increasing operating losses for the foreseeable future.

~~Financial Overview~~

~~Revenue~~

We have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future. Our ability to generate revenues will depend on the successful development, regulatory approval and commercialization of~~trabodenoson~~ and any other future product candidates. Historically, we generated revenues primarily from research grants received from governmental agencies and private companies as well as revenue earned under licensing and research collaboration contracts that were unrelated to our current research and development programs.

~~Research and Development Expenses~~

~~Research and development expenses consist primarily of the costs associated with our research and development activities, conducting preclinical studies and clinical trials and~~ activities related to ~~regulatory filings. Our research~~developing product candidates, including investments in manufacturing, as our programs advance into later stages of development and ~~development expenses consist of:~~

~~direct~~as we conduct additional clinical and non-clinical expenses which include expenses incurred under agreements with contract research organizations (“CROs”), contract manufacturing organizations, clinical sites and costs associated with preclinical activities and development activities and costs associated with regulatory activities;

employee and consultant-related expenses, including compensation, benefits, travel and stock-based compensation expense for research and development personnel as well as consultants that conduct and support clinical trials and preclinical studies; and

~~facilities and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies used in research and development activities.~~

We expense research and development costs as incurred. We record costs for some development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or other information our vendors provide to us.

~~The following table summarizes our research and development expenses by type of activity for the years ended December 31, 2015 and 2014:~~

   Year Ended
December 31,
(in thousands)    2015    2014
Trabodenoson—direct clinical and non-clinical
   $ 8,653       $ 4,383
Personnel and other expenses:

Employee and consultant-related expenses
   3,483       1,075
Facility expenses
   336       121
Other expenses
   82       13




Total personnel and other expenses
   3,901       1,209




Total research and development expenses
   $ 12,554       $ 5,592

~~All research and development efforts and expenses for the years ended December 31, 2015 and 2014 relate to the development of~~~~trabodenoson~~~~. We do not track~~~~trabodenoson~~~~-related expenses by product candidate. All expenses related to~~~~trabodenoson~~ ~~as a monotherapy also benefit the FDC product candidate~~~~trabodenoson~~ ~~with~~~~latanoprost~~~~. We have expended approximately $50 million for external development costs related to~~~~trabodenoson~~ ~~from inception through December 31, 2015.~~

trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and ~~time consuming~~time-consuming, and the successful development of ~~our~~ product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

Our future research and development expenses will depend on the clinical success of our product candidates, as well as ongoing assessments of the commercial potential of such product candidates. In addition, we cannot forecast with any degree of certainty which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect our research and development expenses to increase in future periods for the foreseeable future as we seek to complete development of our ~~lead~~ product ~~candidate,~~~~trabodenoson~~~~, further develop our other product candidates and expand our research and development personnel to focus on these product candidate development activities.~~

candidates.

Table of Contents

The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

the scope, progress, outcome and costs of our clinical trials and other research and development activities;

the efficacy and potential advantages of our product candidates compared to alternative treatments, including any standard of care;

the market acceptance of our product candidates;

obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;

significant and changing government regulation; and

the timing, receipt and terms of any marketing approvals.

A change in the outcome of any of these variables with respect to the development of~~trabodenoson~~ ~~or any other~~ our product ~~candidate~~candidates that we may develop could mean a significant change in the costs and timing associated with the development of ~~that~~our product ~~candidate.~~candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently contemplate for the completion of clinical development of~~trabodenoson~~ or any ~~other~~of our product ~~candidate~~candidates that we may develop or if we

experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

Rocket General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefit costs for personnel, including ~~stock-based~~share-based compensation and travel expenses for ~~administrative personnel. Other~~our employees in executive, operational, finance, legal, business development, and human resource functions. In addition, other significant general and administrative expenses include professional fees for legal, patents, consulting, investor and public relations, auditing and tax services as well as other ~~direct and allocated~~ expenses for rent and maintenance of facilities, insurance and other supplies used in general and administrative activities. We ~~anticipate that our~~expect general and administrative expenses ~~will~~to increase for the foreseeable future due to anticipated increases in ~~future periods~~headcount to support ~~increases in~~the continued advancement of our ~~research~~product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and ~~development activities~~director and officer insurance costs as ~~a result of increased headcount, increased stock-based compensation charges, expanded infrastructure, increased costs for insurance, and increased legal, compliance, accounting and~~well as investor and public relations ~~expenses associated with being a public company.~~

expenses.

Interest Expense

Interest expense ~~consists primarily of interest on our 2020~~is related to Rocket’s 2021 Convertible Notes, notes payable, convertible promissory notes, amortization of loan discounts as well as interest calculated based on the amortization of the beneficial conversion feature of the convertible promissory notes. In February 2015, we repaid our borrowings under our existing notes payable agreements with Horizon Technology Finance Corporation and Fortress Credit Co. LLC with the proceeds from our IPO and the convertible promissory notes converted into common stock pursuant to the IPO. In July andwhich are due in August ~~of 2015 our 2020 Convertible Notes fully converted into common stock.~~

2021.

Interest Income

Interest income ~~relates~~is related to interest earned from ~~invested funds.~~

investments.

Results of Operations

Comparison of the Years Ended December 31, ~~2015~~2018 and ~~2014~~

2017

The following table summarizes ~~the~~our results of ~~our~~ operations for the years ended December 31, ~~2015~~2018 and ~~2014:~~

   Year Ended
December 31,    Increase
(Decrease)
   2015    2014
Operating expenses:

Research and development
   $ (12,554 )    $ (5,592 )    $ 6,962
General and administrative
   (7,842 )    (2,112 )    5,730






Total operating expenses
   $ (20,396 )    (7,704 )    $ 12,692
Interest expense
   (1,230 )    (980 )    250
Interest income
   89       —         (89 )
Loss on extinguishment of debt
   (4,399 )    —         4,399
Change in fair value of warrant liabilities
   267       (847 )    (1,114 )
Change in fair value of derivative liabilities
   (42,313 )    —         42,313






Net loss
   $ (67,982 )    $ (9,531 )    $ 58,451

2017:

For the Years Ended December 31,

2018 2017 Change
Operating expenses:
Research and development $ 53,270 $ 14,917 $ 38,353
General and administrative 17,886 4,855 13,031
Total operating expenses 71,156 19,772 51,384
Loss from operations (71,156 ) (19,772 ) (51,384 )
Research and development incentives 186 192 (6 )
Interest expense (6,039 ) - (6,039 )
Interest and other income net 1,690 2 1,688
Accretion of discount on investments 801 - 801
Total other income (expense) net (3,362 ) 194 (3,556 )
Net loss $ (74,518 ) $ (19,578 ) $ (54,940 )

55
Table of Contents

Research and ~~development expenses~~

~~Research and development~~Development Expenses

R&D expenses increased ~~$7.0~~$38.4 million to ~~$12.6~~$53.3 million for the year ended December 31, ~~2015, from $5.6~~2018 compared to the year ended December 31, 2017. The increases in R&D expenses were primarily a result of increases in manufacturing and process development expenses of $22.3 million, an increase in license fees of $6.9 million, an increase in R&D share-based compensation expense of $6.9 million and an increase in compensation expense of $2.4 million due to increased headcount.

General and Administrative Expenses

G&A expenses increased $13.0 million to $17.9 million for the year ended December 31, ~~2014. This~~2018 compared to the year ended December 31, 2017. The increase in G&A expenses was ~~related~~primarily due to ~~higher pre-clinical~~merger-related expenses of ~~$4.7~~$5.3 million, including $3.5 million of share-based compensation expenses and post-Reverse Merger transition expenses including payroll and severance payments for remaining Inotek employees retained for the post-Reverse Merger transition of $1.9 million. The remaining increase of $7.7 million is primarily ~~related~~due to ~~work preparing drug product for our~~~~trabodenoson~~ ~~clinical trials, along with ongoing pre-clinical studies, higher payroll-related and stock-based~~increase in stock compensation expense of ~~$1.9~~$2.0 million, ~~related to increased staffing~~a $3.7 million increase in personnel costs from headcount additions, and ~~higher consulting expenses~~an increase in legal costs of ~~$0.6 million. This increase was partially offset by a~~$0.7 million, insurance costs of $0.7 million and filing fees of $0.3 million ~~net reduction~~ in ~~direct clinical trial expenses as~~connection with supporting the growth in our business and becoming a ~~result of the completion of our Phase 2 trial~~public company in ~~October 2014 over increased costs of our Phase 3 trial that commenced~~2018. We expect an increase in ~~October 2015.~~

~~General and administrative expenses~~

~~General~~general and administrative expenses ~~increased $5.7 million,~~in future periods, as we continue to ~~$7.8~~operate as a public company.

Other Expense

Other expense was $3.4 million for the year ended December 31, ~~2015, as~~2018 compared to ~~$2.1~~other income of $0.2 million for the year ended December 31, ~~2014. This~~2017. The movement was primarily due to an increase ~~included $1.6~~in interest expense of $6.0 million, offset by an increase in ~~stock-based compensation~~interest income and accretion of ~~which $1.0 million related~~discount on investments of $2.5 million. The increase in interest expense is due to the ~~elimination~~assumption of the 2021 Convertible Notes in connection with the Reverse Merger. The increase in interest income is due to interest earned on the Company’s investments.

Comparison of the Years Ended December 31, 2017 and 2016

The following table summarizes our ~~repurchase rights~~results of operations for the years ended December 31, 2017 and ~~final vesting related to the Series X preferred shares held by our former CEO~~2016:

	For the Years Ended December 31,
	2017			2016			Change
Operating expenses:
Research and development	$	14,917		$	5,994		$	8,923
General and administrative		4,855			1,580			3,275
Total operating expenses		19,772			7,574			12,198
Loss from operations		(19,772	)		(7,574	)		(12,198	)
Research and development incentives		192			-			192
Interest and other income net		2			1			1
Total other income net		194			1			193
Net loss	$	(19,578	)	$	(7,573	)	$	(12,005	)

Research and ~~CFO pursuant to our IPO. The remaining increase was due primarily to higher compensation-related~~Development Expenses

R&D expenses ~~of $2.0 million primarily related to~~ increased staffing, including our current CEO and VP of Finance, higher insurance expenses and other public-company related expenses of $0.9 million, higher professional fees of $0.7 million, and higher consulting fees of $0.3 million.

~~Interest expense~~

~~Interest expense increased $0.2~~$8.9 million to ~~$1.2~~$14.9 million for the year ended December 31, ~~2015, as~~2017 compared to ~~$1.0 million for~~ the year ended December 31, ~~2014. Interest~~2016. The increases were primarily a result of increases in manufacturing and process development expenses of $4.7 million, increase in research expense of $1.2 million and an increase in 2015 was comprised of $1.0 million for coupon interest and amortization of debt discount and deferred financing costs related to our 2020 Convertible Notes, $0.1 million related to our Convertible Bridge Notes and $0.1 million related to our notes payable. InterestR&D share-based compensation expense ~~in 2014 related primarily to our Notes Payable.~~

~~Loss on extinguishment of debt~~

The loss on extinguishment of debt of $4.4 million in the year ended December 31, 2015, consisted of $3.7 million related to the July and August 2015 conversion of all of the 2020 Convertible Notes into common stock (see Note 5 in the accompanying notes to the financial statements), and $0.7 million, comprised of $0.4 million of unamortized debt discount and issuance costs related to our Convertible Bridge Notes and $0.3 million related to unamortized debt discount and issuance costs and prepayment fees related to our Notes Payable.

~~Change in fair value of warrant liabilities~~

~~Change in fair value of warrant liabilities for the year ended December 31, 2015, was a gain~~ of $0.3 million related to a decrease in our warrant liabilities related to warrants to purchase shares of Series AA Preferred Stock that became warrants to purchase shares of common stock upon our IPO. The $0.8 million loss in the year ended December 31, 2014, related to anand increase in ~~the value~~compensation expense due to increased headcount of ~~the warrant liabilities related to our Series AA Preferred Stock.~~

~~Change in fair value of derivative liabilities~~

Change in fair value of derivative liabilities for the year ended December 31, 2015, was a net loss of $42.3 million. We recorded a loss of $42.8 million in the year ended December 31, 2015, related to the final mark-to market of the 2020 Convertible Notes derivative liability in connection with the July and August 2015 full conversion of the 2020 Convertible Notes into common stock (see Note 5 in the accompanying notes to the financial statements), and a gain of $0.5 million related to the decrease in the value of the Convertible Bridge Notes redemption rights derivative.

~~Comparison of the 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:~~

   Year Ended
December 31,    Increase
(Decrease)
(in thousands)    2014    2013
Operating expenses:

Research and development
   $ (5,592 )    $ (5,330 )    $ 262
General and administrative
   (2,112 )    (1,324 )    788






Total operating expenses
   (7,704 )    (6,654 )    1,050
Interest expense
   (980 )    (884 )    96
Interest income
   —         3       3
Loss on extinguishment of debt
   —         —         —
Change in fair value of warrant liabilities
   (847 )    (81 )    766
Change in fair value of derivative liabilities
   —         —         —






Net loss
   $ (9,531 )    $ (7,616 )    $ 1,915

~~Research and development expenses~~

Research and development expenses increased by $0.3 million to $5.6 million for the year ended December 31, 2014, as compared to $5.3 million for the year ended December 31, 2013. The increase resulted primarily from higher CRO and other direct clinical trial expenses related to the Phase 2 trial of~~trabodenosonFDC~~, for which we received top line results in October 2014. This increase was partially offset by decreases in expenses related to manufacturing and testing of the active pharmaceutical ingredient needed to conduct the Phase 2 trial, as well as decreases in expenses related to consultants and stock-based compensation for research development personnel.

~~General and administrative expenses~~

General and administrative expenses increased $0.8 million, to $2.1 million, for the year ended December 31, 2014, as compared to $1.3 million for the year ended December 31, 2013. Included in the year ended December 31, 2013 is approximately $0.8 million of executive severance and payroll-related costs that are related to the termination of our former CEO and CFO in May 2013 as well as a reversal of approximately $0.3 million of stock based compensation also related to these terminations. This decrease of $0.5 million was offset by higher outside consultant expenses of $0.5 million related primarily to financial and accounting support, payroll-related expenses of $0.4 million related to the hiring of our CEO and VP of Finance, higher travel, professional fees and other expenses of $0.3 million in support of our initial public offering and stock-based compensation of $0.2 million related to the 2014 option grants.

~~Interest expense~~

Interest expense increased $0.1 million, to $1.0 million, for the year ended December 31, 2014, as compared to $0.9 million for the year ended December 31, 2013. The majority of interest expense, both coupon and discount amortization, for the year ended December 31, 2014, was related to the notes payable that we issued to two financial entities in June 2013. In addition, interest expense was recorded on the 2014 Bridge Notes issued in December 2014. Interest expense for the year ended December 31, 2013 includes approximately $0.4 million related to our convertible promissory notes which converted to equity in June 2013 plus approximately $0.5 million of both coupon and discount amortization related to the notes payable that we issued to two financial entities in June 2013.

~~Change in fair value of warrant liabilities~~

~~Change in fair value of warrant liabilities increased $0.8 million, to~~ $0.8 million for the year ended December 31, ~~2014,~~2017 as compared to ~~a $0.1~~the year ended December 31, 2016.

General and Administrative Expenses

G&A expenses increased $3.3 million to $4.9 million for the year ended December 31, ~~2013.~~2017 compared to the year ended December 31, 2016. The increase ~~resulted~~in G&A expenses was primarily due to an increase in G&A stock compensation expense of $0.7 million, a $1.1 million increase in personnel costs due to headcount additions, and an increase in merger related costs of $1.0 million due to the Reverse Merger with Inotek.

Other Income

Other income was $0.2 million for the year ended December 31, 2017 which consisted of the refund from the ~~noncash expense related to changes in the fair value~~NYC Biotech tax credit.

Table of ~~our warrant liabilities arising from the warrants to purchase shares of Series AA Preferred Stock.~~

Contents

Liquidity and Capital Resources

~~Since inception, we~~

The Company has not generated any revenue and has incurred losses since inception. Operations of the Company are subject to certain risks and uncertainties, including, among others, uncertainty of drug candidate development, technological uncertainty, uncertainty regarding patents and proprietary rights, having no commercial manufacturing experience, marketing or sales capability or experience, dependency on key personnel, compliance with government regulations and the need to obtain additional financing. Drug candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities.

The Company’s drug candidates are in the development and clinical stage. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.

The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Rocket has incurred ~~accumulated~~ net losses and negative cash flows from ~~our operations. We~~its operations each year since inception. Rocket incurred net losses of ~~$68.0~~$74.5 million, $19.6 million and ~~$9.5~~$7.6 million for the years ended December 31, ~~2015~~2018, 2017 and ~~2014,~~2016, respectively. ~~Our operating activities used $17.4~~The Company has experienced negative cash flows from operations and ~~$9.7~~has an accumulated deficit of $105.9 million as of ~~cash during the years ended~~ December ~~2015 and 2014, respectively.~~31, 2018. As of December 31, ~~2015,~~2018, the Company ~~had $111.3~~has $213.1 million of cash, ~~and~~ cash equivalents and ~~short term~~investments. Rocket expects such resources would be sufficient to fund its operating expenses and capital expenditure requirements into the second half of 2020. Rocket has funded its operations primarily through the sale of its equity and debt securities.

~~In August 2015, we completed the Follow-on Offering, issuing 6,210,000 shares~~

On January 26, 2018, Rocket closed a public offering of ~~our~~ common stock ~~resulting in aggregate net proceeds to us~~ of ~~approximately $74.0 million.~~

In July and August 2015, holders of $21.0 million principal amount of our 2020 Convertible Notes elected to convert the principal into 3,333,319 shares of common stock. In addition, the Interest Make-Whole Payment was settled with6,325,000 shares of common stock at our election, resulting in the issuance of 530,072 additional shares of common stock. As a result of these conversions, we no longer have an obligation to repay the principal or make cash interest payments on the 2020 Convertible Notes.

In February 2015, we completed our IPO and concurrent note offering and in March 2015, the underwriters exercised common stock and notes overallotment options resulting in aggregate net proceeds to us of approximately $55.4 million.

In December 2014, we sold an aggregate of $2.0 million of the Convertible Bridge Notes. In addition to other terms, the Convertible Bridge Notes had a maturity of June 30, 2015, accrued interest at the rate of 8% per annum and were subordinate to all other senior indebtedness. Upon the closing of our IPO, the Convertible Bridge Notes, including accrued interest, automatically converted into 337,932 shares of our common stock.

~~On June 28, 2013, we entered into notes payable agreements with two financial entities pursuant to which we issued a $3.5 million note to each lender~~ and received net proceeds of ~~$6.9~~approximately $78.5 million. On November 30, 2018, the Company closed a public offering of 4,082,500 shares of its common stock and received gross proceeds of $63.3 million. In addition to the shares sold in the public offering on November 30, 2018, Rocket closed a concurrent sale of 967,742 shares of common stock for gross proceeds of approximately $15.0 million.

In the longer term, the future viability of the Company is dependent on its ability to generate cash from operating activities or to raise additional capital to finance its operations. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2018:

	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years

Operating lease obligations	$	28,664	$	1,372	$	3,794	$	3,354	$	20,144
2021 Convertible Notes		52,000		-		52,000		-		-
Total	$	80,664	$	1,372	$	55,794	$	3,354	$	20,144

Convertible Notes Payable

On January 4, 2018, in connection with the Reverse Merger, Inotek’s obligations under its outstanding convertible notes, ~~bore~~with an aggregate principal value of $52.0 million, were assumed by the Company (the “2021 Convertible Notes”). The 2021 Convertible Notes were issued in 2016 and mature on August 1, 2021 (“Maturity Date”). The 2021 Convertible Notes are unsecured, accrue interest at a rate of ~~11.0%~~5.75% per annum and ~~had~~interest is payable semi-annually on February 1 and August 1 of each year. Each holder of a ~~maturity date~~2021 Convertible Note (the “Holder”) has the option until the close of ~~October 1, 2016. In February 2015, we paid~~business on the ~~lenders with proceeds~~second business day immediately preceding the Maturity Date to convert all, or any portion, of the 2021 Convertible Notes held by it at a conversion rate of 31.1876 shares of the Company’s common stock per $1 principal amount of 2021 Convertible Notes (the “Conversion Rate”) which is $32.08 per share. The Conversion Rate is subject to adjustment from ~~our IPO, a total~~time to time upon the occurrence of ~~$5.7 million, which included $5.3 million for~~certain events, including the ~~remaining principal~~issuance of stock dividends and ~~$0.4 million for end~~payment of ~~term and prepayment amounts and accrued interest. These notes payable agreements were then terminated.~~ cash dividends.

Table of Contents

Cash Flows

The following table summarizes our ~~sources and uses of~~ cash flows for each of the periods presented:

   Year Ended
December 31,
(in thousands)    2015    2014
Cash used in operating activities
   $ (17,416 )    $ (9,743 )
Cash used in investing activities
   (31,675 )    —
Cash provided by financing activities
   125,515       568




Net increase (decrease) in cash and equivalents
   $ 76,424       $ (9,175 )

For the Years Ended December 31,
2018 2017 2016
Cash used in operating activities $ (53,788 ) $ (15,962 ) $ (5,503 )
Cash used in investing activities (5,272 ) (760 ) (335 )
Cash provided by financing activities 153,502 25,406 16
Net change in cash, cash equivalents and restricted cash $ 94,442 $ 8,684 $ (5,822 )

Net ~~cash used~~Cash Used in Operating Activities

During the year ended December 31, 2018, operating activities

~~Net~~ used $53.7 million of cash, ~~used~~primarily resulting from our net loss of $74.5 million and net changes in our operating ~~activities was $17.4~~assets and liabilities of $4.4 million, partially offset by net non-cash charges of $16.3 million, including share-based compensation expense of $13.6 million and accretion of discount on convertible notes of $3.1 million. Changes in Rocket’s operating assets and liabilities for the year ended December 31, ~~2015~~2018 consisted of an increase in accounts payable and ~~$9.7~~accrued expenses of $5.9 million, offset by an increase in prepaid expenses and other assets of $1.5 million.

During the year ended December 31, 2017, operating activities used $16.0 million of cash, primarily resulting from Rocket’s net loss of $19.6 million and net changes in our operating assets and liabilities of $2.1 million, partially offset by net non-cash charges of $1.5 million, including share-based compensation expense of $1.3 million. Changes in Rocket’s operating assets and liabilities for the year ended December 31, ~~2014. Net cash used~~2017 consisted of a $2.8 million increase in ~~operating activities for the year ended~~

~~December 31, 2015 principally resulted from our net loss of $68.0 million, increases of~~accounts payable and accrued expenses, offset by an increase in prepaid expenses and other assets of ~~$1.3~~$0.7 million.

During the year ended December 31, 2016, operating activities used $5.5 million of cash, primarily resulting from Rocket’s net loss of $7.6 million and ~~decreases in non-cash expenses related~~net changes in ~~fair value~~our operating assets and liabilities of ~~warrant liabilities and Convertible Bridge Notes redemption rights derivative of $0.7 million. These amounts were~~$1.5 million, partially offset by ~~increases in~~net non-cash ~~expenses related to changes in the fair value~~charges of ~~our 2020 Convertible Notes derivative liability of $42.8~~$0.5 million, ~~loss on extinguishment of debt of $4.2 million, stock-based~~including share-based compensation ~~of $2.4 million, increases in accounts payables and accrued expenses of $1.9 million and non-cash interest~~ expense of ~~$1.1~~$0.3 million. ~~Net cash used~~Changes in Rocket’s operating ~~activities~~assets and liabilities for the year ended December 31, ~~2014 principally resulted from our net loss~~2016 consisted of ~~$9.5~~a $1.4 million increase in accounts payable and ~~increased~~accrued expenses and a decrease in prepaid expenses and other current assets ~~primarily related to $1.8 million~~of $0.1 million.

Net Cash Used in deferred public offering costs. These amounts were partially offset by increases in non-cash expenses related to changes in the fair value of our warrant liabilities of $0.8 million, increases in accounts payables and accrued expenses of $0.3 million, non-cash interest expenses of $0.2 million as well as non-cash stock-based compensation expense of $0.2 million.

~~Net cash used in investing activities~~

~~Net cash used in investing activities was $31.7 million for~~Investing Activities

During the year ended December 31, ~~2015,~~2018, net cash outflow of investing activities was $5.3 million, consisting primarily of investment purchases of $141.1 million and ~~related primarily to the purchase~~purchases of ~~$33.7~~property and equipment of $1.5 million, offset by $76.3 million of ~~short-term investments, $2.4~~cash acquired in connection with the Reverse Merger, and $61.3 million from the maturities of investments.

During the year ended December 31, 2017, Rocket used $0.8 million of ~~proceeds from the maturity of short-term investments, and $0.4 million~~cash in investing activities, consisting primarily of purchases of property and equipment.

During the year ended December 31, 2016, Rocket used $0.3 million of cash in investing activities, consisting of purchases of property and equipment.

Net Cash Provided by Financing Activities

During the year ended December 31, 2018, net cash provided by financing activities

was $153.5 million, consisting primarily of proceeds from the issuance of common stock. On January 26, 2018, we closed a public offering of common stock and received net proceeds of approximately $78.5 million. On November 30, 2018, we closed a public offering of 4,082,500 shares of its common stock. The gross proceeds to Rocket from the offering were approximately $63.3 million. In addition to the shares sold in the public offering, Rocket closed a concurrent sale of 967,742 shares of common stock for gross proceeds of approximately $15.0 million.

During the year ended December 31, 2017, net cash provided by financing activities was $25.4 million, consisting of proceeds from Rocket’s issuance of Series B convertible preferred shares. Net cash provided by financing activities was ~~$125.5 million~~immaterial for the year ended December 31, 2015, and reflects the net proceeds from (i) the issuance of common stock in our IPO of $38.1 million, (ii) our offering of 2020 Convertible Notes of $19.1 million, and (iii) the issuance of common stock in the Follow-on Offering of $74.0 million. These net proceeds from our common stock and 2020 Convertible Notes in 2015 do not reflect an aggregate of $1.8 million of IPO-related costs incurred in 2014. Additionally, in 2015, we made $5.8 million of payments related to the principal and termination of our notes payable. Net cash provided by financing activities was $0.6 million for the year ended December 31, 2014 and reflects the net proceeds from issuance of our $2.0 million convertible notes partially offset by principal payments on our notes payable of $1.4 million.

2016.

Operating Capital Requirements

To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. ~~Since the closing of our IPO in February 2015, we are incurring additional costs associated with operating as a public company.~~ In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing and manufacturing. Accordingly, we anticipate that we will need substantial additional funding in connection with our continuing operations.

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Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we are able to raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could cause potential dilution. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or research programs or to grant licenses on terms that

may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

~~Contractual Obligations and Commitments~~

~~The following summarizes our significant contractual obligations as of December 31, 2015:~~

(in thousands)    Total    Less than
1 year    1 to 3
years    3 to 5
years    More
than
5 years
Operating lease obligations (1)
   $ 2,122       $ 209       $ 587       $ 620       $ 706










Total
   $ 2,122       $ 209       $ 587       $ 620       $ 706

~~(1)~~

In May 2015, we entered into a lease agreement for our new headquarters in Lexington, Massachusetts. We occupied this space in September 2015 and the lease term commenced in the same month. In February 2016, we amended this lease by leasing an additional 3,888 square feet which we expect to occupy in July 2016.

We enter into contracts in the normal course of business with CROs and contract manufacturers to assist in the performance of our research and development activities and other services and products for operating purposes. To the extent that these contracts provide for termination on notice, and therefore are cancelable contracts, they are not included in the table of contractual obligations and commitments.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined ~~under SEC rules.~~

~~Quantitative and Qualitative Disclosures about Market Risk~~

~~We are exposed to market risks~~ in the ~~ordinary course~~rules and regulations of our business. These market risks are principally limited to interest rate fluctuations. We had cash and cash equivalents of $111.3 million at December 31, 2015, consisting of funds in operating cash accounts, money market and short-term securities. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, we do not believe an immediate 1.0% increase in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect a sudden change in market interest rates to affect materially our operating results or cash flows.

SEC.

JOBS Act

Under Section 107(b) of the Jumpstart Our Business Startups Act of 2012 ~~or the JOBS Act,~~(the “JOBS Act”), an “emerging growth company” can delay the adoption of new or revised accounting standards until such time as those standards would apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, as a result, we will adopt new or revised accounting standards at the same time as other public companies that are not emerging growth companies. There are other exemptions and reduced reporting requirements provided by the JOBS Act that we are currently evaluating. For example, as an emerging growth company, we are exempt from Sections 14A(a) and (b) of the Exchange Act which would otherwise require us to (i) submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “golden parachutes” and (ii) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of our Chief Executive Officer’s

compensation to our median employee compensation. We also intend to rely on an exemption from the rule requiring us to provide an auditor’s attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and the rule requiring us to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board ~~or PCAOB,~~(“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated financial statements as the auditor discussion and analysis. We will continue to remain an “emerging growth company” until the earliest of the following: December 31, 2020; the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1$1.07 billion; the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Critical Accounting Policies and Estimates

Goodwill

Business combinations are accounted for under the acquisition method (see Note 4). The total cost of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Goodwill is tested for impairment annually as of December 31, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. We have one segment and one reporting unit and as such reviews goodwill for impairment at the consolidated level.

When testing goodwill, we have the option to first assess qualitative factors for reporting units that carry goodwill. The qualitative assessment includes assessing the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. These events and circumstances include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. We may also consider recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value. If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.

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In January 2017, the FASB issued ASU No. 2017-04, “Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, an amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test. As amended, an entity will recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform the qualitative test for a reporting unit to determine if the quantitative impairment test is necessary. Entities should apply for the amendment prospectively. We early adopted this guidance as of January 1, 2018. We performed the qualitative assessment of Rocket’s goodwill and determined that it is more likely than not that the fair value of a reporting unit exceeds the carrying value of the reporting unit. As a result, we have determined there was no goodwill impairment for the year ended December 31, 2018.

Impairment of Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. We conduct our long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires us to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:

CROs in connection with performing research and development services on our behalf;

investigative sites or other providers in connection with clinical trials;

vendors in connection with non-clinical development activities; and

vendors related to product manufacturing, development and distribution of clinical supplies.

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage non-clinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting expenses that are too high or too low in any particular period.

Fair Value Measurements

We are required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Accounting Standard Codification ~~or ASC,~~(“ASC”) Topic 820, Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of our company. Unobservable inputs are inputs that reflect our

assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date;

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly;

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Level 3—Valuations that require inputs that reflect our own assumptions that are both significant to the fair value measurement and unobservable.

~~Our~~

Rocket’s material financial instruments at December 31, ~~2015,~~2018 and 2017, consisted of cash and cash equivalents, investments, accounts payable and the 2021 Notes. The fair value of Rocket’s cash and cash equivalents and accounts payable approximate their respective carrying values due to the short-term ~~investments. We have~~nature of these instruments and amounts. Rocket has determined that ~~our United States~~its money market mutual funds and U.S. Treasury securities are ~~subject to~~categorized as Level 1 assets under the fair value ~~measurements~~hierarchy, as these assets are valued using quoted market prices in active markets without any valuation adjustments. We have determined that our certificates of deposit are categorized as Level 2 assets under the fair value hierarchy, as there are no quoted market prices in active markets, and our agency bonds as Level 2 assets under the fair value hierarchy, as these assets are not always valued daily using quoted market prices in active markets. Our material financial instruments at December 31, 2014, consisted of preferred stock warrant liabilities and a convertible debt redemption rights derivative. The preferred stock warrant liabilities and convertible debt redemption rights derivative were subject to Level 3 fair value measurements. We accounted for them as liabilities based upon the characteristics and provisions of the underlying instruments. These liabilities were recorded at their fair value on the date of issuance and were re-measured on each subsequent balance sheet date, with fair value changes recognized as income (decreases in fair value) or expense (increases in fair value) in the statements of operations in the accompanying financial statements.

Stock-Based Compensation

We measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized on a straight-line basis over the period during which the employee is required to provide service in exchange for the award. The fair value of options on the date of grant is calculated using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. Compensation cost for stock purchase rights under our employee stock purchase plan is measured and recognized on the date that we become obligated to issue shares of our common stock and is based on the difference between the fair value of our common stock and the purchase price on such date. Our estimates of these assumptions are primarily based on ~~third-party valuations,~~ historical data, peer company data and judgment regarding future trends and factors.

~~We account for stock options issued to non-employees in accordance with the provisions of the Financial Accounting Standards Board, or FASB, ASC Subtopic 505-50,~~~~Equity-Based Payments to Non-employees~~~~, which requires valuing the stock options using the Black-Scholes option pricing model and re-measuring such stock options at their current fair value as they vest.~~

~~Significant Factors, Assumptions and Methodologies Used in Determining Fair Value~~

Determining the fair value of our convertible preferred stock warrants, convertible debt derivative and stock-based awards requires the use of subjective assumptions. In the absence of a publicly traded market for our securities, we conducted periodic valuations of our securities.

~~Valuations conducted in 2015 and 2014~~

A third-party valuation consultant was engaged to advise and assist us in connection with the valuations of our (i) Series AA preferred stock warrants outstanding at December 31, 2014, (ii) our convertible debt redemption rights derivative at issuance and at December 31, 2014, (iii) our common stock options issued in August 2014 and (iv) our 2020 Convertible Notes derivative liability at issuance and at the time of the conversions of the 2020 Convertible Notes during 2015. Because our previously outstanding Series X preferred stock was entitled to a contingent liquidation preference which varies based on the total value of our equity, we were precluded from using a closed-form model, such as the Black-Scholes option pricing method, to value the Series AA preferred stock warrants. Therefore, we employed a Monte Carlo simulation methodology to determine the fair value of securities in our capital structure during the period during the period prior to the February 2015 IPO.

~~Common Stock and Preferred Stock Warrant Valuations~~

Our initial equity value (“EV”) was determined by utilizing a risk-adjusted discounted cash flow model based upon market research and management’s assessment thereof, which is an income approach and was corroborated with market data, coupled with a series of Monte Carlo simulations which projected various equity values under different possible liquidity events including (i) initial public offering (“IPO”), (ii) merger and acquisition (“M&A”), and (iii) stay-private (“SP”) scenarios. The first two scenarios assumed positive results from our recent Phase 2 clinical trial, while the third scenario considered unfavorable results for valuations performed prior to December 31, 2014 and, at December 31, 2014, no IPO or M&A transaction.

~~Key assumptions underlying the discounted cash flow model are described below:~~

•

Based on the research and industry knowledge of our officers and consultants, we developed projections of market penetration, product selling prices and required infrastructure to estimate our future revenues and operating expenses to determine projected free cash flows from our two current product candidates containing~~trabodenoson, through patent expiration.~~

•

~~Probability of Success.~~ ~~To determine the probability of success for the various phases of development required for submission in an NDA, we utilized the clinical trial success rates as published in certain reports.~~

•

~~Time to Liquidity~~~~. All 2014 valuations assumed liquidity events occurring between December 31, 2014 and April 1, 2015.~~

•

~~Risk Free rates~~~~. Risk free rates are based on published or imputed government treasury rates as of each valuation date.~~

•

~~Volatilities~~~~. Volatilities were derived from historical data from guideline publicly traded comparable companies. We used volatilities of 60% to 70% for the 2014 valuations.~~

The Monte Carlo-simulated total equity values were then allocated to each type of security using a current value (waterfall) method under each scenario and were then probability-adjusted using probability weights by scenario.

As of date:
IPO M&A SP
December 31, 2014
70 % 25 % 5 %

Valuation models require the input of highly subjective assumptions. Because our shares had characteristics significantly different from that of publicly traded common stock and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models did not necessarily provide a reliable, single measure of the fair value of our previously outstanding Series AA preferred stock or Series X preferred stock. The foregoing valuation methodologies were not the only valuation methodologies available and will not be expected to be used to value our securities after our IPO. We cannot make complete assurances as to any particular valuation for our securities.

~~Convertible Debt Redemption Rights Derivative~~

The Convertible Bridge Notes redemption rights derivative required separate accounting and was valued using a single income valuation approach. We estimated the fair value of the redemption rights derivative using a ‘‘with and without’’ income valuation approach. Under this approach, we estimated the present value of the fixed interest rate debt based on the fair value of similar debt instruments excluding the embedded feature. This amount was then compared to the fair value of the debt instrument including the embedded feature using a probability weighted approach by assigning each embedded derivative feature a probability of occurrence, with consideration provided for the settlement amount including conversion discounts, prepayment penalties, the expected life of the liability and the applicable discount rate.

As of the issuance of the Convertible Bridge Notes on December 22, 2014 and on December 31, 2014, the Company ascribed a probability of occurrence of 25% to the change in control redemption feature of the Convertible Bridge Notes. The expected life of the feature was the remaining term of the debt and the discount rate was 18.9%. The Company classified the liability within Level 3 of the fair value hierarchy as the probability factor and the discount rate are unobservable inputs and significant to the valuation model.

~~2020 Convertible Notes derivative liability~~

Based on the characteristics of the (i) conversion option including make-whole provision, (ii) the Additional Interest, and (iii) the notes, we estimated the fair value of the conversion option including make-whole and the Additional Interest using the “with” and “without” method. Using this methodology, we first valued the notes with the conversion option including make-whole provision but excluding the Additional Interest (the “with” scenario) and subsequently valued the notes without the conversion option including make-whole provision and excluding the Additional Interest (the “without” scenario). The difference between the fair values of the notes in the “with” and “without” scenarios was the concluded fair value of the conversion option including make-whole provision as of the measurement date. We developed an estimate of fair value for the notes excluding the Additional Interest using a binomial lattice model. We modeled the decision to convert or hold by considering the maximum of the conversion or hold value at every node of the lattice in which the notes are convertible and choosing the action that maximizes the return to the notes’ holders. The significant assumptions used in the binomial model were: the market yield and the expected volatility.

We estimated the fair value of the Additional Interest using an income approach, specifically, the risk-neutral debt valuation method that is used to derive the value of a debt instrument using the expected cash flows and the risk-free rate. The significant assumptions used in estimating the expected cash flows were the market yield used to determine the risk-neutral probability of default and the expected recovery rate upon default.

Recent Accounting Pronouncements

In ~~August 2014,~~February 2016, the FASB issued ASU ~~2014-15,~~2016-02, Leases (Topic 842), as amended, which ~~provides~~supersedes the current leasing guidance ~~about management’s responsibility~~and upon adoption, will require lessees to ~~evaluate whether there is substantial doubt about an entity’s ability~~recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Leases with a term of 12 months or less will be accounted for similar to ~~continue as a going concern and to provide related footnote disclosures.~~existing guidance for operating leases today. The new standard is effective for the Company for the annual period ~~ending~~beginning after December 15, ~~2016~~2018. Upon the adoption of the guidance, operating leases are capitalized on the balance at the present value of lease payments. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. See Note 13 for commitment and contingencies footnote for ~~annual~~operating leases.

The FASB issued ASU 2018-11 in July 2018, which includes certain amendments to ASU 2016-02 intended to provide relief in implementing the new standard. Among these amendments is the option to not restate comparative periods presented in the financial statements. The Company intends to elect this new transition approach, using a cumulative-effect adjustment on the effective date of the standard, with comparative periods presented in accordance with the previous guidance in ASC 840. The Company currently expects to elect the available package of practical expedients which allows the Company to not reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of leases, and ~~interim periods thereafter, with early~~the treatment of initial direct costs.

In preparation for adoption ~~permitted. We~~of the standard, we are ~~currently evaluating~~in the process of implementing internal controls to enable the preparation of financial information including the assessment of the impact of ~~this accounting~~the standard. The adoption of the new standard ~~update on our consolidated financial statements.~~

~~Item 7A. Quantitative and Qualitative Disclosures about Market Risks~~

~~We are exposed~~is expected to ~~market risks~~result in the ~~ordinary course~~recognition of ~~our~~additional lease liabilities ranging from $3.0 million to $3.7 million, and right-of-use assets ranging from $2.6 million to $3.2 million as of January 1, 2019 related to the Company’s operating leases.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides that when substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. ~~These~~ASU 2017-01 is effective to annual period beginning after December 31, 2018 and interim period within annual periods beginning after December 31, 2019. The adoption of ASU 2017-09 may impact the Company’s accounting for future acquisitions.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risks

As of December 31, 2018, Rocket had market ~~risks are principally limited~~risk exposure related to interest rate fluctuations. WeRocket had cash, ~~and~~ cash equivalents and investments of ~~$80.0~~$213.1 million at December 31, ~~2015,~~2018, consisting primarily of funds in money market ~~accounts. We also had $31.2 million in short-term investments consisting of certificates of deposit, agency bonds~~accounts, and ~~United States~~U.S. Treasury securities. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short-term

nature of our investment portfolio, we do not believe an immediate 1.0% increase in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect a sudden change in market interest rates to affect materially our operating results or cash flows.

~~Until the 2020~~ Our 2021 Convertible Notes ~~were converted in July and August 2015, they bore~~accrue interest at a fixed rate and therefore a change in interest rates would not impact the amount of interest we would have paid on ~~our~~this indebtedness.

Table of Contents~~Item 8. Financial Statements and Supplementary Data~~

Item 8.

Financial Statements and Supplementary Data

The financial statements required ~~to be filed pursuant to~~by this Item 8 are ~~appended to this report. An index of those financial statements is found~~included in Item ~~15.~~

~~Item 9. Changes in and Disagreements with Accountants~~15 of this Annual Report on ~~Accounting and Financial Disclosure~~

Form 10-K.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

~~Item 9A. Controls and Procedures~~

Item 9A.
Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures. Based on that evaluation of our disclosure controls and procedures as of December 31, ~~2015,~~2018, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial and accounting officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with ~~accounting principles generally accepted in the United States (“GAAP”).~~U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2015. In~~2018 in making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013Internal Control — Integrated Framework. Based on this assessment, our management has concluded that, as of December 31, ~~2015,~~2018, our internal control over financial reporting is effective based on those criteria.

This annual report onForm 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to an exemption under Section 989G of theDodd-Frank Wall Street Reform and Consumer Protection Act made available to us under the ~~Jumpstart Our Business Startups Act of 2012.~~

JOBS Act.

Inherent Limitations of Internal Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents~~Item 9B. Other Information~~

~~Not applicable.~~

Item 9B.

Other Information

In October 2018, the Company entered into Severance and Change in Control Agreements (the “Severance Agreements”) with the following executives: Gaurav Shah, M.D., CEO and President, Kinnari Patel, Pharm D, MBA, EVP, COO and Head of Development, Jonathan Schwartz, M.D., CMO and Head of Clinical Development.

The Severance Agreements provide the executives with certain severance benefits. In connection with a termination of the executive’s employment by the Company for Cause or by the executive without Good Reason, the executive is entitled to receive (i) any accrued but unpaid base salary and accrued but unused vacation, (ii) any unpaid annual bonus with respect to any completed fiscal year immediately preceding the date of termination (provided, however, that if the executive is terminated for Cause, such bonus shall be forfeited), (iii) reimbursement for unreimbursed business expenses, and (iv) employee benefits, if any, to which the executive may be entitled as of the date of termination ((i) through (iv) collectively, the “Accrued Amounts”).

In connection with a termination of the executive’s employment with the Company without Cause or by the executive for Good Reason, the executive is entitled to receive the Accrued Amounts and, upon execution of an irrevocable release of claims in favor of the Company, (i) a lump sum payment equal to 9 to 12 months of the executive’s annual base salary for the year in which termination occurs and (ii) if timely elected, 9 to 12 months of Company-paid COBRA benefits.

In connection with a termination of the executive’s employment with the Company without Cause or by the executive for Good Reason within 12 months following a Change in Control, the executive is entitled to receive, upon execution of an irrevocable release of claims in favor of the Company, (i) the Accrued Amounts, (ii) a lump sum payment equal to 12 to 18 months of the executive’s annual base salary for the year in which termination occurs, (iii) a lump sum amount equal to any annual bonus to which the executive would have been entitled for the year in which termination occurs, and (iv) if timely elected, 12 to 18 months of Company-paid COBRA benefits.

In connection with a termination of the executive’s employment upon death or disability of the executive, the executive (or the executive’s estate or beneficiaries) is entitled to receive the Accrued Amounts and a pro-rata portion of the annual bonus, if any, the executive would have earned for the year in which termination occurs.

For purposes of the Severance Agreements, “Cause” means (as determined by the Board in their discretion exercised in good faith):

any material breach by the executive of any agreement between the executive and the Company;

the conviction of, indictment for or plea of nolo contendere by the executive to a felony or a crime involving moral turpitude; or

any material misconduct or willful and deliberate nonperformance (other than by reason of the executive’s disability) by the executive of the executive’s duties to the Company.

For purposes of the Severance Agreements, “Good Reason” means the occurrence of any of the following in each case during the term of employment without the executive’s written consent, which circumstances are not remedied by the Company within 30 days of its receipt of a written notice from the executive describing the applicable circumstances (which notice must be provided by the executive within 90 days of the executive’s knowledge of the applicable circumstances):

a material, adverse change in the executive’s duties, responsibilities, authority, title or reporting structure;

a material reduction in the executive’s base salary or bonus opportunity; or

a geographical relocation of the executive’s principal office location by more than 50 miles.

For purposes of the Severance Agreements, a “Change in Control” shall be deemed to have occurred upon the occurrence of any one of the following events:

the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity;

a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction;

the sale of all of the stock of the Company to an unrelated person, entity or group thereof acting in concert; or

any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

The foregoing summary of Severance Agreements does not purport to be complete and is qualified in its entirety by reference to the complete Form of Change in Control and Severance Agreement, which is attached as Exhibit 10.19.

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PART III. — OTHER INFORMATION

~~Item 10.~~

Item 10.

Directors, Executive Officers ~~and Corporate Governance~~

~~Directors and Executive Officers~~

~~The following table sets forth information regarding our executive officers and directors, including their respective ages and positions as of the date hereof:~~


~~Name~~	~~Age~~		~~Position~~
~~Executive Officers:~~
~~David P. Southwell~~		55	~~President, Chief Executive Officer and Director~~
~~Rudolf Baumgartner, M.D.~~		56	~~Executive Vice President and Chief Medical Officer~~
~~William K. McVicar, Ph.D.~~		58	~~Executive Vice President and Chief Scientific Officer~~
~~Dale Ritter~~		65	~~Vice President—Finance~~

~~Non-Management Directors:~~
~~Carsten Boess (1)~~		49	~~Director~~
~~Ittai Harel (1)(2)(3)~~		48	~~Director~~
~~Paul G Howes~~		61	~~Director~~
~~A.N. “Jerry” Karabelas, Ph.D.~~		63	~~Director~~
~~Isai Peimer (1)(2)(3)~~		38	~~Director~~
~~Gary Phillips, M.D. (2)~~		50	~~Director~~
~~Richard N. Spivey, PharmD, PhD (3)~~		66	~~Director~~
~~Martin Vogelbaum (1)(2)~~		52	~~Director~~

~~(1)~~

~~Member of the Audit Committee.~~

~~(2)~~

~~Member of the Compensation Committee.~~

~~(3)~~

~~Member of the Nominating~~ and Corporate Governance ~~Committee.~~

~~The following is a biographical summary of the experience of our executive officers and directors:~~

~~Executive Officers~~

~~David P. Southwell~~ has served as our President and Chief Executive Officer since July 2014, and as one of our directors since August 2014. Mr. Southwell received a B.A. from Rice University and an M.B.A. from Dartmouth College. From March 2010 to October 2012, Mr. Southwell served as Executive Vice President, Chief Financial Officer of Human Genome Sciences, Inc., or Human Genome Sciences, which is owned by GlaxoSmithKline plc. Prior to his time at Human Genome Sciences, Mr. Southwell served as Executive Vice President and Chief Financial Officer of Sepracor Inc. from July 1994 to July 2008. Mr. Southwell has also served on the Board of Directors of PTC Therapeutics Inc. since December 2005 and THL Credit, Inc. since June 2007. We believe that Mr. Southwell’s qualifications to sit on our Board include his broad experience serving on the boards of directors of public companies, his specific experience

Information with ~~public therapeutics companies and his executive leadership, managerial and business experience.~~

~~Rudolf Baumgartner, M.D.~~ has served as our Executive Vice President and Chief Medical Officer since June 2007. Dr. Baumgartner received a B.S. and an M.D. from Pennsylvania State University and completed post-doctoral training at the University of Michigan, Johns Hopkins University and the National Institutes of Health.

~~William K. McVicar, Ph.D.~~ joined us in September 2007 as Executive Vice President, Pharmaceutical Development and has served as our Executive Vice President and Chief Scientific Officer since January 2009. Dr. McVicar also served as our interim President from May 2013 until August 2014. Dr. McVicar received a B.S. from the State University of New York College at Oneonta and a Ph.D. in Chemistry from the University of Vermont.

~~Dale Ritter~~ joined us as a financial consultant in June 2014 and has served as our Vice President—Finance and Principal Financial and Accounting Officer, Treasurer and Secretary since August 2014. From May 2011 to November 2013, Mr. Ritter served Senior Vice President, Finance and Chief Accounting Officer at Coronado Biosciences, Inc. From January 2011 to May 2011, Mr. Ritter served as an Independent Financial Consultant and from 1994 to 2009 Mr. Ritter served in various roles and most recently as Senior Vice President and Chief Accounting Officer at Indevus Pharmaceuticals, Inc. Mr. Ritter received a B.A. from Syracuse University and an M.B.A. from Babson College.

~~Non-Management Directors~~

~~Carsten Boess~~ has served as one of our directors since January 2016. He is currently the Chief Business Officer at Kiniksa Pharmaceuticals, a privately held biotechnology company. He previously served as Senior Vice President and Chief Financial Officer at Synageva Biopharma Corporation from 2011 until the company’s acquisition by Alexion Pharmaceuticals in 2015. Prior to his role at Synageva, Mr. Boess served in multiple roles with increasing responsibility for Insulet Corporation, including Chief Financial Officer from 2006 to 2009 and Vice President of International Operations from 2009 to 2011. Prior to that, Mr. Boess served as Executive Vice President of Finance for Serono Inc. from 2005 to 2006. In addition, he was a member of the Geneva based World Wide Executive Finance Management Team while at Serono. Mr. Boess was also Chief Financial Officer at Alexion Pharmaceuticals, and was a finance executive at Novozymes of North America and Novo Nordisk in France, Switzerland and China. Mr. Boess received a Bachelor’s degree and Master’s degree in Economics and Finance, specializing in Accounting and Finance from the University of Odense, Denmark.

~~Ittai Harel~~ has served as one of our directors since March 2010. Since July 2006, Mr. Harel has served in various roles, most recently as Managing General Partner, at Pitango Venture Capital, a provider of seed, growth and late-stage capital for core life sciences and technology companies. In connection with these positions, Mr. Harel currently serves on numerous boards of directors, including Vertos Medical, Inc., Lifebond Ltd., Medisafe Project, Ltd. and EarlySense Ltd., also serving as Chairman of the boards of directors of Lifebond Ltd. and EarlySense Ltd. Additionally, Mr. Harel serves on the Compensation Committees of Lifebond Ltd. and EarlySense Ltd. From February 2002 to June 2006, Mr. Harel held pharmaceutical product development strategy and business development roles at Nektar Therapeutics, including serving as Director of Corporate Development. Mr. Harel received a B.S. from Ben Gurion University and an M.B.A. from the Massachusetts Institute of Technology. We believe that Mr. Harel’s qualifications to sit on our Board include his extensive board and management experience, including with development stage life sciences companies.

~~Paul G. Howes~~ has served as one of our directors since September 2008. From January 2016 to present, Mr. Howes has been President of ThromboGenics Inc. Mr. Howes also served as our President and Chief Executive Officer from September 2008 to May 2013. Prior to his time with us, Mr. Howes served as President of the Americas Region of Bausch + Lomb Incorporated, which is now owned by Valeant Pharmaceuticals International, Inc., from July 2003 to February 2007. Priorrespect to this ~~time, Mr. Howes served~~item will be set forth in ~~a variety of senior roles at Merck & Co., Inc. for sixteen years. Since May 2013, Mr. Howes has served as a member of~~ the Board of Directors of various companies including: since May 2013, Kish Bancorp and Kish Bank, a financial conglomerate parent company and its community bank subsidiary; since November 2008, Prevent Blindness America, a vision-related charity for which Mr. Howes has served as Chairman since November 2013; since August 2014, ThromboGenics NV and ThromboGenics Inc., a global integrated biopharmaceutical company and its U.S.-based operating subsidiary. Mr. Howes received an A.B. from Harvard University and an M.B.A. from York University. We believe that Mr. Howes’ qualifications to sit on our Board include the intimate knowledge of our operations he developed as our President and Chief Executive Officer, his experience working with a public biopharmaceutical company and his executive leadership, managerial and business experience.

~~A.N. “Jerry” Karabelas, Ph.D.~~ has served as one of our directors since July 2012 and previously served as one of our directors from February 2004 to January 2012, during which time he was the Chairperson of our board. Since December 2001, Mr. Karabelas has been a managing member at Care Capital II, LLC and Care

Capital III, LLC, or Care Capital, a provider of capital for entrepreneurial private and public companies developing pharmaceuticals. Prior to his work at Care Capital, from July 2000 to September 2001, Mr. Karabelas was the founder and Chairman at Novartis BioVentures, which is owned by Novartis AG, or Novartis, a provider of capital for life sciences companies across the biotech, medical devices and diagnostics industries, prior to which Mr. Karabelas was the Chief Executive Officer of Novartis Pharma AG, which is owned by Novartis. In connection with his work at Care Capital, Mr. Karabelas has served on numerous boards of directors of pharmaceutical and therapeutics companies, including Renovo, plc, Vanda Pharmaceuticals, Inc. and NitroMed, Inc. Since June 2013, Mr. Karabelas served as Chairman of Polyphor AG and since May 2015 has served as a member of the board of REGENEXBIO Inc. Mr. Karabelas also served as a member of the boards of directors of SkyePharma, plc from May 2001 to May 2009 and Human Genome Sciences from 2003 to 2013. Mr. Karabelas received a B.S. from the University of New Hampshire and a Ph.D. from the Massachusetts College of Pharmacy. We believe that Mr. Karabelas’ qualifications to sit on our Board include his extensive experience in working with publicly held pharmaceuticals companies, advising developing life sciences, therapeutics and pharmaceuticals companies and his executive leadership, managerial and business experience.

~~Isai Peimer~~ has served as one of our directors since May 2013. He was a Managing Director at MedImmune Ventures Inc., an investment company, from August 2010 to February 2016. From September 2009 to August 2010, Mr. Peimer was an associate analyst at AllianceBernstein LP, a global asset management firm. From April 2008 to January 2009, he was a senior associate at Visium Asset Management, LP, a healthcare-focused investment fund. From June 2005 to April 2008, Mr. Peimer worked as an investment banker at J.P. Morgan & Co. and was a management consultantProxy Statement for the ~~pharmaceutical~~2018 Annual Meeting of Stockholders (“Proxy Statement”) or an amendment to this Annual Report on Form 10-K (“Form 10-K/A”) under the headings “Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and biotech sectors. In connection with his work at MedImmune Ventures, Inc., Mr. Peimer has served on numerous boards of directors of pharmaceutical and therapeutics companies, including Ambit Biosciences Corp., where he is a member of the Audit and Nominating and Corporate Governance Committees, Adheron Therapeutics Inc., where he was a member of the Compensation and Nominating and Corporate Governance Committees, Corridor Pharmaceuticals, Inc., where he was a member of the Audit Committee, and Amaron Biosciences Ltd. Mr. Peimer received a B.A. from Emory University and an M.B.A. from Dartmouth College. We believe that Mr. Peimer’s qualifications to sit on our Board include his experience on numerous committees of boards of directors of pharmaceutical companies and his work in advising developing life sciences companies.

~~Gary Phillips, M.D.~~ has served as one of our directors since October 2015. From October 2013 and to the present, Dr. Phillips has been Senior Vice President, Chief Strategy Officer at Mallinckrodt Pharmaceuticals plc. He was also Senior Vice President and President of Autoimmune and Rare Diseases at Mallinckrodt from August to January 2015. Gary was Head of Global Health & Healthcare Industries at the World Economic Forum in Geneva from January 2012 to September 2013. He was President of Reckitt Benckiser Pharmaceuticals, Inc. (now Indivior) from 2011 to 2012. He served as President of U.S. Surgical and Pharmaceuticals at Bausch & Lomb from 2002 to 2008. Dr. Phillips has also held executive roles at Merck Serono SA (a division of Merck KGaA) from 2008 to 2011, Novartis Corporation from 2000 to 2002, and Wyeth Pharmaceuticals, Inc. (now Pfizer, Inc.) from 1999 to 2000. Dr. Phillips was a healthcare strategy managing consultant at Towers Perrin (now Towers Watson & Co) from 1997 to 1999, and practiced as a general medicine clinician/officer in the US Navy, from which he was honorably discharged as a lieutenant commander. Dr. Phillips was educated at the University of Pennsylvania, where he received an M.D. (Alpha Omega Alpha) from the School of Medicine, an MBA from the Wharton School, and B.A. (summa cum laude, Phi Beta Kappa) in biochemistry with distinction from the School of Arts and Sciences. He completed postgraduate medical education at United States Naval Medical Center and maintains an active medical license. Currently, he serves on the boards of Aldeyra Therapeutics (NASDAQ: ALDX), Envisia Therapeutics, and Rheon Medical SA.

~~Richard N. Spivey, PharmD, PhD~~ has served as one of our directors since July 2015. Dr. Spivey currently serves as a scientific advisor to the pharmaceutical industry and as a member of the Board of Councilors, University of Southern California, and School of Pharmacy. From 2010 to 2015, he was the Senior Vice President, Global Regulatory Affairs at Allergan, plc. From 2002 to 2010, Dr. Spivey served various roles at Meda AB (previously MedPointe Inc.), most recently as the Chief Scientific Officer (Head of R&D). Dr. Spivey

has also held positions at Pharmacia Corporation (now Pfizer Inc.), Schering-Plough Corporation (now Merck & Co.), Parke-Davis Pharmaceutical Research Division, and Boots Pharmaceuticals, Inc. Dr. Spivey received his PharmD from the University of Southern California and his PhD from the College of Pharmacy, University of Minnesota. We believe that Dr. Spivey’s qualifications to sit on our Board include his distinguished background in drug development and regulatory affairs spanning thirty-years of experience working at leading pharmaceutical companies.

~~Martin Vogelbaum~~ has served as one of our directors since April 2010. From December 2015 to the present, Mr. Vogelbaum has been Corporate Vice President, Business Development at Celgene Corporation. From May 2005 to December 2015, Mr. Vogelbaum was a Partner at Rho Ventures, or Rho, a venture capital investment firm focused on companies in the healthcare, information technology, new media and multiple other sectors. Mr. Vogelbaum has served on numerous boards of directors private and public of biopharmaceutical companies, including Cara Therapeutics, Inc., where he has been a director since July 2010 through the present date, and NephroGenex, Inc., where he served as director from October 2013 to May 2014. Mr. Vogelbaum has more than twenty years of experience investing in life sciences companies at various stages of development and has co-founded more than a half dozen companies. Mr. Vogelbaum received an A.B. from Columbia University. We believe that Mr. Vogelbaum’s qualifications to sit on our Board include his experience in investing in and service on boards of directors of public and private biopharmaceuticals and therapeutics companies.

~~Composition of Our Board of Directors~~

Our Board of Directors currently consists of nine members. Our nominating and governance committee and Board of Directors may consider a broad range of factors relating to the qualifications and background of nominees, which may include diversity“Corporate Governance” and is ~~not limited to race, gender~~incorporated herein by reference. The Proxy Statement or national origin. We have no formal policy regarding board diversity. Our nominating and governance committee’s and Board of Directors’ priority in selecting board members is identification of persons whoForm 10-K/A will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business, understanding of the competitive landscape and professional and personal experiences and expertise relevant to our growth strategy. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.

~~Our amended and restated certificate of incorporation and amended and restated bylaws also provide that our directors may~~ be removed only for cause by the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors, and that any vacancy on our Board of Directors, including a vacancy resulting from an enlargement of our Board of Directors, may be filled only by vote of a majority of our directors then in office.

~~Director independence.~~ Our Board of Directors has determined that all members of the Board of Directors, except Messrs. Howes and Southwell, are independent, as determined in accordance with the rules of The NASDAQ Global Market, or NASDAQ. In making such independence determination, the Board of Directors considered the relationships that each such non-employee director has with us and all other facts and circumstances that the Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. In considering the independence of the directors listed above, our Board of Directors considered the association of our directors with the holders of more than 5% of our common stock. The composition and functioning of our Board of Directors and each of our committees complies with all applicable requirements of NASDAQ and the rules and regulations of the SEC. There are no family relationships among any of our directors or executive officers.

~~Staggered board~~. In accordance with the terms of our amended and restated certificate of incorporation and amended and restated bylaws, our Board of Directors is divided into three classes, class I, class II and class III,

with each class serving staggered three-year terms. Upon the expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annual meeting of stockholders in the year in which their term expires. The following persons have been designated to serve as directors in the following classes until the term specified below or until his earlier death, resignation or removal:

~~Our Class I directors are David P. Southwell and Richard N. Spivey, PharmD, PhD (term expires on date of annual meeting of stockholders following the year ending December 31, 2017);~~

Our Class II directors are Isai Peimer, Martin Vogelbaum Gary M. Phillips, Carsten Boess and Ittai Harel (term expires on date of annual meeting of stockholders following the year ending December 31, 2015); and

~~Our Class III directors are Paul G. Howes and A.N. “Jerry” Karabelas, Ph.D. (term expires on date of annual meeting of stockholders following the year ending December 31, 2016).~~

Our amended and restated certificate of incorporation and amended and restated bylaws provide that the authorized number of directors may be changed only by resolution of the Board of Directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class shall consist of one third of the Board of Directors.

~~The division of our Board of Directors into three classes with staggered three-year terms may delay or prevent stockholder efforts to effect a change of our management or a change in control.~~

~~Board Leadership Structure and Board’s Role in Risk Oversight~~

The positions of our Chairperson of the board and Chief Executive Officer are presently separated. Separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairperson of the board to lead the Board of Directors in its fundamental role of providing advice to and independent oversight of management. Our Board of Directors recognizes the time, effort and energy that the Chief Executive Officer must devote to his position in the current business environment, as well as the commitment required to serve as our Chairperson, particularly as the Board of Directors’ oversight responsibilities continue to grow. Our Board of Directors also believes that this structure ensures a greater role for the independent directors in the oversight of our company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our Board of Directors. Our Board of Directors believes its administration of its risk oversight function has not affected its leadership structure. Although our amended and restated bylaws do not require our Chairperson and Chief Executive Officer positions to be separate, our Board of Directors believes that having separate positions is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance.

Our Board of Directors oversees the management of risks inherent in the operation of our business and the implementation of our business strategies. Our Board of Directors performs this oversight role by using several different levels of review. In connection with its reviews of our operations and corporate functions, our Board of Directors addresses the primary risks associated with those operations and corporate functions. In addition, our Board of Directors reviews the risks associated with our business strategies periodically throughout the year as part of its consideration of undertaking any such business strategies.

~~Director Nomination Process~~

There have been no material changes to the process by which stockholders may submit nominees for election to the Board of Directors to the Nominating and Corporate Governance Committee since that process was described in the Company’s Proxy Statement filed with the SEC ~~on April 29, 2015.~~

~~Board Committees~~

Our Board of Directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which operates pursuant to a separate charter adopted by our Board of Directors. The composition and functioning of all of our committees will comply with all applicable requirementswithin 120 days after the end of the ~~Sarbanes-Oxley Act, the Dodd-Frank Act, NASDAQ and SEC rules and regulations.~~

~~Audit Committee~~

~~Isai Peimer, Carsten Boess, Ittai Harel and Martin Vogelbaum currently serve on the audit committee, which is chaired~~fiscal year covered by Isai Peimer. Our Board of Directors has determined that each member of the audit committee is “independent” for audit committee purposes as that term is defined in the rules of the SEC and the applicable rules of NASDAQ. Our Board of Directors has designated Isai Peimer as an “audit committee financial expert,” as defined under the applicable rules of the SEC. The audit committee’s responsibilities include:

~~appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm;~~

~~approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;~~

~~reviewing the internal audit plan with the independent registered public accounting firm and members of management responsible for preparing our financial statements;~~

reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us;

~~reviewing the adequacy of our internal control over financial reporting;~~

establishing policies and procedures for the receipt, retention and treatment of complaints received regarding ethics-related issues or potential violations of our code of business conduct and ethics and accounting and auditing-related complaints and concerns;

recommending, based upon the audit committee’s review and discussions with management and the independent registered public accounting firm, whether our audited financial statements shall be included in ourthis Annual ~~Report on Form 10-K;~~Report.

~~monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters;~~

~~preparing the audit committee report required by SEC rules to be included in our annual proxy statement;~~

~~reviewing all related party transactions for potential conflict of interest situations and approving all such transactions; and~~

~~reviewing quarterly earnings releases.~~

~~Compensation Committee~~

Martin Vogelbaum, Isai Peimer, Gary Phillips, and Ittai Harel currently serve on the compensation committee, which is chaired by Martin Vogelbaum. Our Board of Directors has determined that each member of the compensation committee is “independent” as that term is defined in the applicable rules of NASDAQ. The compensation committee’s responsibilities include:

~~annually reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer;~~

~~evaluating the performance of our Chief Executive Officer in light of such corporate goals and objectives and determining the compensation of our Chief Executive Officer;~~

~~reviewing and approving the compensation of our other executive officers;~~

~~reviewing and establishing our overall management compensation, philosophy and policy;~~

~~overseeing and administering our compensation and similar plans;~~

~~evaluating and assessing potential current compensation advisors in accordance with the independence standards identified in the applicable rules of NASDAQ;~~

~~retaining and approving the compensation of any compensation advisors;~~

~~reviewing and approving our policies and procedures for the grant of equity-based awards;~~

~~reviewing and making recommendations to the Board of Directors with respect to director compensation;~~

~~preparing the compensation committee report required by SEC rules to be included in our annual proxy statement;~~

~~reviewing and discussing with management the compensation discussion and analysis to be included in our annual proxy statement or Annual Report on Form 10-K; and~~

~~reviewing and discussing with the Board of Directors corporate succession plans for the Chief Executive Officer and other key officers.~~

~~Nominating and Corporate Governance Committee~~

Ittai Harel, Richard N. Spivey, PharmD, PhD and Isai Peimer currently serve on the nominating and corporate governance committee, which is chaired Ittai Harel. Our Board of Directors has determined that each member of the nominating and corporate governance committee is “independent” as that term is defined in the applicable rules of NASDAQ. The nominating and corporate governance committee’s responsibilities include:

~~developing and recommending to the Board of Directors criteria for board and committee membership;~~

~~establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by stockholders;~~

~~identifying individuals qualified to become members of the Board of Directors;~~

~~recommending to the Board of Directors the persons to be nominated for election as directors and to each of the board’s committees;~~

~~developing and recommending to the Board of Directors a set of corporate governance guidelines; and~~

~~overseeing the evaluation of the Board of Directors and management.~~

~~Corporate Governance~~

~~Our Board of Directors has~~We have adopted a ~~written code~~Code of ~~business conduct~~Business Conduct and ~~ethics~~Ethics that applies to all of our directors, officers and employees, including our principal executive, ~~officer,~~ principal financial ~~officer,~~and principal accounting ~~officer or controller~~officers or persons performing similar functions. ~~A current copy~~Our Code of ~~the code~~Business Conduct and Ethics is posted on ~~the Corporate Governance section of~~ our website ~~which is~~ located at ~~www.inotekpharma.com. If we make~~www.rocketpharma.com. We intend to disclose any ~~substantive~~future amendments to ~~or grant~~certain provisions of the Code of Business Conduct and Ethics, and any waivers ~~from,~~of the ~~code~~Code of ~~business conduct~~Business Conduct and ~~ethics for any officer, we will disclose the nature of such amendment or waiver~~Ethics granted to executive officers and directors, on our website ~~or in a current report on Form 8-K.~~

~~Item 11. Executive Compensation~~

~~The following table sets forth the portion of compensation paid to the named executive officers that is attributable to services performed during the fiscal year ended December 31, 2015 and 2014.~~

Name and principal position
   Fiscal
Year    Salary
$    Bonus
$ Option
Awards
$ (5) All other
compensation
$ (6) Total
$
David P. Southwell
   2015       440,152       257,000 (1) 602,912    138    1,043,202
President and Chief Executive Officer
   2014       115,385       38,712 (5) 1,326,000    —      1,441,385
Rudolf Baumgartner, M.D.
   2015       387,124       152,000 (1) 301,456    8,208    696,788
Executive Vice President and Chief Medical Officer
   2014       337,816       109,454 (2) 663,000    7,800    1,118,070
William K. McVicar, Ph.D.
   2015       372,523       148,000 (1) 301,456    8,208    682,187
Executive Vice President and Chief Scientific Officer
   2014       304,562       85,912 (3) 663,000    7,800    1,061,274
Dale Ritter
   2015       273,385       107,000 (1) 100,485    6,779    380,649
Vice President—Finance
   2014       75,519       26,608 (4) 146,000    248,127

~~(1)~~

~~Represents bonus amounts earned in 2015 and paid in 2016.~~

~~(2)~~

~~Represents $25,000 bonus for the achievement of a clinical milestone and $84,454 related to 2014 performance which was earned in 2014 and paid to Dr. Baumgartner in 2015.~~

~~(3)~~

~~Represents $25,000 related to the achievement of a clinical milestone and $60,912 related to 2014 performance which was earned in 2014 and paid to Dr. McVicar in 2015.~~

~~(4)~~

~~Represents bonus amounts earned in 2014 and paid in 2015.~~

~~(5)~~

Reflects the grant date fair value of option awards, calculated in accordance with ASC Topic 718, disregarding the estimate on forfeitures. The assumptions we used for calculating grant date fair values are set forth in Note 8 in this Form 10-K.

~~(6)~~

For 2015 consists of: for Mr. Southwell, cost of the benefits of company-provided group-term life insurance in excess of $50,000; for Dr. Baumgartner, $7,950 of matching contributions pursuant to the Company’s 401(k) Plan and $258 for the cost of the benefits of company-provided group-term life insurance in excess of $50,000; for Dr. McVicar, $7,950 of matching contributions pursuant to the Company’s 401(k) Plan and $258 for the cost of the benefits of company-provided group-term life insurance in excess of $50,000; for Mr. Ritter, $6,383 of matching contributions pursuant to the Company’s 401(k) Plan and $396 for the cost of the benefits of company-provided group-term life insurance in excess of $50,000. For 2014 consists of matching contributions pursuant to the Company’s 401(k) Plan.

~~Executive Agreements~~

We have entered into employment agreements with certain of our named executive officers. These employment agreements provide for “at will” employment and contain the additional terms summarized below:

~~David P. Southwell~~. On August 11, 2014, we entered into an employment agreement with Mr. Southwell, our President and Chief Executive Officer. In 2015, Mr. Southwell received a base salary of $450,000, which is subject to review and adjustment in accordance with our corporate policy. In 2015, Mr. Southwell was eligible for an annual performance bonus with a target amount of 50% of his base salary. In 2015, the Compensation Committee awarded Mr. Southwell a bonus of $257,000, representing 57% of his 2015 base salary. Mr. Southwell is eligible to participate in our employee benefit plans in effect from time to time, subject to the terms of those plans. Subject to the execution and effectiveness of a separation agreement, including, among other things, a general release of claims, Mr. Southwell will be eligible to receive the following payments and benefits in the event that his employment is terminated by us without cause or he terminates his employment with us for good reason: base salary continuation for 12 months; if Mr. Southwell is participating in our group health

plan immediately prior to the date of termination and elects COBRA health continuation, we will pay him a monthly cash payment equal to the monthly employer contribution we would have made to provide him health insurance if he had remained employed by us until twelve monthswithin four business days following the date of ~~termination; and the portion of the stock options and other~~amendment or waiver.

Item 11.

Executive Compensation

~~time-based~~ ~~equity awards held by Mr. Southwell as of the date of termination that would have vested~~Information with respect to this item will be set forth in the ~~12 months following termination of his employment had he remained employed~~Proxy Statement or Form 10-K/A under the headings “Executive Compensation” and “Director Compensation” and is incorporated herein by ~~us through such date shall immediately accelerate and become fully vested as of the date of termination.~~

~~Rudolf Baumgartner, M.D.~~ On May 2, 2007, we entered into an employment agreement with Dr. Baumgartner, our Executive Vice President and Chief Medical Officer, which we amended on December 23, 2008 and October 9, 2009. In 2015, Dr. Baumgartner received a base salary of $380,000, which is subject to review and adjustment in accordance with our corporate policy. In 2015, Dr. Baumgartner was eligible for an annual performance bonus with a target amount of 35% of his base salary. In 2015, the Compensation Committee awarded Dr. Baumgartner a bonus of $152,000, representing 40% of his 2015 base salary. Dr. Baumgartner is eligible to participate in our employee benefit plans in effect from time to time, subject to the terms of those plans. Subject to the execution and effectiveness of a separation agreement, including, among other things, a general release of claims, Dr. Baumgartnerreference. The Proxy Statement or Form 10-K/A will be ~~eligible to receive~~filed with the following payments and benefits in the event that his employment is terminated by us without cause: base salary continuation for twelve months; and a monthly cash payment equal to the monthly employer contribution to provide him health and dental insurance coverage if he had remained employed by us until 12 months following the date of termination. The receipt of the severance payments and benefits set forth above shall be conditioned upon Dr. Baumgartner not violating the terms of a restrictive covenant agreement between Dr. Baumgartner and Inotek.

~~William K. McVicar, Ph.D~~. On August 23, 2007, we entered into an employment agreement with Dr. McVicar, our Executive Vice President and Chief Scientific Officer, which we amended on December 23, 2008 and October 9, 2009. In 2015, Dr. McVicar received a base salary of $370,000, which is subject to review and adjustment in accordance with our corporate policy. In 2015, Dr. McVicar was eligible for an annual performance bonus with a target amount of 35% of his base salary, payable at the discretion of our Board. In 2015, the Compensation Committee awarded Dr. McVicar a bonus of $148,000, representing 40% of his 2015 base salary. Dr. McVicar is eligible to participate in our employee benefit plans in effect from time to time, subject to the terms of those plans. Subject to the execution and effectiveness of a separation agreement, including, among other things, a general release of claims, Dr. McVicar will be eligible to receive base salary continuation for 12 months in the event that his employment is terminated by us without cause. The receipt of the severance payments and benefits set forth above shall be conditioned upon Dr. McVicar not violating the terms of a restrictive covenant agreement between Dr. McVicar and Inotek.

~~Dale Ritter~~. On August 28, 2014, we entered into an employment agreement with Mr. Ritter, our Vice President—Finance. In 2015, Mr. Ritter received an annual base salary of $265,000. Mr. Ritter is eligible for an annual performance bonus with a target amount of 30% of his annualized base salary. In 2015, the Compensation Committee awarded Mr. Ritter a bonus of $107,000, representing 40% of his 2015 base salary. Mr. Ritter is eligible to participate in our employee benefit plans in effect from time to time, subject to the terms of those plans. Subject to the execution and effectiveness of a separation agreement, including, among other things, a general release of claims, Mr. Ritter will be eligible to receive base salary continuation for six months in the event that his employment is terminated by us without cause. The receipt of the severance payments and benefits set forth above shall be conditioned upon Mr. Ritter not violating the terms of a restrictive covenant agreement between Mr. Ritter and Inotek.

Subject to the execution and effectiveness of a separation agreement, including, among other things, a general release of claims, and such named executive officer not violating the terms of a restrictive covenant agreement, each named executive officer will be eligible to receive the payments and benefits set forth below in the event that such executive officer’s employment is terminated by us without cause or the named executive officer terminates his or her employment with us for good reason, in either caseSEC within ~~twelve months~~120 days after ~~a “change in~~

control.” The payments and benefits described below and due to each named executive officer other than Mr. Southwell are in addition to, not in lieu of, the payments set forth above next to such named executive officer’s name. With respect to Mr. Southwell, the payments and benefits described below are in lieu of the payments set forth above next to Mr. Southwell’s name.

With respect to all named executive officers other than Mr. Southwell, all unvested stock options and other stock-based awards held by such named executive officer as of the date of the termination of such named executive officer’s employment shall immediately accelerate and become fully vested as of the date of termination of such named executive officer.

~~With respect to Mr. Southwell, a one-time lump payment equal to 18 months base salary within 45 days of termination.~~

~~Equity Incentive Awards~~

~~Outstanding Equity Awards at FiscalYear-End~~

~~The following table provides information concerning outstanding equity awards for each of our named executive officers as of December 31, 2015.~~

   Option Awards
Name
   Number of
securities
underlying
unexercised
options exercisable Number of
securities
underlying
unexercised
options
unexercisable Per share
option
exercise price
($)    Option
expiration
date
David P. Southwell
   132,832 (1) 265,665 (1) 4.342       8/28/2024
   150,000 (2) 5.03       6/23/2025
Rudolf Baumgartner, M.D.
   2,170 (3) 40.578       6/3/2017
   197 (3) 40.578       3/20/2018
   66,416 (1) 132,832 (1) 4.342       8/28/2024
   75,000 (2) 5.03       6/23/2025
William K. McVicar, Ph.D.
   1,269 (3) 40.578       9/18/2017
   462 (3) 40.578       12/31/2018
   115 (3) 40.578       3/20/2018
   66,416 (1) 132,832 (1) 4.342       8/28/2024
   75,000 (2) 5.03       6/23/2025
Dale Ritter
   10,996 (1) 32,987 (1) 4.342       8/28/2024
   25,000 (2) 5.03       6/23/2025

~~(1)~~

These stock options were granted pursuant to the 2014 Stock Option and Incentive Plan on August 28, 2014, have a ten-year term and will vest 25% on the one-year anniversary of that grant date and the remaining 75% will vest equally over the following 36 monthly anniversaries. However, these stock options became valid and issued pursuant to the consummation of the Company’s initial public offering which occurred on February 17, 2015.

~~(2)~~

These stock options were granted pursuant to the 2014 Stock Option and Incentive Plan on June 24, 2015, have a ten-year term, and will vest 25% on the one-year anniversary of the Company’s initial public offering which occurred on February 17, 2015 and the remaining 75% will vest equally over the following 36 monthly anniversaries.

~~(3)~~

~~These stock options were granted pursuant to the 2004 Stock Option and Incentive Plan and are fully vested.~~

~~Employee Stock Purchase Plan~~

In November 2014, the Company’s Board of Directors adopted and the stockholders approved the 2014 Employee Stock Purchase Plan (“ESPP”). The ESPP permits eligible employees to purchase shares of the Company’s common stock through payroll withholdings and pursuant to specific offerings of common stock. An

eligible employee may contribute up to 10%, in full percentages, of gross wages, which are withheld from each payroll, to the ESPP. At the end of each offering, an ESPP participant employee will purchase shares at 85% of the lower of the fair value of the Company’s common stock on the first and last day of the offering with aggregate withholdings as of the end of the offering. The offerings commence on June 1 and December 1 and are six months in duration. A participant may reduce his or her withholdings as many times as he or she wishes and may increase his or her withholdings two times during an offering. The Company’s Board of Directors has authorized the issuance of a number of shares of common stock issuable under the ESPP to the number that represents 1% of the Company’s outstanding common stock outstanding immediately after the IPO, or 160,276 shares. The ESPP provides that the number of shares reserved and available for issuance under the ESPP shall be cumulatively increased each January 1, beginning on January 1, 2016, by the lesser of (i) 600,000 shares of common stock or (ii) the number of shares necessary to set the number of shares of Common Stock under the Plan at 1% percent of the outstanding number of shares as of January 1 of the applicable year. However, the Board of Directors reserves the right to determine that there will be no increase for anyfiscal year or that any increase will be for a lesser number of shares. On January 1, 2016, the number of shares reserved and available for issuance under the ESPP was increased by 97,000 to 244,133 shares. As of December 31, 2015, 13,143 shares of common stock were purchased by plan participants and issued by the Company pursuant to the ESPP at a purchase price of $4.83 per share. Dr. Baumgartner, Dr. McVicar and Mr. Ritter each purchased 4,143 shares, 4,156 shares and 2,591 shares, respectively.

~~Inotek Pharmaceuticals Corporation 401(k) Profit-Sharing Plan (“401(k) Plan”)~~

~~The Company maintains the 401(k) Plan through which its employees who are not~~ covered by ~~a collective bargaining agreement and are not non-resident aliens may contribute a portion of their earnings on a tax-deferred basis, up~~this Annual Report.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information with respect to certain limitations specified by federal law. The Company may, in its sole discretion, make a matching contribution on behalf of a contributing employee. The Company has elected to match 100% of the first 3% of compensation contributed by an employee. All employee contributions are immediately vested. Matching contributions made by the Company vest based on years of service according to the following vesting schedule: less than one year, 0%; one year but less than two years, 25%; two years but less than three years, 50%; three years or more, 100%.

~~EQUITY COMPENSATION PLAN INFORMATION~~

The following sets forth the aggregate information of our equity compensation plans in effect as of December 31, 2015. Our equity plans consist of the 2014 Plan, our 2004 Stock Option and Incentive Plan and our 2014 Employee Stock Purchase Plan.

Plan Category    Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights    Weighted-
average exercise
price of
outstanding
options, warrants
and rights    Number of
securities remaining
available for future
issuance under
equity
compensation plans
(excluding securities
reflected in column
(a))
   (a)    (b)    (c)
Equity compensation plans approved by security holders(1):
   1,644,820       $ 5.19       691,732
Equity compensation plans not approved by security holders
   —      —      —




Total
   1,644,820       $ 5.19       691,732

~~(1)~~

~~No additional awards~~this item will be ~~made under the 2004 Stock Option and Incentive Plan.~~

~~DIRECTOR COMPENSATION~~

~~Director Compensation Table~~

~~The following table presents the total compensation for each person who served as a member of our Board during 2015. Other than as~~ set forth in the ~~table and described more fully below, we did not pay any compensation, make any equity awards~~Proxy Statement or~~non-equity~~ ~~awards to, or pay any other compensation to any of~~ Form 10-K/A under the~~non-employee~~ members of our Board in 2015. David P. Southwell, who is also our President and Chief Executive Officer, receives no compensation for his service as a director, and, consequently, is not included in this table.

~~Our Board adopted a formal director compensation policy for all of ournon-employee~~ ~~directors that became effective upon the closing of our initial public offering.~~

~~2015 Director Compensation Table~~

Director name
   Fees earned
or paid in cash
$    Option
awards
$(5) All other
compensation
($) Total
($)
Ittai Harel
   42,533       46,019 (1) —      88,552
Paul G. Howes
   30,431       46,019 (1) —      76,450
Devang V. Kantesaria, M.D.
   17,648       —      —      17,648
A.N. “Jerry” Karabelas, Ph.D.
   56,514       46,019 (1) —      102,533
Isai Peimer
   50,428       46,019 (1) —      96,447
Gary Phillips
   8,682       158,992 (2) —      167,674
Richard Spivey
   18,490       100,852 (3) 7,500 (4) 126,842
Martin Vogelbaum
   45,646       46,019 (1) —      91,665

~~(1)~~

Represents the grant date fair value of an option to purchase 12,000 shares of our common stock granted to each then-current non-employee director on June 24, 2015 with an exercise price of $5.03 per share.

~~(2)~~

Represents the grant date fair value of an initial grant of an option to purchase 24,000 shares of our common stock with an exercise price of $9.50 per share to Dr. Phillips upon his becoming a director on October 13, 2015.

~~(3)~~ Represents the grant date fair value of an initial grant of an option to purchase 24,000 shares of our common stock with an exercise price of $5.32 per share to Dr. Spivey upon his becoming a director on July 16, 2015.
~~(4)~~ ~~Represents a consulting fee paid to Dr. Spivey prior to his becoming a director.~~
~~(5)~~ Reflects the grant date fair value of option awards, calculated in accordance with ASC Topic 718, disregarding the estimate on forfeitures. The assumptions we used for calculating grant date fair values are set forth in Note 8 in this Form 10-K.

As of December 31, 2015, total options shares held by board members are as follows: 28,017 shares for Mr. Howes; 24,000 shares for Dr. Phillips and Dr. Spivey; and 21,857 shares for Mr. Harel, Mr. Peimer, Dr. Karabelas and Mr. Vogelbaum.

~~Post IPO Non-Employee Director Compensation~~

The Company adopted a non-employee director compensation policy that became effective upon the Company’s IPO in February 2015. The purpose of this policy is to provide a total compensation package that enables the Company to attract and retain, on a long-term basis, high-caliber directors who are not employees or officers of the Company. For service on the board of directors, annual cash retainers will be paid as follows: for board members, $35,000, for the non-executive chairperson, $65,000. In addition to cash retainers for service ion the board of directors, additional cash retainers will be paid for service on committees of the board of directors. For service on the Audit Committee, annual cash retainers will be paid as follows: for committee members, $7,500, for the chairperson, $15,000. For service on the Compensation Committee, annual cash retainers will be paid as follows: for committee members, $5,000, for the chairperson, $10,000. For service on the Nominating and Corporate Governance Committee, annual cash retainers will be paid as follows: for committee members, $3,000, for the chairperson, $7,500.

In addition, each new non-employee director upon his/her election to the Board will receive a one-time option grant to purchase shares of the Company’s common stock, par value $0.01 per share in such amount and on such terms as authorized by the Board, or by a committee appointed by the Board. On the date of each Annual Meeting of Stockholders, an annual option will be granted to each non-employee director serving on the Board immediately following the Company’s annual meeting of stockholders to purchase shares of common stock in such amount and on such terms as authorized by the Board, or by a committee appointed by the Board.

~~All of the foregoing option grants will have an exercise price equal to the fair market value of a share of common stock on the date of grant.~~

~~Item 12. Security~~ headings “Security Ownership of Certain Beneficial Owners and ~~Management~~Management” and ~~Related Stockholder Matters~~

~~PRINCIPAL STOCKHOLDERS~~

“Securities Authorized for Issuance Under Equity Compensation Plans” and is incorporated herein by reference. The ~~following table sets forth certain information known to us regarding beneficial ownership of our capital stock as of February 16, 2016 for:~~

~~each person,~~Proxy Statement or ~~group of affiliated persons, known by us to~~Form 10-K/A will be ~~the beneficial owner of more than 5% of our capital stock;~~

~~our named executive officers;~~

~~each of our other directors; and~~

~~all executive officers and directors as a group.~~

~~Beneficial ownership is determined in accordance~~filed with the ~~rules~~SEC within 120 days after the end of the SEC. A person is deemed to be a beneficial holder of our common stock if that person has or shares voting power, which includes the power to vote or direct the voting of our common stock, or investment power, which includes the power to dispose of or to direct the disposition of such capital stock. Except as notedfiscal year covered by footnote, and subject to community property laws where applicable, we believe based on the information provided to us that the persons and entities named in the table below have sole voting and investment powerthis Annual Report.

Item 13.

Certain Relationships and Related Party Transactions, and Director Independence

Information with respect to ~~all common stock shown as beneficially owned by them.~~

The table lists applicable percentage ownership based on 26,423,394 shares of common stock outstanding as of February 16, 2016 and excludes (i) 1,631,677 shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2015, at a weighted-average exercise price of $4.64 per share; and (ii) 56,408 shares of common stock issuable upon the exercise of warrants outstanding as of December 31, 2015, which have an exercise price of $6.204 per share. Shares of common stock that may be acquired by an individual or group within 60 days of February 16, 2016, pursuant to the exercise of options, warrants or other rights, are deemed to be beneficially owned by the persons holding these options for the purpose of computing percentage ownership of that person, but are not treated as outstanding for the purpose of computing any other person’s ownership percentage.

~~Unless otherwise noted below, the address of each person listed on the table is c/o Inotek Pharmaceuticals Corporation, 91 Hartwell Avenue, Second Floor, Lexington, MA 02421.~~

Name and address of beneficial owner
   Number of
Shares
Beneficially
Owned    Percent
of
Class
5% Stockholders

Devon Park Associates Entities (1)
   3,253,566       12.3 %
Rho Ventures Entities (2)
   2,627,790       9.9 %
Care Capital Entities (3)
   2,277,139       8.6 %
MedImmune Ventures, Inc. (4)
   1,917,906       7.3 %
Point72 Asset Management, L.P. (5)
   1,840,980       7.0 %
RS Investment Management Co. LLC (6)
   1,585,006       6.0 %
Prudential Financial, Inc. (7)
   1,919,852       7.3 %
BlackRock, Inc. (8)
   1,714,204       6.5 %
Named executive officers and directors

David P. Southwell (9)
   198,363       *
Rudolf Baumgartner, M.D. (10)
   227,190       *
William K. McVicar, Ph.D. (11)
   207,347       *
Dale Ritter (12)
   25,094       *
Ittai Harel (13)
   18,857       *
Paul G Howes (14)
   126,506       *
A.N. “Jerry” Karabelas, Ph.D. (15)
   2,295,996       8.7 %
Isai Peimer (16)
   18,857       *
Richard N. Spivey, Pharm.D., Ph.D.
   –       *
Martin Vogelbaum (17)
   18,857       *
Gary Phillips, M.D.
   –       *
Carsten Boess
   –       *



All directors and executive officers as a group (12 persons) (18)
   3,137,067       11.6 %

*	~~Represents beneficial ownership of less than one percent.~~

~~(1)~~

Based on Schedule 13D filed with the SEC on March 5, 2015, consists of (a) 3,243,709 shares beneficially owned by Devon Park Bioventures, L.P. and (b) 9,857 shares of common stock issuable upon the exercise of options exercisable within 60 days after June 30, 2015 beneficially owned by Devon Park Associates, L.P. The general partner of Devon Park Bioventures, L.P. is Devon Park Associates, L.P. and Devon Park Associates, LLC is the general partner of Devon Park Associates, L.P. Messrs. Devang V. Kantesaria, Christopher Moller and Marc Ostro are the managing members of Devon Park Associates, LLC. Each such managing director may be deemed to have shared voting and investment power over the shares held by Devon Park Associates Entities as described above. The address for Devon Park Associates Entities is 1400 Liberty Ridge Drive, Suite 103, Wayne, Pennsylvania, 19087.

~~(2)~~

Based on Schedule 13G filed with the SEC on February 12, 2016, consists of (a) 892,415 shares beneficially owned by Rho Ventures IV (QP), L.P. (“Rho QP”), (b) 930,029 shares beneficially owned by Rho Ventures IV GmbH & Co. BETEILIGUNGS KG (“Rho GmbH”), (c) 636,496 shares beneficially owned by Rho Ventures IV Holdings LLC (“Rho Holdings”), and (d) 168,850 shares beneficially owned by Rho Ventures IV, L.P. (“Rho IV”). (“Rho IV-A”). The voting and dispositive decisions with respect to the shares held by Rho IV, Rho Holdings, Rho IV-A, and Rho QP are made by the following managing

members of their general partner or managing member, Rho Management Ventures IV, L.L.C.: Mark Leschly, Habib Kairouz and Joshua Ruch. The voting and dispositive decisions with respect to the shares held by Rho GmbH are made by the following managing directors of its general partner, Rho Capital Partners Verwaltungs GmbH: Mark Leschly, Habib Kairouz and Joshua Ruch. The address for the Rho Venture Entities is 152 West 57th Street, 23rd Floor, New York, New York 10019.
~~(3)~~ Based on Schedule 13G filed with the SEC on March 5, 2015, consists of (a) 713,077 shares beneficially owned by Care Capital Investments II, LP. (“Investments II”), (b) 1,490,240 shares beneficially owned by Care Capital Investments III, L.P (“Investments III”), (c) 48,938 shares beneficially owned by Care Capital Offshore Investments II, L.P. (“Offshore II”) and (d) 24,884 shares beneficially owned by Care Capital Offshore Investments III, LP. (“Offshore III”) The voting and disposition of the shares held by Investments II and Offshore II is determined by the following managing members of their general partner, Care Capital II, LLC: A.N. “Jerry” Karabelas, Ph.D., a member of our Board of Directors, Jan Leschly and David R. Ramsay. The voting and disposition of the shares held by Investments III and Offshore III is determined by the following managing members of their general partner, Care Capital III, LLC: A.N. “Jerry” Karabelas, Ph.D., a member of our Board of Directors, Jan Leschly, Richard Markham and David R. Ramsay. The address of the Care Capital Entities is 47 Hull Street, Suite 310, Princeton, New Jersey 08540.
~~(4)~~ Based on Schedule 13G filed with the SEC on February 16, 2916, consists of 1,917,906 shares beneficially owned by MedImmune Ventures, Inc. The voting and investment power of the shares held by MedImmune Ventures, Inc. is determined by Ron Laufer, Senior Managing Director of MedImmune Ventures, Inc. Isai Peimer, a member of our Board of Directors, is a Managing Director at MedImmune Ventures, Inc. The address of MedImmune Ventures, Inc. is 1 MedImmune Way, Gaithersburg, Maryland 20878.
~~(5)~~ Based on Schedule 13G/A filed with the SEC on February 16, 2916, consists of (a) 1,148,100 shares over which may be deemed to be beneficially owned by Point72 Asset Management Point72 Capital Advisors Inc. and Mr. Steven Cohen, (ii) 700 shares which may be deemed to be beneficially owned by Cubist Systematic Strategies and Mr. Cohen, (iii) 692,180, which may be deemed to be beneficially owned by EverPoint Asset Management and Mr. Cohen. Each of the reporting persons disclaims beneficial ownership of such shares, except to the extent of their proportionate pecuniary interest therein, if any. The principal business address of Point72 Asset Management, Point72 Capital Advisors and Mr. Cohen is 72 Cummings Point Road, Stamford, CT 06902. The principal business address for Cubist Systematic Strategies and EverPoint Asset Management is 510 Madison Avenue, New York, NY 100122.
~~(6)~~ Based on Schedule 13G filed with the SEC on February 9, 2016, consists of 1,585,006 shares over which RS Investment has sole dispositive power, of which RS Investment Management Co. LLC has sole voting power over 1,530,496 shares. The principal business address of RS Investment Management Co. LLC is One Bush Street, Suite 900, San Francisco, CA 94104.
~~(7)~~ Based on Schedule 13G filed with the SEC on February 3, 2016, consists shares held directly by Jennison Associates LLC, a wholly-owned subsidiary of Prudential Financial, Inc., and over which Prudential Financial, Inc. has sole voting and dispositive power The principal business address of the beneficial owner is 751 Broad Street, Newark, NJ 07102-3777.
~~(8)~~ Based on Schedule 13G filed with the SEC on January 28, 2016, consists shares held by subsidiaries of BlackRock, Inc., and over which BlackRock, Inc. has sole voting and dispositive power. The principal business address of the beneficial owner is 55 East 52^nd ~~Street, New York, NY 10055.~~
~~(9)~~ ~~Includes 198,363 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~
~~(10)~~ ~~Includes 101,548 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~
~~(11)~~ ~~Consists of 101,027 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~
~~(12)~~ ~~Includes 25,094 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~
~~(13)~~
~~Consists of 18,857 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~

~~(14)~~ ~~Includes 25,017 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~
~~(15)~~ ~~In addition to the shares described in note (3) above, includes 8,857 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~
~~(16)~~ ~~In addition to the shares described in note (4) above, includes 8,857 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~
~~(17)~~ ~~Consists of 18,857 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~
~~(18)~~ ~~Includes 516,104 shares of common stock issuable upon the exercise of options exercisable within 60 days after February 16, 2016.~~

~~Item 13. Certain Relationships and Related Party Transactions, and Director Independence~~²

Other than compensation arrangements, we describe below transactions and series of similar transactions, since January 1, 2013, which includes our last three full fiscal years, to which we were a party orthis item will be ~~a party,~~set forth in ~~which:~~

the ~~amounts involved exceeded~~Proxy Statement or Form 10-K/A under the headings “Transactions with Related Persons” and “Information about the Board and Corporate Governance” and is incorporated herein by reference. The Proxy Statement or Form 10-K/A will ~~exceed $120,000; and~~

~~any of our directors, executive officers or holders of more than 5% of our capital stock, or any member~~be filed with the SEC within 120 days after the end of the ~~immediate family~~fiscal year covered by this Annual Report.

Item 14.

Principal Accountant Fees and Services

Information with respect to this item will be set forth in the Proxy Statement or Form 10-K/A under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated herein by reference. The Proxy Statement or Form 10-K/A will be filed with the SEC within 120 days after the end of the ~~foregoing persons, had or will have a direct or indirect material interest.~~

~~Compensation arrangements for our directors and named executive officers are described elsewhere in~~fiscal year covered by this ~~prospectus and other documents incorporated by reference herein.~~

~~Sales and Purchases~~Annual Report.

Table of ~~Securities~~

~~Equity Financings~~

In June 2010, we entered into a securities purchase agreement pursuant to which we issued to certain investors shares an aggregate of 9,477,907 of our Series AA Preferred Stock in two separate closings at a price of approximately $1.529 per share, as amended, or the 2010 Series AA Purchase Agreement. In May 2011, we issued to certain investors an additional aggregate of 2,329,464 shares of our Series AA Preferred Stock as a result of our attainment of certain milestones under the 2010 Series AA Purchase Agreement. In June 2011, we issued to certain investors an additional aggregate of 3,651,425 shares of our Series AA Preferred Stock pursuant to an elective extension of the 2010 Series AA Purchase Agreement.

The following table summarizes the participation in the 2010 Series AA Preferred Stock financing by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons, since January 1, 2011.

Name    Shares of Series
AA Preferred
Stock    Aggregate Purchase
Price Paid
Devon Park Bioventures, L.P. (1)
   1,677,097       $ 2,565,746
Pitango Venture Capital Fund IV L.P. (2)
   984,987       $ 1,506,907
Pitango Venture Capital Fund Principals L.P. (2)
   21,271       $ 32,541
Care Capital Investments III, LP (3)
   989,729       $ 1,514,160
Care Capital Offshore Investments III, LP (3)
   16,529       $ 25,297
Rho Management Trust I (4)
   294,404       $ 450,400
Rho Ventures IV, L.P. (4)
   135,120       $ 206,716
Rho Ventures IV (QP), L.P. (4)
   318,105       $ 486,661
Rho Ventures IV GmbH & Co. BETEILIGUNGS KG (4)
   331,513       $ 507,172
MedImmune Ventures, Inc. (5)
   905,633       $ 1,385,503

Contents

PART IV

~~(1)~~

Item 15.

~~Devang V. Kantesaria, a former member of our Board of Directors, is a managing member of Devon Park Associates, LLC, of which Devon Park Bioventures, L.P. is an affiliated fund.~~

Exhibits, Financial Statements and Schedules

~~(2)~~

(a)

~~Ittai Harel, a member~~

The following documents are filed as part of ~~our Board of Directors, is a general partner with Pitango Venture Capital, of which Pitango Venture Capital Fund IV L.P. and Pitango Venture Capital Fund Principals L.P. are affiliated funds.~~this Annual Report on Form 10-K:

~~(3)~~

(1)

A.N. “Jerry” Karabelas, a member of our Board of Directors, is a managing member at Care Capital II, LLC and Care Capital III, LLC, of which Care Capital Investments III, LP and Care Capital Offshore Investments III, LP are affiliated funds.

Financial Statements:

~~(4)~~

Martin Vogelbaum, a member of our Board of Directors, is a Partner at Rho, of which Rho Management Trust I, Rho Ventures IV, L.P, Rho Ventures IV (QP), L.P., and Rho Ventures IV GmbH & Co. BETEILIGUNGS KG are affiliated funds.

~~(5)~~

~~Isai Peimer, a member of our Board of Directors, is a Managing Director at MedImmune Ventures, Inc.~~

In July 2012, we issued unsecured convertible promissory notes in a private placement for aggregate proceeds of $1.5 million. In November 2012, we issued unsecured convertible promissory notes in a private placement for aggregate proceeds of $1.0 million. In February 2013, we issued unsecured convertible promissory notes in a private placement for aggregate proceeds of $1.0 million. In June 2013, we entered into a securities purchase agreement pursuant to which the promissory notes were converted into 2,677,731 shares of Series AA Preferred Stock in accordance with their terms at a price of $1.3761 per share and we issued to certain investors an additional aggregate of 5,687,991 shares of our Series AA Preferred Stock at a price of $1.529 per share, or the 2013 Series AA Purchase Agreement. In July 2013, we issued an additional aggregate of 852,230 shares of our Series AA Preferred Stock to certain investors and warrants to purchase 852,230 shares of our Series AA Preferred Stock at an exercise price of $0.01 per share, which were exercised in full during 2014.

The following table summarizes the participation in the 2013 Series AA Preferred Stock financing by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

Name
   Principal Amount of
Convertible
Promissory Notes    Shares of
Series AA
Preferred Stock    Warrants to
Purchase Series
AA Preferred
Stock    Aggregate
Purchase Price
Paid
Devon Park Bioventures, L.P. (1)
   968,789       2,852,631       301,141       $ 4,248,346.76
Pitango Venture Capital Fund IV L.P. (2)
   568,986       988,183       –       $ 1,444,372.91
Pitango Venture Capital Fund Principals L.P. (2)
   12,287       21,319       –       $ 31,161.02
Care Capital Investments III, LP (3)
   571,726       1,683,490       177,717       $ 2,507,174.01
Care Capital Offshore Investments III, LP (3)
   9,548       28,115       2,968       $ 41,870.35
Rho Ventures IV Holdings LLC (4)
   182,366       536,983       56,687       $ 799,713.93
Rho Ventures IV, L.P. (4)
   83,699       246,453       26,017       $ 367,036.97
Rho Ventures IV (QP), L.P. (4)
   197,047       580,211       61,251       $ 864,093.40
Rho Ventures IV GmbH & Co. BETEILIGUNGS KG (4)
   205,353       604,668       63,833       $ 900,515.95
MedImmune Ventures, Inc. (5)
   523,146       1,540,444       162,616       $ 2,294,139.87

~~(1)~~

~~Devang V. Kantesaria, a former member of our Board of Directors, is a managing member of Devon Park Associates, LLC, of which Devon Park Bioventures, L.P. is an affiliated fund.~~

~~(2)~~

Ittai Harel, a member of our Board of Directors, is a general partner with Pitango Venture Capital, of which Pitango Venture Capital Fund IV L.P. and Pitango Venture Capital Fund Principals L.P. are affiliated funds.

~~(3)~~

~~(4)~~ Martin Vogelbaum, a member of our Board of Directors, is a Partner at Rho, of which Rho Ventures IV, L.P, Rho Ventures IV (QP), L.P., Rho Ventures IV GmbH & Co. BETEILIGUNGS KG and Rho Ventures IV Holdings LLC are affiliated funds.
~~(5)~~ ~~Isai Peimer, a member of our Board of Directors, is a Managing Director at MedImmune Ventures, Inc.~~

~~Debt Financings~~

In December 2014, we sold subordinated convertible promissory notes, or the 2014 bridge notes, in the aggregate original principal amount of $2.0 million to existing stockholders. As consideration for our issuance of the 2014 bridge notes, each investor paid us an amount equal to the original principal amount of the note issued to the investor. The 2014 bridge notes mature on June 30, 2015, accrue interest at the rate of 8% per annum and are subordinate to all other senior indebtedness of the Company. As of the date of this prospectus, the aggregate outstanding principal and accrued interest under the 2014 bridge notes is approximately $2.0 million. Upon the closing of our initial public offering, all outstanding principal and accrued interest of the 2014 bridge notes, automatically converted into common stock at the initial public offering price. The following table summarizes the participation in the 2014 bridge notes financing by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.

Name
   Principal Amount of
Subordinated
Convertible
Promissory Note
Devon Park Bioventures, L.P. (1)
   $ 626,942.90
Rho Ventures IV, L.P. (2)
   $ 27,797.11
Rho Ventures IV (QP), L.P. (2)
   $ 146,910.56
Rho Ventures IV GmbH & Co. Beteiligungs KG (2)
   $ 153,102.29
Rho Ventures IV Holdings LLC (2)
   $ 104,780.66
Care Capital Investments III, LP (3)
   $ 369,989.00
Care Capital Offshore Investments III, LP (3)
   $ 6,178.93
MedImmune Ventures, Inc. (4)
   $ 338,551.12
Pitango Venture Capital Fund IV, L.P. (5)
   $ 220,975.53
Pitango Venture Capital Principals Fund IV, L.P. (5)
   $ 4,771.90

~~(1)~~

~~Devang V. Kantesaria, a former member of our Board of Directors, is a managing member of Devon Park Associates, LLC, of which Devon Park Bioventures, L.P. is an affiliated fund.~~

~~(2)~~

~~Martin Vogelbaum, a member of our Board of Directors, is a Partner at Rho, of which the Rho Venture Entities are affiliated funds.~~

~~(3)~~

~~A.N. “Jerry” Karabelas, a member of our Board of Directors, is a managing member at Care Capital II, LLC and Care Capital III, LLC, of which the Care Capital Entities are affiliated funds.~~

~~(4)~~

~~Isai Peimer, a member of our Board of Directors, is a Managing Director at MedImmune Ventures, Inc.~~

~~(5)~~

~~Ittai Harel, a member of our Board of Directors, is a general partner with Pitango Venture Capital, of which the Pitango Venture Capital Fund Entities are affiliated funds.~~

~~Agreements With Our Stockholders~~

In connection with our preferred stock financings, we entered into a third amended and restated investor rights agreement, or Investor Rights Agreement, and a third amended and restated stockholders agreement, as amended, or Stockholders Agreement, in each case, with the purchasers of our preferred stock and, in the case of the stockholders agreement, certain holders of our common stock.

The rights under each of the Investor Rights Agreement and the Stockholders Agreement terminated upon the closing of our initial public offering, other than certain registration rights for certain holders of our preferred stock described below under “Description of Capital Stock.”

~~Indemnification Agreements~~

Our Seventh Amended and Restated Certificate of Incorporation and our bylaws, as amended, provide that we shall indemnify our directors and officers to the fullest extent permitted by law. In addition, we have previously entered into and intend to enter into new agreements to indemnify our directors and executive officers. These agreements will, among other things, indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of us or that person’s status as a member of our Board of Directors.

~~Item 14. Principal Accountant Fees and Services~~

~~Our audit committeepre-approves~~ ~~all audit and permissiblenon-audit~~ ~~services provided by RSM US LLP (formerly McGladrey LLP). These services may include audit services,audit-related~~ ~~services, tax services and other services.Pre-approval~~ ~~may be given as part of the audit committee’s approval of the scope of the engagement of the independent registered public accounting firm or on an individualcase-by-case~~ ~~basis. All of the services described below were approved by our audit committee.~~

In 2014, we retained RSM US LLP (formerly McGladrey LLP) to provide audit services for the fiscal years ended December 31, 2014, 2013, and 2012, and for services in connection with our IPO which took place in February 2015. In the table below, audit fees reflects fees for audit services for the years ended December 31, 2015 and December 31, 2014. Audit-Related Fees reflects fees from our IPO-related and Follow-On offering services performed in 2015 and 2014.

   2015    2014
Audit Fees
   $ 162,900       $ 221,500
Audit-Related Fees
   148,000       409,000
Tax Fees
   —         —
All Other Fees
   —         —




Total
   $ 310,900       $ 630,500

~~PART IV~~

~~Item 15. Exhibits, Financial Statements and Schedules~~

~~(a) The following documents are filed as part of this report:~~

~~(1) Financial Statements:~~


Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance ~~Sheet~~	Sheets as of December 31, 2018 and 2017	F-3
Consolidated Statements of Operations	for the Years Ended December 31, 2018, 2017 and 2016	F-4
Consolidated Statements of Comprehensive Loss	for the Years Ended December 31, 2018, 2017 and 2016	F-5
Consolidated Statements of Changes in ~~Redeemable Convertible Preferred Stock and~~ Stockholders’ Equity ~~(Deficit)~~	for the Years Ended December 31, 2018 and 2017	F-6
Consolidated Statements of Cash Flows	for the Years Ended December 31, 2018, 2017 and 2016	F-7
Notes to Consolidated Financial Statements		F-8

~~(2) Financial Statement Schedules:~~

(2)	Financial Statement Schedules:

All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.

~~(3) Exhibits. The exhibits filed as part~~

Table of ~~this Annual Report on Form 10-K are set forth on the~~ Contents

(3)

Exhibits:

Exhibit Index ~~immediately following our consolidated financial statements. The Exhibit Index is incorporated herein by reference.~~

Exhibit Number	Description of Exhibit

2.1	Agreement and Plan of Merger and Reorganization, dated as of September 12, 2017, by and among Inotek Pharmaceuticals Corporation, Rocket Pharmaceuticals, Ltd. and Rome Merger Sub (1)
3.1	Seventh Amended and Restated Certificate of Incorporation of Rocket Pharmaceuticals, Inc., effective as of February 23, 2015 (2)
3.2	Certificate of Amendment (Reverse Stock Split) to the Seventh Amended and Restated Certificate of Incorporation of the Registrant, effective as of January 4, 2018 (3)
3.3	Certificate of Amendment (Name Change) to the Seventh Amended and Restated Certificate of Incorporation of the Registrant, effective January 4, 2018 (3)
3.4	Certificate of Amendment to the Seventh Amended and Restated Certificate of Incorporation of the Registrant, effective June 25, 2018 (4)
3.5	Amended and Restated By-Laws of Rocket Pharmaceuticals, Inc., effective as of January 4, 2018 (5)
4.1	Form of Common Stock Certificate of Rocket Pharmaceuticals, Inc. (3)
4.2	Base Indenture, dated as of August 5, 2016, by and between Inotek Pharmaceuticals Corporation and Wilmington Trust, National Association (6)
4.3	First Supplemental Indenture, dated as of August 5, 2016, by and between Inotek Pharmaceuticals Corporation and Wilmington Trust, National Association (6)
4.4	Form of 5.75% Convertible Senior Note due 2021 (6)
10.1#	2004 Stock Option and Incentive Plan (7)
10.2#	Rocket Pharmaceuticals, Inc. Second Amended and Restated 2014 Stock Option and Incentive Plan (8)
10.3#	Form of Incentive Stock Option Agreement (Employees) (9)
10.4#	Form of Non-Qualified Stock Option Agreement (Employees) (9)
10.5#	Form of Non-Qualified Stock Option Agreement (Non-Employee Directors) (9)
10.6#	Form of Non-Qualified Stock Option Agreement (Consultants) (9)
10.7#	Rocket Pharmaceuticals, Ltd. 2015 Share Option Plan (10)
10.8#	Letter Agreement, dated as of July 28, 2014, by and between the Registrant and David P. Southwell (7)
10.9#	Amendment to Offer Letter, effective as of September 1, 2017, by and between Inotek and David Southwell (11)
10.10#	Letter Agreement, dated as of May 2, 2007, by and between the Registrant and Dr. Rudolf A. Baumgartner, M.D., as amended and currently in effect (7)
10.11#	Amendment to Offer Letter, effective as of August 7, 2017, by and between Inotek and Rudolf A. Baumgartner, MD (12)
10.12#	Amendment to Offer Letter, effective as of September 12, 2017, by and between Inotek and Rudolf A. Baumgartner, MD (1)
10.13#	Letter Agreement, dated as of August 28, 2014, by and between Inotek Pharmaceuticals Corporation and Dale Ritter (7)
10.14#	Amendment to Offer Letter, effective as of September 1, 2017, by and between Inotek and Dale Ritter (11)
10.15#	Letter Agreement, dated as of January 4, 2018, by and between Inotek Pharmaceuticals Corporation and Dale Ritter (10)
10.16#	Rocket Pharmaceuticals, Inc. Amended and Restated 2014 Employee Stock Purchase Plan (10)
10.17#	Form of Indemnification Agreement, to be entered into between the Registrant and its directors (3)
10.18#	Form of Indemnification Agreement, to be entered into between the Registrant and its officers (3)
10.19#*	Form of Severance and Change of Control Agreements, to be entered into between the Registrant and certain of its officers
10.20	Lease, dated as of May 29, 2015, by and between Inotek Pharmaceuticals Corporation and 91 Hartwell Avenue Trust, as amended and currently in effect (13)
10.21	First Amendment to Lease, dated as of February 24, 2016, by and between Inotek Pharmaceuticals Corporation and 91 Hartwell Avenue Trust (14)
10.22	Lease Agreement, dated as of March 31, 2016, by and between Rocket Pharmaceuticals, Ltd. and ARE-East River Science Park, LLC. (10)
10.23	Agreement of Lease, dated as of June 6, 2018, by and between Rocket Pharmaceuticals, Inc. and ESRT Empire State Building, L.L.C. (9)

Table of Contents

10.24	Amendment No. 1 to the Lease Agreement, dated as of June 28, 2018, by and between Rocket Pharmaceuticals, Ltd. and ARE-East River Science Park, LLC (9)
10.25†	Lease Agreement, dated as of August 14, 2018, by and between Rocket Pharmaceuticals, Inc. and Cedar Brook 12 Corporate Center, L.P. (15)
10.26*	License Agreement, dated as of November 19, 2018, by and between Rocket Pharmaceuticals, Ltd. and REGENXBIO Inc.**
10.27	Warrant to Purchase Shares of Series Preferred Stock dated as of June 28, 2013, by and between Inotek Pharmaceuticals Corporation and Horizon Technology Finance Corporation (2)
10.28	Warrant to Purchase Shares of Series Preferred Stock dated as of June 28, 2013, by and between Inotek Pharmaceuticals Corporation and Fortress Credit Co LLC (2)
21.1*	List of Subsidiaries
23.1*	Consent of EisnerAmper LLP
24.1*	Power of Attorney (included in the signature page)
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted 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 Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Link Document.

*	Filed herewith.
#	Indicates management contract or compensatory plan.
†	Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.
**	Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment.
(1)	Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on September 13, 2017, and incorporated herein by reference.
(2)	Filed as an Exhibit to the Company’s annual report on Form 10-K (001-36829), filed with the SEC on March 31, 2015, and incorporated herein by reference.
(3)	Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on January 5, 2018, and incorporated herein by reference.
(4)	Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on June 25, 2018, and incorporated herein by reference.
(5)	Filed as an Exhibit to the Company’s registration statement on Form 8-A, as amended (001-36829), filed with the SEC on January 11, 2018, and incorporated herein by reference.
(6)	Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on August 5, 2016, and incorporated herein by reference.
(7)	Filed as an Exhibit to the Company’s registration statement on Form S-1 (333-199859), filed with the SEC on November 5, 2014, as amended, and incorporated herein by reference.
(8)	Filed as an Exhibit to the Company’s proxy statement on Schedule 14A (001-36829), filed with the SEC on April 30, 2018, as amended, and incorporated herein by reference.
(9)	Filed as an Exhibit to the Company’s quarterly report on Form 10-Q (001-36829), filed with the SEC on August 14, 2018, as amended, and incorporated herein by reference.
(10)	Filed as an Exhibit to the Company’s annual report on Form 10-K (001-36829), filed with the SEC on March 7, 2018, and incorporated herein by reference.
(11)	Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on September 1, 2017, and incorporated herein by reference.

Table of Contents

(12)	Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on August 8, 2017, and incorporated herein by reference.
(13)	Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on June 1, 2015, and incorporated herein by reference.
(14)	Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on February 26, 2016, and incorporated herein by reference.
(15)	Filed as an Exhibit to the Company’s quarterly report on Form 10-Q (001-36829), filed with the SEC on November 9, 2018, as amended, and incorporated herein by reference.

Item 16.
Form 10-K Summary

None.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, ~~the Registrant~~Rocket Pharmaceuticals, Inc. (the Registrant) has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of ~~Lexington, Commonwealth~~New York, State of ~~Massachusetts,~~New York, on March ~~23, 2016.~~

8, 2019.

			Rocket Pharmaceuticals, Inc.
	~~Inotek Pharmaceuticals Corporation~~

	By:	/s/ ~~David P. Southwell~~ Gaurav Shah, MD
Gaurav Shah, MD

~~David P. Southwell~~
		President and Chief Executive Officer ~~and Director~~

POWER OF ATTORNEY

Each person whose individual signature appears below hereby constitutes and appoints ~~David P. Southwell~~Gaurav Shah, MD and ~~Dale Ritter,~~John Militello, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the ~~registrant~~Registrant and in the capacities and on the dates indicated.


Name	Title	Date

~~/s/ David P. Southwell~~ ~~David P. Southwell~~
/s/ Gaurav Shah, MD	President, Chief Executive Officer and Director ~~(Principal Executive Officer)~~	March ~~23, 2016~~8, 2019

~~/s/ Dale Ritter~~ ~~Dale Ritter~~ Gaurav Shah, MD	~~Vice President–Finance~~ (Principal Executive Officer)

/s/ John Militello	Controller	March 8, 2019
John Militello	(Principal Financial and Accounting Officer)	~~March 23, 2016~~

/s/ ~~A.N. “Jerry” Karabelas, Ph.D.~~ ~~A.N. “Jerry” Karabelas, Ph.D.~~ Carsten Boess	Director	March ~~23, 2016~~8, 2019
Carsten Boess

/s/ ~~Ittai Harel~~ ~~Ittai Harel~~ Pedro Granadillo	Director	March ~~23, 2016~~8, 2019
Pedro Granadillo

/s/ ~~Carsten Boess~~ ~~Carsten Boess~~ Gotham Makker, MD	Director	March ~~23, 2016~~8, 2019
Gotham Makker, MD

/s/ ~~Paul G. Howes~~ ~~Paul G. Howes~~ David P. Southwell	Director	March ~~23, 2016~~8, 2019
David P. Southwell

/s/ ~~Isai Peimer~~ ~~Isai Peimer~~ Roderick Wong, MD	Director	March ~~23, 2016~~8, 2019
Roderick Wong, MD

/s/ ~~Gary Phillips, M.D.~~ ~~Gary Phillips, M.D.~~ Naveen Yalamanchi, MD	Director	March ~~23, 2016~~8, 2019

~~/s/ Richard N. Spivey, PharmD, PhD~~ ~~Richard N. Spivey, PharmD, PhD~~ Naveen Yalamanchi, MD	~~Director~~	~~March 23, 2016~~

~~/s/ Martin Vogelbaum~~ ~~Martin Vogelbaum~~	~~Director~~	~~March 23, 2016~~

~~Inotek~~

Table of Contents

Rocket Pharmaceuticals, ~~Corporation~~

Inc.

Index to Consolidated Financial Statements

Contents


Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets	as of December 31, 2018 and 2017	F-3
Consolidated Statements of Operations	for the Years Ended December 31, 2018, 2017 and 2016	F-4
Consolidated Statements of Comprehensive Loss	for the Years Ended December 31, 2018, 2017 and 2016	F-5
Consolidated Statements of Changes in ~~Redeemable Convertible Preferred Stock and~~ Stockholders’ Equity ~~(Deficit)~~	for the Years Ended December 31, 2018, 2017 and 2016	F-6
Consolidated Statements of Cash Flows	for the Years Ended December 31, 2018, 2017 and 2016	F-7
Notes to Consolidated Financial Statements		F-8

F-1

Table of Contents

Report of Independent

Registered Public Accounting Firm

To the Stockholders and the Board of Directors ~~and Stockholders~~ of

~~Inotek~~

Rocket Pharmaceuticals, ~~Corporation~~

Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ~~Inotek~~Rocket Pharmaceuticals, ~~Corporation~~Inc. and Subsidiaries (the “Company”) as of December 31, ~~2015~~2018 and ~~2014,~~2017, and the related consolidated statements of operations, comprehensive loss, ~~changes in redeemable convertible preferred stock and~~ stockholders’ equity, ~~(deficit),~~ and cash flows for each of the years ~~then ended.~~ in the three-year period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on ~~these~~the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material ~~misstatement.~~misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. ~~Our~~As part of our audits ~~included consideration~~we are required to obtain an understanding of internal control over financial reporting ~~as a basis for designing audit procedures that are appropriate in the circumstances,~~ but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. ~~An audit also includes~~

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the financial ~~statements, assessing~~statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial ~~statement presentation.~~statements. We believe that our audits provide a reasonable basis for our opinion.

~~In our opinion,~~

/s/ EisnerAmper LLP

We have served as the ~~consolidated financial statements referred to above present fairly, in all material respects, the financial position~~Company’s auditor since 2016.

EISNERAMPER LLP

New York, New York

March 8, 2019

F-2

Table of ~~Inotek~~Contents

Rocket Pharmaceuticals, ~~Corporation as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.~~

~~/s/ RSM US LLP~~

~~Boston, Massachusetts~~

~~March 23, 2016~~

~~Inotek Pharmaceuticals Corporation~~

Inc.

Consolidated Balance Sheets

(in thousands, except share and per share ~~data)~~

   December 31,
   2015 2014
Assets

Current assets:

Cash and cash equivalents
   $ 80,042    $ 3,618
Short-term investments
   31,238    —
Prepaid expenses and other current assets
   1,086    52


Total current assets
   112,366    3,670
Property and equipment, net
   812    —
Other assets
   143    1,850


Total assets
   $ 113,321    $ 5,520


Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Current liabilities:

Accounts payable
   $ 1,633    $ 1,146
Accrued expenses and other current liabilities
   2,508    992
Notes payable, current portion
   —      3,063
Convertible Bridge Notes
   —      1,541
Convertible Bridge Notes redemption rights derivative
   —      480


Total current liabilities
   4,141    7,222
Notes payable, net of current portion
   —      2,550
Warrant liabilities
   —      482
Other long-term liabilities
   367    24


Total liabilities
   4,508    10,278


Series AA redeemable convertible preferred stock, $0.001 par value; no shares authorized, issued and outstanding at December 31, 2015; 25,757,874 shares authorized and 24,057,013 shares issued and outstanding at December 31, 2014
   —      46,253
Series X redeemable convertible preferred stock, $0.001 par value; no shares authorized, issued and outstanding at December 31, 2015; 2,902,050 shares authorized and 1,892,320 shares issued and outstanding at December 31, 2014
   —      548


Total redeemable convertible preferred stock
   —      46,801


Commitments and Contingencies (Note 9)

Stockholders’ equity (deficit):

Preferred Stock, $0.001 par value: 5,000,000 shares authorized and no shares issued or outstanding
   —      —
Common stock, $0.01 par value: 120,000,000 shares and 43,509,727 shares authorized at December 31, 2015 and December 31, 2014, respectively; 26,423,394 shares and 1,020,088 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively
   264    10
Additional paid-in capital
   304,583    76,472
Accumulated deficit
   (196,023 ) (128,041 )
Other comprehensive loss
   (11 ) —


Total stockholders’ equity (deficit)
   108,813    (51,559 )


Total Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
   $ 113,321    $ 5,520

amounts)

December 31,
2018

December 31,
2017

Assets
Current assets:
Cash and cash equivalents $ 111,355 $ 18,142
Investments 94,375 -
Prepaid expenses and other assets 3,358 813
Total current assets 209,088 18,955
Property and equipment, net 2,027 985
Goodwill 30,815 -
Restricted cash 1,436 207
Deposits 545 -
Investments 7,402 -
Total assets $ 251,313 $ 20,147
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued expenses $ 15,372 $ 4,521
Total current liabilities 15,372 4,521
Convertible notes, net of unamortized discount 41,447 -
Deferred rent and lease obligations 457 107
Total liabilities 57,276 4,628
Commitments and contingencies (Note 13)

Shareholders’ equity:
Preferred shares, $0.01 par value, authorized 1,000,000 shares:
Series A convertible preferred shares; 300,000 shares designated as Series A; 0 and 128,738 shares issued and outstanding at December 31, 2018 and 2017, respectively
- 16,060
Series B convertible preferred shares; 300,000 shares designated as Series B; 0 and 126,909 shares issued and outstanding at December 31, 2018 and 2017, respectively
- 25,406
Common stock, $0.01 par value, 120,000,000 shares authorized; 45,194,736 and 6,795,627 shares issued and outstanding at December 31, 2018 and 2017, respectively
452 68
Treasury stock, at cost, 50,000 and 0 common shares at December 31, 2018 and 2017, respectively (668 ) -
Additional paid-in capital 300,253 5,340
Accumulated other comprehensive loss (127 ) -
Accumulated deficit (105,873 ) (31,355 )
Total shareholders’ equity 194,037 15,519
Total liabilities and shareholders’ equity $ 251,313 $ 20,147

The accompanying notes are an integral part of these consolidated financial statements.

~~Inotek~~

F-3

Table of Contents

Rocket Pharmaceuticals, ~~Corporation~~

Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

   Years Ended December 31,
   2015 2014
Operating expenses:

Research and development
   $ (12,554 ) $ (5,592 )
General and administrative
   (7,842 ) (2,112 )


Loss from operations
   (20,396 ) (7,704 )
Interest expense
   (1,230 ) (980 )
Interest income
   89    —
Loss on extinguishment of debt
   (4,399 ) —
Change in fair value of warrant liabilities
   267    (845 )
Change in fair value of Convertible Bridge Notes redemption rights derivative
   480    (2 )
Change in fair value of 2020 Convertible Notes derivative liability
   (42,793 ) —


Net loss
   $ (67,982 ) $ (9,531 )


Net loss per share attributable to common stockholders—basic and diluted
   $ (3.72 ) $ (13.52 )


Weighted-average number of shares outstanding—basic and diluted
   18,311,333    1,020,088

For the Years Ended December 31,
2018 2017 2016

Revenue $ - $ - $ -

Operating expenses:
Research and development 53,270 14,917 5,994
General and administrative 17,886 4,855 1,580
Total operating expenses 71,156 19,772 7,574
Loss from operations (71,156 ) (19,772 ) (7,574 )
Research and development incentives 186 192 -
Interest expense (6,039 ) - -
Interest and other income net 1,690 2 1
Accretion of discount on investments 801 - -
Net loss $ (74,518 ) $ (19,578 ) $ (7,573 )
Net loss per share attributable to common shareholders - basic and diluted $ (1.89 ) $ (2.88 ) $ (1.11 )
Weighted-average common shares outstanding - basic and diluted 39,377,666 6,795,627 6,833,718

The accompanying notes are an integral part of these consolidated financial statements.

~~Inotek~~

F-4

Table of Contents

Rocket Pharmaceuticals, ~~Corporation~~

Inc.

Consolidated Statements of Comprehensive Loss

(in ~~thousands, except share and per share amounts)~~

   Years Ended December 31,
       2015            2014
Net loss
   $ (67,982 )    $ (9,531 )
Other comprehensive loss :

Net unrealized loss on marketable securities
   (11 )    —




Total comprehensive loss
   $ (67,993 )    $ (9,531 )

thousands)

For the Years Ended December 31,
2018 2017 2016

Net loss $ (74,518 ) $ (19,578 ) $ (7,573 )
Other comprehensive loss
Net unrealized loss on investments (127 ) - -
Total comprehensive loss $ (74,645 ) $ (19,578 ) $ (7,573 )

The accompanying notes are an integral part of these consolidated financial statements.

~~Inotek~~

F-5

Table of Contents

Rocket Pharmaceuticals, ~~Corporation~~

Inc.

Consolidated Statements of Changes in ~~Redeemable Convertible Preferred Stock and~~ Stockholders’ Equity ~~(Deficit)~~

(in thousands, except share ~~and per share data)~~

Series AA
Redeemable
Convertible
Stock Series X
Redeemable
Convertible
Stock

Common Stock Treasury Stock Additional
Paid in
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Total
Shares Amount Shares Amount

Shares Par value Shares Par value
Balances at December 31, 2013
23,204,783    $ 40,685    1,892,320    $ 548    1,021,972    $ 10    (1,884 ) $ (176 ) $ 79,781    $ (118,510 ) $ —      $ (38,895 )
Stock-based compensation
—      —      —      —      —      —      —      —      177    —      —      177
Accretion of Series AA preferred stock to redemption value
—      864    —      —      —      —      —      —      (864 ) —      —      (864 )
Accrual of Series AA preferred stock dividends
—      3,401    —      —      —      —      —      —      (3,401 ) —      —      (3,401 )
Exercise of Series AA preferred stock warrants
852,230    1,303    —      —      —      —      —      —      955    —      —      955
Retirement of treasury stock
—      —      —      —      (1,884 ) —      1,884    176    (176 ) —      —      —
Net loss
—      —      —      —      —      —      —      —      —      (9,531 ) —      (9,531 )

Balances at December 31, 2014
24,057,013    46,253    1,892,320    548    1,020,088    10    —      —      76,472    (128,041 ) —      (51,559 )
Stock-based compensation
—      —      —      —      —      —      —      —      2,380    —      —      2,380
Accretion of Series AA preferred stock to redemption value
—      131    —      —      —      —      —      —      (131 ) —      —      (131 )
Issuance of common stock upon initial public offering, net of $5,303 in offering costs
—      —      —      —      6,966,333    70    —      —      36,425    —      —      36,495
Conversion of Series AA preferred stock into common stock upon initial public offering
(24,057,013 ) (46,384 ) —      —      7,536,331    75    —      —      46,309    —      —      46,384
Conversion of Series X preferred stock into common stock upon initial public offering
—      —      (1,892,320 ) (548 ) 466,319    5    —      —      543    —      —      548
Conversion of Convertible Bridge Notes into common stock upon initial public offering
—      —      —      —      337,932    3    —      —      2,024    —      —      2,027
Reclassification of fair value of warrant liability to equity upon initial public offering
—      —      —      —      —      —      —      —      215    —      —      215
Common stock issued pursuant to stock option plans
—      —      —      —      9,857    —      —      —      43    —      —      43
Common stock issued pursuant to employee stock purchase plan
—      —      —      —
13,143

—      —      —      63    —      —      63
Conversion of 2020 Convertible Notes into common stock
—      —      —      —      3,863,391    39    —      —      66,337    —      —      66,376
Issuance of common stock upon secondary public offering
—      —      —      —      6,210,000    62    —      —      73,903    —      —      73,965
Unrealized comprehensive loss on marketable securities
—      —      —      —      —      —      —      —      —      —      (11 ) (11 )
Net loss
—      —      —      —      —      —      —      —      —      (67,982 ) —      (67,982 )

Balances at December 31, 2015
—      $ —      —      $ —      26,423,394    $ 264    —      $ —      $ 304,583    $ (196,023)    $ (11 ) $ 108,813

amounts)

Series A Convertible Preferred Shares Series B Convertible Preferred Shares Common Stock Treasury
Additional
Paid-In

Accumulated
Other
Comprehensive
Accumulated
Total
Shareholders’

Shares Amount Shares Amount Shares Amount Stock Capital Loss Deficit Equity

Balance at December 31, 2015 127,698 $ 15,930 - $ - 6,795,627 $ 68 - $ 3,746 $ - $ (4,204 ) $ 15,540
Issuance of Series A convertible preferred shares 1,040 130 - - - - - - - - 130
Share-based compensation - - - - - - - 274 - - 274
Net loss - - - - - - - - - (7,573 ) (7,573 )
Balance at December 31, 2016 128,738 $ 16,060 - $ - 6,795,627 $ 68 - $ 4,020 $ - $ (11,777 ) $ 8,371
Issuance of Series B convertible preferred shares - - 126,909 25,406 - - - - - - 25,406
Share-based compensation - - - - - - - 1,320 - - 1,320
Net loss - - - - - - - - - (19,578 ) (19,578 )
Balance at December 31, 2017 128,738 $ 16,060 126,909 $ 25,406 6,795,627 $ 68 $ - $ 5,340 $ - $ (31,355 ) $ 15,519
Conversion of convertible preferred shares into common shares (128,738 ) (16,060 ) (126,909 ) (25,406 ) 19,475,788 194 - 41,272 - - -
Exchange of common shares in connection with the Reverse Merger - - - - 6,805,608 68 - 85,992 - - 86,060 ��
Issuance of common stock, net of issuance costs of $9.3 million - - - - 11,475,242 115 - 153,907 - - 154,022
Issuance of common stock pursuant to settlement of restricted stock units - - - - 271,718 3 - (3 ) - - -
Issuance of common stock pursuant to exercise of stock options - - - - 370,753 4 - 144 - - 148
Share repurchase - - - - - - (668 ) - - - (668 )
Unrealized loss on investments - - - - - - - - (127 ) - (127 )
Share-based compensation - - - - - - - 13,601 - - 13,601
Net loss - - - - - - - - - (74,518 ) (74,518 )
Balance at December 31, 2018 - $ - - $ - 45,194,736 $ 452 $ (668 ) $ 300,253 $ (127 ) $ (105,873 ) $ 194,037

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Table of Contents~~Inotek~~

Rocket Pharmaceuticals, ~~Corporation~~

Inc.

Consolidated Statements of Cash Flows

(in ~~thousands, except share and per share amounts)~~

   Years Ended
December 31,
   2015 2014
Cash flows from operating activities:

Net loss
   $ (67,982 ) $ (9,531 )
Adjustments to reconcile net loss to cash used by operating activities:

Noncash interest expense
   1,132    238
Deferred rent and lease incentives
   (20 ) —
Loss on extinguishment of debt
   4,239    —
Amortization of premium on marketable securities
   75    —
Depreciation
   45    —
Change in fair value of warrant liabilities
   (267 ) 845
Change in fair value of Convertible Bridge Notes redemption rights derivative
   (480 ) 2
Change in fair value of 2020 Convertible Notes derivative liability
   42,793    —
Stock-based compensation
   2,380    177
Changes in operating assets and liabilities:

Prepaid expenses and other assets
   (1,256 ) (1,804 )
Accounts payable
   487    917
Accrued expenses and other current liabilities
   1,438    (587 )


Net cash used in operating activities
   (17,416 ) (9,743 )


Cash flows from investing activities:

Purchase of short-term investments
   (33,693 ) —
Proceeds from the maturities of short-term investments
   2,430    —
Purchase of property and equipment
   (412 ) —


Net cash provided by investing activities:
   (31,675 ) —


Cash flows from financing activities:

Net proceeds from issuance of convertible notes
   —      1,970
Net proceeds from issuance of common stock in initial public offering
   38,085 —
Proceeds from issuance of 2020 Convertible Notes in initial public offering
   21,000    —
Payments of 2020 Convertible Notes Issuance Costs
   (1,841 ) —
Net proceeds from issuance of common stock in follow-on public offering
   73,965    —
Proceeds from the issuance of shares pursuant to stock option plans
   43    —
Proceeds from the issuance of shares pursuant to employee stock purchase plan
   63    —
Proceeds from exercise of warrants for Series AA Preferred Stock
   —      8
Principal payments on notes payable
   (5,800 ) (1,410 )


Net cash provided by financing activities:
   125,515    568


Net change in cash and cash equivalents
   76,424    (9,175 )
Cash and cash equivalents, beginning of period
   3,618    12,793


Cash and cash equivalents, end of period
   $ 80,042    $ 3,618


Supplemental disclosure of cash flow information:

Cash paid for interest
   $ 89    $ 738


Supplemental disclosure of noncash investing and financing activities:

Accrual of Series AA preferred stock dividends
   $ —   $ 3,401


Acquisition of leasehold improvements
   $ 445 $ —


Conversion of Series AA preferred stock into common stock upon initial public offering
   $ 46,384    $ —


Conversion of Series X preferred stock into common stock upon initial public offering
   $ 548    $ —


Conversion of Convertible Bridge Notes into common stock upon initial public offering
   $ 2,027    $ —


Conversion of 2020 Convertible Notes into common stock
   $ 66,376    $ —


Accretion of Series AA preferred stock to redemption value
   $ 131    $ 864


Reclassification of fair value of warrant liability to equity upon initial public offering
   $ 215    $ —


Reclassification of fair value of warrant liability related to exercise of preferred stock warrants
   $ —   $ 2,250


Reclassification of deferred public offering costs to stockholders’ equity
   $ 1,590    $ —


Reclassification of deferred public offering costs to other assets
   $ 256    $ —


Retirement of treasury stock
   $ —      $ 176


Unrealized comprehensive loss on marketable securities
   $ 11    $ —

thousands)

For the Years Ended December 31,
2018 2017 2016

Operating Activities:
Net loss $ (74,518 ) $ (19,578 ) (7,573 )
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of discount on convertible notes 3,059 - -
Increase in lease liability (161 ) - -
Series A preferred shares issued for services - - 100
Depreciation expense 330 204 67
Share-based compensation expense 13,601 1,320 274
Deferred rent - - 107
Loss on disposal of property and equipment 317 - -
Accretion of discount on investments (801 ) - -
Changes in operating assets and liabilities:
Prepaid expenses and other assets (1,505 ) (720 ) 78
Accounts payable and accrued expenses 5,890 2,812 1,444
Net cash used in operating activities (53,788 ) (15,962 ) (5,503 )
Investing activities:
Cash acquired in connection with the Reverse Merger 76,348 - -
Purchases of investments (141,087 ) - -
Proceeds from maturities of investments 61,276 - -
Proceeds from sale of property and equipment 20 - -
Purchases of property and equipment (1,453 ) (760 ) (335 )
Payment of security deposit (376 ) - -
Net cash used in investing activities (5,272 ) (760 ) (335 )
Financing activities:
Proceeds from exercise of options 148 - -
Proceeds from issuance of common stock, net of issuance costs 154,022 - -
Proceeds from issuance of Series A convertible preferred shares net - - 30
Proceeds from issuance of Series B convertible preferred shares net - 25,406 -
Payments from related party payable - - (14 )
Payment to acquire treasury stock (668 ) - -
Net cash provided by financing activities 153,502 25,406 16
Net change in cash, cash equivalents and restricted cash 94,442 8,684 (5,822 )
Cash, cash equivalents and restricted cash at beginning of year 18,349 9,665 15,487
Cash, cash equivalents and restricted cash at end of year $ 112,791 $ 18,349 $ 9,665

Supplemental disclosure of non-cash financing and investing activities:
Conversion of convertible preferred stock into common stock $ 41,466 $ - $ -
Unrealized loss on investments $ 127 $ - $ -
Supplemental cash flow information:
Cash paid for interest $ 4,485 $ - $ -
Cash paid for income taxes $ 2 $ - $ -

The accompanying notes are an integral part of these consolidated financial statements.

~~Inotek~~

F-7

Table of Contents

Rocket Pharmaceuticals, ~~Corporation~~

Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share ~~data)~~

amounts)

1. ~~Organization~~Nature of Business, Merger and ~~Operations~~

Basis of Presentation

Rocket Pharmaceuticals, Inc., together with its subsidiaries (collectively, “Rocket” or the “Company”), is a clinical-stage, multi-platform biotechnology company focused on the development of first or best-in-class gene therapies, with direct on-target mechanism of action and clear clinical endpoints, for rare and devastating pediatric diseases. The Company has clinical-stage lentiviral vector (“LVV”) programs currently undergoing clinical testing for Fanconi Anemia (“FA”), a genetic defect in the bone marrow that reduces production of blood cells or promotes the production of faulty blood cells and Leukocyte Adhesion Deficiency-I (“LAD-I”), a genetic disorder that causes the immune system to malfunction. FA has been in clinical stage testing in the EU since 2016, and in the U.S., Rocket received investigational new drug (“IND”) clearance for both FA and LAD-I in late 2018. Two additional pre-clinical stage LVV programs include Pyruvate Kinase Deficiency (“PKD”), a rare red blood cell autosomal recessive disorder that results in chronic non-spherocytic hemolytic anemia; and Infantile Malignant Osteopetrosis (“IMO”), a genetic disorder characterized by increased bone density and bone mass secondary to impaired bone resorption. In addition, the Company has an adeno-associated virus (“AAV”), program for Danon disease, a multi-organ lysosomal-associated disorder leading to early death due to heart failure. An IND filing was cleared in Danon disease in early 2019, which will permit the commencement of human clinical studies following approval. The Company has global commercialization and development rights to all of its product candidates under royalty-bearing license agreements, with the exception of the CRISPR/Cas9 development program for which the Company currently only has development rights.

Reverse Merger and Exchange Ratio

On January 4, 2018, Rome Merger Sub (“Merger Sub”), a wholly owned subsidiary of Inotek Pharmaceuticals Corporation (“Inotek”), completed its merger with and into Rocket Pharmaceuticals, Ltd. (“Rocket Ltd”), with Rocket Ltd surviving as a wholly owned subsidiary of Inotek. This transaction is referred to as the “Reverse Merger.” The Reverse Merger was effected pursuant to an Agreement and Plan of Merger and Reorganization (the ~~“Company”~~“Merger Agreement”) is, dated as of September 12, 2017, by and among Inotek, Rocket Ltd and Rome Merger Sub.

As a ~~clinical-stage biopharmaceutical company advancing molecules with novel mechanisms of action to address significant diseases~~result of the ~~eye.~~Reverse Merger, each outstanding share of Rocket Ltd share capital (including shares of Rocket Ltd share capital to be issued upon exercise of outstanding share options) automatically converted into the right to receive approximately 76.185 shares of Inotek’s common stock, par value $0.01 per share (the “Exchange Ratio”). Following the closing of the Reverse Merger, holders of Inotek’s common stock immediately prior to the Reverse Merger owned approximately 18.643% on a fully diluted basis, and holders of Rocket Ltd common stock immediately prior to the Reverse Merger owned approximately 81.357% on a fully diluted basis, of Inotek’s common stock.

Immediately following the Reverse Merger, the combined company changed its name from “Inotek Pharmaceuticals Corporation” to “Rocket Pharmaceuticals, Inc.” The combined company following the Reverse Merger may be referred to herein as “the combined company,” “Rocket,” or the “Company.” The Company’s ~~business strategy is~~common stock remained listed on the Nasdaq Stock Market, with trading having commenced on a post-split basis (giving effect to ~~develop~~the Reverse Stock Split described below) and ~~progress its product candidates through human clinical trials.~~under the new name as of January 5, 2018. The ~~Company’s headquarters are located in Lexington, Massachusetts.~~

~~The Company has devoted substantially all of its efforts~~trading symbol also changed on that date from “ITEK” to ~~research~~“RCKT.”

2. Risks and ~~development, including clinical trials of its product candidates.~~ Liquidity

The Company has not ~~completed~~generated any revenue and has incurred losses since inception. Operations of the Company are subject to certain risks and uncertainties, including, among others, uncertainty of drug candidate development, technological uncertainty, uncertainty regarding patents and proprietary rights, having no commercial manufacturing experience, marketing or sales capability or experience, dependency on key personnel, compliance with government regulations and the need to obtain additional financing. Drug candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities.

The Company’s drug candidates are in the development and clinical stage. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of ~~any product candidates.~~rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.

F-8

Table of Contents

The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has ~~no current source of revenue to sustain present activities~~experienced negative cash flows from operations and does not expect to generate revenue until and unless the Company receives regulatory approval of and successfully commercializes its product candidates. The Company is subject to a number of risks and uncertainties similar to those of other life science companies developing new products, including, among others, the risks related to the necessity to obtain adequate additional financing, to successfully develop product candidates, to obtain regulatory approval of products candidates, to comply with government regulations, to successfully commercialize its potential products, to the protection of proprietary technology and to the dependence on key individuals.

In February 2015, the Company completed its initial public offering (the “IPO”) of (i) 6,667,000 shares of common stock at a price of $6.00 per share and (ii) $20,000 aggregate principal amount of 5% Convertible Senior Notes due 2020 (the “2020 Convertible Notes”). Existing stockholders and their affiliated entities purchased approximately 3,005,000 shares of common stock issued in the IPO at the same terms previously described. In March 2015 the underwriters purchased 299,333 shares of common stock at $6.00 per share and $1,000 of the 2020 Convertible Notes pursuant to exercises of their overallotment options. The Company received net proceeds of $36,495, after deducting underwriting discounts and offering-related costs, from its equity issuances and $18,903 in net proceeds, after deducting underwriting discounts and offering-related costs, from its debt issuances (See Note 7).

In July and August 2015, holders of $21,000 principal amount of the 2020 Convertible Notes elected to convert the principal into 3,333,319 shares of common stock. In addition, the Interest Make-Whole Payment (as defined below) was settled with shares of common stock, at the election of the Company, resulting in the issuance of 530,072 additional shares of common stock.

In August 2015, the Company completed an underwritten public offering of its common stock (the “Follow-on Offering”). The Company issued 6,210,000 shares of its common stock at a price of $12.75 per share, including 810,000 shares from the underwriters’ full exercise of their overallotment option, and received net proceeds of $73,965, after deducting underwriting discounts and offering-related costs.

~~Prior to this the Company has funded its operations primarily through the sale of preferred stock and issuance of convertible promissory notes and notes payable. As of December 31, 2015, the Company~~ had an accumulated deficit of ~~$196,023 and $111,280~~$105,873 as of December 31, 2018. As of December 31, 2018, the Company has $213,132 of cash, cash equivalents and ~~short-term~~ investments.

~~The Company will need to expend substantial~~ Rocket expects such resources ~~for research and development, including costs associated with the clinical testing of its product candidates and will need to obtain additional financing~~would be sufficient to fund its operations and to conduct trials for its product candidates. If such products were to receive regulatory approval, the Company would need to prepare for the potential commercialization of its product candidates and fund the commercial launch and continued marketing of its products. The Company expects operating expenses ~~will substantially increase in~~and capital expenditure requirements into the second half of 2020.

In the longer term, the future ~~related to additional clinical testing and to support an increased infrastructure to support expanded operations and being a public company~~

The Company will require additional funding in the future and may not be able to raise such additional funds. The Company expects losses will continue as it conducts research and development activities. The Company will seek to finance future cash needs through public or private equity offerings, license agreements, debt financings, collaborations, strategic alliances, or any combination thereof. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt, limitations on the Company’s ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact the abilityviability of the Company is dependent on its ability to ~~conduct its business. If adequate funds are not available, the Company would delay, reduce~~generate cash from operating activities or ~~eliminate research and development programs and reduce administrative expenses. The Company may seek~~ to ~~access the public or private capital markets whenever conditions are favorable, even if it does not have an immediate need for~~raise additional capital ~~at that time. In addition, if the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, it may have~~ to ~~relinquish valuable rights to~~finance its ~~technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to it. If the Company is unable~~operations. The Company’s failure to raise ~~sufficient funding, it may be unable to continue to operate. There is no assurance that the Company will be successful in obtaining sufficient financing on acceptable terms~~capital as and ~~conditions to fund continuing operations, if at all. The failure of the Company to obtain sufficient funds on acceptable terms~~ when needed could have a ~~material adverse effect~~negative impact on ~~the Company’s~~its financial condition and ability to pursue its business ~~results~~strategies.

3. Summary of ~~operations and financial condition.~~

2. Significant Accounting Policies

~~Basis~~

Principles of ~~Presentation~~—Consolidation

The ~~accompanying~~ consolidated financial statements ~~have been prepared~~represent the consolidation of the accounts of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United States ~~of America~~ (“US GAAP”). ~~The consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiary, Inotek Securities Corporation.~~ All ~~significant~~ intercompany ~~balances and transactions~~accounts have been eliminated in consolidation.

~~Segment Reporting~~—Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment.

Use of Estimates—

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities ~~the~~and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include but are not limited to fair value under acquisition accounting, goodwill impairment, the accrual of research and development expenses, the valuation of equity transactions and share-based awards. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Actual results could differ from ~~these~~those estimates. Significant items subject to such estimates and assumptions include the valuation of stock options used for the calculation of stock-based compensation, fair value of warrant liabilities and other derivative instruments, and determination of accruals related to research and clinical development.

Cash, ~~and~~ Cash Equivalents— and Restricted Cash ~~and~~

Cash, cash equivalents ~~consist~~and restricted cash consists of bank deposits, certificates of deposit and money market ~~accounts.~~accounts with financial institutions. Cash equivalents are carried at cost which approximates fair value due to their short-term ~~nature.~~nature and which the Company believes do not have a material exposure to credit risk. The Company considers all highly liquid investments with maturities of ~~90 days~~three months or less atfrom the date of purchase to be cash equivalents.

~~The Company maintains its cash and cash equivalent balances with financial institutions that management believes are creditworthy.~~ The Company’s cash and cash equivalent accounts, ~~and certificates of deposit,~~ at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. ~~The Company believes it is not exposed to any significant~~

Restricted cash consists of deposits collateralizing letters of credit issued by a bank in connection with the Company’s operating leases (See Note 13) and a deposit collateralizing a letter of credit issued by a bank supporting the Company’s Corporate Credit Card. As of December 31, 2018, and 2017, restricted cash was $1,436 and $207, respectively. Cash, cash equivalents and restricted cash consist of the following:

	December 31, 2018		December 31, 2017

Cash and cash equivalents	$	111,355	$	18,142
Restricted cash		1,436		207
	$	112,791	$	18,349

Concentrations of credit risk onand off-balance sheet risk

Financial instruments that subject the Company to credit risk primarily consist of cash and cash ~~equivalents.~~

~~Short-term~~equivalents and available-for-sale securities. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are subject to minimal credit risk. The Company’s marketable securities primarily consist of U.S. Treasury securities, U.S. government agency securities and certificates of deposit, and potentially subject the Company to concentrations of credit risk. The Company has adopted an investment policy that limits the amounts the Company may invest in any one type of investment and requires all investments~~—Beginning in 2015, short-term investments~~ held by the Company to be at least AA+/Aa1 rated, thereby reducing credit risk exposure.

Table of Contents

Investments

Investments consist of investments in ~~certificates of deposit, agency bonds and~~ United States Treasury securities. Management determines the appropriate

classification of these securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its ~~short-term~~ investments as available-for-sale pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 320,Investments—Debt and Equity Securities. ~~Short-term investments~~Investments are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive ~~income (loss)~~loss in ~~stockholders’~~shareholders’ equity and a component of total comprehensive loss in the consolidated statements of comprehensive loss, until realized. Realized gains and losses are included in investment income on a specific-identification basis. There were no realized gains or losses on investments for the ~~year~~years ended December 31, ~~2015,~~2018, 2017 and ~~$11 in~~2016. There was $127 and $0 of net unrealized losses on ~~short-term~~ investments for the ~~year~~years ended December 31, ~~2015.~~

2018 and 2017, respectively.

The Company reviews ~~short-term~~ investments for other-than-temporary impairment whenever the fair value of ~~a short-term~~an investment is less than the amortized cost and evidence indicates that ~~a short-term~~an investment’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the ~~short-term~~ investment, or if it is more likely than not that the Company will be required to sell the ~~short-term~~ investment before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period.

~~Short-term~~ The weighted average maturity of the Company’s investment portfolio is 5.5 months and the average duration of the Company’s long-term investments is 14 months.

Investments at December 31, ~~2015~~2018 consist of the ~~following (in thousands):~~

   Cost
Basis    Unrealized
Gains    Unrealized
Losses Fair
Value
   (in thousands)
Current:

Certificates of deposit
   $ 16,160       $ —    $ — $ 16,160
Agency bonds
   10,036       —    (5 ) 10,031
United States Treasury securities
   5,053       —       (6 ) 5,047






   $ 31,249       $ —       $ (11 ) $ 31,238

~~At December 31, 2015, all short-term investments held by the Company had contractual maturities of less than one year.~~ following:

	Cost Basis		Unrealized Losses			Fair Value

United States Treasury securities		101,904		(127	)		101,777
	$	101,904	$	(127	)	$	101,777

The Company evaluated its securities for other-than-temporary impairment and determined that no such impairment existed at December 31, ~~2015.~~

2018.

Goodwill

Goodwill is tested for impairment annually as of December 31, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. The Company has one segment and one reporting unit and as such reviews goodwill for impairment at the consolidated level.

When testing goodwill, the Company has the option to first assess qualitative factors for reporting units that carry goodwill. The qualitative assessment includes assessing the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. These events and circumstances include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. The Company also considers recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value. If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, an amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test. As amended, an entity will recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform the qualitative test for a reporting unit to determine if the quantitative impairment test is necessary. Entities should apply for the amendment prospectively. The Company early adopted this guidance as of January 1, 2018. The Company performed the qualitative assessment of the its goodwill and determined that it is more likely than not that the fair value of a reporting unit exceeds the carrying value of the reporting unit. As a result, the Company has determined there was no goodwill impairment for the year ended December 31, 2018.

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Property and Equipment—

Property and equipment are stated at ~~cost.~~cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the useful life of the asset. The estimated useful lives are three to five years. Expenditures for repairs and maintenance of assets are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation of ~~the~~ assets disposed of ~~and the related accumulated depreciation~~ are ~~eliminated~~removed from the accounts and any resulting gain or loss is ~~reflected~~included in loss from operations.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the ~~consolidated statement~~asset’s carrying amount may not be recoverable. The Company conducts our long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of ~~operations. Depreciation~~Long-Lived Assets.” ASC 360-10-15 requires us to group assets and ~~amortization is provided using~~liabilities at the ~~straight-line method over the estimated useful lives~~lowest level for which identifiable cash flows are largely independent of the ~~assets, which are as follows:~~


~~Asset Classification~~		~~Estimated Useful Life~~
~~Computer hardware and software~~		~~3 - 5 years~~
~~Laboratory Equipment~~		~~5 years~~
~~Office equipment~~		~~5 years~~
~~Leasehold improvements~~		~~Shorter of useful life or remaining life of lease~~

~~Deferred Public Offering Costs~~—Deferred public offering costs, which consist primarily of direct, incremental legal, accounting, Securities and Exchange Commission and NASDAQ Global Market fees relating to the IPO and issuance of the 2020 Convertible Notes, were capitalized as a componentcash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on ~~the balance sheet~~discounted cash flow analysis or appraisals. Following this review, no impairment of long-lived assets was noted as of December 31, ~~2014. At December 31, 2014, the Company had $1,846 of deferred public offering costs. In the year ended ended December 31, 2015, the Company incurred an additional $1,620 of public offering costs~~2018, 2017 and ~~allocated (i) $2,377 of the aggregate public offering costs to the IPO and $627 to the 2020~~

Convertible Notes offering, which were recorded as deferred financing costs and were amortized to interest expense from the issuance of the 2020 Convertible Notes, through the conversion of the 2020 Convertible Notes in July and August 2015; and (ii) $462 to the Follow-on Offering.

~~Deferred Financing Costs~~— Financing costs incurred in connection with the Company’s notes payable, Convertible Bridge Notes and 2020 Convertible Notes were capitalized at the inception of the notes and were amortized over the term of the respective notes using the effective interest method. Amortization of deferred financing costs were $107 and $219 in the years ended December 31, 2015 and 2014, respectively (see Note 5).

~~Research and Development Costs~~~~—Research and development costs are charged to expense as incurred and include, but are not limited to:~~

2016.

~~employee-related expenses including salaries, benefits, travel and stock-based compensation expense for research and development personnel;~~

~~expenses incurred under agreements with contract research organizations that conduct clinical and preclinical studies, contract manufacturing organizations and consultants;~~

~~costs associated with preclinical and development activities; and~~

~~costs associated with regulatory operations.~~

Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, and information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the financial statements as accrued expenses, or prepaid expenses and other current assets, if the related services have not been provided.

~~Stock-Based Compensation~~—The Company measures the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee is required to provide service in exchange for the award. The fair value of options on the date of grant is calculated using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on historical data, peer company data and judgment regarding future trends and factors. Compensation cost for stock purchase rights under the employee stock purchase plan is measured and recognized on the date the Company becomes obligated to issue shares of our common stock and is based on the difference between the fair value of the Company’s common stock and the purchase price on such date.

~~The Company accounts for stock options issued to non-employees in accordance with the provisions of ASC 505-50,~~~~Equity-Based Payments to Non-employees~~~~, which requires valuing the stock options on their grant date and remeasuring such stock options at their current fair value as they vest.~~

Fair Value Measurements—

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. FASB ASC 820,Fair Value Measurements and Disclosures (“ASC 820”), establishes a hierarchy of inputs used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair value of the Company’s financial instruments, including cash and cash equivalents, prepaid expenses and other ~~current~~ assets, accounts payable and accrued expenses approximate their respective carrying values due to the short-term nature of these instruments. The fair value of the 2021 Convertible Notes as of December 31, 2018 was $43,182. The Company’s assets and liabilities measured at fair value on a recurring basis include its ~~short-term investments, warrant liabilities, convertible notes redemption rights derivative~~short and ~~2020 Convertible Notes derivative~~long term investments.

Deferred Rent and Lease Liability

The Company recognizes rent expense on a straight-line basis, after considering the effect of rent escalation provisions resulting in a level rent expense recognized over the lease term. For the lease liability, ~~(see Note 10).~~

~~Derivative Financial Instruments~~~~—All derivatives~~the Company reduces the rent expense on a straight-line basis over the remaining life of the lease.

Research and Development

Research and development costs, which include salaries and staff costs, license costs, regulatory and scientific consulting fees, as well as contract research, and share-based compensation expense, are ~~recorded~~accounted for in accordance with ASC Topic 730, Research and Development (“ASC 730”).

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The Company does not currently have any commercial biopharmaceutical products, and does not expect to have any for several years, if at all. Accordingly, research and development costs are expensed as ~~assets or liabilities~~incurred. While certain of the Company’s research and development costs may have future benefits, the policy of expensing all research and development expenditures is predicated on the fact that the Company has no history of successful commercialization of product candidates to base any estimate of the number of future periods that would be benefited.

Foreign Currency Transactions

Certain transactions during the years ended December 31, 2018, 2017 and 2016 are denominated in Euros. Gains and losses on foreign currency transactions are not significant for the years ended December 31, 2018, 2017 and 2016.

Treasury Stock

The Company records treasury stock at cost. Treasury stock consists of 50,000 shares that were settled in December 2018.

Share-Based Compensation

The Company measures the cost of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award. The fair value of options on the date of grant is calculated using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors.

The Company classifies share-based compensation expense in its statement of operations in the same manner in which the award recipient’s payroll costs and services are classified or in which the award recipient’s service payments are classified.

The Company recognizes compensation expense for at least the portion of awards that are vested. Forfeitures are accounted for as they occur.

The Company measures the compensation expense of share options and other share-based awards granted to employees, nonemployees and directors using the grant date fair value of the award and recognizes compensation expense as determined by the Black-Scholes Option pricing model on a straight-line basis over their requisite service period, which is generally the vesting period of the respective award.

Effective July 1, 2018, the Company adopted ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include share-based payment awards to nonemployees. As a result, stock-based awards granted to consultants and non-employees are accounted for in the same manner as awards granted to employees and directors as described above. Prior to the adoption of ASU 2018-07, for stock-based awards granted to consultants and non-employees, the Company recognized compensation expense over the period during which services are rendered by such consultants and non-employees until completed. At the end of each financial reporting period prior to completion of the service, the estimated fair value of these awards was re-measured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.

NYC Biotechnology Tax Credit Program

New York City allows investors and owners of emerging technology companies focused on biotechnology to claim a tax credit against the General Corporation Tax and Unincorporated Business Tax for amounts paid or incurred for certain facilities, operations, and employee training in New York City. The credit is recognized as research and development incentives when approved by New York City of the eligibility for the credit and the ~~changes in fair value are immediately included in earnings. The Company’s derivative financial instruments include bifurcated embedded derivatives that were identified within~~credit amount. During the ~~2020 Convertible Notes~~years ended December 31, 2018, 2017 and 2016, the ~~Convertible Bridge Notes (see Notes 5, 7~~Company recorded research and ~~10).~~

development incentive income of $186, $192 and $0, respectively.

Income ~~taxes~~—Taxes

The Company ~~uses~~accounts for income taxes under the asset and liability ~~method for accounting for income taxes. Under this method,~~method. The Company recognizes deferred tax assets and liabilities ~~are recognized~~ for the ~~estimated~~ future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective ~~income~~ tax ~~bases. Deferred~~bases, as well as for operating loss and tax credit carry-forwards. The Company measures deferred tax assets and liabilities ~~are measured~~ using enacted tax rates expected to apply to taxable income in the years in which the Company expects to recover or settle those temporary ~~differences are expected to be recovered or settled. A~~differences. The Company recognizes the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. The Company reduces the measurement of a deferred tax asset, if necessary, by a valuation allowance ~~is recorded~~ if it is more likely than not that athe Company will not realize some or all of the deferred tax ~~asset will not be realized.~~ asset.

The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet differences. In accordance with ASC 740 “Income Taxes”, the Company ~~has provided~~recorded a full valuation allowance ~~on its~~to fully offset the gross deferred tax ~~assets.~~

~~The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would~~asset because it is not more likely than not ~~sustain~~that the ~~position following an audit. For~~Company will realize future benefits associated with these deferred tax ~~positions meeting the more-likely-than-not threshold, the amount~~assets at December 31, 2018 and 2017.

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The Company accounts for uncertainty in income taxes recognized in the ~~consolidated~~ financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest ~~benefit~~amount that has a greater than ~~50 percent~~50% likelihood of being realized upon ultimate ~~settlement with~~settlement. The provision for income taxes includes the ~~relevant~~effects of any resulting tax ~~authority.~~

~~The Company will recognize~~reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and ~~penalties related~~penalties.

On December 22, 2017, the Tax Cut and Jobs Act (the “Act”), was signed into law by the President of the United States. The Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 34 percent to ~~uncertain tax positions in~~21 percent, effective January 1, 2018 and the establishment of a territorial-style system for taxing foreign-source income ~~tax expense. As~~ of ~~December 31, 2015 and 2014, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations.~~

domestic multinational corporations.

Net ~~loss per share~~—Loss Per Share

The Company calculates net loss per share in accordance with FASB ASC 260,Earnings per ~~Share~~.Share. Basic ~~earnings (loss)~~net loss per share ~~(“EPS”)~~attributable to common shareholders is ~~calculated~~computed by dividing the net ~~income or~~ loss ~~applicable~~attributable to common ~~stockholders~~shareholders by the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common shareholders is computed by adjusting net loss attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common shareholders is computed by dividing the diluted net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period, ~~without consideration~~including potential dilutive common shares. For purposes of unissued common stock equivalents. The net loss applicable to common stockholders is determined by the reported net loss for the period and deducting dividends accrued and accretion of preferred stock. Diluted EPS is calculated by adjusting the weighted average common sharesthis calculation, outstanding ~~for the dilutive effect of common stock~~ options ~~warrants,~~ and convertible preferred ~~stock and accrued but unpaid~~shares are considered potential dilutive common shares. In connection with the Reverse Merger, all of the convertible preferred ~~stock dividends. In periods where~~shares were converted into common stock. This conversion was in accordance with the original terms.

Segment Reporting

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources, and consists of net loss ~~is recorded, no effect is given to potentially dilutive securities, as their effect would be anti-dilutive.~~

~~The following table sets forth the computation of basic~~ and ~~diluted EPS attributable to the Company’s common stockholders:~~

   2015 2014
Numerator:

Net loss
   $ (67,982 ) $ (9,531 )
Accretion and dividends on convertible preferred stock
   (131 ) (4,265 )


Net loss applicable to common stockholders
   $ (68,113 ) $ (13,796 )
Denominator:

Weighted average common shares outstanding—basic and diluted
   18,311,333    1,020,088


Net loss per share applicable to common stockholders—basic and diluted
   $ (3.72 ) $ (13.52 )

~~The following common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated as including them would have an anti-dilutive effect:~~

   December 31,
2015    December 31,
2014
Series AA preferred stock
   —         7,356,331
Series X preferred stock
   —         466,319
Warrants for Series AA preferred stock
   —         56,408
Warrants for common stock
   56,408       —
Stock options
   1,631,677       911,075




Total
   1,688,085       8,790,133

~~Subsequent Events~~—The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The Company has completed an evaluation of all subsequent events through the date the financial statements were issued (See Note 12).

changes in unrealized gains and losses on investments.

Recent Accounting Pronouncements

In ~~August 2014,~~February 2016, the FASB issued ASU ~~2014-15,~~2016-02, Leases (Topic 842), as amended, which ~~provides~~supersedes the current leasing guidance ~~about management’s responsibility~~and upon adoption, will require lessees to ~~evaluate whether there is substantial doubt about an entity’s ability~~recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Leases with a term of 12 months or less will be accounted for similar to ~~continue as a going concern and to provide related footnote disclosures.~~existing guidance for operating leases today. The new standard is effective for the Company for the annual period ~~ending~~beginning after December 15, ~~2016~~2018, and can be early adopted. Upon the adoption of the guidance, operating leases are capitalized on the balance at the present value of lease payments. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. The Company completed its calculations of the assets and liabilities to be recorded and required additional disclosures upon the adoption of ASU 2016-02.

The Company elected the available package of practical expedients which allows the Company to not reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of leases, and the treatment of initial direct costs. The Company also expects it will make an accounting policy election to utilize the short-term lease exemption, whereby leases with a term of 12 months or less will not follow the recognition and measurement requirements of the new standard.

In preparation for adoption of the standard, the Company has implemented internal controls to enable the preparation of financial information including the assessment of the impact of the standard. The adoption of the new standard is expected to result in the recognition of additional lease liabilities ranging from $3.0 million to $3.7 million, and right-of-use assets ranging from $2.6 million to $3.2 million as of January 1, 2019 related to the Company’s operating leases.

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In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 provides that when substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. ASU 2017-01 is effective to annual periods beginning after December 31, 2018 and interim periods ~~thereafter, with early adoption permitted.~~ within annual periods beginning after December 31, 2019. Adoption of ASU 2017-01 may impact the Company’s accounting for future acquisitions.

4. Acquisition Accounting

The ~~Company is currently evaluating the impact~~identifiable assets and liabilities of ~~this accounting standard update on~~Inotek are allocated in the Company’s consolidated financial ~~statements.~~

3.statements at their fair values at the acquisition date, January 4, 2018. Goodwill is calculated as the excess value of consideration paid over the fair value of assets acquired and liabilities assumed.

The acquisition-date fair value of the consideration transferred is as follows:

Number of shares of the combined company owned by Inotek shareholders		6,805,608
Number of shares issuable in connection with fully vested RSUs of Inotek immediately prior to the Reverse Merger		271,718
Inotek common stock on the acquisition date		7,077,326
Price per share of Inotek common stock on acquisition date	$	12.16
Total purchase price	$	86,060

The following table summarizes the fair value purchase price allocation of the assets acquired and liabilities assumed at the date of acquisition which is subject to adjustment as the Company finalizes it valuation:

Cash and cash equivalents	$	76,348
Short term investments		21,292
Prepaid expense and other assets		1,041
Property and equipment		256
Deposits		168
Goodwill		30,815
Accounts payable and accrued expenses		(4,961	)
Convertible notes		(38,388	)
Unfavorable lease liability		(511	)
Net assets acquired	$	86,060

The goodwill of $30,815 represents the premium over the purchase price. Goodwill is mainly attributable to the value of cash and cash equivalents and short term investments acquired as of the acquisition date and access to capital markets. The allocation of the purchase price with the assistance of a third party valuation, is based on certain management assumptions (Level 3 inputs). The Company incurred and expensed acquisition costs of $147 for the year ended December 31, 2018.

The following supplemental unaudited pro forma information presents the Company’s financial results as if the acquisition of Inotek had occurred on January 1, 2017:

	Year Ended December 31,
	2018			2017
Revenue	$	-		$	-
Net loss		(78,248	)		(35,760	)

The above unaudited pro forma information was determined based on the historical US GAAP results of the Company and Inotek. The unaudited pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations actually would have been if the acquisition was completed on January 1, 2017. The unaudited pro forma consolidated net loss includes pro forma adjustments primarily relating to the following non-recurring items directly attributable to the business combination:

(1)	Elimination of $4,512 of transaction costs for both the Company and Inotek from the year ended December 31, 2018;

(2)	Elimination of $3,459 of stock-based compensation expense related to the acceleration of vesting and modification of certain previously unvested Inotek awards in connection with the Reverse Merger from the year ended December 31, 2018;

(3)	Elimination of $1,622 of expense related to severance and stay bonuses from the year ended December 31, 2018;

(4)	To adjust interest expense incurred in connection with the 2021 Convertible Notes assumed in connection with the Reverse Merger based on the fair value of the 2021 Convertible Notes on the date of the Reverse Merger, as if it occurred on January 1, 2017;

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(5)	To adjust depreciation expense associated with property and equipment acquired in connection with the Reverse Merger based on the fair value of the property and equipment on the date of the Reverse Merger, as if it occurred on January 1, 2017; and

(6)	To adjust expense associated with operating lease obligations assumed in connection with the Merger based on the fair value of the leases on the date of the Merger, as if it occurred on January 1, 2017.

5. Fair Value of Financial Instruments

Items measured at fair value on a recurring basis are the Company’s investments. The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:

	Fair Value Measurements as of
	December 31, 2018 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Money market mutual funds (included in cash and cash equivalents)	$	30,552	$	-	$	-	$	30,552

United States Treasury securities		101,777		-		-		101,777
Investments		101,777		-		-		101,777

	$	132,329	$	-	$	-	$	132,329

The Company classifies its money market mutual funds and United States Treasury securities as Level 1 assets under the fair value hierarchy, as these assets have been valued using quoted market prices in active markets without any valuation adjustment.

6. Property and Equipment

~~At December 31, 2015 and 2014, the~~

The Company’s property and equipment consisted of the following:

   December 31,
   2015    2014
Office equipment
   $ 334       $ 50
Computer hardware and software
   252       167
Laboratory equipment
   43       —
Leasehold improvements
   445       —




Total
   1,074       217
Less accumulated depreciation
   (262 )    (217 )




Property and equipment, net
   $ 812       $ —

	December 31, 2018			December 31, 2017
Laboratory equipment	$	1,556		$	1,042
Computer equipment		179			98
Furniture and fixtures		273			115
Construction in progress		469			—
Leasehold improvements		29			—
		2,506			1,255
Less: accumulated depreciation		(479	)		(270	)
	$	2,027		$	985

During the years ended December 31, ~~2015~~2018, 2017 and ~~2014,~~2016, the Company recognized ~~$45~~$330, $204 and $0$67 of depreciation expense, respectively.

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7. Accounts Payable and Accrued Expenses ~~and Other Current Liabilities~~

~~Accrued expenses at~~

At December 31, ~~2015~~2018 and ~~2014~~2017, the Company’s accounts payable and accrued expenses consisted of the following:

   December 31,
   2015    2014
Research and development
   $ 375       $ 116
Government payable
   450       421
Compensation and benefits
   999       293
Professional fees
   347       155
Other
   337       7




Total
   $ 2,508       $ 992

~~5. Debt~~

~~2020~~

December 31,
2018

December 31,
2017

Bonus $ 1,774 $ 703
Research and development 10,414 3,273
Severance and benefits 7 138
Professional fees 690 382
Government grant payable 534 —
Accrued interest 1,241 —
Accrued vacation 123 —
Other 589 25
$ 15,372 $ 4,521

8. Convertible Notes

Payable

On ~~February 23, 2015,~~January 4, 2018, in connection with the Reverse Merger, Inotek’s obligations under its outstanding convertible notes, with an aggregate principal value of $52,000, were assumed by the Company ~~issued an aggregate of $20,000 of the 2020~~(the “2021 Convertible Notes”). The 2021 Convertible Notes ~~pursuant to its IPO. On March 24, 2015, the Company~~were issued ~~an additional $1,000 of 2020 Convertible Notes pursuant to the exercise of the underwriters’ overallotment option. The 2020 Convertible Notes had a maturity date of February 15, 2020~~in 2016 and mature on August 1, 2021 (“Maturity Date”)~~, were~~. The 2021 Convertible Notes are unsecured, ~~and accrued~~accrue interest at a rate of ~~5.0%~~5.75% per annum and interest is payable semi-annually on February 151 and August 151 of each year. ~~In connection with the issuance of the 2020 Convertible Notes, the Company incurred $2,097 of financing costs which were recorded in other assets on the balance sheet.~~

Each holder of a ~~2020~~2021 Convertible Note (the “Holder”)~~, had~~ has the option until the close of business on the second business day immediately preceding the Maturity Date to convert all, or any portion, of ~~such note~~the 2021 Convertible Notes held by it at ~~an initial~~a conversion rate of ~~158.7302~~31.1876 shares of the Company’s common stock per $1 principal amount of ~~2020~~2021 Convertible Notes (the “Conversion Rate”). which is $32.08 per share. The Conversion Rate ~~was~~is subject to adjustment from time to time upon the occurrence of certain events, including the issuance of stock dividends and payment of cash dividends. ~~For any~~

In addition, in certain circumstances, the Conversion Rate will be increased in respect of a Holder’s conversion that occurred on or after July 23, 2015, the Company would, in addition to the other consideration payable, make an interest make-whole payment (the “Interest Make-Whole Payment”) to such converting Holder equal to the sum of ~~the present values of the scheduled payments of interest that would have been made on the 2020~~2021 Convertible Notes ~~to be converted had~~in connection with the occurrence of one or more corporate events specified in the indenture (as supplemented, the “Indenture”) governing the 2021 Convertible Notes (each such ~~notes remained outstanding from the date of the conversion (the “Conversion Date”~~specified corporate event, a “Make-Whole Fundamental Change”) ~~through the earlier of (i) the date~~ that ~~is three years after the Conversion Date and (ii)~~occurs prior to the Maturity Date ~~if the 2020~~(a “Make-Whole Fundamental Change Conversion”) or in respect of a Holder’s voluntary conversion of 2021 Convertible Notes ~~had not been so converted or otherwise repurchased. Present values for the Interest~~other than in connection with a Make-Whole ~~Payment would be calculated using~~Fundamental Change (a “Voluntary Conversion”). In connection with a ~~discount rate equal to 2%. The Company could satisfy its obligation to pay any Interest~~ Make-Whole ~~Payment, at its election, in cash, shares of common stock~~Fundamental Change Conversion or a ~~combination thereof.~~

The 2020 Convertible Notes were convertible, at the holder’s option, upon a fundamental change (“Fundamental Change”), as defined in the Indenture (“Indenture”). If a holder elected to convert its notes upon a Fundamental Change,Voluntary Conversion, the Company ~~would~~will increase the Conversion Rate for the ~~2020~~2021 Convertible Notes so surrendered for conversion by a number of additional shares of the Company’s common stock ~~by which~~set forth in the Additional Shares Make-Whole Table in the Indenture, based on the applicable Stock Price (as defined in the Indenture) and Effective Date (as defined in the Indenture) for such conversion. The additional shares potentially issuable in connection with a Make-Whole Fundamental Change Conversion ~~Rate would have increased~~or a Voluntary Conversion range from 0 to 6.2375 per $1 principal amount of ~~notes for each stock price and make-whole~~2021 Convertible Notes, subject to adjustment. If the Stock Price applicable to any conversion is greater than $160.00 per share, the Conversion Rate will not be increased. If the Stock Price applicable to any conversion is less than $26.72 per share, the Conversion Rate in connection with a Make-Whole Fundamental Change ~~effective date as set forth~~Conversion will not be increased but it will be increased by 6.2375 shares in connection with a Voluntary Conversion. Upon conversion, Holders of the ~~Indenture. The additional~~2021 Convertible Notes will receive shares ~~ranged from 7.9364 to 0.~~

of the Company’s common stock and cash in lieu of fractional shares.

Upon the occurrence of a Fundamental Change, the occurrence of certain change of control transactions or delisting events (as defined in the Indenture), each Holder ~~would have the right to~~may require the Company to repurchase for cash all ~~of such Holder’s notes,~~ or any portion ~~thereof that is~~of the 2021 Convertible Notes held by such Holder at a repurchase price equal to ~~$1 or an integral multiple of $1. The repurchase price of the 2020 Convertible Notes would equal~~ 100% of the principal amount thereof, plus accrued and unpaid interest thereon. ~~However,~~

The Company, at its option, may redeem for cash all or any portion of the 2021 Convertible Notes if the ~~repurchase occurred after~~last reported sale price of a ~~regular record~~share of the Company’s common stock is equal to or greater than 200% of the conversion price for the 2021 Convertible Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending within the five trading days immediately preceding the date ~~for an interest payment, but before~~on which the ~~distribution date~~Company provides notice of ~~that interest payment, the Holder receive the regular interest payment and the repurchase~~redemption, at a redemption price ~~would~~ equal to 100% of the principal amount of the ~~2020~~2021 Convertible Notes to be ~~repurchased.~~

~~The 2020 Convertible Notes were redeemable at~~redeemed, plus accrued and unpaid interest to, but excluding, the ~~holder’s option upon an event of default (“Event of Default”).~~ redemption date.

If an Event of Default ~~(other~~(as defined in the Indenture), other than certain events of bankruptcy, insolvency or reorganization involving the ~~Company) occurred~~Company, occurs and ~~was~~is continuing, the ~~Trustee by notice to~~trustee under the ~~Company,~~Indenture or the ~~holders~~Holders of at least 25% in principal amount of the outstanding ~~notes by written notice to the Company and the Trustee, could~~2021 Convertible Notes may declare 100% of the principal of and accrued and unpaid interest, if any, on all of the ~~2020~~2021 Convertible Notes to be due and payable immediately. Upon the occurrence of ~~certain Events~~an Event of Default relating to bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the ~~2020~~2021 Convertible Notes would become due and payable automatically.

~~The~~

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Notwithstanding the foregoing, the Indenture ~~provided~~provides that, to the extent the Company ~~elected and for up to 180 days,~~elects, the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture, ~~consisted~~will (i) for the first 90 days after the occurrence of such an Event of Default, consist exclusively of the right to receive additional interest ~~(“Additional Interest”)~~ on the ~~2020~~2021 Convertible ~~Notes. The Additional Interest consisted of interest~~Notes at ~~an additional~~a rate ofequal to 0.25% per annum of the principal amount of the 2021 Convertible Notes outstanding for each day during such 90-day period on which such an Event of Default is continuing and (ii) for the ~~first 90 days~~period from, and including, the 91st day after the occurrence of such an Event of ~~Default. For~~Default to, and including, the ~~91st to~~ 180th day after the occurrence of such an Event of Default, consist exclusively of the ~~Additional Interest would consist of~~right to receive additional interest on the 2021 Convertible Notes at ~~an additional~~a rate ofequal to 0.50% per ~~annum.~~annum of the principal amount of the 2021 Convertible Notes outstanding for each day during such additional 90-day period on which such an Event of Default is continuing (such additional interest, “Additional Interest”). After 180 days, if ~~the~~such Event of Default ~~was~~is not cured or waived, the ~~2020~~2021 Convertible Notes ~~were~~would be subject to acceleration in accordance with the Indenture.

The 2021 Convertible Notes are considered a hybrid financial instrument consisting of a fixed interest rate “host” and various embedded features that required evaluation as ~~provided in Section 6.02~~potential embedded derivatives under FASB ASC 815, Derivatives and Hedging (“ASC 815”). Based on the nature of the ~~Indenture.~~

host instrument and the embedded features, management concluded that none of the conversion, put and redemption features required bifurcation and separate accounting from the host instrument. The Company determined that the ~~conversion option,~~Additional Interest ~~Make-Whole Payments and~~was an embedded derivative that contains non-credit related events of default. As a result, the Additional Interest ~~were embedded derivatives that~~feature required bifurcation and separate accounting under ASC ~~815, Derivatives~~~~and Hedging~~.815. Based on the ~~characteristics~~amount of ~~the (i) conversion option including make-whole provision, (ii) the~~ Additional Interest ~~and (iii) the 2020 Convertible Notes, the Company estimated the fair value of the conversion option including the Interest Make-Whole provision~~that would be owed and the Additional Interest using the “with” and “without” method. Using this methodology, the Company first valued the 2020 Convertible Notes with the conversion option including make-whole provision but excluding the Additional Interest (the “with” scenario) and subsequently valued the 2020 Convertible Notes without the conversion option including make-whole provision and excluding the Additional Interest (the “without” scenario). The difference between the fair valueslikelihood of the 2020 Convertible Notes in the “with” and “without” scenarios was the concluded fair value of the conversion option including make-whole provision as of the measurement date. The Company developed an estimate of fair value for the 2020 Convertible Notes excluding the Additional Interest using a binomial lattice model. The Company modeled the decision to convert or hold by considering the maximum of the conversion or hold value at every node of the lattice in which the 2020 Convertible Notes were convertible and choosing the action that would maximize the return to the 2020 Convertible Notes’ holders. The significant assumptions used in the binomial model were: the market yield and the expected volatility.

~~The Company~~occurrence, Rocket estimated the fair value of the Additional Interest ~~using an income approach, specifically,~~feature to be insignificant upon issuance, at the ~~risk-neutral debt valuation method that is used to derive~~time of the ~~value~~Reverse Merger, and as of a debt instrument using the expected cash flows and the risk-free rate. The significant assumptions used in estimating the expected cash flows were: the market yield used to determine the risk-neutral probability of default and the expected recovery rate upon default.

December 31, 2018.

The Company recorded ~~$11,850 as~~the 2021 Convertible Notes at their fair value of $38,388 on January 4, 2018, the date of the acquisition. The difference between the fair value of the ~~combined embedded derivative liability on February 23, 2015, with a corresponding amount recorded as~~2021 Convertible Notes and the principal value represents a discount toon the 2020 Convertible Notes, related to the initial issuance of the 2020 Convertible Notes. The Company recorded approximately $573 of additional derivative liability and discount to the 2020 Convertible Notes as the fair value of the combined embedded derivative on March 24, 2015, upon the issuance of additional 2020 Convertible Notes for the exercise of the underwriters’ overallotment option. The deferred financing costs and the debt discount were recorded in other assets and werenotes that is being amortized to interest expense over the ~~life of the 2020 Convertible Notes~~remaining term using the effective interest method. ~~Changes in~~As of December 31, 2018, the ~~fair~~stated interest rate was 5.75%, and the effective interest rate was 15.3%.

The table below summarizes the carrying value of the ~~combined embedded derivative liability were recorded in earnings in the period in which the changes occurred.~~

~~In July and August 2015, holders~~2021 Convertible Notes as of ~~all $21,000 principal amount~~December 31, 2018:

Principal amount	$	52,000
Discount		(10,553	)
Carrying value as of December 31, 2018	$	41,447

Accretion of the ~~2020~~2021 Convertible Notes ~~elected to convert the principal into 3,333,319 shares of common stock in accordance with the terms of the 2020 Convertible Notes. In addition, the Interest Make-Whole Payment~~discount was ~~settled with shares of common stock, at~~

the election of the Company, resulting in the issuance of 530,072 additional shares of common stock. As of the conversion dates, the fair value of the combined embedded derivative liability was determined to be $55,216. The change in the estimated fair value of the combined embedded derivative liability from the recognition dates to the conversion dates and$3,059 for the year ended December 31, 2015, was $42,793. In addition, the Company recorded a charge of $3,716 in the year ended December 31, 2015, related to extinguishment of the 2020 Convertible Notes. As of December 31, 2015, all $21,000 of the 2020 Convertible Notes were extinguished.

Interest expense related to the 2020 Convertible Notes for the year ended December 31, 2015, was $963, including $74 related to amortization of the issuance costs and $440 related to amortization of the debt discount.

~~Convertible Bridge Notes~~

In December 2014, the Company sold an aggregate of $2,000 of subordinated convertible promissory notes to existing stockholders (the “2014 Convertible Bridge Notes”). The 2014 Convertible Bridge Notes were to mature on June 30, 2015 and accrued interest at the rate of 8% per annum and were subordinate to all other senior indebtedness of the Company. Upon the closing of an IPO of common stock of at least $40,000 in gross proceeds (“a qualifying public offering”), all outstanding principal and accrued interest thereon would automatically convert into common stock at the IPO price. In addition, the 2014 Convertible Bridge Notes had the following features: (i) in the event the Company sold new notes2018.

9. Shareholders’ Equity

Preferred Shares

On January 4, 2018, immediately prior to a qualifying public offering, the noteholders would convert the 2014 Convertible Bridge Notes into the new notes; (ii) if at any time prior to repayment of the 2014 Convertible Bridge Notes or a qualifying public offering the Company had a change in control transaction, the noteholders would receive either (a) cash in the amount of twice the principal and interest due as of the effective date of the change in control transaction or (b) shares of Series AA preferred stock based upon the conversion of the principal and interest due as of the effective date of the change in control transaction, whichever yields the greatest return (the ‘Change in Control Redemption Feature”); (iii) at any time after maturity, the noteholders could elect to convert all principal and accrued interest into Series AA Preferred stock at the current Series AA preferred stock conversion price; (v) the maturity date of the 2014 Convertible Bridge Notes could be extended two times for additional six-month periods; (vi) upon an event of default, as defined in the notes, the noteholders could declare the 2014 Convertible Bridge Notes immediately payable; and (vii) the Company would not prepay the 2014 Convertible Bridge Notes without the consent of noteholders owning at least two thirds of the outstanding principal. Interest accrued on the 2014 Convertible Bridge Notes was $4 at December 31, 2014 and was reflected in accrued expenses and other current liabilities.

The Company determined that the automatic conversion into common stock upon an IPO was the predominant feature of the 2014 Convertible Bridge Notes. Based on this the Company deemed the 2014 Convertible Bridge Notes to be share-settled debt and accreted the debt discounts recorded (see below) to the redemption value over the term of the 2014 Convertible Bridge Notes. The Company evaluated the various features of the 2014 Convertible Bridge Notes and determined that the Change in Control Redemption Feature met the definition of a derivative and required bifurcation from the 2014 Convertible Bridge Notes. At the issuance of the 2014 Convertible Bridge Notes, the Company valued this derivative at $478 and allocated that value from the proceeds of the 2014 Convertible Bridge Notes and recorded a convertible notes redemption rights derivative liability on the balance sheet. The Company marked this liability to market at each reporting date and reflected the change in fair value in change in fair value of Convertible Bridge Notes redemption rights derivative in the statement of operations. In addition, the Company incurred $30 of costs associated with the issuance of the 2014 Convertible Bridge Notes and recorded this amount as deferred financing costs which were reflected in prepaid expenses and other current assets. The Company amortized (i) the debt discount recorded from the allocation of value to the redemption rights derivative and (ii) deferred financing costs, into interest expense using the effective interest method. During the year ended December 31, 2014, the Company reflected as interest expense related to the 2014 Convertible Bridge Notes (i) $4 related to the 8% coupon rate and (ii) $20 of amortization of the initial redemption rights derivative liability and issuance costs. In addition, the Company reflected a $2 increase in fair value of the derivative liability at December 31, 2014 as loss on change in fair value of convertible notes redemption rights derivative. At December 31, 2014, the principal balance of the 2014 Convertible Bridge Notes was $2,000.

Pursuant to the IPO in February 2015, the Convertible Bridge Notes were converted into 337,932 shares of common stock based upon the IPO common share offering price of $6.00 per share. For the year ended December 31, 2015, the Company reflected interest expense related to the Convertible Bridge Notes as follows: (i) $23 related to the 8% coupon rate and (ii) $128 of amortization of the initial fair value of the redemption rights derivative and issuance costs. In the year ended December 31, 2015, in connection with the ~~conversion~~closing of the ~~Convertible Bridge Notes into common stock, the Company reflected (i) a $480 gain in change in fair value of the Convertible Bridge Notes redemption rights derivative on conversion~~Reverse Merger, and ~~(ii) a loss on extinguishment of debt of $360 from the acceleration of the unamortized balance of the debt discount and issuance costs.~~

~~Notes Payable~~

On June 28, 2013, the Company entered into two Loan and Security Agreements (the “Loan Agreements” or “Loans”) with two financial entities (the “Lenders”) pursuant to which the Company issued Loans for $3,500 to each lender and received proceeds of $6,915 net of costs and fees payable to the lenders. The Loans were to bear interest at a rate per annum of 11.0%. The Loans were to mature on October 1, 2016 and required interest-only payments for the initial 12 months and thereafter required repayment of the principal balance with interest in 27 monthly installments. Also, upon full repayment or maturity of the Loans, the Lenders were due a termination payment of 3.0% of the initial principal amount of the Loans, or $210 (the “Loan Termination Payment”). In connection with the Loan Agreements, the Company granted first priority liens and the Loans were collateralized by the Company’s personal property, including cash and cash equivalents. The Loan Agreements contained representations and warranties by the Company and certain indemnification provisions, non-financial covenants and default provisions. The Loan Agreements also included certain provisions allowing for prepayment of the debt by the Company, exercisable at the Company’s option, which required payment of additional interest to the Lenders based upon a stated rate and the balance outstanding at repayment. The Company determined that the various embedded features did not require bifurcation from the Loan Agreements.

In connection with the Loan Agreements, the Company issued to the Lenders fully-vested warrants to purchase either, at the election of the warrant holder, (i) 228,906 shares of the Company’s Series AA preferred stock at an exercise price of $1.529 per share, or (ii) $350 of stock in the next round stock, as defined in the Loan Agreements, at a price that was the lowest effective price per share that is offered in the next round. The warrants were to expire on the earlier of (i) ten years after the date of grant, or (ii) immediately prior to an acquisition transaction, as defined in the warrants.

The Company determined that the warrants should be classified as a liability based upon the nature of the underlying Series AA preferred stock. The Company recorded the fair value of the warrants of approximately $222 (Note 10) as a discount to the carrying value of the Loans and as a liability. The Company recognized any change in the value of the warrant liability each reporting period in the statement of operations. Additionally, the Company incurred fees related to the Loan Agreements and reimbursed Lenders for costs incurred by them aggregating $85 and reflected these fees as a discount to the carrying value of the Loan. The Company amortized these loan discounts and the Loan Termination Payment, together totaling $517, to interest expense over the term of the Loan using the effective interest rate method. For the year ended December 31, 2014, interest expense related to the Loan Agreements was $956, including $218 related to accretion of the debt discount and termination payment. At December 31, 2014, the principal balance on the Loan Agreements was $5,800, including the Loan Termination Payment and the unamortized debt discount and termination payment balance was $188. Principal payments on the Loans were $1,410 during the year ended December 31, 2014.

In connection with the Company’s IPO in February 2015, the Company exercised its right to terminate the Loan Agreements by paying the $5,347 principal balance due, the $210 Loan Termination Payment, a $160 prepayment fee calculated as 3% of the principal balance due at the time of the termination, plus $23 of interest accrued from February 1, 2015 through the payoff date. The Company made a scheduled principal payment of $243 in January 2015. For the year ended December 31, 2015, interest expense related to the Loan Agreements was $115, including $26 related to accretion of the debt discount and termination payment. Additionally, for the

~~year ended December 31, 2015, the Company recorded a loss on extinguishment of the Loan Agreement of $323 related to the write-off of unamortized debt discount.~~

Subsequent to the Company’s IPO, the warrants issued to the lenders became exercisable for 56,408 shares of common stock at $6.204 per share. The Company calculated the fair value of the warrants at the IPO date using a Black Scholes model using the following assumptions: a fair value of $6.00 per share (the IPO price of the Company’s common stock), 8.4 years to maturity, 1.70% risk-free rate, and 60% volatility. The Company determined the fair value of the warrant liability at the IPO date to be $215 and recorded a gain on change in fair value of warrant liabilities of $267 in the statement of operations for the year ended December 31, 2015. The Company determined that subsequent to this change, the warrants were exercisable at a fixed price for a fixed number of shares of common stock and qualified for equity classification under the accounting guidance, and the fair value of $215 was reclassified to additional paid-in capital as of the IPO date in the year ended December 31, 2015.

~~6. Income Taxes~~

~~No provision for federal or state income taxes was recorded during the years ended December 31, 2015 and 2014, as the Company incurred operating losses for each of these years.~~

~~A reconciliation between the effective tax rates and statutory rates for the years ended December 31, 2015 and 2014 is as follows:~~

   2015 2014
Computed at statutory rate
   34.00 % 34.00 %
State income taxes
   1.20    4.93
Expiration of capital loss carryforward
   (2.13 ) 0.00
Expiration of state net operating loss carryforward
   0.00    (9.35 )
Tax credits
   0.73    2.43
Other
   (3.35 ) (4.28 )
Change in value of convertible notes derivatives and warrant liabilities
   (21.16 ) —
Valuation allowance
   (9.29 ) (27.73 )


   —   % —   %

~~The tax effect of significant temporary differences representing deferred tax assets and liabilities as of December 31, 2015 and 2014 is as follows:~~

   December 31,
   2015    2014
Net operating loss (“NOL”) and credit carryforwards
   $ 35,858       $ 30,896
Capitalized research and development costs
   14,406       12,041
Capital loss carryover
   —         1,672
Other
   927       269
Valuation allowance
   (51,191 )    (44,878 )




   $ —      $ —

~~As required by ASC 740,~~~~Income Taxes~~, management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of NOL carryforwards and capitalized research and development costs. As a result of the fact that the Company has incurred tax losses from inception, management has determined that it is more likely than not that the Company will not recognize the benefits of federal and state net deferred tax assets and, as a result, a full valuation

allowance has been established against its net deferred tax assets as of December 31, 2015 and 2014. The Company has offset certain deferred tax liabilities with deferred tax assets that are expected to generate offsetting deductions within the same period. During the years ended December 31, 2015 and 2014, the valuation allowance changed by $6,313 and $2,643, respectively. Realization of deferred tax assets is dependent upon the generation of future taxable income.

As of December 31, 2015, the Company had federal NOL carryforwards for income tax purposes of $88,436 that expire at various dates through 2035, and state NOL carryforwards of $47,369 that expire at various dates through 2035, available to reduce future federal and state income taxes, if any. As of December 31, 2015, the Company had federal research and development tax credits of $3,196, and state research and development tax credits of $637. If substantial changes in the Company’s ownership should occur, as defined in Section 382 of the Internal Revenue Code of 1986, as amended, (the “Code”), there could be annual limitations on the amount of loss carryforwards which can be realized in future periods. The Company has determined that it has experienced prior ownership changes occurring in 2005, 2007 and 2015. The pre-change NOLs, although subject to an annual limitation, can be utilized in future years as well as any post change NOLs, provided that sufficient income is generated and no future ownership changes occur that may limit the Company’s NOLs.

As of December 31, 2015 and 2014, the Company’s total unrecognized tax benefits totaled $333 and $284, respectively, which if recognized would affect the effective tax rate prior to the adjustment for the Company’s valuation allowance. The Company files income tax returns in the U.S. federal and Massachusetts tax jurisdictions. Tax years 2012 through 2015 remain open to examination by the tax jurisdictions in which the Company is subject to tax. Since the Company is in a loss carryforward position, the Internal Revenue Service (“IRS”) and state taxing authorities are permitted to audit the earlier tax years and propose adjustments up to the amount of the NOLs generated. The Company is not currently under examination by the IRS or any other jurisdiction for any tax years.

~~The change in unrecognized tax benefits for each of the years ended December 31, 2015 and 2014 are as follows:~~

   2015    2014
Balance at January 1,
   $ 284       $ 258
Additions for current year tax positions
   49       26
Reductions for expirations of statute of limitations or settlements
   —      —




   $ 333       $ 284

~~The Company does not expect significant changes in its unrecognized tax benefits over the next twelve months.~~

~~7. Equity~~

~~Authorized Shares~~

As of December 31, 2015, the Company’s authorized capital stock consisted of 120,000,000 shares of common stock, par value $0.01 per share, and 5,000,000 shares of undesignated preferred stock, par value $0.001 per share.

~~Reverse Stock Splits~~

In November 2014, the board of directors and the stockholders of the Company approved a 1-for-3.39 reverse stock split of the Company’s outstanding common stock and in January 2015, the board of directors and the stockholders of the Company approved a 1-for-1.197 reverse stock split of the Company’s outstanding common stock. Shares of common stock underlying outstanding stock options were proportionally reduced and

~~the respective exercise prices were proportionally increased~~ in accordance with the original terms of the ~~option agreements. The Company’s~~convertible preferred shares, all of the outstanding convertible preferred shares of Rocket Ltd were converted into an aggregate of 19,475,788 shares of common stock.

Exchange Ratio

On January 4, 2018, in connection with the Reverse Merger, Rocket’s historical share and per share information has been ~~retroactively~~ adjusted in the consolidated financial statements presented to give effect to ~~these reverse stock splits, including reclassifying an amount equal to~~ the ~~reduction in par value to additional paid-in capital.~~

Exchange Ratio.

Common ~~Stock~~

~~All preferences, voting powers, relative, participating, optional, or other specific rights and privileges, limitations, or restrictions~~Shares

At the time of the common stock are expressly subject to those that may be fixed with respect to any shares of preferred stock. Common stockholders are entitled to one vote per share, and to receive dividends, when and if declared by the Board. There were 26,423,394 and 1,020,088Reverse Merger, Rocket Ltd’s outstanding shares of common stock ~~outstanding~~were 26,281,396 which includes 19,475,788 issued upon the conversion of Rocket Ltd’s convertible preferred stock.

On January 24, 2018, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Cowen and Company, LLC and Evercore Group L.L.C., as representatives (the “Representatives”) of the several underwriters (collectively with the Representatives, the “Underwriters”), pursuant to which the Company sold 6,325,000 shares of common stock (the “Shares”), which includes 825,000 shares that were sold pursuant to an option granted to the Underwriters (the “Offering”). The Shares were sold in the Offering at ~~December 31, 2015~~a public offering price of $13.25 per share in which the Company received gross proceeds of $83,806 net of $5,288 of offering costs, commission and ~~2014, respectively.~~

~~Preferred Stock~~

~~The~~legal and other expenses for net proceeds from the Offering of $78,518, after deducting the underwriting discounts and commissions and legal and accounting costs.

On November 30, 2018, the Company ~~has evaluated~~announced the ~~traunched nature~~closing of its ~~Preferred Stock offerings,~~previously announced underwritten public offering of 4,082,500 shares of its ~~investor registration rights,~~common stock, which includes the full exercise of the underwriters’ option to purchase 532,500 additional shares of its common stock, at a public offering price of $15.50 per share. The gross proceeds to Rocket from the offering were approximately $63,339, net of $4,035 of offering costs, commissions, legal and other expenses for a net proceeds from the offering of $59,304. BofA Merrill Lynch, Cowen and Company, LLC and Evercore ISI acted as ~~well~~joint book-running managers for the offering. Oppenheimer & Co. acted as lead manager and Ladenburg Thalmann acted as co-manager.

Table of Contents

In addition to the rights, preferences and privileges of each series of Preferred Stock and has concluded that there are no freestanding derivative instruments or any embedded derivatives requiring bifurcation. Additionally,shares sold in the ~~Company assessed the conversion terms associated with its Preferred Stock and concluded that there were no beneficial conversion features.~~

~~Series AA Redeemable Convertible Preferred Stock~~

~~In connection with the~~public offering, on November 30, 2018 Rocket closed a concurrent sale of ~~Series AA preferred stock in 2013, the Company issued warrants to purchase 852,230~~967,742 shares of ~~Series AA preferred~~common stock at a price of ~~$0.01~~$15.50 per share, with an expiration date on the earliest of (i) July 11, 2023, (ii) the closing of the Company’s IPO, or (iii) the closing of a sale event, as defined in the warrant. The Company allocated $1,585 of the proceeds received to the warrants issued, representing the grant date fair value of the warrants, and accounts for these warrants as liabilities. The Company recognized any change in the fair value of the warrant liabilities each reporting period in the consolidated statements of operations (Note 10). These warrants were exercised in full during the year ended December 31, 2014 for totalgross proceeds of ~~$8 which was recorded as Series AA preferred carrying value. The aggregate $2,250 fair value~~$15,000, net of ~~the warrants as~~offering costs of ~~the date~~$200 for net proceeds of ~~each exercise was reclassified partially~~$14,800, in a private placement to ~~Series AA preferred stock carrying value and the remainder to accumulated paid-in capital.~~

Due to the optional redemption feature of the Series AA preferred stock, the Company classified the Series AA preferred stock as temporary equity in the mezzanine section of the balance sheet and accreted the value to the redemption amount. The carrying amount of the Series AA preferred stock at December 31, 2014 was $46,253, including $9,976 of accrued but unpaid and undeclared dividends. All shares of Series AA preferred stock converted to shares of common stock upon the IPO in February 2015. Pursuant to these conversions, the $46,384 carrying value of the Series AA preferred stock at the time of the IPO was reclassified as $75 to common stock par value and $46,309 additional paid-in capital.

~~Rights, Preferences, and Privileges~~

~~Voting:~~

Series AA preferred stock voted together with all other classes and series of stock as a single class on all actions to be taken by the stockholders of the Company. Each share of Series AA preferred stock shall entitle the holder to such number of votes per share on each such action were equal the number of shares of common stock (including fractions of a share) into which each share of Series AA preferred stock was then convertible.

~~Dividends:~~

~~Series AA preferred stock accrued dividends quarterly at the rate of eight percent (8%~~RTW Investments, LP, (“RTW”) per annum, based upon the Series AA original issue price, whether or not declared, are cumulative and compounded annually. The Series AA original issue price was $1.529 per share (“Series AA Original Issue Price”).

~~Liquidation Preference:~~

~~Upon any liquidation, dissolution or winding up~~an existing stockholder of the Company ~~(a “Liquidation Event”), whether voluntary or involuntary,~~and an affiliate of Roderick Wong, the ~~holders~~chairman of ~~the~~Rocket’s board of directors. The sale of these shares of Series AA preferred stock would be paid out of the assets of the Company available for distribution to its stockholders before any payment would be made to the holders of Series X preferred stock or common stock, an amount per share equal to two times the Series AA Original Issue Price plus any accrued or declared but unpaid dividends ( the “Series AA Initial Preference”). If upon any Liquidation Event, the assets to be distributed to the holders of Series AA preferred stock would have been insufficient to permit payment to the stockholders of the Series AA Initial Preference, then the holders of the Series AA preferred stock would share ratably in any distribution of the remaining assets of the Company available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Upon any Liquidation Event, immediately after the holders of Series AA preferred stock have been paid in full the Series AA Initial Preference and after the holders of Series X preferred stock have been paid full the Series X preference (see Series X preferred stock below), the holders of the shares of Series AA preferred stock would be paid out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders of common stock, a per share amount equal to one-half times the Series AA Original Issue Price (the “Series AA Secondary Preference”). If upon any Liquidation Event, the assets to be distributed to the holders of Series AA preferred stock would be insufficient to permit payment to such stockholders of the Series AA Secondary Preference, then the holders of the Series AA preferred stock would share ratably in any distribution of the remaining assets of the Company available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

~~Optional Conversion:~~

The holder of any share or shares of Series AA preferred stock would have the right, at its option at any time, to convert any such shares of Series AA preferred stock (except that upon any liquidation of the Company the right of conversion would terminate at the close of business on the business day fixed for payment of the amounts distributable on the Series AA preferred stock), each such share of Series AA preferred stock being converted into such number of fully paid and nonassessable shares of common stock as is obtained by dividing (1) the Series AA Original Issue Price plus any accrued or declared but unpaid dividends by (2 ) the Series AA Conversion Price in effect at the date any share or shares of Series AA preferred stock are surrendered for conversion. The “Series AA Conversion Price” was ~~$1.529 and was subject to adjustment as discussed under the section “Anti-Dilution” below.~~

~~Mandatory Conversion:~~

All outstanding shares of Series AA Convertible Preferred Stock (including all accrued or declared but unpaid dividends thereon) would automatically convert to shares of Common Stock (i) upon the vote or written consent of the holders of at least sixty six and two-thirds percent (66 and 2/3%) of the issued and outstanding Series AA Convertible Preferred Stock, or (ii) upon the closing of a firm commitment underwritten public offering of shares of Common Stock pursuant to an effective registration statementnot registered under the Securities Act of 1933, as amended, ~~that is underwritten~~and such shares are subject to customary resale restrictions. Additionally, RTW signed a 90-day lock-up with respect to all shares of Rocket beneficially held by ~~an investment bank approved by~~RTW.

On December 27 and 28, 2018, the ~~Board~~Company repurchased 100,000 shares of ~~Directors and by a vote or written consent~~its common stock for aggregate consideration of approximately $1,400. The repurchases were made on the Nasdaq Stock Market at prevailing market prices in accordance with SEC Rule 10b-18. 50,000 of the ~~holders of at least sixty six and two-thirds percent (66 and 2/3%) of the issued and~~

outstanding Series AA Convertible Preferred Stock, with aggregate proceeds from such offering to the Corporation in excess of $40,000,000, before deduction of the underwriting discounts and commissions (a “Qualifying Public Offering”).

~~Special Mandatory Conversion:~~

~~In the event that any investor did not participate in a qualified financing by purchasing in the aggregate, in such qualified financing and within the time period specified~~shares repurchased by the Company ~~its pro rata amount~~settled on December 31, 2018 and the remaining 50,000 shares repurchased at an average price of $14.50 settled on January 2, 2019. As of December 31, 2018, at an average price of $13.36, the ~~qualified financing (such Investor’s “Pro Rata Amount”), then the applicable portion~~Company recorded a prepaid expense of ~~the shares of Series AA preferred stock held by such investor immediately prior~~$726 related to the ~~initial closing~~50,000 shares that settled on January 2, 2019 and recorded treasury stock of the qualified financing would automatically, and without any further action on the part of such Investor, be converted into common stock at a conversion ratio of one hundred-to-one (100:1) (such that every one hundred shares of Series AA preferred Stock are converted into one share of common stock), effective upon, subject to, and concurrently with, the consummation of the final closing. For purposes of determining the number of shares of Series AA preferred stock owned by an investor, and for determining the number of offered securities an investor has purchased in a qualified financing, all shares of Series AA preferred stock held by affiliates of such investor would be aggregated with such investor’s shares and all offered securities purchased by affiliates of such investor would be aggregated with the offered securities purchased by such Investor (provided that no shares or securities shall be attributed to more than one entity or person within any such group of affiliated entities or persons).

~~Anti-dilution:~~

The conversion price of the Series AA preferred stock was subject to adjustment to reduce dilution in the event that the Company issued additional equity securities at a purchase price less than the applicable conversion price. The conversion price would also be subject to proportional adjustment for events such as stock splits, stock dividends, and recapitalization. As a result of the reverse stock splits in November 2014 and January 2015, the Series AA conversion price was adjusted to $6.204.

~~Redemption:~~

~~Shares of Series AA preferred stock would be redeemed by the Company out of funds lawfully available there for at a price equal~~$668 relating to the ~~Series AA Original Issue Price per share, plus all accrued or declared but unpaid dividends thereon~~50,000 shares that settled as of December 31, 2018. These shares were subsequently retired in January 2019.

Immediately following the stock repurchases (the ~~“Redemption Price”~~“Repurchases”), in three annual installments commencing not more than 60 days after receipt by the Company at any time on or after the fifth anniversary of June 9, 2010, from the holders of at least sixty-six and two-thirds percent (66 and 2/3%) of the then outstanding shares of Series AA preferred stock of written notice requesting redemption of all shares of Series AA preferred stock. The date of each such installment would be referred to as a “Redemption Date.” If the Company did not have sufficient funds legally available to redeem on any Redemption Date all shares of Series AA preferred stock to be redeemed on such Redemption Date, the Company would redeem a pro rata portion of each holder’s redeemable shares of such capital stock out of funds legally available.

Certain “change in control” events, as defined in the Company’s certificate of incorporation, were considered to be liquidation events upon which the holders of Series AA preferred stock have had the option to require the Company redeem the shares held, at their liquidation value, as discussed above.

~~Series X Redeemable Convertible Preferred Stock~~

~~In June 2010,~~ the Company sold ~~2,451,184~~100,000 shares of ~~Series X redeemable convertible preferred~~common stock ~~(“Series X preferred stock”~~(the “Shares”) for $1,396 to employees and consultants to the Company at a purchase price of $0.001 per share, subject to stock purchase and restriction agreements. Pursuant to these agreements, the shares vest upon the third anniversary of the issuance if the purchaser of the Series X preferred shares remainedRTW Innovation Master Fund, Ltd. (“RTW Innovation”), which is an ~~employee or maintained a business relationship with the Company. The Series X preferred stockholder could not sell, assign,~~

transfer, pledge, encumber or dispose of all or any of the unvested shares except to the Company. The Company determined that the issuance of these restricted shares was compensatory in nature and accounted for the issuance as stock-based compensation. The excess grant date value, over the proceeds received from each purchase was determined to be compensation expense.

Simultaneous with the issuance of Series X preferred stock, the Company entered into termination and separation agreements with certain employees and consultants who purchased 392,189 shares of Series X preferred stock. The Company determined that there was no substantive future services required of these employees and consultants and recognized all of the associated compensation expense upon issuance.

~~The remaining 2,058,995 shares were issued to continuing employees~~affiliate of the Company and is managed by RTW. RTW Innovation purchased the shares for a per-Share price of $13.93, plus an amount equal to the Company’s expenses incurred in connection with the Repurchases (including broker’s commissions) and the issuance of the Shares. The offering and sale of the Shares was completed as a private placement under Section 4(a)(2) of the Securities Act of 1933, as amended and included in the common shares outstanding as of December 31, 2018.

10. Share-Based Awards

2015 Share Option Plan

The Rocket Ltd 2015 Share Option Plan provides for the Company ~~recognized~~to grant incentive stock options or nonqualified stock options for the ~~compensation expense on a straight-line basis over the requisite service period, net~~purchase of ~~an estimated forfeiture rate which concluded in 2013.~~

~~Two~~common shares to employees, members of the ~~employees that purchased Series X preferred stock were terminated~~board of directors and consultants. The 2015 Share Option Plan is administered by an administrative committee appointed by the ~~Company~~board of directors or, in ~~May 2013. Upon termination,~~ the ~~Company repurchased an aggregate~~absence of ~~558,864 shares~~such appointment, the entire board of ~~Series X preferred stock~~directors. The exercise prices, vesting and ~~modified~~other restrictions are determined at the ~~vesting terms on~~discretion of the ~~remaining 558,862 shares~~board of ~~Series X preferred stock held by these employees. The modified vesting terms provide~~directors, or their committee if so delegated, except that the shares will vest upon the occurrence of a liquidation event, if such liquidation event occurs within two years of the date of the modifications. The Company retains the right to repurchase the unvested shares at the purchaseexercise price ~~of $0.01~~ per share ~~if a liquidation event does~~of share options may not occur within two years of the date of the modification. During the year ended December 31, 2014, the Company further modified the vesting terms of these 558,862 shares of Series X preferred stock such that the Company’s repurchase right will expire upon consummation of an IPO of its common stock occurring prior to June 30, 2015. The Company estimated the fair value of the modified award at the modification date and at December 31, 2014 to be ~~$950 and recognized this amount as stock-based compensation expense in 2015 as a result of the Company’s February 2015 IPO.~~

~~The following table is a rollforward of unvested Series X preferred stock shares:~~


~~Unvested—December 31, 2014~~	~~558,862~~
~~Vested~~	~~(558,862~~	)
~~Repurchased~~	—

~~Unvested—December 31, 2015~~	—

Due to the redemption feature of the Series X preferred stock, discussed further below, the Company classified the Series X preferred stock as temporary equity in the mezzanine section of the balance sheet at December 31, 2014. Pursuant to the IPO, all Series X preferred stock became vested and converted into common stock. Pursuant to these conversions, the $548 carrying value of the Series X preferred stock at the time of the IPO was reclassified as $5 to common stock par value and $543 additional paid-in capital.

~~Rights, Preferences, and Privileges~~

~~Voting Rights:~~

The Series X preferred stock did not have any voting rights, except as related to the election of certain directors. When the Series X preferred stock had voting rights, each share of Series X preferred stock entitled the holder to such number of votes per share on each such action as shall equal the number of shares of common stock into which each share of Series X preferred stock was then convertible.

~~Liquidation Preference:~~

Upon any liquidation event, such as a liquidation, dissolution or winding up of the Company, immediately after the holders of Series AA preferred stock would have been paid in full, the Series AA preferred stock initial preference as described above and before any payment is made to the holders of common stock, the holders of

the shares of Series X preferred stock would be paid out of assets of the Company available for distribution to its stockholders a per share amount determined by taking the product of (1) the percentage calculated as (i) the total number of issued and outstanding shares of common stock owned by the holders of Series X preferred stock determined on an as converted fully-diluted basis divided by (ii) the total number of issued and outstanding shares of common stock of the Company on an as-converted fully diluted basis, and (2) the remaining assets of the Company available for distribution to its stockholders, and dividing such product by the number of issued and outstanding shares of Series X preferred stock (the “Series X Preference”).

Certain change in control events, as defined in the Company’s certificate of incorporation, were to be considered to be liquidation events upon which the holders of Series X preferred stock had the option to require the Company redeem the shares held, at their liquidation value, as discussed above.

~~Right to Convert:~~

The holder of any share of Series X preferred stock had the right, at any time to convert any such share (except that upon any liquidation of the Company the right of conversion shall terminate at the close of business on the business day fixed for payment of the amounts distributable on the Series X preferred stock), into fully paid and nonassessable shares of common stock based on the Series X Conversion Ratio. The Series X Conversion Ratio was initially 1:1, and subject to adjustment as discussed under the section “Anti-Dilution” below.

~~Mandatory Conversion:~~

The Series X preferred stock would be automatically converted into common stock, at the then applicable conversion price (i) in the event that the holders of at least two-thirds of the outstanding Series AA preferred stock, voting as a single class, consent to such conversion, or (ii) upon the closing of a qualified public offering, as defined.

~~Anti-Dilution:~~

~~The conversion price of the Series X preferred stock was subject to adjustment to reduce dilution in the event that the Company issues additional equity securities at a price~~ less than ~~the applicable conversion price. The conversion price would also be subject to proportional adjustment for events such as stock splits, stock dividends, and recapitalization. As a result~~100% of ~~the reverse stock splits in November 2014 and January 2015, the Series X conversion ratio was adjusted to approximately 1-for-4.06.~~

~~8. Stock Plans~~

~~The Company has historically granted common stock options pursuant to the 2004 and 2014 Plans (as defined below) at an exercise price that is not less than~~ the fair market value of the ~~Company’s stock~~share of common shares on the date of grant (or 110% of the fair market value in the case of an employee who owns shares representing more than 10% of the voting power of all classes of shares for the Company) and the term of share options may not be greater than ten years (or five years in the case of an employee who owns shares representing more than 10% of the voting power of all classes of shares for the Company). The Company generally grants share-based awards with service conditions only (“service-based” awards).

As required by the 2015 Share Option Plan, the exercise price for share options granted was not to be less than the fair value of common shares as determined by the Company as of the date of grant. The Company valued its common shares by taking into consideration its most recently available valuation of common shares performed by management and the board of directors as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

The total number of shares that may be issued under the 2015 Share Option Plan was 9,904,050 shares; however, the 2,944,702 shares that remained available under the 2015 Share Option Plan were added to the share reserve of the 2014 Plan in connection with ~~input from management. The board~~the Reverse Merger.

By virtue of ~~directors has historically determined~~ the ~~estimated fair value~~terms of the Merger Agreement, each stock option outstanding under the Rocket Ltd 2015 Share Option Plan immediately prior to the consummation of the Reverse Merger was automatically converted into a stock option exercisable for a number of shares of the Company’s common stock on the date of grant based on a number of objective and subjective factors, including external market conditions, rights and preferences of securities senior to the common stock at the time of each grant, the likelihood of achieving a liquidity event such as an IPO or the sale of the Company, and third party valuations. For stock option grants prior to the IPO, the computation of expected volatility wascalculated based on the ~~historical volatilities~~exchange ratio and the exercise price per share of peer companies. The peer companies include organizations that are in the same industry, with similar size and stage of growth. The Company estimates that the expected life of the options granted using the simplified method allowable under Staff Accounting Bulletin No. 107,~~Share Based Payments~~~~. The expected life is applied~~such outstanding stock option.

Pursuant to the ~~stock option grant group as a whole, as~~Merger Agreement, the Company ~~does not expect substantially different exercise or post vesting termination behavior among its employee population. The interest rate for grants pursuant to~~sponsored Inotek’s equity compensation plans: the ~~2004~~Amended and Restated 2014 ~~Plans are based on the U.S. treasury bills rate for U.S. treasury bills with terms commensurate with the expected term of the option grants on the grant date of the option.~~

~~2004~~ Stock Option and Incentive Plan

~~In July 2004, the Company’s board of directors adopted~~ (the “2014 Plan”), the 2004 Stock Option and Incentive Plan (the “2004 Plan”), and the 2014 Employee Stock Purchase Plan (“ESPP”) and assumed all stock options and restricted stock units (“RSUs”) outstanding under each of the plans immediately prior to the effective time of the Reverse Merger.

Second Amended and Restated 2014 Stock Option and Incentive Plan

In March 2018, Rocket’s board of directors approved the Second Amended and Restated 2014 Stock Option and Incentive Plan (the “Revised 2014 Plan”) which was subsequently approved by the Company’s shareholders at the Annual Meeting held on June 25, 2018. The Revised 2014 Plan contains the following material features and changes from the 2014 Plan:

Table of Contents

Provides for an aggregate maximum number of shares of common stock initially authorized for issuance of 4,294,830 shares. On January 1, 2019, and each January 1 thereafter for the term of the Revised 2014 Plan, the number of shares reserved and available under the Revised 2014 Plan will automatically increase by 4% of the number of shares of our common stock issued and outstanding on the immediately preceding December 31;

Increase the number of shares of stock underlying stock options or stock appreciation rights that may be granted to any one individual in any single calendar year to 1,000,000 shares of common stock, and an increase in the number of shares of stock that may be issued in the form of incentive stock options;

Eliminates certain provisions relating to awards of “performance-based compensation”; and

Expires on June 25, 2028.

2004 Stock Option and Incentive Plan

In July 2004, Inotek’s board of directors adopted the 2004 Plan for the issuance of incentive stock options, restricted stock, and other equity awards, all for common stock, as determined by the board of directors to employees, officers, directors, consultants, and advisors of ~~the Company~~Inotek and its subsidiaries. Only stock options were granted under the 2004 Plan. The 2004 Plan expired in February 2014 but remains effective for all outstanding options.

All of the stock options granted under the 2004 Plan were fully vested at the time of the Reverse Merger.

Vesting of all unvested Inotek option awards issued and outstanding was accelerated at the effective time of the Reverse Merger, and all such option awards issued and outstanding at the time of the Reverse Merger, aggregating to 523,456, remained issued and outstanding. For accounting purposes, since the acceleration of vesting was negotiated in contemplation of the Reverse Merger, the remaining unrecognized compensation expense associated with the original grant date fair value of the options of $2,997 was recognized in the Company’s consolidated statement of operations for the year ended December 31, 2018. In addition, the exercise period for all Inotek options outstanding at the effective time of the Reverse Merger was extended beyond the respective periods provided in the original awards. The Company recorded $462 in connection with the extension of the exercise periods in the consolidated statement of operations for the year ended December 31, 2018, equal to the difference in the fair value of the options immediately prior to and immediately following the modification of the exercise period.

Share Option Valuation

The weighted average assumptions that the Company used in the Black-Scholes pricing model to determine the fair value of the share options granted to employees and directors were as follows:

	Years Ended December 31,
	2018			2017			2016

Risk-free interest rate		2.64	%		2.06	%		1.65	%
Expected term (in years)		5.85			6.00			6.00
Expected volatility		87.7	%		91.3	%		96.10	%
Expected dividend yield		0.00	%		0.00	%		0.00	%
Exercise price	$	17.82		$	2.97		$	1.21
Fair value of common stock	$	17.98		$	2.63		$	0.98

The weighted average assumptions that the Company used in the Black-Scholes pricing model to determine the fair value of the share options granted to non-employees were as follows:

	Years Ended December 31,
	2018			2017			2016

Risk-free interest rate		2.85	%		2.39	%		2.39	%
Expected term (in years)		9.75			6.70			5.87
Expected volatility		82.19	%		90.62	%		106.15	%
Expected dividend yield		0.00	%		0.00	%		0.00	%
Exercise price	$	18.75		$	1.21		$	1.21
Fair value of common stock	$	19.63		$	1.08		$	1.11

The Company recognizes stock-based compensation expense for at least the portion of awards that have vested.

Table of Contents

The following table summarizes ~~the~~stock option activity for the years ended December 31, ~~2015~~2018 and ~~2014~~2017, under the ~~2004~~Revised 2014 Plan:

   Number
of Shares    Weighted-Average
Exercise Price
Per Share    Aggregate
Intrinsic
Value
Options outstanding at December 31, 2013
   11,835       $ 40.58       —
Granted
   —         —         —
Exercised
   —         —         —
Expired
   (877 )    40.58       —



Options outstanding at December 31, 2014
   10,958       40.58       —
Granted
   —         —         —
Exercised
   —         —         —
Expired
   (41 )    40.58       —



Options outstanding at December 31, 2015
   10,917       $ 40.58       —






Options exercisable at December 31, 2015
   10,917       $ 40.58             —






Weighted-average years remaining on contractual life
   2.50
Unrecognized compensation cost related to non-vested stock options
   $ —

~~The Company recorded no stock~~

		Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term (Years)

Outstanding as of December 31, 2015	*		5,332,950		$	0.69		9.90
Granted			1,005,871			1.21		7.23
Forfeited			(146,656	)		1.21		9.13
Outstanding as of December 31, 2016	*		6,192,164		$	0.79		9.00
Granted			812,894			2.98		5.50
Forfeited			(45,711	)		1.21		8.88
Outstanding as of December 31, 2017	*		6,959,347		$	1.06		8.17
Assumed as part of merger with Inotek			523,456			2.01		6.78
Granted			1,650,878			17.82		9.26
Exercised			(370,753	)		1.27		-
Forfeited			(146,931	)		3.02
Outstanding as of December 31, 2018			8,615,997		$	4.48		7.51

Options vested and exercisable as of December 31, 2018			6,466,265		$	1.22		6.52

*	Affected by Exchange Ratio

Restricted Stock Units

All unvested Inotek RSU awards issued and outstanding were accelerated at the effective time of the Reverse Merger. For accounting purposes, since the acceleration of vesting upon change of control was included in the original terms of the award, the remaining unrecognized compensation expense inassociated with the original grant date fair value of the RSU awards was recognized as a pre-merger expense of Inotek.

The following table summarizes the RSU activity for the year ended December 31, 2018 under the Revised 2014 Plan:

	Number of Shares
Outstanding as of December 31, 2017		-
Assumed as part of merger with Inotek		271,719
Settled		(271,719	)
Outstanding as of December 31, 2018		-

As of December 31, 2018, none of the RSU’s remain unsettled.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The intrinsic value of options exercised and exercisable as of December 31, 2018 was $6 and $88.

The weighted average grant-date fair value per share of stock options granted during the years ended December 31, ~~2015~~2018, 2017 and ~~2014, respectively relating to stock options granted pursuant to the 2004 Plan. At December 31, 2015, all options were fully vested~~2016 was $13.21, $2.23, and there was no unrecognized stock-based compensation expense relating to stock options granted pursuant to the 2004 Plan. Options outstanding as of December 31, 2015 had no intrinsic value, as the option price exceeded the$74.15, respectively.

The total fair value of ~~the underlying shares.~~

~~2014 Stock Option and Incentive Plan~~

In August 2014, the Company’s board of directors adopted the 2014 Stock Option and Incentive Plan (the “2014 Plan”) for the issuance of incentive and non-qualified stock options, restricted stock, and other equity awards, all for common stock, as determined by the board of directors to employees, officers, directors, consultants, and advisors of the Company and its subsidiaries. Subsequent to the IPO in February 2015, there were 2,175,216 shares available for grant under the 2014 Plan. There were 544,599 shares issuable under the 2014 Plan as of December 31, 2015. Pursuant to the provisions of the 2014 Plan and approval by the board of directors, on January 1, 2016 an additional 1,056,936 shares were added to the 2014 Plan representing 4% of total common shares issued and outstanding at December 31, 2015. The 2014 Plan expires in August 2024.

On August 28, 2014, the Board of Directors granted 840,975, ten-year term, stock options to officers of the Company at an exercise price of $4.342 per share, the fair market value of the common stock as determined by the Board of Directors, on the condition that the options would be of no further force and effect if the Company did not consummate an IPO prior to the one-year anniversary of the grant date (the “IPO Condition”). The IPO Condition was met upon the Company’s February 2015 IPO. These stock options vested ~~25% on~~during the one-year anniversary of the grant date and the remaining 75% will vest in equal monthly installments over the following 36 months. Additionally on August 28, 2014, the Board of Directors granted an aggregate of 59,142 stock options to the directors that were fully vested on the date of the grant.

The fair value of the stock options granted during 2014 was estimated on the grant date using a Black-Scholes stock option pricing model based on the following assumptions: an expected term of 5 to 6.25 years; expected stock price volatility of 83.3% to 92.5%; a risk free rate of 1.63% to 1.84%; and a dividend yield of 0%. The Company is recognizing $2,798 of stock-based compensation expense for these stock options on a straight-line basis commencing upon the grant date in August 2014 through the final vesting date in August 2018. As a result of the resolution of the IPO Condition, the year ended December 31, 2015 reflects stock compensation expense calculated from the grant date in August 2014 through December 31, 2015.

The Company recorded stock compensation expense of $170 in general and administrative expense in the year ended December 31, 2014 related to the 59,142 stock options that were granted pursuant to the 2014 Plan and fully vested as of the date of grant. The Company is recognizing $2,798 of stock compensation expense related to the remaining 840,975 stock options on a straight-line basis over the vesting period commencing upon the consummation of the IPO in February 2015.

During 2015, the Board of Directors granted a total of 730,500 ten-year term stock options to employees and directors of the Company. The fair value of each stock option granted was estimated on the grant date using a Black-Scholes stock option pricing model based on the following assumptions: an expected term of 5.31 to 6.08 years; expected stock price volatility of 80.9% to 101.1%, a risk free rate of 1.55% to 1.85%, and a dividend yield of 0%. The Company will recognize $3,209 of stock-based compensation expense for these stock options on a straight-line basis commencing upon the grant dates through the final vesting dates.

As of December 31, 2015, the Company had $4,621 of unrecognized compensation expense related to options granted under its 2014 Equity Plan. This cost is expected to be recognized over a weighted average period of 2.9 years from December 31, 2015.

The Company recognizes compensation expense based on the estimated grant date fair value method using the Black-Scholes valuation model. The Company reduces compensation expense for expected forfeitures, as estimated by management.

~~The following table summarizes the 2014 Plan option activity for the two~~ years ended December 31, ~~2015:~~

   Number of
Shares    Weighted-
Average
Exercise
Price Per
Share    Aggregate
Intrinsic
Value
Options outstanding at December 31, 2013
   —         $ —         —
Granted
   900,117    4.34       —
Exercised
   —         —         —
Expired
   —         —         —



Options outstanding at December 31, 2014
   900,117       4.34       —
Granted
   730,500       5.69       —
Exercised
   (9,857 )    4.34       —
Expired
   —         —         —



Options outstanding at December 31, 2015
   1,620,760       $ 4.95       $ 10,339






Options exercisable at December 31, 2015
   359,610       $ 4.40       $ 2,492






Weighted-average years remaining on contractual life
   9.05
Unrecognized compensation cost related to non-vested stock options
   $ 4,621

~~The weighted-average fair value of all stock options granted for the years ending December 31, 2015~~2018, 2017 and ~~2014~~2016 was ~~$4.39~~$91,334, $502, and ~~$3.30,~~$845 respectively. ~~Intrinsic value at December 31, 2015 is based on the closing price of the Company’s common stock of $11.33 per share.~~

Employee Stock Purchase Plan

In November 2014, ~~the Company’s~~Inotek’s board of directors adopted and the stockholders approved the 2014 Employee Stock Purchase Plan (“ESPP”). The Company’s board of directors has authorized the issuance of a number of shares of common stock issuable under the ESPP to the number that represents 1% of our outstanding common stock outstanding after the IPO, or 160,276 shares.ESPP. The ESPP provides that the number of shares reserved and available for issuance under the ESPP shall be cumulatively increased each January 1, beginning on January 1, 2016, by the lesser of (i) ~~600,000~~150,000 shares of common stock or (ii) the number of shares necessary to set the number of shares of ~~Common Stock~~common stock under the ~~Plan~~ESPP at 1% percent of the outstanding number of shares as of January 1 of the applicable year. However, the board of directors reserves the right to determine that there will be no increase for any year or that any increase will be for a lesser number of shares. ~~The number~~On January 1, 2018, 6,562 shares were added to the ESPP. On September 11, 2018, the board of directors determined that there would be no increase in shares reserved and available for issuance under the ESPP ~~is subject to adjustment in~~on January 1, 2019. As of December 31, 2018, there were 68,256 shares available for issuance under the ~~event of a stock split, stock dividend or other change in~~ESPP. During the Company’s capitalization. The ESPP may be terminated or amended by the board of directors at any time, but will automatically terminate upon the tenth anniversary of the date the ESPP is approved by the stockholders. An amendment that increases the number ofyear ended December 31, 2018, 0 shares of common stock ~~that are authorized under the ESPP and certain other amendments require the approval of the stockholders.~~

All employees who are whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of the Company’s shares of common stock is not eligible to purchase shares under the ESPP. Each employee who is a participant in the ESPP may purchase shares by authorizing payroll deductions of up to 10% of his or her base compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase shares of common stock on the last business day of the offering period at a price equal to 85% of the fair market value of the ordinary shares on the first business day or the last business day of the offering period, whichever is lower, provided that no more than 5,000 shares of common stock may bewere purchased by any one employee during each offering period. Under applicable tax rules, an employee may purchase no more than $25,000 worth of stock, valued at the start of the purchase period, under the ESPP in any calendar year.

~~No offerings of the ESPP commenced as of December 31, 2014. In 2015, $63 was withheld and used to purchase 13,143 shares of common stock~~ and the Company recorded ~~$43~~$0 of stock-based compensation expense pursuant to the ESPP.

~~Restricted Common Stock~~

~~In 2011,~~

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Share-Based Compensation

	Year Ended December 31,
	2018		2017		2016

Research and development	$	7,375	$	523	$	159
General and administrative		6,226		797		115
Total share based compensation expense	$	13,601	$	1,320	$	274

As of December 31, 2018, the Company ~~issued 24,280 restricted~~had an aggregate of $18,272 of unrecognized share-based compensation cost, which is expected to be recognized over the weighted average period of 2.05 years.

11. Net Loss Per Share

Basic and diluted net loss per share attributable to common shareholders was calculated as follows:

	For the Years Ended December 31,
	2018			2017			2016

Numerator:
Net loss attributable to common shareholders	$	(74,518	)	$	(19,578	)	$	(7,573	)
Denominator:
Weighted-average common shares outstanding - basic and diluted		39,377,666			6,795,627			6,833,718
Net loss per share attributable to common shareholders - basic and diluted	$	(1.89	)	$	(2.88	)	$	(1.11	)

The Company excluded the following potential common shares, ~~pursuant~~presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to ~~a stock purchase and restriction agreement~~common shareholders for athe periods indicated because including them would have had an anti-dilutive effect:

	For the Years Ended December 31,
	2018		2017		2016
Shares issuable upon conversion of the 2021 Convertible Notes		1,620,948		-		-
Warrants exercisable for common shares		14,102		-		-
Options to purchase common shares		8,615,997		6,756,695		6,192,164
Redeemable Series A convertible preferred shares (as converted to common shares)		-		9,807,564		9,807,905
Redeemable Series A convertible preferred shares (as converted to common shares)		-		9,668,224		-
		10,251,047		26,232,483		16,000,069

The Company has warrants of 14,102 outstanding as of December 31, 2018, convertible into 14,102 of common shares at an exercise price of ~~$0.0406~~$24.82 per ~~share. The Company received $1 from the grantee. These shares vested 25%~~share which expire on ~~each~~June 28, 2023.

12. Income Taxes

Net loss by jurisdiction consists of the ~~first four anniversaries of~~following:

	For the years ended December 31,
	2018		2017		2016
Domestic	$	74,518	$	-	$	-
Foreign		-		19,578		7,573
Total	$	74,518	$	19,578	$	7,573

No provision for federal or state income taxes was recorded during the ~~date of grant. During the year~~years ended December 31, ~~2014,~~2018, 2017, and 2016, as the ~~board~~Company incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.

Table of ~~directors accelerated~~Contents

A reconciliation of income tax benefit computed at the ~~vesting~~statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:

	For the years ended December 31,
	2018			2017			2016
U.S. federal tax at statutory rate		21.0	%		34.0	%		34.0	%
Foreign source income not subject to tax		0.0	%		-34.0	%		-34.0	%
Stae income taxes		15.8	%		0.0	%		0.0	%
New York City tax		-			6.5	%		6.3	%
Other		-1.6	%		-			-
Section 382 limitation		-38.7	%		-			-
Valuation allowance		3.5	%		-6.5	%		-6.3	%
Effective tax rate		0	%		0	%		0	%

The significant components of the ~~last tranche resulting~~Company’s deferred income tax assets and liabilities after applying the enacted corporate tax rates are as follows:

	For the years ended December 31,
	2018			2017			2016
Deferred income tax assets (liabilities)
Net operating losses (“NOL”) and credit carryforwards	$	28,400		$	1,620		$	458
Capitalized research and development costs		17,098			-			-
Other		1,385			136			25
Stock compensation		4,563			-			-
Debt discount		(3,652	)		-			-
Valuation allowance		(47,794	)		(1,756	)		(483	)
Net deferred income tax asset	$	-		$	-		$	-

As of December 31, 2018, the Company had federal and state net operating loss carryforwards of approximately $96,400 and $124,500, respectively, which begin to expire in ~~12,140 shares vesting~~2025. Additionally $62,300 of the Federal NOLs can be carried forward indefinitely.

As required by ASC 740, Income Taxes, management of Rocket has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of NOL carryforwards and capitalized research and development costs. As a result of the fact that Rocket has incurred tax losses from inception, management has determined that it is more likely than not that Rocket will not recognize the benefits of federal and state net deferred tax assets and, as a result, a full valuation allowance has been established against its net deferred tax assets as of December 31, 2018 and 2017. Rocket has offset certain deferred tax liabilities with deferred tax assets that are expected to generate offsetting deductions within the same period. During the years ended December 31, 2018, 2017 and 2016, the valuation allowance increased by $46,016 and $1,273 respectively. Realization of deferred tax assets is dependent upon the generation of future taxable income.

During 2018, the Company recorded tax charges for the impact of the Tax Act effects using the currently available information and technical guidance on the interpretations of the Tax Act. As permitted by SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, the Company recorded provisional estimates and have subsequently finalized our accounting analysis based on the guidance, interpretations, and data available as of December 31, 2018. Adjustments made in ~~such period.~~ the fourth quarter of 2018 upon finalization of our accounting analysis were not material to our Consolidated Financial Statements.

Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. The Company has completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company became a “loss corporation” as defined in Section 382. The Company experienced multiple ownership changes occurring in 2005, 2007, 2015, and 2018. The ownership change has and will continue to subject our pre-ownership change net operating loss carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. As a result of the ownership change, the Company is limited to an approximate $1,700 annual limitation on our ability to utilize our pre-merger NOL’s and R&D Credits. Due to this limitation, approximately $93,000 of the $127,100 pre-merger Federal NOL will expire unutilized as the cumulative limitation amount over a 20 year carryforward period is $34,100. Additionally, $4,900 of Federal R&D Credits will expire unutilized. As a result, the Company has reduced its deferred tax assets related to the Federal NOL and Federal R&D Credits which is offset by the corresponding valuation allowance. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which Rocket operates or does business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

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The Company recorded uncertain tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the ~~excess grant date fair value over~~evaluation of new information not previously available. Because of the ~~proceeds received~~complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as ~~compensation expense.~~ increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2018 the Company has not recorded any uncertain tax positions in our financial statements.

The Company ~~recorded $7 of stock-based compensation expense~~recognizes interest and penalties related to ~~this award~~unrecognized tax benefits on the income tax expense line in the ~~year ended~~accompanying consolidated statement of operations. As of December 31, ~~2014. At December 31, 2015 there were~~2018 and 2017, no ~~restricted common shares outstanding.~~

9.accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet.

13. Commitments and Contingencies

Operating Leases

~~The Company leased office space in Lexington, Massachusetts under a lease agreement that expired in September 2015. In May 2015,~~

On March 31, 2016, the Company entered into a lease agreement ~~(the “Office Lease”)~~ for its office and laboratory space at the Alexandria Center for Life Sciences in New York, New York with a term ending on July 31, 2021 (the “NY Lease Agreement”). In connection with the NY Lease Agreement, the Company established an irrevocable standby letter of credit (“ARE LOC”) with a bank. The ARE LOC, in which the landlord is the beneficiary, serves as the Company’s security deposit on the lease. The Company has a certificate of deposit with a bank as collateral for the ARE LOC which is classified as restricted cash in the consolidated balance sheets. On June 28, 2018, the Company entered into Amendment No.1 to the NY Lease Agreement, whereby the landlord agreed to relieve the Company of its obligations under the lease for a portion of the leased space upon the takeover of the space by a replacement tenant. The Company agreed to extend the lease for the remaining laboratory space by one additional year. The Company recorded an additional rent expense of $94 related to the early exit from the lease during the year end December 31, 2018. A replacement tenant has executed a new lease for the office space and as of September 7, 2018, the Company was relieved of its obligations for rent and security deposit for the office space. In October 2018, the Company provided a new letter of credit for $89 (the “New ARE LOC”) relating to the remaining lab space and the existing ARE LOC of $209 was released back to the Company. The New ARE LOC expires and is automatically renewed April 8 of each succeeding calendar year until October 29, 2020, unless written notice is provided no later than 90 days before the then existing expiration date. The Company continues to maintain laboratory space at the Alexandria Center for Life Science facility as its hub for research and development activities.

On June 7, 2018, the Company entered into a three year lease agreement with ESRT Empire State Building, L.L.C. for office space in the Empire State Building (the “ESB Lease Agreement”). In connection with the ESB Lease Agreement, the Company established an irrevocable standby letter of credit (the “Empire LOC”) with a bank for $936 which expires on June 30, 2019 and is renewed automatically for a one year period until its expiration date of September 30, 2021. The Empire LOC serves as the Company’s security deposit on the lease in which the landlord is the beneficiary. The Company has a certificate of deposit of $936 with a bank as collateral for the Empire LOC which is classified as part of restricted cash in the consolidated balance sheet as of December 31, 2018.

On January 4, 2018, in connection with the Reverse Merger, the Company assumed an operating lease for Inotek’s former headquarters in Lexington, ~~Massachusetts.~~Massachusetts, with a term ending in February 2023. In May 2018, the Company separated from the last legacy employee of Inotek and abandoned use of the leased space at that time. In connection with the abandonment of the Massachusetts lease, the Company recorded a liability at the present value of the difference between the lease payments and projected sublease income at the cease use date of $435. The difference between the lease liability recorded at acquisition and the $435 lease abandonment is a deferred gain which is being recognized to other income over the remaining life of the lease. In addition, as of May 2018, the Company ~~occupied this~~wrote off the remaining furniture and fixtures of $205. In July 2018, the Company signed an agreement to sublease a portion of the Lexington, Massachusetts space and in September ~~2015, at which time its rental obligations commenced.~~2018, the Company signed an agreement to sublease the remaining portion of the Lexington, Massachusetts space.

On August 14, 2018, Rocket entered into a lease for approximately 92,000 rentable square feet in Cranbury, New Jersey, for office space, process development, research activities and potentially manufacturing to support the Company’s pipeline (the “NJ Lease Agreement”). The ~~lease~~ term ~~is 90 months~~of the NJ Lease Agreement will commence for 72,000 rentable square feet upon substantial completion of leasehold improvements (the “Commencement Date”), and the ~~Company~~remaining 20,000 square feet will commence upon the earlier of the Company’s election to commence the lease of such additional space or thirty months from the Commencement Date. The NJ Lease Agreement has a term of fifteen years from the ~~right~~Commencement Date, with an option to ~~extend~~renew for two consecutive five-year renewal terms. Estimated rent payments are $1,200 per annum, payable in monthly installments, depending upon the ~~term for one period~~nature of ~~five years.~~the leased space, and subject to annual base rent increases of 3%. The total commitment under the lease ~~also provides that the Company will~~is estimated to be responsible for the operating expenses and real estate taxes, to the extent in excess of base-year amounts, and electricity attributable to the premises. The Company recorded $445 as leasehold improvements for the buildout costs allowed and will amortize these to facilities expenseapproximately $26,492 over the 15 year term of the lease. The Company delivered a cash security deposit of $287 to the landlord in connection with the NJ Lease Agreement which has been reflected in deposits in the consolidated balance sheets.

The total restricted cash balance for the Company’s operating leases at December 31, 2018 is $936. Rent expense ~~is recognized on a straight-line basis~~

~~at the average monthly rent over the term of the lease. Deferred rent is included in other current~~was $807, $563 and ~~long-term liabilities on the balance sheet. Rent expense related to this facility was $85 for the year ended December 31, 2015. Aggregate rent expense~~$358 for the years ended December 31, ~~2015~~2018, 2017 and ~~2014 was $143 and $54, respectively. The below table presents~~2016.

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As of December 31, 2018, the remaining aggregate annual ~~cash~~ commitments pursuant to the ~~Office Lease:~~

Year
   Amount
2016
   $ 209
2017
   289
2018
   298
2019
   306
2020
   314
Thereafter
   706


Total
   $ 2,122

leases, as amended, are as follows:

2019 $ 1,372
2020 1,953
2021 1,841
2022 1,739
2023 1,615
Thereafter 20,144
Total $ 28,664

Securities Litigation

On January 6, 2017, a purported stockholder of Inotek filed a putative class action in the U.S. District Court for the District of Massachusetts, captioned Whitehead v. Inotek Pharmaceuticals Corporation, et al., No. 1:17-cv-10025. An amended complaint was filed on July 10, 2017, and a second amended complaint was filed on September 5, 2017. The second amended complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 against Inotek, David Southwell, and Rudolf Baumgartner based on allegedly false and misleading statements and omissions regarding Inotek’s phase 2 and phase 3 clinical trials of trabodenoson. The lawsuit sought, among other things, unspecified compensatory damages for purchasers of Inotek’s common stock between July 23, 2015 and July 10, 2017, as well as interest and attorneys’ fees and costs. The second amended complaint was dismissed with prejudice on June 27, 2018. Plaintiffs filed a notice of appeal to the First Circuit Court of Appeals on July 27, 2018, voluntarily dismissed their appeal on August 31, 2018, and the First Circuit entered judgment dismissing the action on September 5, 2018.

From time to time, the Company may be subject to other various legal proceedings and claims that arise in the ordinary course of its business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe it is party to any other claim or litigation the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Indemnification Arrangements

Pursuant to its bylaws and as permitted under Delaware law, the ~~Company’s bylaws provide that the~~ Company ~~will indemnify any director, officer, employee~~has indemnification obligations to directors, officers, employees or ~~agent~~agents of the Company or anyone serving in these capacities. The maximum potential amount of future payments the Company could be required to pay is unlimited. The Company has insurance that reduces its monetary exposure and would enable it to recover a portion of any future amounts paid. As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal.

Throughout the normal course of business, the Company has agreements with vendors that provide goods and services required by the Company to run its business. In some instances, vendor agreements include language that requires the Company to indemnify the vendor from certain damages caused by the Company’s use of the vendor’s goods and/or services. The Company has insurance that would allow it to recover a portion of any future amounts that could arise from these indemnifications. As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal.

~~10. Fair Value~~

14. Agreements Related to Intellectual Property

The Company has various license and research and collaboration arrangements. The transactions principally resulted in the acquisition of ~~Financial Measurements~~

~~Items measured~~rights to intellectual property which is in the preclinical phase and has not been tested for safety or feasibility. In all cases, the Company did not acquire tangible assets, processes, protocols or operating systems. The Company expenses the acquired intellectual property rights as of the acquisition date on the basis that the cost of intangible assets purchased from others for use in research and development activities, has no alternative future uses.

License 161101 and SRA 161101

On April 20, 2018, the Company entered into Amendment No. 1 to the clinical trial agreement with the Fred Hutchinson Research Cancer Center (“Hutch”) for the clinical trial entitled: Gene Therapy for Patients with Fanconi Anemia Complementation Group A. The Company agreed to pay $108 for additional budgeted amounts for the period from March 2018 through August 2018.

LAD-I (leukocyte adhesion deficiency-I) Master Research Agreement with CIEMAT

On March 1, 2018, the Company entered into Amendment No. 1 to the LAD-1 Master Research Agreement whereby the Company and Centro de Investigaciones Energéticas, Medioambientales y Tecnológicas (“CIEMAT”) agreed to a modification of the original commitment from Rocket of €1,690 down by €361 (approximately $444).

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PKD (pyruvate kinase deficiency) Master Research Agreement with CIEMAT

On September 17, 2018, the Company entered into Amendment No. 1 to the PKD Master Research Agreement whereby the Company and CIEMAT agreed to a modification of the original commitment from Rocket of €4,190 down by €1,007 (approximately $1,168).

Contract Research and Collaboration Agreement with Lund University and J. Richter

In August 2016, Rocket entered into a research and collaboration agreement with Lund University and Johan Richter, M.D., Ph.D. under which Dr. Richter grants to Rocket an exclusive, perpetual, sublicensable, worldwide license to certain intellectual property rights of Dr. Richter relating to lentiviral-mediated gene transfer to treat Osteopetrosis. In exchange for the license, Rocket is obligated to make an up-front payment, certain clinical and commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the licensed intellectual property) and sublicense revenue payments to Dr. Richter. Under the terms of the agreement, Lund University and Dr. Richter are obligated to perform contract research for Rocket regarding the use of lentiviral-mediated gene transfer to treat Osteopetrosis. Intellectual property resulting from the contract research created by Dr. Richter is included in the license described above and also subject to an option for Rocket to purchase ownership of such rights. Intellectual property created by Lund University in conducting such research is non-exclusively licensed to Rocket for non-commercial use and also subject to an option for Rocket to purchase or license such intellectual property under commercially reasonable terms. Rocket is obligated to pay for the contract research according to an agreed budget in quarterly installments in advance.

As consideration for an option to acquire rights from Lund University on commercially reasonable terms and conditions, Rocket paid Lund University an upfront license fee of €0.02 million (approximately $0.02 million), which was expensed as research and development costs. Rocket is obligated to make aggregate milestone payments of up to €0.1 million (approximately $0.1 million) to Lund University and Dr. Richter upon the achievement of specified development and regulatory milestones. With respect to any commercialized products covered by the Lund University agreement, Rocket is obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments, by Rocket or its sublicensees or affiliates. In the event that Rocket enters into a sublicense agreement with a sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances.

Rocket may terminate this agreement at ~~fair value~~any time by providing Lund University and Dr. Richter with 90 days’ advance notice. The research agreement has an initial term of 24 months. In August 2018, the research and collaboration agreement was renewed for an additional year expiring August 2019.

License Agreement for Danon Disease

In February 2017, the Company entered into a License Agreement with The Regents of the University of California, represented by its San Diego campus (“UCSD”), under which UCSD granted us an exclusive, sublicensable, worldwide license to certain intellectual property rights for the treatment of lysosomal storage diseases, including Danon disease. In exchange for the license, the Company became obligated to make an up-front payment, certain clinical and commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the licensed intellectual property), maintenance fees and sublicense revenue payments.

The upfront license fee of $0.05 million was expensed as research and development costs. The Company is obligated to make aggregate milestone payments of up to $1.5 million to UCSD upon the achievement of specified development and regulatory milestones for the treatment of Danon disease. A reduced schedule of milestone payments applies to achieving the same milestones for additional indications. With respect to any commercialized products covered by the agreement, we are obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments. If the Company enters into a sublicense agreement with a sublicensee, the Company will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances. The Company is also subject to certain diligence milestones for development of a product using the intellectual property licensed from UCSD under this agreement.

The term of the license agreement with UCSD is through the expiration of the licensed patents, some of which are still in the pending application phase.

REGENXBIO, Inc. License

On November 19, 2018, the Company through its wholly-owned subsidiary Rocket Pharmaceuticals, Ltd., entered into a License Agreement (the “License Agreement”) with REGENXBIO Inc. (“RGNX”), pursuant to which the Company obtained an exclusive license for all U.S. patents and patent applications related to RGNX’s NAV AAV-9 vector for the treatment of Danon disease in humans by in vivo gene therapy using AAV-9 to deliver any known LAMP2 transgene isoforms and all possible combinations of LAMP2 transgene isoforms (the “Field”), as well as an exclusive option to license (the “Option Right”) all U.S. patents and patent applications for two additional NAV AAVvectors in the Field (each, a “LicensedPatent” and collectively, the “Licensed Patents”).

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Under the terms of the License Agreement, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market, promote and sell products incorporating the Licensed Patents (“Licensed Products”). Unless the License Agreement is terminated earlier as provided below, the license from RGNX expires on a ~~recurring~~country-by-country, Licensed Product-by-Licensed Product basis ~~include short term investments, derivative instruments and warrant liabilities.~~

until the later of the expiration date of the last to expire of the last valid claim of the applicable Licensed Patent or ten years after the first commercial sale of a Licensed Product in such country. The ~~following table sets forth~~License Agreement provides that RGNX may terminate the agreement upon a material breach by the Company if the Company does not cure such breach within a specified notice period, if the Company commences a challenge against RGNX or certain of its licensors to declare or render invalid or unenforceable the licensed patents or upon the Company’s ~~financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy:~~

   Fair Value Measurements at
December 31, 2015
   Total    Level 1    Level 2    Level 3
Assets:

Certificates of deposit
   $ 16,160       $ —      $ 16,160       $ —
Agency bonds
   10,031       —      10,031       —
United States Treasury securities
   5,047       5,047       —      —








Short-term investments
   $ 31,238       $ 5,047       $ 26,191       $ —








   Fair Value Measurements at
December 31, 2014
   Total    Level 1    Level 2    Level 3
Liabilities

Convertible preferred stock warrant liability
   $ 482       $ —      $ —      $ 482








Convertible notes redemption rights derivative
   $ 480       $ —      $ —      $ 480

~~Short-term investments~~

bankruptcy or insolvency. The Company ~~classifies~~may terminate the agreement in its ~~United States Treasury securities as Level 1 assets~~entirety or terminate one or more of the licensed vectors at any time upon six months’ notice. The Company’s Option Right expires 4 years from the date of the License Agreement.

In consideration for the rights granted to the Company under the fair value hierarchy as these assets have been valued using quoted market prices in active markets without any valuation adjustment. The Company classifies its certificates of deposit as Level 2 assets under the fair value hierarchy, as there are no quoted market prices in active markets, and its agency bonds as Level 2 assets under the fair value hierarchy, as these assets are not always valued daily using quoted market prices in active markets.

~~Convertible preferred stock warrant liability~~

~~As previously discussed (see Notes 5 and 7),~~License Agreement, the Company ~~issued warrants~~made an upfront payment to RGNX of $7,000 included as research and development expenses. A fee of $2,000 per additional vector would be due if the Company exercises its Option Right to purchase ~~Series AA preferred stock~~additional vectors. The License Agreement provides for royalties payable to RGNX in the high-single digits to low-teens on net sales levels of Licensed Products during the royalty term. If successful, the Company will be required to make milestone payments to RGNX of up to $13,000 for each Licensed Product upon the achievement of specified clinical development and regulatory milestones in the U.S. and European Union. In addition, the Company shall pay RGNX 20% of the payment fees received from a priority review voucher issued in connection with or otherwise related to a Licensed Product. These royalty obligations are subject to specified reductions if additional licenses from third parties are required. The Company must also pay RGNX a portion of all non-royalty sublicense income (if any) received from sublicensees.

15. Strategic Research Collaboration

On May 16, 2018, Rocket and the ~~2013 Series AA preferred stock issuance~~Stanford University School of Medicine (“Stanford University”) entered into a strategic collaboration to support the advancement of FA and ~~Loan Agreements. The Series AA warrant liabilities were recorded at their fair value on~~PKD gene therapy research. Under the ~~date of issuance and were remeasured on each subsequent balance sheet date and as~~terms of the ~~warrant exercise date, with fair value changes recognized~~collaboration agreement, Stanford University will serve as ~~income (decrease in fair value) or expense (increase in fair value) in other income (expense)~~the lead clinical trial research center in the ~~statements~~U.S. for the planned FA registrational trial and would also be the lead U.S. site for PKD clinical trials. The project will also separately evaluate the potential for non-myeloablative, non-genotoxic antibody-based conditioning regimens as a future development possibility that may be applied across bone marrow-derived disorders. In addition, Rocket agreed to support expansion of ~~operations.~~

~~Prior~~Stanford University’s Laboratory for Cell and Gene Therapy (“LCGM”) in efforts to further enhance the ~~IPO, in addition~~development of Rocket’s internal pipeline. Rocket agreed to fund up to $3,500 for the ~~assumptions above, the Company’s estimated fair value~~LCGM expansion upon which 40% or $1,400 was due upon execution of the ~~Series AA preferred stock warrant liabilities~~agreement and the balance is ~~calculated using other key assumptions including~~due upon the ~~probability~~achievement of an exit event, the enterprise value as determined on an income approach, and a discount for lack of marketability. Management, with the assistance of an independent valuation firm, made these subjective determinations based on available current information.

~~The Company used a hybrid valuation model in which a Monte Carlo simulation was used to calculate the fair value~~certain milestones. $1,400 of the Company’s equity securities under three scenarios including: i) an IPO scenario, ii) a merger or acquisition scenario or iii) a stay private scenario. The Company then probability-weighted each equity value derived from$3,500 milestone payments was paid during the ~~Monte Carlo simulation based upon the Company’s estimate of the likelihood of the exit scenario occurring.~~

The assumptions used in calculating the estimated fair value of the warrants represent the Company’s best estimates and include probabilities of settlement scenarios, enterprise value, time to liquidity, risk-free interest rates, discount for lack of marketability and volatility. The estimates are based, in part, on subjective assumptions and could differ materially in the future. Generally, increases or decreases in the fair value of the underlying convertible preferred stock would result in a directionally similar impact in the fair value measurement of the warrant liability. The following table details the assumptions used in the Black-Scholes option pricing model used to estimate the fair value of the Series AA preferred stock warrants as of February 17, 2015, the date upon which the Series AA preferred stock warrants became exercisable for common stock, and the Monte Carlo simulation model used to estimate the fair value of the Series AA preferred stock warrants atyear ended December 31, ~~2014:~~

   February 17, December 31,
   2015 2014
Volatility
   60 % 65% –70 %
Expected term (years)
   8.4    0.17 – 0.50
Expected dividend yield
   0.0 % 0.0 %
Risk-free rate
   1.7 % 0.02% –0.03 %

~~Convertible debt redemption rights derivative~~

The 2014 Convertible Bridge Notes redemption rights derivative required separate accounting and was valued using a single income valuation approach. The Company estimated the fair value of the redemption rights derivative using a ‘‘with and without’’ income valuation approach. Under this approach, the Company estimated the present value of the fixed interest rate debt based on the fair value of similar debt instruments excluding the

embedded feature. This amount was then compared to the fair value of the debt instrument including the embedded feature using a probability weighted approach by assigning each embedded derivative feature a probability of occurrence, with consideration provided for the settlement amount including conversion discounts, prepayment penalties, the expected life of the liability and the applicable discount rate.

As of the issuance of the 2014 Convertible Bridge Notes on December 22, 2014 and on December 31, 2014, the Company ascribed a probability of occurrence to the Change in Control Redemption Feature of 25%. The expected life of the feature was the remaining term of the debt and the discount rate was 18.9%. The Company classified the liability within Level 3 of the fair value hierarchy as the probability factor and the discount rate are unobservable inputs and significant to the valuation model.2018. As of December 31, ~~2014, the fair value~~2018, none of the ~~embedded derivative was $480, respectively. Pursuant~~remaining milestones were met with regard to the ~~IPO,~~LCGM. In January 2019, the ~~Convertible Bridge Notes were converted~~Company and Stanford signed a Clinical Trial Agreement for the treatment of FA. Upon the signing of the January 2019 Stanford Clinical Trial Agreement, the second milestone of $1,400 for the LGCM became due and was expensed in January 2019, when the milestone was met.

16. Related Party Transactions

During January 2018, the Company sold certain furniture and fixtures from the Inotek former corporate headquarters to a director of the Company for $20.

During March 2018, the Company entered into ~~337,932 shares~~a consulting agreement with a member of ~~common stock.~~

~~2020 Convertible Notes derivative liability~~

~~The fair value methodologies related~~the Board of Directors for strategic and finance consulting services to be provided to the ~~2020 Convertible Notes derivative liability are discussed~~Company. The Company incurred expenses of $210 in ~~Note 5.~~

connection with this consulting agreement.

During ~~the periods presented,~~April 2018, the Company ~~has not changed~~entered into a consulting agreement with a different member of the ~~manner in which it values liabilities that~~Board of Directors for business development consulting services. Payments for the services under the agreement are ~~measured at fair value using Level 3 inputs.~~$28 per quarter, and the Company may terminate the agreement with 14 days’ notice. The Company ~~recognizes transfers between levels~~incurred expenses of ~~the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during any of the years presented.~~

~~The following table reflects the change~~$110 in ~~the Company’s Level 3 liabilities for the years ended December 31, 2015 and 2014:~~

   Convertible
preferred
stock
warrant
liabilities Convertible
Bridge
Notes
redemption
rights
derivative 2020
Convertible
Notes
derivative
liability
Balance at December 31, 2013
   $ 1,888    $ —   $ —
Issuance of 2014 Convertible Bridge Notes
   —   478 —
Change in fair value
   844    2    —
Warrant exercises
   (2,250 ) —      —


Balance at December 31, 2014
   482 480    —
Issuance of 2020 Convertible Notes
   —   —   12,423
Change in fair value
   (267 ) (480 ) 42,793
Reclassification to stockholders’ equity
   (215 ) —   —
Conversion to common stock
   —   —   (55,216 )


Balance at December 31, 2015
   $ —   $ —   $ —

~~11. Benefit Plans~~

~~Retirement~~connection with this consulting agreement.

17. 401(k) Savings Plan

The Company ~~sponsors~~has a ~~401(k)~~defined contribution savings plan (the ~~“Savings Plan”~~“Plan”) ~~for~~under Section 401(k) of the Internal Revenue Code of 1986. This Plan covers substantially all ~~eligible U.S. employees. The~~employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company ~~reserves the right to modify, amend, or terminate the Savings Plan. Employees may contribute up~~contributions to the ~~maximum allowed by the IRS, while the Company contributes to the plan~~Plan may be made at the discretion of the Company’s board of directors. The ~~Company’s~~Company has elected to match 4% of employee contributions to the ~~plan~~Plan, subject to certain limitations. The Company’s matching contribution for the ~~years~~year ended December 31, ~~2015~~2018, 2017 and ~~2014 were $35~~2016, was $112, $39 and ~~$16,~~$28, respectively.

~~Management Incentive Plan~~

~~In August 2014, the Company adopted the Amended~~

Table of Contents

18. Selected Quarterly Financial Data (unaudited)

The following table contains quarterly financial information for 2018 and Restated 2014 Management Incentive Plan (the “MIP”) in which certain of our named executive officers participated. Pursuant to the MIP, upon a “change in control” (as defined in the MIP), a bonus pool will be created from the proceeds received in connection with such change in control (ranging from 7 percent to 9.75 percent of transaction proceeds, depending upon the level of transaction proceeds received in the transaction), and each participant is entitled to receive a bonus equal to a certain percentage of such bonus pool. The MIP terminates automatically upon the earliest of (i) March 31, 2015 (unless a change in control has occurred prior to such date), (ii) the closing of our IPO, (iii) the closing of a qualified financing, as defined in the MIP, and (iv) the date all amounts to be paid under the MIP following a change in control have been paid. The MIP terminated upon the closing of our IPO in February 2015.

~~12. Subsequent Event~~

~~In February 2016, the Company signed an amendment to the Office Lease, whereby it agreed to rent additional space (the “Lease Amendment”).~~2017. The Company ~~expects to occupy~~believes that the ~~additional space in July 2016. The terms~~following information reflects all normal recurring adjustments necessary for a fair presentation of the ~~Lease Amendment follow~~information for the ~~terms~~periods presented. The operating results for any quarter are not necessarily indicative of ~~the Office Lease. If occupancy occurs on July 1, 2016, the annual commitments pursuant to the Lease Amendment are as follows:~~

Year
   Amount
2016
   $ 28
2017
   113
2018
   113
2019
   115
2020
   115
Thereafter
   254


Total
   $ 738

~~Exhibit Index~~


~~Exhibit~~ ~~Number~~		~~Description of Exhibit~~

~~3.1~~		~~Seventh Amended and Restated Certificate of Incorporation of Inotek Pharmaceuticals Corporation, effective as of February 23, 2015 (1)~~

~~3.2~~		~~Amended and Restated By-Laws of Inotek Pharmaceuticals Corporation, effective as of February 17, 2015 (1)~~

~~4.1~~		~~Form of Common Stock Certificate of Inotek Pharmaceuticals Corporation (1)~~

~~4.2~~		~~Third Amended and Restated Investor Rights Agreement, dated as of June 9, 2010, by and among the Registrant and each of the parties listed on Schedule A thereto (2)~~

~~4.3~~		~~Indenture between Inotek Pharmaceuticals Corporation, and Wilmington Trust, National Association, as the trustee, relating to the 5.0% Convertible Senior Notes due 2020 (3)~~

~~10.1~~		~~2004 Stock Option and Incentive Plan (2)~~

~~10.2~~		~~2014 Stock Option and Incentive Plan and forms of agreements thereunder, as amended (1)~~

~~10.3~~		~~Letter Agreement, dated as of July 28, 2014, by and between the Registrant and David P. Southwell (2)~~

~~10.4~~		~~Letter Agreement, dated as of May 2, 2007, by and between the Registrant and Dr. Rudolf A. Baumgartner, M.D., as amended and currently in effect (2)~~

~~10.5~~		~~Letter Agreement, dated as of August 23, 2007, by and between the Registrant and Dr. William K. McVicar, Ph.D., as amended and currently in effect (2)~~

~~10.6~~		~~Letter Agreement, dated as of August 28, 2014, by and between the Registrant and Dale Ritter (2)~~

~~10.7~~		~~Inotek Pharmaceuticals Corporation 2014 Employee Stock Purchase Plan, dated as of November 18, 2014 (1)~~

~~10.8.1~~		~~Form of Indemnification Agreement, to be entered into between the Registrant and its directors (2)~~

~~10.8.2~~		~~Form of Indemnification Agreement, to be entered into between the Registrant and its officers (2)~~

~~10.9.1~~		~~Lease, dated as of May 29, 2015, by and between the Registrant and 91 Hartwell Avenue Trust, as amended and currently in effect (4)~~

~~10.9.2~~		~~First Amendment to Lease, dated as of February 24, 2016, by and between the Registrant and 91 Hartwell Avenue Trust (5)~~

~~10.10~~		~~Warrant to Purchase Shares of Series Preferred Stock dated as of June 28, 2013, by and among the Inotek Pharmaceuticals Corporation and Horizon Technology Finance Corporation (1)~~

~~10.11~~		~~Warrant to Purchase Shares of Series Preferred Stock dated as of June 28, 2013, by and among the Inotek Pharmaceuticals Corporation and Fortress Credit Co LLC (1)~~

23.1*		~~Consent of RSM US LLP~~

24.1*		~~Power of Attorney (included in the signature page)~~

31.1*		~~Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

31.2*		~~Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

32.1*		~~Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted 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 Document.~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document.~~

~~101.LAB~~		~~XBRL Taxonomy Extension Labels Linkbase Document.~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Link Document.~~

*	~~Filed herewith.~~

~~(1)~~

~~Filed as an Exhibit to the Company’s annual report on Form 10-K (001-36829), filed with the SEC on March 31, 2015, as amended, and incorporated herein by reference.~~

results for any future period.

	2018
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter

Total revenue	$	-		$	-		$	-		$	-
Total operating expenses		14,405			14,872			15,333			26,546
Loss from operations		(14,405	)		(14,872	)		(15,333	)		(26,546	)
Net loss		(15,343	)		(15,767	)		(16,089	)		(27,319	)
Net loss per common share—basic and diluted	$	(0.42	)	$	(0.40	)	$	(0.40	)	$	(0.66	)

	2017
	First Quarter			Second Quarter			Third Quarter			Fourth Quarter

Total revenue	$	-		$	-		$	-		$	-
Total operating expenses		2,870			3,521			6,725			6,656
Loss from operations		(2,870	)		(3,521	)		(6,725	)		(6,656	)
Net loss		(2,679	)		(3,521	)		(6,723	)		(6,655	)
Net loss per common share—basic and diluted	$	(0.39	)	$	(0.49	)	$	(0.99	)	$	(0.98	)

~~(2)~~

~~Filed as an Exhibit to the Company’s registration statement on Form S-1 (333-199859), filed with the SEC on November 5, 2014, as amended, and incorporated herein by reference.~~

~~(3)~~

~~Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on February 26, 2015, and incorporated herein by reference.~~

~~(4)~~

~~Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on June 1, 2015, and incorporated herein by reference.~~

~~(5)~~

~~Filed as an Exhibit to the Company’s current report on Form 8-K (001-36829), filed with the SEC on February 26, and incorporated herein by reference.~~


~~91 Hartwell~~ 350 Fifth Avenue, ~~Lexington, MA~~ Suite 7530 New York, NY		~~02421~~10118
(Address of Principal Executive Offices)		(Zip Code)


Title of each class		Name of each exchange on which registered
Common Stock, $0.01 par value		~~NASDAQ~~Nasdaq Global Market


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

		Page
PART I.
Item 1.	Business	5
Item 1A.	Risk Factors	25
Item 1B.	Unresolved SEC Comments	49
Item 2.	Properties	49
Item 3.	Legal Proceedings	50
Item 4.	Mine Safety Disclosures	50

~~Page~~PART II.
~~PART I.~~
~~Item 1.~~		~~Business~~		1
~~Item 1A.~~		~~Risk Factors~~		41
~~Item 1B.~~		~~Unresolved Staff Comments~~		79
~~Item 2.~~		~~Properties~~		79
~~Item 3.~~		~~Legal Proceedings~~		79
~~Item 4.~~		~~Mine Safety Disclosures~~		79

~~PART II.~~
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		80	50
Item 6.		Selected Financial Data		81	51
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		82	51
Item 7A.		Quantitative and Qualitative Disclosures about Market Risk		95	61
Item 8.		Financial Statements and Supplementary Data		96	62
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	62
Item 9A.	Controls and Procedures	9662
Item 9B.	Other Information	63

~~Item 9A.~~			~~Controls and Procedures~~		96PART III
~~Item 9B.~~		~~Other Information~~		97

~~PART III~~
Item 10.		Directors, Executive Officers and Corporate Governance		98	64
Item 11.		Executive Compensation		~~105~~	64
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		~~110~~	64
Item 13.		Certain Relationships and Related Transactions, and Director Independence		~~113~~	64
Item 14.		Principal Accountant Fees and Services	64
		~~116~~
PART IV
~~PART IV~~
Item 15.		Exhibits, Financial Statements and Schedules	65
Item 16.	Form 10-K Summary	~~117~~68

Signatures
~~Signatures~~				~~118~~	69


			Trabodenoson Dose
	Placebo		50 mcg		100 mcg		200 mcg		500 mcg		Total Active
Mean Age		59		56.6		55.6		53.8		57.6		56.3
n		59		17		17		17		34		85
Baseline IOP (mmHg)		26.6		26.1		25.6		26.1		26.2		26
OHT n(%)		22(37.3)		6(35.3)		8(47.1)		6(35.3)		14(41.2)		34(40.0)
Baseline IOP (mmHg)		26.7		27.2		25		27.1		26.3		26.3
POAG n(%)		37(62.7)		11(64.7)		9(52.9)		11(64.7)		20(58.8)		51(60.0)
Baseline IOP (mmHg)		26.5		25.5		26.1		25.5		26.1		25.9


	Part 1				Part 2
ITT population	*Trabodenoson* BID		*Timolol* BID		*Trabodenoson* QD		*Placebo* QD
n		50		51		37		43
Mean Age		62		61		63		61
Baseline IOP usinglatanoprost (mmHg)		25.71		25.86		25.68		25.86
OHT n (%)		23(46%)		13(25.5%)		15(40.5%)		12(28%)
Baseline IOP usinglatanoprost (mmHg)		25.78		25.65		25.93		25.29
POAG n (%)		27(54%)		38(74.5%)		22(59.5%)		31(72%)
Baseline IOP usinglatanoprost (mmHg)		25.65		25.93		25.50		26.08


2015	High		Low
February 18, 2015 to March 31, 2015 (First Quarter)	$	6.20	$	5.05
Second Quarter	$	6.14	$	4.75
Third Quarter	$	19.45	$	4.82
Fourth Quarter	$	13.36	$	9.01


	Year Ended December 31,
(in thousands)	2015			2014
Balance Sheet Data:
Cash and cash equivalents	$	80,042		$	3,618
Short-term investments		31,238			—
Total assets		113,321			5,520
Convertible notes payable		—			1,541
Notes payable—current portion		—			3,063
Notes payable, net of current portion		—			2,550
Warrant liabilities and convertible notes redemption rights derivative		—			962
Total liabilities		4,508			10,278
Series AA redeemable convertible preferred stock		—			46,253
Accumulated deficit		(196,023	)		(128,041	)
Total stockholders’ equity (deficit)		108,813			(51,559	)

	For the Years Ended December 31,									Period from July 14 to December 31,
	2018			2017			2016			2015
Consolidated Statements of Operations Data:
Operating expenses:
Research and development	$	53,270		$	14,917		$	5,994		$	3,236
General and administrative		17,886			4,855			1,580			184
Loss from operations		(71,156	)		(19,772	)		(7,574	)		(3,420	)
Research and development incentives		186			192			-			-
Interest expense		(6,039	)		-			-			(7	)
Interest and other income net		1,690			2			1			1
Accretion of discount on investments		801			-			-			-
Loss on debt conversion		-			-			-			(778	)
Net loss	$	(74,518	)	$	(19,578	)	$	(7,573	)	$	(4,204	)
Net loss per common share—basic and diluted	$	(1.89	)	$	(2.88	)	$	(1.11	)	$	(0.62	)
Weighted-average common shares outstanding—basic and diluted		39,377,666			6,795,627			6,833,718			6,833,718

	As of December 31,
	2018			2017
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments	$	213,132		$	18,142
Total assets		251,313			20,147
Convertible notes		41,447			-
Total liabilities		57,276			4,628
Accumulated deficit		(105,873	)		(31,355	)
Total shareholders’ equity		194,037			15,519


	Year Ended December 31,
(in thousands)	2015		2014
Trabodenoson—direct clinical and non-clinical	$	8,653	$	4,383
Personnel and other expenses:
Employee and consultant-related expenses		3,483		1,075
Facility expenses		336		121
Other expenses		82		13

Total personnel and other expenses		3,901		1,209

Total research and development expenses	$	12,554	$	5,592


	Year Ended December 31,						Increase (Decrease)
	2015			2014			Increase (Decrease)
Operating expenses:
Research and development	$	(12,554	)	$	(5,592	)	$	6,962
General and administrative		(7,842	)		(2,112	)		5,730

Total operating expenses	$	(20,396	)		(7,704	)	$	12,692
Interest expense		(1,230	)		(980	)		250
Interest income		89			—			(89	)
Loss on extinguishment of debt		(4,399	)		—			4,399
Change in fair value of warrant liabilities		267			(847	)		(1,114	)
Change in fair value of derivative liabilities		(42,313	)		—			42,313

Net loss	$	(67,982	)	$	(9,531	)	$	58,451